Japanese car manufacturers Nissan and Honda confirmed reports on Wednesday that they were discussing "future collaboration," but denied that they had made an agreement on a merger.

Despite this, Nissan's share prices skyrocketed 22% over the rumors that a merger was likely. At the same time, Honda's fell 3%.

If the two auto giants were to combine, it would form the world's third-largest carmaking group.

There were also reports that one of Japan's other main automakers, Mitsubishi, was part of the talks.

All three companies had announced in August that they planned to share parts necessary for making electric vehicles as car manufacturers struggle to compete with Chinese EVs bursting onto the scene.

Both companies struggling financially

A merger could create a $55 billion behemoth that would be better able to compete with Japan's top automaker Toyota and with Germany's Volkswagen, which is also popular in the country. 

Nissan already has an alliance with France's Renault Group, but that is currently under review as the company battles financial woes.

Earlier this year, it announced it was cutting 9,000 jobs, about 6% of its international workforce, following a quarterly loss of 9.3 billion yen ($61 million). CEO Makoto Uchida announced he was taking a 50% pay cut as part of taking responsibility for the issues.

This year, several Nissan executives were arrested for destroying documents related to the case of Carlos Ghosn, the Renault and Nissan leader who absconded from Japan while awaiting trial for fraud.

Honda has also been struggling, reporting that profits declined by 20% in the first half of the fiscal year.

es/lo (AP, Reuters)