Japanese automakers Honda and Nissan will attempt to merge and create the world’s third-largest automaker by sales as the industry undergoes dramatic changes in its transition away from fossil fuels.

The Detroit Three are facing an auto industry increasingly affected by the rise of China as demonstrated by the planned merger of Honda and Nissan.

Speculation about a potential Honda and Nissan merger began earlier this month, and the two companies confirmed the official start of talks over a business integration during a news conference on Monday. Under current proposals, a holding company would ...