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.

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

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

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.

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.

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 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,

Honda Motor Co. and Nissan Motor Co. are looking to finalize a merger agreement as soon as June after negotiations begin later Monday, and may combine in 2026, Japanese media reported, citing unidentified sources.

Honda Motor Co. and Nissan Motor Co. plan to merge under a holding company with the top executives chosen by Honda in a historical reshuffling of Japan’s auto industry meant to keep the country’s second- and third-largest players competitive amid a global onslaught of new competitors and technologies.