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.

Japan's Honda and Nissan have signed an initial pact to begin talks to explore a potential merger through the establishment of a joint holding company, a historic move in the automotive industry that could create the world's third biggest auto group after Toyota and Volkswagen.

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