Nissan and Honda Joining hands would create one of the world's biggest car producers in the world. This group would be the world’s third largest in terms of vehicle units sold, after Toyota and Volkswagen. And in Japan, this merged entity will essentially create a second to rival Toyota Motor.

The combined entity would be in a better position to face competitive challenges in markets from Chinese companies such as BYD and American company like tesla. By joining hands, the two companies also aim to cut costs. They would be able to integrate research and development functions as well costs on marketing and promotion would also reduce.

There is one more reason which is Nissan’s troubled finances. Nissan is suffering financially. Last month, the company slashed 9,000 jobs and reduced production capacity by 20 per cent after reporting a quarterly loss of over $60 million.

And finally, the merger will give them access to each other markets. For example Nissan is strong in the European market while Honda is not. Moreover, Honda is a relative newcomer in the battery electric segment, while Nissan is one of the longest standing EV pioneers. Nissan has been ahead of everyone in EV when it launched the Nissan LEAF about 15 years ago. But today American tesla and Chinese BYD are much ahead.

So in nutshell this deal is a deal for both Honda and Nissan to save themselves from being out of market.