The plan, which includes Mitsubishi, announced that Japan is trying to access the electric car market.
Japan's Honda and Nissan are planning a merger, which would make the automaker the world's third largest as the companies phase out fossil fuels.
The two presidents of the company, Toshihiro Mibe of Honda and Makoto Uchida of Nissan, signed a joint agreement on Monday, foreseeing the establishment of a company operating by August 2026, which could put them in third place in the market after Toyota and Volkswagen.
Honda, currently Japan's second largest car maker, is seen as the only one that can save Nissan, which has been struggling since the former chairman. Carlos Ghosn was arrested on charges of fraud and misappropriation of company assets in 2018.
Ghosn, who denied the charges and fled to Lebanon after being released on bail, dismissed the planned merger as “necessary” in a video to reporters on Monday.
Nissan, worth about $10bn, said in November it was cutting 9,000 jobs, or 6 per cent of its global workforce, and reducing its global production capacity by 20 per cent after reporting a quarterly loss of 9.3 billion ($60m).
But the merger, which would also include Nissan's subsidiary Mitsubishi Motors, could bring a value of more than $50bn depending on the market size of all three automakers.
Honda's Mibe said the company, which is valued at more than $40bn, will lead a new management structure for the combined organisation.
Next gen
Japanese automakers have lagged behind their biggest rivals electric vehicles and they are trying to cut costs and make up for lost time.
The three companies, which announced in August that they will share components for electric vehicles (EVs) such as batteries and a connected autonomous driving research program, will produce about 8 million vehicles.
In 2023, Honda produced 4 million and Nissan produced 3.4 million. Mitsubishi Motors produced just over 1 million.
Sam Fiorani, vice president of AutoForecast Solutions, a global automotive forecaster, said Nissan's experience in building batteries, electric vehicles and hybrid gas powertrains could help Honda develop its EVs and future hybrids.
The merger of two well-known Japanese brands will be the biggest restructuring of the global car market since Fiat Chrysler Automobiles and PSA merged in 2021 to create Stellantis in a $52bn deal.