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.

U.S.-listed shares of Honda Motor Co. soared on Monday, as the Japanese automaker made official its merger talks with Nissan and announced hefty share buybacks. If a merger were to happen, some believe it would be a sign of much-needed consolidation in the auto industry.

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