Japanese automakers Nissan and Honda announced Monday that they have begun formal merger negotiations to create the world’s third-largest automaker by sales.

Nissan’s strategic partner Mitsubishi has been offered the opportunity to join the new group and will make a decision by the end of January 2025.

The Japanese newspaper Nikkei first reported on the proposed deal on December 17th.

In a news conference on Monday, Honda CEO Toshihiro Mibe said the companies need larger scale to compete in developing new technologies for electric vehicles and intelligent driving. Business integration would give companies a “head start that will not be possible under the current cooperation framework,” Mibe said, according to a translation.

The deal would aim to share information and resources but protect both brands, he said.

A holding company listed on the Tokyo Stock Exchange would be created as the parent company of Honda and Nissan, with the larger Honda appointing most of the board members. The group has the potential to achieve sales of 30 trillion yen ($191.4 billion) and operating profit of over 3 trillion yen, he said.

The talks are scheduled to conclude in June 2025.

The companies are battling strong global competition in the electric vehicle market from companies like Tesla and China’s BYD.

Nissan shares jumped after the initial report. Analysts believe the potential merger is due to the company’s poor financial performance and the restructuring of its long-standing partnership with France’s Renault.

In its most recent quarterly results, Nissan announced it would cut 9,000 jobs and reduce global production capacity by a fifth.

The automaker was “struggling in the market, it was struggling at home, it doesn’t have the right product range,” Peter Wells, professor of economics and sustainability at Cardiff Business School’s Center for Automotive Industry Research, told CNBC. Street Signs Europe” last week.

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

This is a breaking news story and will be updated shortly.

— CNBC’s Sam Meredith contributed to this story.