Author | Xiaofeng

Source | Bowang Finance

With FAW's acquisition of equity in GAC on the horizon, what transformative changes await the Chinese automotive industry?

Will resource integration lead to greater economies of scale, or will refined, in-depth competition provide better value? With the industry's average profit margin hovering around 4%, either path will require automakers to overcome significant hurdles.

Looking back, rumors of restructuring in the automotive sector have repeatedly stirred market sentiment in recent years. The previously planned merger between Changan and Dongfeng was once seen as a landmark event for the integration of automotive resources among central state-owned enterprises (SOEs). However, after several iterations of the plan, it ultimately failed to materialize.

Just as the market assumed that large-scale automaker restructuring would be put on hold, news of FAW's equity acquisition in GAC emerged, once again propelling the industry into a wave of discussions about the integration of automotive resources among central SOEs.

In reality, this equity change is easily misinterpreted by outsiders as a simple alliance of strong players. However, beneath the surface of the announcement, this capital-level partnership does not equate to a rapid business merger. The coming together of these two massive automotive groups is underpinned by their respective operational considerations and reflects two distinct paths for domestic automakers to break through.

For industry insiders, it is even more crucial to discern the choices made by major automakers amid the wave of consolidations in the automotive sector.

01

Changan and Dongfeng Merger Fails, FAW and GAC Initiate Cooperation

In fact, resource integration among central and state-owned automotive enterprises is hardly a new topic.

Previously, the market closely followed the merger plan between Changan and Dongfeng, anticipating that the integration of production capacity, R&D, and channel resources by these two major central SOEs would create a stronger market entity. After extensive deliberations, this plan ultimately stalled and did not progress to a substantive merger.

The industry had expected a period of cooling-off for deep restructuring among large automakers. However, news of FAW's equity cooperation with GAC shattered this expectation. Unlike the comprehensive business merger once envisioned by Changan and Dongfeng, this cooperation begins with FAW's equity acquisition in GAC, representing a deep capital-level binding rather than a direct corporate integration.

After the equity link is established, both sides will seek synergies in areas such as technology R&D, supply chain procurement, and overseas business expansion.

Of course, this round of capital partnership sends a clear signal: the elimination race in China's domestic automotive industry is advancing, and some large automakers are no longer relying solely on going it alone to cope with market pressures. However, there is still a long road ahead before capital-level cooperation translates into true integration of businesses, brands, and production lines.

In other words, the implementation of capital cooperation is just the beginning of the story. To understand the motivations behind this alliance, one must first examine the operational challenges currently facing GAC.

02

Not All Central and State-Owned Automakers Are Burdened: GAC's Sustained Profitability Falters

A deeper look into the operational performance of these two companies reveals that GAC is actually the one facing greater profitability challenges in this cooperation.

FAW reported full-year revenue of RMB 541.5 billion and sales of 3.302 million vehicles in 2025. However, in the first half of 2026, its cumulative sales reached 1.518 million vehicles, down approximately 15.33% year-on-year. As for GAC, it reported a net loss of RMB 8.784 billion in 2025, its first loss since going public; in the first half of 2026, its net loss widened to RMB 4.467 billion, a 75.98% increase year-on-year, with a sharper decline than FAW. Production and sales data show that from January to August, GAC Group produced 1.0268 million vehicles, down 2.99% year-on-year, and sold 1.0126 million vehicles, up 0.21% year-on-year.

In contrast, FAW in the north has a stronger foundation, although this includes a significant presence of joint-venture brands. In 2025, FAW sold 3.302 million vehicles, of which 2.362 million were from joint ventures, accounting for about 72%. Objectively speaking, GAC was once a benchmark for stable profitability among domestic automakers, but its operational indicators are now under clear pressure. The decline in revenue and sales, coupled with slower-than-expected progress in new energy transformation, has brought this veteran automaker to a critical juncture in its transition.

Of course, despite short-term operational pressures, GAC still retains several industry-rare foundational advantages.

On one hand, GAC's independent new energy brand has achieved scale. Established in July 2017 and later renamed Aion, GAC New Energy was one of the first traditional automakers in China to launch an independent new energy brand. Aion's sales peaked at 480,000 units in 2023 before declining year by year, with 374,900 units in 2024, 290,100 units in the first half of 2025, and 181,600 units in the first half of 2026. In 2024, GAC announced a three-year "Panyu Action" reform to fully transition toward the consumer market, aiming for independent brand sales to account for over 60% of the group's total sales and challenge 2 million units by 2027.

Moreover, in terms of current achievements, the Aion i60 has sold over 10,000 units per month for six consecutive months, while the Hyper Aion BU has sold over 30,000 units per month for six consecutive months. A series of products, including the Qijing GX7 and Qijing GT7, developed after learning from Huawei, are also being rolled out to the market.

On the other hand, after years of accumulation, GAC boasts a mature vehicle manufacturing system, a stable parts supply cluster, and a strong channel presence in South China. GAC's new energy segment, Aion, has an independent factory and supply chain system, maintaining a stable position in the pure electric passenger vehicle market. Its overseas channel layout and accumulated vehicle manufacturing expertise are assets that GAC has developed over the years, and these existing strengths are also important foundations for FAW's willingness to engage in capital cooperation.

