Nissan and Honda have announced plans to merge by 2026 in a seismic shift for the Japanese auto industry.

The two carmakers signed a memorandum of understanding that allows them to continue discussions about integration via a joint holding company, the companies announced.

If Nissan and Honda are do integrate, they could become the third-largest auto group in the world, Reuters.

Mitsubishi Motors, of which Nissan owns a 24% stake, will announce if the company will join the merger by the end of January.

"The rise of Chinese automakers and new players has changed the car industry quite a lot," said Honda CEO Toshihiro Mibe at a press conference, citing technological trends of electrification and autonomous driving. "We have to build up capabilities to fight with them by 2030, otherwise we'll be beaten."

Holiday deals: Shop this season’s top products and sales curated by our editors.

Once the merger is complete, Honda and Nissan aim to have combined sales of $191 billion, according to Reuters.

Merger could be a 'long-term strategy' play

Jessica Caldwell, head of insights for auto research and news company Edmunds, previously told USA TODAY that the merger makes sense.

“A merger would be a long-term strategy, not a solution to any short-term challenges either company is facing," Caldwell previously told USA TODAY. "Both Nissan and Honda are positioning themselves for the future, which will be defined by electrification and autonomous technology – developments that are extremely costly."

With the future turning to EVs and self-driving vehicles, "it’s logical that smaller automakers may need to collaborate to keep pace with larger players, including rising competition from Chinese manufacturers that have entered the market aggressively," Caldwell said.

Merger could face roadblock with new presidency

The potential rollback of EV-friendly policies by U.S. President-elect Donald Trump and merger scrutiny from the Trump Administration could pose a hurdle for the companies.

The incoming president vowed to take a hard line on imported vehicles, including 25% tariffs on vehicles shipped from Canada and Mexico. Both companies currently have plants in Mexico and Honda has a plant in Canada.

Trump could seek concessions from Honda and Nissan to approve any deal, auto industry officials said. During his first term, Trump threatened tariffs on Japanese vehicles.

Honda and Nissan also manufacture vehicles in the U.S. Honda has 12 manufacturing plants in the U.S., where it makes automobiles, power equipment and aircraft engines. Nissan, which has three plants in the U.S., announced 9,000 global layoffs last month and a 20% production cut.

Contributing: Hadley Hitson, USA TODAY Network; Reuters.

Julia is a trending reporter for USA TODAY. You can connect with her on LinkedIn, follow her on X, formerly known as Twitter, Instagram and TikTok: @juliamariegz, or email her at [email protected]