Honda and Nissan have announced plans to merge as the Japanese automakers struggle with competition from rival brands in the electric vehicle market. The two companies confirmed on Monday that they had signed a memorandum of understanding that would create the third largest car maker by sales,

Japan’s second- and third-largest automakers hope the $50 billion deal would help them catch up with Tesla and China’s BYD in electric vehicles and advanced software.

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.