(Bloomberg) -- Honda Motor Co. and Nissan Motor Co. are preparing to start negotiations on a possible merger, which could ultimately be expanded to include Mitsubishi Motors Corp., Japan’s Nikkei reported Tuesday.

Such a deal would create an automotive rival to Toyota Motor Corp. that would effectively consolidate the Japanese auto industry into two camps, and also provide Honda and Nissan with more resources to compete globally with larger peers. The move would follow a decision by the two companies earlier this year to work together on electric vehicle batteries and software. 

At that time, Honda Chief Executive Officer Toshihiro Mibe floated the possibility of capital tie-up with Nissan. 

While Honda and Nissan stopped short of confirming Tuesday’s report, both automakers issued statements that reiterated their previous pledges for further future cooperation.

“We will inform our stakeholders of any updates at an appropriate time,” Honda said in its statement.  

The two major Japanese carmakers plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company under which the combined company would operate, the Nikkei said, without citing sources. The merger would help the manufacturers compete against rivals in electric vehicles such as Tesla Inc. and Chinese automakers, it said. 

Nissan has stepped up restructuring efforts to cope with stalled revenue growth and lower profits. It faces pressure from an activist shareholder and daunting debt load that has led to speculation in credit markets about its investment grade rating. The carmaker has partially unwound a complex 25-year strategic partnership with France’s Renault SA.

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The reported merger talks come after the Financial Times said last month that Nissan was looking for an anchor investor to replace part of Renault’s equity holding and that it hadn’t ruled out having Honda buy some of its shares.

Honda has been shifting gears to boost hybrid gas-electric vehicles even as it spends more to boost all-electric production capacity.

Honda, Nissan and Mitsubishi combined sold about 4 million vehicles globally in the first six months of the year, well shy of the 5.2 million that Toyota sold on its own. 

--With assistance from Craig Trudell.

(Updates throughout with more detail)

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