Honda and Nissan expect big benefits from their potential merger to create the world's third-largest auto group but intense competition from China raises questions about whether they can make it work in time.

Japanese auto giants Honda and Nissan are set to discuss a merger, amid stiff competition from the likes of Tesla and BYD. They'll explore operating jointly under a holding company, and possibly even bring Mitsubishi into the mix.

Honda has concentrated its efforts on hybrid vehicles, catering to markets with growing demand, particularly in the United States. Unlike Nissan, Honda offers a range of hybrid models in the US, capitalizing on the increasing popularity of fuel-efficient alternatives among American consumers.