Two of Japan’s largest automakers have been in talks to combine their operations to form one of the world’s biggest car groups.

TOKYO — Nissan is set to call off merger talks with rival Honda, a source said Wednesday, abandoning a $60 billion-plus tie-up that would have created the world's No. 3 automaker and raising questions about how it will drive a turnaround by itself.

The news that Honda Motor Company, Japan’s second-largest automaker, and Nissan Motor Company, its third-largest, are looking to merge by 2026 is an indication of an industry roiled by government demands for electrification and the ascent of Chinese automakers.