Two of the most famous Japanese automakers are reportedly exploring a merger, a move that would enable the two companies to better compete against China and EVs.

According to Nikkei Asia, Honda and Nissan are considering the option to join forces and operate under a holding company. The negotiations have evidently reached the point that the two companies are close to signing a memorandum of understanding.

Both companies have a long and storied history in the automotive industry, but companies are facing growing threats from Chinese automakers, which are subsidized by Beijing to help them better compete on the world scene. This puts traditional automakers at a disadvantage, usually unable to compete at the same price point.

Simultaneously, the transition to EVs has been far more difficult for traditional automakers that many initially believed it would be. Companies like Ford and Volkswagen have had to make substantial changes to their EV plans because of the challenges they have faced, not the least of which is lagging consumer demand.

If Honda and Nissan move forward with their plans, it could help both companies overcome the growing threats they face, and accelerate their research and development moving forward.