Honda and Nissan, once rivals, are talking about merging — and Nissan investors are thrilled

• Nissan and Honda are considering a merger to help them compete in the EV industry.
• The news sent Nissan stocks skyrocketing nearly 22% on Tuesday.
• It comes as the Japanese car companies struggle with slumping profits.

Honda and Nissan are set to negotiate a possible merger that could see the two Japanese car heavyweights strengthen their existing ties and increase their collective power in the region and on the global automotive stage.

Japanese newspaper Nikkei reported news of the possible merger on Tuesday, adding that the two car companies are hoping their combined resources will help both compete against Tesla and Chinese electric vehicle makers.

The two companies, who had long been rivals, confirmed they were exploring a merger, The Wall Street Journal reported.

Neither company immediately responded to Business Insider's request for comment.

The news sent Nissan stocks skyrocketing nearly 22% on Tuesday, before paring gains to 11% after hours. It followed a particularly difficult year for the car company. Amid falling profits and decreased sales, Nissan slashed its workforce by 9,000 jobs globally in November in an effort to reduce costs.

The potential consolidation comes after Honda and Nissan agreed to collaborate on EV batteries and software earlier this year.

During its November earnings call, Nissan's CEO, Makoto Uchida, acknowledged that the company had fallen behind the times, saying the automaker needed to strengthen its competitiveness.

"There are limits if we are to do that alone. So, that had triggered us to engage in partnership with Honda," Uchida said on the call.

Honda investors on Tuesday, however, seemed less thrilled by the news. The company's shares were down about 1.3% after Honda and Nissan confirmed the news.