According to informed sources, Japan's two major Auto Manufacturers, Honda and Nissan, are exploring the possibility of a merger, which would create a single competitor to Toyota Motor and enable the merged company to better face Global competitive challenges.

Informed sources said on Tuesday that the two Auto Manufacturers have been in preliminary discussions regarding the merger. Since the negotiations have been conducted privately, the sources requested anonymity. One source indicated that one option under consideration is to establish a new holding company to operate the merged Business under the holding company. This source stated that the Trade could also potentially expand to include Mitsubishi Motors. Nissan is currently the largest Shareholder in Mitsubishi Motors, holding 24% of the shares.

The sources stated that the negotiations are still in the early stages and may not result in an agreement.

While Honda and Nissan have not confirmed the merger talks, both Auto Manufacturers issued statements reiterating their earlier commitments to further cooperation in the future.

Honda stated in a release, "We will inform our Shareholders of any new developments at the appropriate time."

Such a Trade would effectively consolidate the Japanese Auto Industry into two main camps: one controlled by Honda, Nissan, and Mitsubishi, and the other composed of companies under Toyota. This would also provide them more resources to compete with larger Global peers after scaling back long-term partnerships with Other Auto Manufacturers. Prior to this, Nissan had already relaxed its relationship with France's Renault Group, and Honda had also exited its collaboration with USA's General Motors.

Earlier this year, the two companies decided to collaborate on Electric Vehicle Batteries and Software. At that time, Honda CEO Toshihiro Mibe suggested the possibility of capital cooperation with Nissan.

According to local media reports, the two Japanese Auto Manufacturers plan to sign a memorandum of understanding to discuss sharing equity in a new holding company. The report stated that this merger would help the two Auto Manufacturers compete with electric vehicle Industry competitors such as Tesla and Chinese Auto Manufacturers.

Challenge Toyota Motor.

To some extent, this can be seen as a defensive merger between Japanese Auto Manufacturers with weaker strengths. In the first six months of this year, Honda, Nissan, and Mitsubishi sold approximately 4 million Autos globally, far less than Toyota Motor's 5.2 million Autos.

As of Tuesday's close on the Tokyo stock market, Honda's market value was 6.8 trillion yen (approximately 44.4 billion USD), significantly higher than Nissan's market value of 1.3 trillion yen. However, even their combined market value is still less than Toyota Motor's 42.2 trillion yen.

For a long time, Honda has struggled to keep up with competitors that have stronger capital when it comes to investing in new technologies. Although the company has invested billions of dollars in the production of fully electric vehicles, it has recently shifted its focus to promoting the development of hybrid vehicles. Meanwhile, Honda's independent cooperative relationship with General Motors has also been weakened, most recently with the conclusion of their autonomous vehicle partnership earlier this month. General Motors has strengthened its relationship with South Korea's Hyundai Motor Company.

Nissan Motor is accelerating its restructuring efforts to address stagnant revenue growth and declining profits. The company currently needs a partner to help it rebuild a more solid financial foundation.

The Yokohama-based company partially dismantled its complex strategic partnership with Renault, which has lasted for 25 years. It was reported last month that Nissan is seeking an anchor investor to replace the portion of equity held by Renault and stated that it does not exclude the possibility of allowing Honda to acquire a portion of the shares.