Nissan and Honda announced a memorandum of understanding that will start discussions of a merger for the two automakers to create one joint company. Another Japanese automaker, Mitsubishi, which was already in an alliance with Honda, will also be a part of the discussions.

If the merger goes forward, the combined company would trail only Toyota and Volkswagen for the largest company by global sales. The proposed merger had been speculated about in the days leading up to Monday’s announcement.

“Today marks a pivotal moment as we begin discussions on business integration that has the potential to shape our future,” Nissan CEO Makoto Uchida said in a statement. “If realized, I believe that by uniting the strengths of both companies, we can deliver unparalleled value to customers worldwide who appreciate our respective brands. Together, we can create a unique way for them to enjoy cars that neither company could achieve alone.”

“Creation of new mobility value by bringing together the resources including knowledge, talents, and technologies that Honda and Nissan have been developing over the long years is essential to overcome challenging environmental shifts that the auto industry is facing,” Honda CEO Toshihiro Mibe said in a statement Monday. “Honda and Nissan are two companies with distinctive strengths.

“We are still at the stage of starting our review, and we have not decided on a business integration yet, but in order to find a direction for the possibility of business integration by the end of January 2025, we strive to be the one and only leading company that creates new mobility value through chemical reaction that can only be driven through synthesis of the two teams,” Mibe added.

The joint company would have Honda and Nissan as fully owned subsidiaries of the larger parent company, and both companies “plan to continue coexisting and developing the brands held by Honda and Nissan equally,” according to the Monday announcement.

The business integration talks are scheduled to conclude in June 2025, while Mitsubishi will have until next month to decide if it wants to move forward with the proposed merger with the other two companies.

The merger talks come as the auto industry continues to experience new competition from China and the increasing popularity of electric vehicles, something Japanese automakers have been slower to adopt. Nissan, one of the automakers in the proposed merger, has had some financial troubles, after a steep decline in year-to-year profits.