(Yicai) Dec. 18 -- Honda Motor and Nissan Motor are exploring possibilities for future collaboration, their Chinese units said following a report that the two Japanese automakers are in early-stage talks about a potential merger.

Honda, Nissan, and Mitsubishi Motors are discussing various possibilities for future cooperation, but have not made any decisions yet, Honda China and Nissan China told Yicai.

Japan’s Nikkei newspaper reported yesterday that Honda and Nissan have entered business integration talks, with plans to set up a holding company and sign a non-binding agreement soon. Given that Nissan is the largest shareholder in Mitsubishi, there is speculation that it too may join the new entity in the future, the report said.

If the three merged, they would become the world's third-largest automotive group behind Toyota Motor and Volkswagen Group, with annual sales of eight million vehicles.

Honda Executive Vice President Shinji Aoyama responded to the report by saying the carmaker is considering several options, including a merger, a capital alliance, and the setting up of a holding company.

Nissan’s shares [TYO: 7201] closed 24 percent higher in Tokyo today, with Mitsubishi [TYO: 7211] gaining 20 percent. Honda [TYO: 7267] fell 3 percent.

Japan’s car firms have been struggling to keep up with the electrification and smart technology trend led by US auto giant Tesla and Chinese carmakers.

Japan's eight major automakers produced almost 11.9 million vehicles globally from April to September, down 6 percent from a year earlier, making it the first time that production has declined in the same period since the pandemic in 2020.

Toyota's production fell 7 percent to 4.705 million vehicles in the period, Honda's dropped 8.1 percent to 1.817 million, and Nissan's fell 7.8 percent to 1.533 million.

Japanese carmakers’ share of the Chinese market has been declining in recent years, dropping from 24 percent in 2020 to 17 percent last year.

In November, Honda sold 76,773 vehicles in China, down 28 percent from a year ago, while Nissan's sales of passenger cars and light commercial vehicles amounted to 63,545, down 15 percent, according to the China Passenger Car Association.

Toyota saw its China sales recover to 176,000 last month, after climbing 7 percent from a year earlier, ending nine consecutive months of decline.

Editor: Tom Litting