(Reuters) -Japanese auto giants Honda (NYSE:) Motor and Nissan (OTC:) Motor will start negotiations to merge as they face growing competition from bigger global electric vehicle makers, the newspaper reported on Tuesday.

The two companies have increased ties in recent months as they face heavy competition from Chinese EV makers that has added pressure on legacy brands struggling to make enough profit from their EV ventures.

Honda and Nissan were not immediately available for Reuters requests for comment. Reuters has not independently verified the Nikkei report.

Nissan and Honda, Japan’s third and second biggest automakers after Toyota (NYSE:), have been losing market share in China. That nation accounted for almost 70% of global EV sales in November, with more than 1.27 million in purchases for the month.

The two had combined global sales of 7.4 million vehicles in 2023, but are grappling with challenges from EV makers, particularly in China, where BYD (SZ:) and others have surged ahead.

Honda and Nissan in March agreed to cooperate in their EV businesses, and in August deepened their ties, agreeing to work together on batteries, e-axles and other technology.

The automakers are looking to operate under a single holding company and are expected to soon sign a memorandum of understanding for the new merged entity, the Nikkei reported.

Honda and Nissan are also looking to bring in Mitsubishi Motors (OTC:), in which Nissan is the top shareholder with a 24% stake, under the holding company, to create one of the world’s largest auto groups, the report said.

The stakes of the two companies in the new entity, along with other details are to be decided later, Nikkei said.

Any deal could be the biggest in the industry since the $52 billion merger between Fiat (BIT:) Chrysler and PSA in 2021 to create Stellantis (NYSE:), one of the world’s largest auto groups with brands such as Jeep, Dodge, Maserati, Peugeot (OTC:) and Citroen.