Japanese automakers Honda and Nissan have announced plans to work toward a merger that would form the world’s third-largest automaker by sales, as the industry undergoes dramatic changes in its transition away from fossil fuels.

Both companies are grappling with intense global competition in the electric vehicle market from the likes of Tesla and China’s BYD.

Honda and Nissan plan to merge as the two Japanese firms seek to fight back against competition from the Chinese car industry. The integration would create one of the world's biggest car producers alongside Toyota, Volkswagen, General Motors and Ford.