Honda and Nissan officially begin merger talks to create the world’s third-largest automaker

Japanese automakers Nissan and Honda announced Monday that they have entered into formal negotiations to merge and create the third largest automobile manufacturer in the world in terms of sales.

The proposed agreement was first reported by Japanese newspaper Nikkei on December 17.

Both companies face intense global competition in the electric vehicle market, from companies such as Tesla and the Chinese BYD.

Nissan shares climbed after the initial report. Analysts tell the potential rapprochement is the result of financial underperformance in the company and restructuring of its historic partnership with France Renault.

In its latest quarterly results, Nissan said it would eliminate 9,000 jobs and reduce global production capacity by a fifth.

The automaker has “had trouble in the marketplace, it’s had trouble at home, it doesn’t have the right product mix,” said Peter Wells, a professor of business and sustainability at the Center for Research on Technology. automotive industry from Cardiff Business School, to CNBC.Street signs Europe” last week.

“There are so many warning signs, so many red flags around Nissan right now that something had to happen. Whether that’s the answer is another question,” Wells added.

This is breaking news and will be updated shortly.

— CNBC’s Sam Meredith contributed to this story.