Honda’s CEO struggles to explain why the merger is happening, analysts remain skeptical, and Foxconn waits in the wings.

Facing extreme competitive pressure from the rise of Chinese EV makers, the Nos. 2 and 3 Japanese automakers turn to each other to build strength.

Japanese automakers Honda and Nissan will attempt to merge and create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The potential merger could help boost the auto companies production of electric vehicles amid growing changes in the car industry.

Nissan and Honda agreed to consider a merger and set up a joint holding company, which would create the world's third-largest automaker.

The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

Honda and Nissan said they had signed a memorandum of understanding and that Mitsubishi also had agreed to join the talks.

A tie-up with Honda could help Nissan solve a big problem, car dealers said: It doesn't have any hybrids. A merger could fix that.

The merger talks come amid competition from China in the auto industry and the increasing popularity of electric vehicles.