Honda Motor and Nissan Motor are exploring a merger to create one of the world’s largest auto groups as they seek to better position themselves for the expensive technological transition reshaping the automotive industry.

On Monday, Honda and Nissan signed a memorandum of understanding to formally begin talks aimed at deepening a partnership that began earlier this year. Over the next six months, the companies will discuss combining their operations under a holding company, with a plan to complete the merger in August 2026.

With their plans for a merger, Japan’s second- and third-largest automakers join a growing number of legacy auto giants, including General Motors and Volkswagen, that are deepening ties to share the financial burden of developing next-generation vehicles. The deal is seen as a lifeline in particular for Nissan, which has been slashing jobs and production amid faltering sales.

Unlike the gasoline-powered cars that have defined the industry for most of the past century, more vehicles today are being equipped with batteries, electric motors and advanced software that enable features such as autonomous driving.

Analysts say that to navigate this transition, carmakers need to produce and sell vehicles in significant volumes.

In recent years, automakers across Japan, the United States and Europe have invested billions of dollars into electric vehicle development — efforts that, for the most part, have yet to generate profits. These investments are being financed by sales of higher-margin gasoline and hybrid models, which also require continuous investment.