The two major Japanese carmakers plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company under which the combined company would operate, the Nikkei said, without citing sources. The merger would help the manufacturers compete against rivals in electric vehicles such as Tesla and Chinese automakers, it said.

It also puts them in a better position to compete at home and abroad with Toyota, the world’s largest automaker. Toyota has taken stakes in Subaru, Suzuki and Mazda, creating a powerhouse of brands backed by its top-notch credit rating. Honda, Nissan and Mitsubishi combined sold about 4 million vehicles globally in the first six months of the year, well shy of the 5.2 million that Toyota sold on its own.

Honda has long struggled to keep up with bigger capitalised rivals when it comes to investments in new technologies. It recently has shifted gears to boost hybrid gas-electric vehicles even as it spends billions of dollars on all-electric production.

Honda’s arms-length partnership with GM has been weakened bit by bit, most recently earlier this month when their self-driving car partnership ended. Meanwhile, GM has strengthened its ties with South Korea’s Hyundai Motor Co.

Nissan has partially unwound its complex 25-year strategic partnership with Renault, a fixation of former chair Carlos Ghosn. Rivalries and mutual suspicion mounted over the years and came to a head when Ghosn openly contemplated a merger, contributing to his downfall.

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The former chairman and CEO, who has filed a suit against his former company for ousting him in 2018, warned of a “disguised takeover” of Nissan by Honda in an August interview with Automotive News.

Nissan also has stepped up restructuring efforts to cope with stalled revenue growth and lower profits. It faces pressure from an activist shareholder and a daunting debt load that has led to speculation in credit markets about its investment grade rating.

The reported merger talks come after the Financial Times said last month that Nissan was looking for an anchor investor to replace part of Renault’s equity holding and that it hadn’t ruled out having Honda buy some of its shares.

Honda has been shifting gears to boost hybrid gas-electric vehicles even as it spends more to boost all-electric production capacity.

Bloomberg

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