Japan's Honda and Nissan said Monday they had embarked on formal merger talks that would create the third-largest car manufacturer globally with sales of as much as $191.4 billion and more than $19 billion profit.

Facing extreme competitive pressure from the rise of Chinese EV makers, the Nos. 2 and 3 Japanese automakers turn to each other to build strength.

Honda and Nissan signed a basic agreement for merger talks, according to a joint media briefing held in Tokyo. Honda also said it will buy back as much as $7 billion of its own shares.