By Maki Shirky

Tokyo (Bureau)— Honda (NYSE: ) and Nissan (OTC: ) are moving toward a closer alliance with talks to set up a holding company, one of the sources said, the latest in a restructuring of Japan's auto industry in response to major challenges facing Tesla. from In clear indication. (NASDAQ: ) and Chinese rivals.

The discussion, which was previously reported by the newspaper, will allow the manufacturers to collaborate more closely on technology and help make Japan's No. 2 and No. 3 automakers stronger domestic rivals. toyota (NYSE: ).

Talks between Honda and Nissan are aimed at setting up a holding company, said the source, who declined to be identified because the information was not made public.

It was not immediately clear whether a new holding company was intended to eventually establish a full union between the two companies, although the Nikkei said they were beginning merger talks.

Nissan shares rose more than 21% in Tokyo trading, while Honda shares were down 1.6%.

Honda's market capitalization is about $44 billion, while Nissan's is about $10 billion after Wednesday's price increase, meaning a full merger would be larger than the larger $52 billion deal. fiat (BIT:) Chrysler and PSA in 2021 to form Stellantis (NYSE:

Honda and Nissan are also looking to bring Mitsubishi Motors (OTC: ), in which Nissan is the largest shareholder with a 24% stake, under the holding company, the Nikkei report said.

Honda and Nissan have stepped up ties in recent months as they battle the changing electric vehicle landscape. Along with heavy competition, automakers also face stagnant demand in Europe and the US, adding to the pressure on them.

Honda and Nissan issued identical statements on Tuesday, saying no merger had been announced by either company.

"As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other's strengths," the companies said in separate statements. Stakeholders will be notified of any updates at the appropriate time.

French car manufacturer Reno (EPA: ), a major Nissan shareholder, said it had no information and declined to comment.

Last year, an EV price war sparked by Tesla and Chinese automaker BYD ( SZ: ) has increased pressure on any companies losing money on next-generation vehicles. That has put pressure on companies like Honda and Nissan to find ways to cut costs and speed up vehicle development, and the merger is a big step in that direction.