The Japanese automakers Honda and Nissan have announced a corporate collaboration towards forming the third largest carmaker in the world.

This merger comes at a time when the car manufacturing industry is undergoing a transition away from fossil fuels.

According to Honda’s president Toshihiro Mibe, the two companies signed a memorandum of understanding on Monday, and that smaller Nissan alliance member Mitsubishi Motors also had agreed to join the ongoing talks on integrating their business.

“Honda and Nissan are set to unify their operations under a joint holding company. Honda will lead the new management, retaining the principles and brands of each company with the aim to have a formal merger agreement by June 2025,” Mibe said.

If merger talks are successful, over the next six months, the automakers will discuss merging their operations under a single holding company, with the goal of completing the merger by August 2026.

Honda’s chief executive, Toshihiro Mibe, said that the companies have decided they can better navigate the changing industry together.

The proposed merger involves the creation of a joint holding company, with the automakers working towards greater synergy in areas such as electric vehicle components and autonomous driving technology.

The collaboration underscores the urgency among Japanese automakers to catch up with global rivals in the race to dominate the electric vehicle (EV) market.