Japanese automakers Nissan and Honda have announced plans for a merger that would catapult them to a top position in an industry that's in flux as it transitions away from its reliance on fossil fuels.

Honda's shares went up by as much 17% when local markets opened on Tuesday.

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.