Japan’s top automaker Nissan and honda cars It is understood that we are exploring Big mergersending shockwaves to the global auto industry as the two rival companies seek to remain competitive in the automotive sector. The path to total electrification.

Japanese business newspaper says Nissan and Honda are planning to hold merger talks Nikkei Index Overnight reports quoted people familiar with the matter as saying domestic counterparts were expected to sign a memorandum of understanding soon.

The expected collaboration could create the world’s third-largest auto group by sales, with annual sales of 8 million vehicles, according to Citi. This would put Nissan-Honda-Mitsubishi behind other Japanese automakers Toyota Motor and german Crisis lurks Volkswagenrespectively.

In similar statements, Nissan and Honda neither confirmed nor denied the Nikkei report.

The merger report comes as many automotive giants grapple with increasing global competition from large electric vehicles (EVs) such as Tesla and China’s BYD.

Previously Nissan and Honda forged A strategic partnership was established in March to jointly produce key components for electric vehicles.

However, mega-mergers are expected to face some hurdles. Analysts have raised concerns about the possibility of political scrutiny in Japan as job cuts could occur and Nissan’s alliance with the French carmaker unraveled if the deal is passed. Renault considered key to the process.

Peter Wells, professor of business and sustainability at Cardiff Business School’s Automotive Industry Research Center, described the reported merger as a “very important” development – one that could help Nissan and Honda consolidate assets and save costs. and create the technology they want. future needs.

“There’s been a lot of speculation over the last 12 months or so about Nissan’s position. It’s been trying to balance or balance the relationship with Renault and it’s been struggling,” Wells told CNBC.European street signs” Wednesday.

“It’s been struggling in the market, it’s been struggling domestically, it doesn’t have the right product line. There are so many warning signs, so many red flags around Nissan at the moment that something has to happen,” He’s extra. “Whether that’s the answer is another question.”

Nissan shares soared 23.7% on Wednesday, hitting a record high for the company. Best trading day in at least 40 yearsaccording to data firm FactSet. The company’s Tokyo-listed shares are still down nearly 25% so far this year.

Meanwhile, Honda shares fell 3.2% in premarket trading in New York.

JPMorgan ChaseAkira Kishimoto had a similar view on some of the obstacles to a Nissan-Honda merger, saying “the hurdles to overcome will be high.”

“We believe Nissan needs to at least clarify where its particularly complex capital relationship with Renault, which involves the French government, will ultimately go, and provide details on its announced restructuring plan,” Kishimoto said in a research note released on Wednesday. ”

“We think Honda needs to show how it will manage major (battery electric vehicle) and battery investments in Canada,” Kishimoto said.

JPMorgan said it would now have to wait for any specific announcements from the two companies.

“Some Report I’ve seen some people claim this is due to Foxconn Approaching Nissan. Now, with this particular deal, I wonder if this will be a hardcore merger or more of a partnership,” she added.

Bloomberg reported on Wednesday that Apple supplier Foxconn has approached Nissan about taking a stake. The Taiwanese company has been investing heavily in electric vehicles in recent years. CNBC has reached out to Foxconn for comment.

In response to the latest developments, Honda recently tested a General Motorsforward finally decided to walk away.

Guthrie said speculation about a merger between Honda and Nissan could follow a similar trajectory.

“You have to remember that this has to be supported by the Japanese government because there are potential layoffs, but how are Japanese automakers going to compete with low-cost cars coming from China?” Guthrie said.

Arifumi Yoshida of Citibank said the merger could have a negative impact on Honda but a positive impact on Nissan and Mitsubishi.

“Given Honda’s competitiveness in motorcycles and (hybrid electric vehicles) and its brand strength, we believe it has the ability to compete with rivals over the next five to 10 years,” Yoshida said in a research note released on Wednesday. “

Still, Yoshida said the decision could be seen as “anticipation of a comprehensive transformation of the automotive industry.”