China's auto industry is entering a period of rapid consolidation, with two major deals announced in as many days signaling a broader shakeout. On September 14, GAC Group said it planned to issue shares to acquire part of a joint venture held by FAW, which would become GAC's second-largest shareholder. The following day, Harmony Intelligent Mobility Alliance (HIMA) announced that AITO would explore a new cooperation model, with Seres taking the lead on product definition, design, marketing, retail and service, while Huawei shifts to an enabling role.
The moves come as the domestic auto manufacturing sector's average profit margin fell to 1.5% in the first half of 2026, the lowest in a decade, with capacity utilization at 70% - below the 75% healthy threshold, according to industry data cited by Huxiu. On September 10, China's Ministry of Industry and Information Technology and eight other departments issued the 15th Five-Year Plan for intelligent connected new energy vehicles, which for the first time includes capacity warning and adjustment measures and calls for greater merger, restructuring and cross-regional integration among automakers.
FAW-GAC: a state-owned marriage of convenience
FAW, one of China's three central state-owned automakers, produced and sold over 3.3 million vehicles in 2025 with revenue of 541.5 billion yuan (about $76.3 billion), but its new energy business has lagged. The deal with GAC follows FAW's August agreement with Leapmotor to deepen cooperation, after FAW took a 5% stake in the EV maker for 3.744 billion yuan in December 2025. In the first seven months of this year, FAW sold about 619,000 new energy vehicles, of which roughly 458,000 - over 70% - came from Leapmotor, according to the China Association of Automobile Manufacturers.
For GAC, which posted a net loss of 8.784 billion yuan in 2025 - its first annual loss in nearly two decades - and a 4.467 billion yuan loss in the first half of this year, FAW's strategic investment could provide access to resources in capacity, supply chain and distribution. The deal also revives speculation about a merger of GAC Toyota and FAW Toyota, as joint venture brands' combined market share in China fell from 61.6% in 2020 to 24.5% by June this year. Toyota's China sales dropped 19% year-on-year in the first eight months to 927,900 units, marking seven consecutive months of decline.
Seres reclaims AITO from Huawei
Seres' shift in its relationship with Huawei reflects the financial strain of the partnership. Under the previous model, Huawei was deeply involved in AITO's product design, marketing, retail and services, while Seres focused on manufacturing. Seres paid 2.5 billion yuan to buy the AITO trademark and 44 design patents in July 2024, and later acquired a 10% stake in Huawei's smart car unit Yinwang for 11.5 billion yuan.
In the first half of 2026, Seres' revenue fell 7.87% year-on-year to 57.493 billion yuan, with a net loss of 1.717 billion yuan versus a profit of 2.941 billion yuan a year earlier. The company's per-vehicle net loss reached -23,000 yuan in the second quarter. According to Seres' prospectus, it pays Yinwang hardware procurement fees, a 2% technology licensing fee based on vehicle price, and an 8% channel service fee - costs that have become harder to absorb as sales decline.
AITO's position within Huawei's ecosystem has also weakened. When the partnership began in 2021, AITO was Huawei's only smart-selection brand. Now HIMA includes five brands: AITO, Stelato, Luxeed, Maextro and Shangjie. Seres' vehicle sales fell 14% year-on-year in the first eight months to 202,000 units, while AITO's share of HIMA's total deliveries dropped from over 70% in 2025 to 54% in August, according to HIMA data cited by Huxiu.
The restructuring also highlights an internal debate at Huawei between the deeply integrated smart-selection model championed by Richard Yu and the more neutral HI model favored by rotating chairman Xu Zhijun, which offers technology as a supplier rather than a partner. Changan chairman Zhu Huarong has publicly questioned whether the smart-selection model aligns with industry norms and consumer protection, according to Huxiu.
