Tokyo, Japan – The Japanese car manufacturers Nissan and Honda have confirmed that they are in talks regarding a ‘future collaboration,’ though both companies have denied reports suggesting an agreement on a merger. Despite these denials, Nissan’s share price surged by 22% on the back of speculation about a potential merger, while Honda’s shares dropped by 3%.

If the two automakers were to merge, it would create the world’s third-largest carmaking group, rivaling Japan’s Toyota and Germany’s Volkswagen. Reports also indicated that Mitsubishi, another major Japanese car manufacturer, may be part of the discussions.

Earlier this year, Nissan, Honda, and Mitsubishi announced plans to share parts necessary for the production of electric vehicles (EVs), a strategy aimed at better competing with China’s rapidly growing EV market. Both companies have faced financial difficulties, which have likely spurred the collaboration talks.

A potential merger could result in a $55 billion automotive giant capable of challenging both Toyota’s dominance and Volkswagen’s strong presence in the Japanese market. However, Nissan, already in an alliance with Renault Group, is currently reviewing its relationship with the French automaker due to ongoing financial woes.

This year, Nissan made headlines for cutting 9,000 jobs—around 6% of its international workforce—following a quarterly loss of 9.3 billion yen ($61 million). The company’s CEO, Makoto Uchida, has also taken a 50% pay cut in response to the financial struggles.

Meanwhile, Honda has reported a 20% decline in profits for the first half of the fiscal year, highlighting the pressures both companies face in the global automotive industry.