JAPANESE car makers Honda and Nissan announced plans today to work toward a merger.

The move would form the world’s third-largest car maker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The two companies said that they had signed a memorandum of understanding on Monday and that smaller Nissan alliance member Mitsubishi Motors also had agreed to join the talks on integrating their businesses.

Honda’s president Toshihiro Mibe said Honda and Nissan will pursue unifying their operations under a joint holding company. 

Honda will initially lead the new management, retaining the principles and brands of each company. 

The aim is reportedly to have a formal merger agreement by June and to complete the deal and list the holding company on the Tokyo Stock Exchange by August 2026, he said.

Mr Mibe said there are “points that need to be studied and discussed.”

He said: “Frankly speaking, the possibility of this not being implemented is not zero.”

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

A merger could result in a company worth more than $50 billion (around £40 billion).