Does the presence of these advantages mean that subsequent cooperation will be entirely worry-free? Not necessarily. Challenges still remain.

The first challenge is governance.

As is widely known, FAW is a vice-ministerial-level central SOE based in Changchun, with its top leadership appointed by the central government and a management style characterized by stability and clear hierarchy. GAC, on the other hand, is a municipal SOE in Guangzhou, with its management appointed by the board of directors and currently undergoing IPD and IPMS reforms. This means that some degree of adjustment and coordination will be necessary between the two.

Secondly, at the product line level, considering the large number of independent brands under both companies and the significant overlap in price ranges covered by their model matrices, there is potential for internal competition. FAW owns Hongqi and Besturn, while GAC owns Trumpchi and Aion, with multiple models targeting the mainstream consumer market priced between RMB 100,000 and RMB 300,000. The overlap in brands and models means that avoiding internal competition during subsequent collaboration will be an unavoidable challenge.

Once business collaboration progresses, model positioning, marketing channels, and dealer networks may all require adjustments, making it difficult to resolve internal competition among brands in the short term.

If we zoom out from the FAW-GAC cooperation to examine the current state of China's automotive industry, two points are particularly noteworthy: the advantages of existing assets on one hand, and the real challenges of declining sales and brand overlap on the other. Therefore, this capital partnership is just one of the options automakers are pursuing in response to industry upheaval.

Across the industry, different companies are forging two distinct development paths.

03

Two Paths for Automakers: Integration and Diversification

The automotive industry is indeed facing a tough time.

Public data shows that in the first half of 2026, automotive production and sales reached 14.993 million and 15.017 million units, respectively, down 4% and 4.1% year-on-year. In terms of profitability, the average profit margin in the vehicle manufacturing segment fell to 1.5% in the first half of the year, hitting a decade-low. The capacity utilization rate in the automotive manufacturing industry stood at just 70.6%, significantly below the healthy level of 75% for the manufacturing sector as a whole.

During this industry shakeout, domestic automakers have diverged into two distinct development paths. One path involves many automakers opting for integrated resource consolidation, focusing all their efforts on the core vehicle manufacturing business.

A noteworthy detail is that automakers such as FAW, GAC, Changan, and even private automakers like Geely are all advancing resource consolidation. For example, Changan plans to integrate Deepal and Avatr, FAW is cooperating with GAC, and Geely released the "Taizhou Declaration" to accelerate its integration strategy.

Behind these moves lies a deep-seated consideration: with the rapid iteration of automotive technologies, significant and ongoing investments are required in areas such as intelligent driving, in-vehicle chips, and battery R&D. Shouldering the full R&D costs independently places enormous financial pressure on companies. Whether through equity cooperation, business collaboration, or other forms of integration strategy, the core logic is to centralize supply chain procurement, jointly develop vehicle platforms, share R&D investments, and reduce trial-and-error costs.

Another group of automakers, particularly new energy startups, are not traditional automotive conglomerates and are less involved in resource integration. Instead, they are pursuing a path of diversified expansion.

Companies like Xpeng and Li Auto, while stabilizing their core vehicle businesses, are extending their reach into new sectors such as robotics and AI. Their vehicle businesses provide stable cash flow, while new business ventures are positioned for future technological reserves. These companies are not pursuing large-scale mergers with other automakers but are leveraging their technological foundations to explore new growth opportunities across industries.

Neither path is inherently superior; the choice depends on a company's own resource endowments. Traditional large automakers, with their massive production capacities and mature supply chain systems, are better suited to pursue an integrated collaboration path to activate their existing resources.

In contrast, new energy startups, with their leaner organizational structures and native intelligent R&D capabilities, are better positioned to expand into diverse businesses. These different choices will continue to reshape the industry landscape in the coming years. Integrated alliances will test a company's internal coordination capabilities, while diversified expansion will test its ability to commercialize and implement new technologies.

These two paths indicate that industry competition is no longer solely about unit sales but about a company's long-term resource allocation and technological iteration capabilities. Mergers and cross-industry moves are essentially strategies for automakers to find survival space amid intense industry transformation.

It is also possible that the wave of mergers and collaborations in China's automotive industry will not end with FAW's equity acquisition in GAC. In the past, automakers could rely on niche market opportunities for stable development. However, with the market now entering a phase of competition over existing market share, price wars are squeezing profits, and R&D investments in intelligent technologies are rising, the costs of going it alone are becoming increasingly prohibitive.

FAW's equity acquisition in GAC represents a strategic alliance between two central SOEs driven by their respective needs amid industry transformation. While capital-level equity binding is relatively straightforward to implement, achieving synergy in brands, models, channels, and supply chains is a lengthy and fraught process. Integrated consolidation must confront the challenges of brand overlap and internal competition, while diversified cross-industry moves face uncertainties in commercialization.

Over the next period, the industry will continue to witness attempts at both paths. Whether large automaker alliances can truly unlock synergistic benefits and whether new energy startups' cross-industry layouts can deliver long-term value, one thing is certain: competition in China's automotive industry will intensify further.