Honda's CEO said it was "difficult" to explain why Nissan would make a good business partner. Analysts believe that Honda's ideal partner for a merger would be a more "healthy and financially sound company.

Japanese automakers Honda and Nissan will attempt to merge and create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

SIGN UP for TheStreet’s FREE Daily newsletter 💰💸 While his tenure also brought about landmark products like the all-electric Nissan Leaf and the Nissan GT-R supercar; his tenure with the automaker,

Japanese automakers Nissan and Honda have announced plans for a merger that would catapult them to a top position in an industry that's in flux as it transitions away from its reliance on fossil fuels.

The merger talks come amid competition from China in the auto industry and the increasing popularity of electric vehicles.

Automakers in Japan have lagged behind their big rivals in electric vehicles and are trying to cut costs and make up for lost time.

Honda and Nissan have announced plans to merge as the Japanese automakers struggle with competition from rival brands in the electric vehicle market. The two companies confirmed on Monday that they had signed a memorandum of understanding that would create the third largest car maker by sales,

Nissan and Honda agreed to consider a merger and set up a joint holding company, which would create the world's third-largest automaker.

Nissan will be the victim of cost-cutting “carnage” if it combines forces with Japanese peer Honda, former Nissan CEO Carlos Ghosn told CNBC on Tuesday.