Nissan and Honda are in talks about collaboration but denied merger rumors. Nissan's shares rose 22%, while Honda’s dropped 3%. A merger could create a $55 billion company to rival Toyota and Volkswagen. Both companies face financial challenges, with Nissan undergoing restructuring and legal issues related to Carlos Ghosn.

Japanese car manufacturers Nissan and Honda confirmed on Wednesday that they are in discussions regarding potential "future collaboration." However, they denied reports suggesting that an agreement for a merger had been reached.

Despite the denial, rumors of a possible merger led to a notable increase in Nissan’s share prices, which surged by 22%. On the other hand, Honda’s shares experienced a 3% drop.

If a merger were to occur between Nissan and Honda, the combined company would become the third-largest car manufacturing group globally.

There were also speculations that Mitsubishi, another prominent Japanese automaker, might be part of the ongoing talks.

Earlier in August, the three companies disclosed plans to share components for electric vehicle production, in response to mounting competition from Chinese electric vehicle manufacturers. Both Nissan and Honda have been facing financial struggles.

A merger could result in the creation of a $55 billion automotive giant, better positioned to compete with Japan’s top automaker, Toyota, and Germany’s Volkswagen, both of which have substantial market shares in Japan.

Nissan, which already maintains an alliance with France’s Renault Group, is currently reevaluating this partnership as it navigates ongoing financial challenges.

Earlier this year, Nissan announced a restructuring plan that involves cutting 9,000 jobs—around 6% of its global workforce—following a quarterly loss of 9.3 billion yen ($61 million). CEO Makoto Uchida stated that he would take a 50% pay cut to assume responsibility for the company’s difficulties.

In addition, several Nissan executives were arrested this year for their involvement in the destruction of documents related to Carlos Ghosn, the former Renault-Nissan leader, who fled Japan while awaiting trial for fraud.

Honda has also experienced financial setbacks, reporting a 20% decline in profits during the first half of the fiscal year.