By River Akira Davis and Neal E. Boudette

TOKYO — Honda Motor and Nissan Motor, Japan’s second-and third-largest automakers, are discussing ways to deepen their ties, including the possibility of a merger that could fundamentally restructure Japan’s car industry.

The merger talks between the two storied Japanese giants highlight the intense upheaval within the world’s auto industry, as carmakers grapple with expensive technological shifts, political instability and the rise of fast-growing Chinese rivals.

Although discussions are still at an early stage, the thinking at Nissan and Honda is that combining forces could provide the companies with the resources and scale necessary to navigate those immense pressures.

Last year, Honda sold 3.98 million vehicles and Nissan 3.37 million. Their combination could make them the world’s third-largest automaker group, behind their Japanese rival Toyota Group, which sold 11.23 million vehicles last year, and Volkswagen Group of Germany, which sold 9.23 million.

Honda and Nissan began collaborating this year on the development of electric vehicles. Over several months, their discussions have expanded to include the potential creation of a new company under which both automakers would operate, according to two people familiar with the matter who were not authorized to speak publicly.

Nissan and Honda are expected to sign a memorandum of understanding within the next week to formally begin discussions of partnership-broadening steps, including the details of a potential merger, the people familiar with the matter said. No final decisions have been made, they said.

The companies said in statements that they were in talks. “As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths,” they said. “We will inform our stakeholders of any updates at an appropriate time.”

The possibility of merging forces would have been largely unthinkable for two Japanese titans of automaking just a decade ago. The talks underscore the level of churn in the industry as manufacturers move away from the internal combustion engine, which has powered the vehicles they have produced for most of the past century.

Honda and Nissan each need to invest billions of dollars in electric vehicles, said Jessica Caldwell, executive director of insights at Edmunds, a market research firm.

“Moving forward in EVs is expensive, and some of the smaller players have to figure out how to pay for it,” she said. “And it’s harder than ever now because sales of EVs are growing more slowly than people had expected just a few years ago.”

Nissan shares soared more than 20% during trading in Tokyo on Wednesday (18) as investors reacted to the news about a potential merger. Honda’s shares fell slightly.

Honda, founded in 1948, has long pursued a go-it-alone approach, developing components like engines on its own and spurning globe-spanning alliances. But more recently, the amount of investment required for a shift toward battery-powered vehicles has led it to seek partnerships with companies including Sony in Japan and General Motors in the United States.

Established in 1933, Nissan in particular has struggled in recent years to keep up with the swiftly growing appetite for hybrid gas-electric vehicles in the United States and fully electric cars in China. Last month, Nissan unveiled deep cuts to its global operations and said it needed to take steps to speed up its development of new offerings in its core markets.

Nissan’s global sales declined across its core markets — North America, China and Japan — in the first half of its fiscal year. During the April-to-September period, its operating profit fell 90%, to $214 million.

Japanese automakers, like their peers in the United States and Europe, are also facing intense competition from new, highly cost-competitive and technologically advanced rivals in China. After enjoying years of state support, Chinese makers of electric vehicles such as BYD are pushing deeper into Europe and Southeast Asia, where Japanese manufacturers have long dominated.

Last year, China overtook Japan for the first time to become the world’s largest car exporter. China’s exports were boosted by strong demand for electric vehicles and its shipments to Russia, a market that Japanese and Western automakers withdrew from in response to the war in Ukraine.

Like the Western automakers GM, Ford Motor and Volkswagen, Nissan and Honda have struggled to compete in China as local rivals offer low-cost models tailored to the domestic market, which is the world’s largest. Nissan has forecast that its sales in China will fall 13% this fiscal year. Honda projected an even larger slump.

As the industry adapts to the new market dynamics, automakers worldwide are forging more alliances. In September, GM said it would work with Hyundai of South Korea on internal combustion, electric and hydrogen-powered vehicles. Last month, Volkswagen said it would form a joint venture with Rivian, a California EV startup.

People at Honda and Nissan say a partnership could benefit both companies in a number of ways. Honda has a strong portfolio of fuel-efficient hybrid vehicles, and Nissan could help build out its global supply chain for batteries. Nissan was an early pioneer in electric vehicles and has several popular models, including the Sakura mini vehicle it offers in Japan.

Nissan also holds a large stake in Mitsubishi Motors, a smaller Japanese automaker. If a Nissan-Honda group is established, Mitsubishi will consider joining it, according to Japanese newspaper Nikkei, which earlier reported the merger discussions.

Automotive mergers often fail to deliver the efficiencies and profits that executives hope for. DaimlerChrysler split after nine years of a mostly unhappy marriage. Stellantis was formed in the 2021 merger of Fiat Chrysler and the French PSA Group, and the CEO who helped engineer the pairing, Carlos Tavares, resigned under pressure this month.

Nissan and French automaker Renault have been strategic partners for more than two decades, and both saw some benefits early on, but neither achieved the kind of growth and profitability levels that executives and analysts had expected.

Last year, Nissan and Renault agreed to take steps to unwind their alliance. Around the same time, Honda and GM decided to scrap a plan to develop a line of lower-priced electric vehicles, less than two years after the companies announced the joint effort.

-New York Times