Japanese automakers Nissan Motor Corp. and Honda Motor Co. confirmed Wednesday that they are discussing closer collaboration but denied reports they have decided on a merger.

NissanB次元官网网址檚 share price soared nearly 24% in Tokyo after reports citing unnamed sources said it might merge with Honda to form the worldB次元官网网址檚 third-largest automaking group. HondaB次元官网网址檚 share price fell as much as 3%. Nissan alliance member Mitsubishi Motors Corp. is also part of the talks.

Trading in NissanB次元官网网址檚 shares was suspended but then resumed after the companies jointly issued a statement saying they were B次元官网网址渃onsidering various possibilities for future collaboration, but no decisions have been made.B次元官网网址�

An industry shakeup

The ascent of is rattling the industry at a time when manufacturers are struggling to shift from fossil fuel-driven vehicles to electrics. Relatively inexpensive EVs from ChinaB次元官网网址檚 , Great Wall and Nio are eating into the market shares of U.S. and Japanese car companies in China and elsewhere.

Japanese automakers have lagged behind big rivals in EVs and are now trying to cut costs and make up for lost time.

Nissan, Honda and Mitsubishi announced in August that they will for electric vehicles like batteries and jointly research software for autonomous driving to adapt better to dramatic changes in the auto industry centered around electrification. A preliminary agreement between Honda, JapanB次元官网网址檚 second-largest automaker, and Nissan, third largest, was announced in March.

A merger could result in a behemoth worth about $55 billion based on the market capitalization of all three automakers.

Joining forces would help the smaller Japanese automakers add scale to compete with JapanB次元官网网址檚 market leader Toyota Motor Corp. and with GermanyB次元官网网址檚 Volkswagen AG. Toyota itself has technology partnerships with JapanB次元官网网址檚 Mazda Motor Corp. and Subaru Corp.

Why now?

Nissan said last month that or about 6% of its global work force, and reducing global production capacity by 20% after reporting a quarterly loss of 9.3 billion yen ($61 million).

Earlier this month it reshuffled its management and its chief executive, Makoto Uchida, took a 50% pay cut to take responsibility for the financial woes, saying Nissan needed , rising costs and other global changes.

Fitch Ratings recently downgraded NissanB次元官网网址檚 credit outlook to B次元官网网址渘egative,B次元官网网址� citing worsening profitability, partly due to price cuts in the North American market. But it noted that it has a strong financial structure and solid cash reserves that amounted to 1.44 trillion yen ($9.4 billion).

NissanB次元官网网址檚 share price has fallen to the point where it is considered something of a bargain. A report in the Japanese financial magazine Diamond said talks with Honda gained urgency after the Taiwan maker of iPhones Hon Hai Precision Industry Co., better known as Foxconn, began exploring a possible acquisition of Nissan as part of its push into the EV sector.

The company has struggled for years following a scandal that began with the arrest of its former chairman in late 2018 on charges of fraud and misuse of company assets, allegations that he denies. He eventually was released on bail and fled to Lebanon.

its profits slipped nearly 20% in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.

More headwinds

Toyota made 11.5 million vehicles in 2023, while Honda rolled out 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over 1 million. Even after a merger Toyota would remain the leading Japanese automaker.

All the global automakers are facing potential shocks if President-elect Donald Trump follows through on threats to raise or impose tariffs on imports of foreign products, even from allies like Japan and neighboring countries like Canada and Mexico. Nissan is among the major car companies that have adjusted their supply chains to include vehicles assembled in Mexico.

Meanwhile, analysts say there is an taking place across the industry, led by people who feel they cannot afford to pay nearly $50,000 for a new vehicle. In American, a vital market for companies like Nissan, Honda and Toyota, thatB次元官网网址檚 forcing automakers to consider lower pricing, which will eat further into industry profits.