Japan's Nissan and Honda said on February 13 that their boards had voted to end talks to merge but would continue to cooperate in electric vehicles.
A merger would have created an auto group worth some $60 billion and the world's fourth-biggest by vehicle sales after Toyota, Volkswagen and Hyundai.
Nissan, Japan's third-largest automaker, backed out of the talks with larger rival Honda after negotiations were complicated by growing differences, including Honda proposing that Nissan become a subsidiary, sources have previously said.
The automakers, and junior partner Mitsubishi Motors, had announced they would consider the merger late last year. Sources later said Mitsubishi was unlikely to participate.
"Going forward, the three companies will collaborate within the framework of a strategic partnership aimed at the era of intelligence and electrified vehicles," the three said in a statement.
Nissan and Honda have seen their industry and the key China market upended by the rapid rise of Chinese electric vehicle makers such as BYD, and both are facing the prospect of tariffs in the United States, another major market.
Nissan is pushing ahead with a restructuring plan announced in November that includes cutting 9,000 jobs and reducing global capacity by 20%. It has yet to disclose details such as which locations will be affected.
Sources said in December that Nissan will need to further reduce its capacity in China, where it operates eight factories through its joint venture with Dongfeng Motor. It has already suspended production at its Changzhou plant as part of efforts to optimise operations.
Before announcing the merger discussions in December, Nissan and Honda had been holding separate talks on a technology collaboration, which they could outline the scope of on Thursday.
Nissan is now open to working with new partners, with Taiwan's Foxconn seen as one candidate, sources told Reuters last week.
Foxconn Chairman Young Liu said on Wednesday that it would consider taking a stake in Nissan but that its main aim was cooperation.
Nissan shares soared more than 60% and Honda's jumped around 26% in late December after the merger talks were first reported on Dec. 17. Those gains have since been pared to 21% for Nissan and 11% for Honda.
The automaker has been hit harder than others by the EV shift having never fully recovered from years of crisis sparked by the 2018 removal and arrest of former chairman Carlos Ghosn.
Its market capitalisation is now nearly five times smaller than that of Honda, which is about 7.5 trillion yen ($48.6 billion). A decade ago, the pair were both worth around 4.6 trillion yen.
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