Honda and Nissan expect big benefits from their potential merger to create the world's third-largest auto group but intense competition from China raises questions about whether they can make it work in time.

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.

Japanese automakers Honda and Nissan are in talks to merge to better compete with electric vehicle manufacturers like Tesla, BYD, and others. As reported by Nikkei Asia, the two have discussed signing a memorandum of understanding that outlines plans to split equity into a new holding company from which both will do business,