Honda and Nissan have agreed to jointly develop the "brains" of next-generation vehicles as they strive to compete with Chinese rivals despite merger talks collapsing last year. The Japanese carmakers said on Monday they will develop and standardise the electronic control units for cars that can largely be controlled and updated by software, aiming for installation from 2029.

The agreement to develop software-defined vehicles together follows merger talks that fell apart in early 2025. The plan had been to create a group able to compete with Chinese EV makers rapidly expanding into profitable markets. While Nissan and Honda remain globally recognised brands, they trail Toyota and lag behind Chinese and tech-focused rivals in software development and AI.

According to Gartner's annual digital automaker index, Honda placed 18th and Nissan 23rd, behind Tesla, Nio, and Xiaomi. The attempted merger collapsed after Honda pushed for greater control by turning Nissan into its subsidiary.

Nissan CEO Ivan Espinosa is leading an ambitious turnaround after slumping sales, while Honda recently posted its first annual loss since the 1950s following a mistimed EV bet. Honda shares are up nearly 10% this year, while Nissan has sunk about 16%.