Could China’s auto industry be approaching another historic moment? The speculation was triggered by a major development on the morning of September 14: FAW Group and GAC Group are reportedly moving toward a “deep partnership” that could lead to a joint-operation arrangement. Initial reports suggested that “FAW would take an equity stake in GAC and the two companies would form a shareholding-based alliance.” At around 9:30 p.m. Beijing time on September 14, GAC Group confirmed the existence of the cooperation through an official announcement, in line with earlier media reports. However, the details were different from initial market expectations. GAC and China FAW Corporation Limited signing a Letter of Intent (excerpt). GAC said it had signed an “intention agreement” with China FAW Co., Ltd. and plans to acquire part of FAW’s equity stake in a joint-venture automaker through a share issuance, while also raising supporting funds. In the announcement, GAC Group emphasized that the transaction is expected to constitute a major asset restructuring and a related-party transaction. However, it will not result in a change of controlling shareholder or a backdoor listing. The company also announced that trading of its shares would be suspended from the morning of September 14, with the suspension period expected to last no more than 10 business days. A resumption date has not yet been disclosed. In other words, the two sides involved remain FAW and GAC, but the transaction structure differs from earlier speculation. Under the plan, GAC will issue new shares to acquire equity in a joint-venture automaker held by FAW, gaining control of the target company. Meanwhile, FAW will receive a stake in GAC, making it the automaker’s second-largest shareholder. Although earlier market rumors were partially inaccurate, the significance of the announcement remains unchanged. Once completed, the deal could disrupt the decades-old structure of China’s joint-venture auto market and trigger an unprecedented reshuffle among foreign automaker partnerships. So what exactly does the cooperation between FAW and GAC involve? And how could it reshape competition across China’s auto industry? Will Toyota’s Dual China JV Setup Become History? First, it is worth clarifying that previous reports from Chinese automotive media contained some inaccuracies. The transaction is not a direct equity investment by FAW Group into GAC Group. Instead, the two sides are expected to carry out a relatively complex equity swap: FAW will acquire a significant stake in GAC Group, while GAC will obtain equity in one of FAW’s joint venture automakers and take control of that company. This also means earlier speculation that “FAW Group may form an effective joint operating relationship with GAC Group through asset transfers and an equity investment” was largely inaccurate. The identity of the “joint venture automaker” remains undisclosed, but more clues can be found in GAC Group’s announcement: “The target company operates in the automobile manufacturing industry (industry code C36). As the restructuring target involves an overseas-listed company, the company has temporarily withheld the name of the target asset and will disclose further details in the restructuring proposal.” All-new Toyota Corolla Based on this information, the potential targets can be narrowed down to FAW-Volkswagen, FAW Toyota, and FAW Audi. Considering GAC Group’s existing ownership of GAC Toyota and its more than two decades of experience operating Japanese joint venture brands, the most likely scenario is that GAC will acquire FAW Toyota’s stake from FAW Group. If the speculation proves correct, Toyota’s joint venture structure in China would shift from the current “dual structure” of FAW Toyota and GAC Toyota to a single GAC Toyota platform. The “North-South joint venture” model that has existed in China’s auto industry for nearly three decades would effectively come to an end. Of course, after China relaxed joint venture ownership restrictions in 2022, GAC would theoretically be allowed to operate two Toyota joint ventures at the same time. The company could choose not to merge the two operations. However, there is no precedent for such a structure, while factors including management complexity and antitrust considerations also need to be taken into account. Another uncertainty is that GAC’s announcement did not disclose the exact stake it will obtain in the joint venture. If GAC acquires only part of the Chinese shareholder’s stake, it would merely become a shareholder in FAW Toyota rather than gaining control over its future operations. However, based on the announcement that FAW Group will become GAC Group’s second-largest shareholder after the transaction — behind Guangzhou Automobile Industry Group, which currently holds a 54.02% stake, and ahead of HKSCC NOMINEES LIMITED, the current second-largest shareholder with a 27.56% stake — the deal is unlikely to be structured in a way that leaves GAC as only a minority shareholder in FAW Toyota. A more reasonable assumption is that the transaction is large enough for GAC to acquire all of FAW Toyota’s Chinese shareholder stake. If GAC ultimately gains control of FAW Toyota, merging and integrating FAW Toyota with GAC Toyota would likely become the most practical solution. Such integration would also maximize GAC’s benefits by consolidating production capacity and sales networks, eliminating overlapping product lines, and concentrating resources on high-demand models and new energy vehicle programs. Interestingly, a review of the history behind the creation of “North-South Toyota” shows that FAW, Toyota’s earliest joint venture partner in China, initially took an ambiguous stance when GAC sought to