Japanese auto giants Honda and Nissan are in preliminary merger talks, according to media reports Wednesday, adding that a tie-up would aim to help them better compete against Tesla and Chinese electric vehicle makers.

Shares in Nissan soared more than 20 percent on the stories in the Nikkei, Financial Times and others, while Honda dipped more than two percent. Mitsubishi Motors -- of which Nissan the top shareholder -- gained 13 percent.

Japan's number two and three automakers behind Toyota had already agreed in March to explore a strategic partnership on EVs.

"We are discussing possibilities for cooperation between Honda and Nissan in the future, in a wide range of fields and in various areas, and those possibilities include the latest reports, but there is nothing decided," a Honda spokesman told AFP on Wednesday.

Nissan said: "The content of the report is not something that has been announced by either company. As announced in March of this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other's strengths.

"If there are any updates, we will inform our stakeholders at the appropriate time."

Major automakers the world over have been reeling from tough competition in EVs, in particular from Chinese competitors such as BYD.

Volkswagen is considering closing German factories for the first time, while General Motors said this month it would book more than $5 billion in writedowns on its Chinese joint venture.

Last month Nissan announced 9,000 job cuts, slashed its sales forecasts and said it would reduce global production capacity by 20 percent.

Warning of a "severe situation", its CEO Makoto Uchida said he would forfeit half his salary.

Nissan has seen a turbulent decade that included the shock 2018 arrest of former boss Carlos Ghosn, who later jumped bail and fled Japan in a music equipment box.

A major alliance with French automaker Renault turned into a bumpy ride for both and the two companies are now "rebalancing" their ties.

Honda and Nissan are considering operating under a holding company and will soon sign a memorandum of understanding, the Nikkei reported.

Their respective stakes in the new entity, as well as other details, will be decided later, and they also look to eventually bring Mitsubishi Motors under the holding company, the paper said.

The Financial Times reported that the exploratory talks about a merger were at an early stage.

There are, however, concerns about a possible political backlash since a merger could result in significant job cuts, the FT reported.

China overtook Japan as the world's biggest vehicle exporter in 2023, helped by its dominance in EVs, a sector where Japanese firms have lost ground by focusing on hybrid vehicles.

Honda announced plans in May to double investment in electric vehicles to $65 billion by 2030, part of its ambitious target set three years ago of achieving 100 percent EV sales by 2040.

Nissan has signaled similar ambitions.

It said in March that 16 of the 30 new models it plans to launch over the next three years would be "electrified".

The world's auto giants are increasingly prioritizing electric and hybrid vehicles, with demand growing for less polluting models as concern about climate change grows.

At the same time, however, there has been a slowdown in the EV market on the back of consumer concern about high prices, reliability, range and a lack of charging points.

Hybrids that combine battery power and internal combustion engines have proved enduringly popular in Japan, accounting for 40 percent of sales in 2022.

Just 1.7 percent of cars sold in Japan in 2022 were electric -- compared with 15 percent in western Europe and 5.3 percent in the United States.