Honda and Nissan plan to merge as the two Japanese firms seek to fight back against competition from the Chinese car industry.
Joining forces would create one of the world's biggest car producers alongside Toyota, Volkswagen, General Motors and Ford.
Honda's chief executive Toshihiro Mibe said the potentially multibillion dollar deal to combat "the rise of Chinese power" was a key driver behind the plan.
Mr. Mibe said a plan to "fight back" needs to be in place by 2030, or they risk being "beaten" by rivals.
The merger, which would include Mitsubishi - of which Nissan is the biggest shareholder - would allow all three companies to share resources against other electric vehicle competitors such as Tesla.
The growing electric car market has been increasingly dominated by Chinese-made electric vehicles, including BYD, which have posed a threat to some of the world's best known car firms.
Growing competition from China has left many car makers struggling to compete, as lower labour and manufacturing costs make Chinese firms more nimble and able to price their goods lower than foreign counterparts.
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