Honda (NYSE:HMC) and Nissan (NSANY) just dropped a game-changer for the auto industry. The two Japanese giants confirmed they're in serious talks to merge by 2026, aiming to create the world's third-largest automaker by sales, trailing only Toyota (NYSE:TM) and Volkswagen (VWAGY). This isn't just another deal; it's about survival in a world dominated by electric vehicles (EVs) and software-driven cars. The merger will bring them scale and resources to take on rivals like Tesla (NASDAQ:TSLA) and China's BYD (BYDDF), which are eating everyone's lmunch. With plans to combine operations under a joint holding company, they're also inviting Mitsubishi Motors (MMTOF) to the party, with a decision expected by January.

• Warning! GuruFocus has detected 3 Warning Sign with HMC.

Honda and Nissan are setting ambitious targets: combined sales of $191 billion and profits north of $19 billion annually. The goal? To streamline operations, slash development costs, and pump cash into EVs, autonomous driving, and software innovation. But it's not all smooth sailing. Nissan's turnaround is a critical piece of the puzzle, and skeptics like ex-CEO Carlos Ghosn are already throwing shade, calling the merger a mismatch with too much duplication. Still, both Honda CEO Toshihiro Mibe and Nissan's Makoto Uchida are betting big on this alliance, calling it a make-or-break move in an industry undergoing a once-in-a-century transformation.

Markets are buzzing. All share of Honda, Nissan and Mitsubishi soared after the announcement. The Nikkei index even got a 1.2% boost. Investors are watching closelythis merger could either redefine Japan's auto industry or become another cautionary tale of high hopes and unmet expectations. Either way, the stakes couldn't be higher, and the road to 2026 will be one to watch. Buckle up.