Japanese carmakers Honda and Nissan will begin negotiations over a potential merger, according to reports from the region.

The two companies already have a cooperation agreement but the Nikkei financial newspaper said the discussions are moving towards a full-blown combination of two of the country’s biggest manufacturers.

The two companies, which are the second and third-largest car manufacturers in Japan behind Toyota, had combined vehicle sales of 7.4m vehicles in 2023.

However, soaring sales of electric vehicles from Chinese rivals such as BYD and Li Auto are putting pressure on a number of established brands.

A Honda spokesperson said a potential merger was among the possibilities being discussed.

Nissan, which has a major plant near Sunderland in northeast England, agreed in March to work with Honda on their EV businesses, and in August deepened their ties, agreeing to work together on batteries, e-axles and other technology.

Nissan Motor and Honda Motor yesterday released statements saying: “As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths.”

The companies added that they will inform stakeholders of any updates at an appropriate time.