Japanese car manufacturers Nissan and Honda have signed a joint agreement to explore a merger that would catapult them into becoming the third-largest automakers in the industry, behind Toyota and Volkswagen.

The companies announced in Tokyo on Monday that a memorandum of understanding had been signed, merger negotiations are expected to end by June 2025, and a holding company could be set up by August 2026.

Honda's global president and CEO, Toshihiro Mibe, will be appointed as the incoming president of the merged holding company, and both manufacturers' shares would be delisted in 2026 in line with the public listing on stock markets of the holding company.

"We anticipate that if this integration comes to fruition, we will be able to deliver even greater value to a wider customer base," Nissan's CEO Makoto Uchida said in a statement.

The merger is expected to be finalised by August 2026 and could be worth $79.9 billion. (Reuters: Kim Kyung-Hoon)

News of a possible merger first surfaced earlier this month, with unconfirmed reports saying the talks on closer collaboration partly were driven by aspirations of Taiwan iPhone maker Foxconn to tie up with Nissan, which also has an alliance with Renault SA of France and Mitsubishi.

A merger could result in a behemoth worth more than $US50 billion ($79.9 billion) based on the market capitalisation of all three automakers.

Together, Honda and the Nissan alliance with Renault SA of France and smaller automaker Mitsubishi Motors Corp, would gain scale to compete with Toyota Motor Corp and with Germany's Volkswagen AG.

Toyota has technology partnerships with Japan's Mazda Motor Corp and Subaru Corp.

Nissan was an early pioneer in electric vehicles with its all-electric Leaf model. (Reuters)

Even after a merger Toyota, which rolled out 11.5 million vehicles in 2023, would remain the leading Japanese automaker.

If Nissan, Honda and Mitsubishi join, they would make about 8 million vehicles. In 2023, Honda made 4 million and Nissan produced 3.4 million. Mitsubishi Motors made just over 1 million.

Honda is Japan's second-largest automaker and is widely viewed as the only likely Japanese partner able to effect a rescue of Nissan, which has struggled after a scandal involving the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets.

Mr Ghosn denies those allegations and fled to Lebanon after being released on bail.

Honda is Japan's second-largest automaker and is widely viewed as the only likely Japanese partner able to effect a rescue of Nissan. (Reuters)

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

Nissan, Honda and Mitsubishi announced in August that they would share components for electric vehicles like batteries and jointly research software for autonomous driving to adapt better to dramatic changes around electrification, after a preliminary agreement in March.

From Nissan, Honda could get truck-based body-on-frame large SUVs such as the Armada and Infiniti QX80, with large towing capacities and good off-road performance, Sam Fiorani, vice-president of AutoForecast Solutions, told The Associated Press.

Nissan also has years of experience building batteries and electric vehicles, and gas-electric hybrid powertrains that could help Honda in developing its own EVs and next generation of hybrids, Mr Fiorani said.

The company said in November that it was slashing 9,000 jobs, or about 6 per cent of its global work force, and reducing its global production capacity by 20 per cent after reporting a quarterly loss of 9.3 billion yen ($95 million).

It recently reshuffled its management and CEO Makoto Uchida took a 50 per cent pay cut to take responsibility for the financial woes, saying Nissan needed to become more efficient and respond better to market tastes, rising costs and other global changes.

Nissan's share price also has fallen to the point where it is considered something of a bargain.

On Monday, its Tokyo-traded shares gained 1.6 per cent, but increased by more than 20 per cent after news first broke of the potential merger.

Honda's shares surged 3.8 per cent on Monday, after the company's net profit slipped nearly 20 per cent in the first half of the April-March fiscal year from a year earlier, as sales suffered in China.

The merger reflects an industry-wide trend toward consolidation.

AP

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