Neither company has agreed to a deal yet, and their discussions are in the early stages. Honda CEO Toshihiro Mibe said Wednesday that the companies are also looking at other partnership possibilities.

“We are also exploring possibilities aside from a merger, such as joint ventures between parts of our companies,” Mibe told reporters, according to video shared by TBS, a local broadcaster.

As for Nissan, a spokesperson told the BBC, “As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths.”

The companies produced and sold about 7.6 million cars in 2023. The combined sales of the two companies would make them the third-largest automaker in the world, below Volkswagen and Toyota.

On their own, though, they have to fend off close challengers from Chinese automaker Changan, among others in the country, and Tesla, both significant players in the EV market. Of the two, Japanese automakers see Chinese manufacturers as those they want to be most competitive with on EVs.

Ted Jenkin, author and CEO of oXYGen Financial, told the Washington Examiner that geography plays a large role in why China is a top EV maker in the world.

“China owns and controls 70% of the supply chain for rare earth [elements], which is a key element for battery production,” Jenkin said. “In addition, China has a strong internal market, favorable government policies, and innovative charging technologies they are developing.”

Beyond Nissan and Honda merging, the two companies have been working with another Japanese automaker, Mitsubishi. In August, the three companies announced they would have a joint venture in developing electric vehicles, new software, and green technologies.

“The automobile industry is in a period of transformation said to occur once in a century,” Mibe said at the time. “We expect that the combination of technologies and knowledge cultivated by Nissan and Honda, as well as the strength and experience of Mitsubishi Motors, will enable us to more quickly resolve various issues related to electrification and intelligence on a global scale, and help lead societal reforms as a top runner.”

Nissan holds 24% of Mitsubishi’s shares, so a merger with Honda would intertwine the three permanently.

The markets had mixed reactions to the news of Honda and Nissan’s possible merger.

Honda’s share price was down about 3.1% as of 11 a.m. Wednesday, while Nissan’s was up about 17.1%. Mitsubishi’s stock price had little reaction, dropping just 0.12%.