Japanese Honda Motor and Nissan Motor to Merge? Investors are Speechless!

According to reports late Tuesday, December 17, Japanese automakers Honda Motor (HMC) and Nissan Motor (7201.TSE) are considering a merger to better compete with foreign electric car makers such as Tesla and Chinese company BYD.

Nikkei Asia first reported that the companies were considering operating under a holding company. Then, The Wall Street Journal, Bloomberg News and the New York Times have also reported on the possibility of a merger, which would create the world's largest automaker.

Earlier this year, Nissan and Honda announced a partnership for the development of electric vehicles and automotive smart technology, citing the “common challenges” they face.

Both Honda and Nissan have had to accept a sharp drop in sales this year as they face cheaper Chinese automakers and have been forced to reduce production capacity as global demand falls. Nissan shares rose 23% and Honda shares fell 3%, according to Tokyo Stock Exchange. Nissan's share price has fallen by about 25% since the beginning of the year. Japanese Honda shares have fallen about 15% this year YTD, while the shares traded in the U.S. have grown by about 18%.