Honda’s CEO struggles to explain why the merger is happening, analysts remain skeptical, and Foxconn waits in the wings.

Japanese automakers Honda and Nissan will attempt to merge and create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

Facing extreme competitive pressure from the rise of Chinese EV makers, the Nos. 2 and 3 Japanese automakers turn to each other to build strength.

The potential merger could help boost the auto companies production of electric vehicles amid growing changes in the car industry.

Honda and Nissan said they had signed a memorandum of understanding and that Mitsubishi also had agreed to join the talks.

Nissan and Honda agreed to consider a merger and set up a joint holding company, which would create the world's third-largest automaker.

The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

This merger could create the world’s third-largest automaker, with combined resources to dominate the EV market. Honda and Nissan hope to outpace rising Chinese brands like BYD and Nio.

BENGALURU: Honda and Nissan expect big benefits from their potential merger to create the world’s third-largest auto group but intense competition in the segment raises questions about whether they can make it work in time.