Japan’s second- and third-largest automakers hope the $50 billion deal would help them catch up with Tesla and China’s BYD in electric vehicles and advanced software.

Currently, Honda is an independent OEM, albeit one with strong links to General Motors. Meanwhile, Nissan currently forms one part of an alliance, together with France's Renault and the also-Japanese Mitsubishi. But the Renault-Nissan alliance has not been entirely smooth.

A merger of Nissan and Honda would create the world's third-largest automaker. Honda's top seller is the CR-V, and Nissan's is the Rogue.

Honda's U.S.-listed shares popped Monday morning after the Japanese automaker and Nissan announced plans to merge in 2026.

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.

Honda and Nissan have announced plans to merge as the Japanese automakers struggle with competition from rival brands in the electric vehicle market. The two companies confirmed on Monday that they had signed a memorandum of understanding that would create the third largest car maker by sales,

Both companies are grappling with intense global competition in the electric vehicle market from the likes of Tesla and China’s BYD.

Honda and Nissan are in talks to merge by 2026, they said on Monday, a historic pivot for Japan's auto industry that underlines the threat Chinese EV makers now pose to the world's long-dominant legacy car makers.