Japanese automakers Honda and Nissan have announced plans to join forces, forming world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

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.

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.

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

Japanese automakers face a strong challenge from their Chinese rivals and Tesla as they make inroads into markets at home and abroad.

Honda's acquisition of Nissan could strengthen the two struggling brands to better compete with China's BYD Co. in the global auto market. Honda's planned acquisition of Nissan would combine their more than 6 million global sales in 2024,

Toyota Motor plans to increase its return on equity to compete globally, reports said Wednesday. Earlier this week, Honda Motor and Nissan confirmed they are in talks about a possible merger at time of auto industry upheaval.

Analysts questioned the timing of the Honda-Nissan potential deal amid intense competition from Chinese rivals, reported the news agency Reuters.