introduce Toyota’s joint venture model based on the success of GAC Honda Accord. Toyota bZ7 In 2014, GAC Toyota wrote in an anniversary article marking its 10th year that: “To persuade FAW to establish a second Toyota joint venture in southern China, Toyota also conducted extensive behind-the-scenes lobbying efforts.” The statement suggested that GAC Toyota’s formation was far from straightforward, with negotiations and strategic considerations likely playing a major role between GAC and FAW. This history highlights why FAW Toyota was once considered a highly strategic asset for FAW Group. However, as China’s auto industry undergoes rapid transformation, the traditional “North-South joint venture” structure has gradually lost its original necessity. For FAW, concentrating resources on its core brands has become increasingly important. Before the rumors surrounding GAC and FAW emerged, another report suggested that the “North-South Audi” structure could also be separated, with FAW Audi continuing to operate Audi’s traditional four-ring brand while SAIC Audi focuses on the “AUDI” new energy brand. Although the report was later denied by relevant insiders contacted by ChinaEV Home, broader signals from regulators and subsequent industry moves suggest that traditional state-owned and local state-owned automakers are clearly considering resource consolidation, selective brand adjustments, and product-line optimization. From a more practical perspective, FAW Toyota has lagged behind GAC Toyota in its transition toward electrification, while its sales performance has also declined significantly. If FAW Group ultimately chooses to step back from FAW Toyota and transfer control to GAC Group, such a move would be understandable given the current market environment. China’s Auto JVs: A New NEV Chapter Data released by FAW Group showed that FAW Toyota sold 273.7K vehicles from January to August 2026, down 27.4% year-on-year. Its new energy vehicle performance was even weaker. CPCA data showed that FAW Toyota’s bZ3 recorded total sales of around 10.3K units in the first eight months, while the bZ5 sold roughly 7K units. The bZ4X, which was discontinued long ago, recorded only one unit in annual sales. In other words, FAW Toyota’s overall performance in 2026 has fallen to a level comparable with a mid- to lower-tier emerging EV brand. Looking only at NEV sales, it has already moved to the very edge of the market. By comparison, GAC Toyota has performed better in the NEV segment. The bZ3X recorded around 60K units in sales during the first eight months, while the bZ7 reached 14.7K units. Even the aging bZ4X still delivered more than 1K units. Toyota bZ 3X Based on current trends, GAC Toyota’s NEV sales could exceed 100K units for the full year, effectively positioning it as a standalone EV brand. FAW Toyota’s contribution from NEVs, however, remains almost negligible within its overall sales structure. China’s auto market is clearly shifting toward new energy vehicles. CPCA data showed that total retail sales reached 11.716M units in the first eight months of 2026, down 20.8% year-on-year. Meanwhile, as ICE vehicle sales continued to contract, NEV penetration hit a record high of 65.2% in August. The market direction is becoming increasingly clear: brands with competitive NEVs have growth potential, while those falling behind face mounting pressure. Joint-venture automakers are no exception. A more practical factor is that GAC Toyota has been far more aggressive in its NEV transition in recent years, backed by strong support from Toyota’s headquarters. The bZ3X and bZ7 are highly localized products, fully defined by Chinese teams and developed around China’s local supply chain. This deep localization has allowed Toyota’s NEV offerings under GAC Toyota to deliver experiences far beyond traditional joint-venture rivals at the same price point, while approaching the level of Chinese EV brands. Key advantages include fast charging capability, Momenta-powered ADAS, and Huawei HarmonySpace. Toyota bZ7 equipped with Momenta ADAS. These changes have already translated into a widening sales gap. From an NEV perspective, handing Toyota’s China operations entirely to GAC Group may prove to be a more suitable option. Overall, FAW Toyota has increasingly become a less valuable asset for FAW Group. Its sales have declined sharply, while its ability to contribute to Toyota’s NEV transformation remains limited. For GAC Group, however, the potential deal could provide an opportunity to unify Toyota’s “northern and southern” joint-venture structure, integrate product lines, resolve long-standing issues around overlapping models and fragmented sales channels, and consolidate customer resources. But does this mean the deal would be a guaranteed win for GAC? Not necessarily. FAW Toyota’s core assets are still concentrated in ICE vehicles and hybrid models, particularly several high-volume products mentioned earlier. When it comes to NEVs, its contribution in both technology and sales channels remains close to zero. This means integrating brand recognition, distribution networks, production capacity, and supply chains would only be the first step. If GAC wants the combined Toyota operations in China to create greater value after a potential merger, it will need to continue investing heavily in NEV technologies and deliver more competitive products under a unified brand structure. Ultimately, the biggest challenge for Toyota’s joint-venture business in China is not whether a merger happens, but who leads the transformation. Continued investment in in-house R&D and the development of NEV products tailored to Chinese consumer needs will determine whether GAC can turn this potential restructuring into a success.
