GAC Group has announced plans to acquire part of FAW Group's stake in FAW-Toyota through a share issuance, a move that would effectively merge Toyota's two long-separate joint ventures in China. The deal, disclosed in a trading suspension notice on September 14, 2026, marks the end of an era in which foreign automakers maintained dual partnerships to maximise profits, according to a report by Huxiu.
Under the preliminary agreement, GAC will issue shares to FAW in exchange for the latter's equity in a wholly-owned vehicle joint venture widely believed to be FAW-Toyota. Upon completion, FAW will become one of GAC's largest shareholders but will not alter the controlling stake held by the Guangzhou State-owned Assets Supervision and Administration Commission. The transaction involves no cash; GAC will pay entirely in shares, while FAW will offload the operational burden of FAW-Toyota and gain a strategic foothold in southern China's Pearl River Delta, the country's most dynamic EV supply chain hub.
Twin-model strategy unravels
Toyota's China strategy long relied on a 'twin-model' approach: the same TNGA platform, hybrid powertrain and even chassis components were used to create near-identical siblings sold by FAW-Toyota in the north and GAC-Toyota in the south — Corolla/Levin, RAV4/Wildlander, Crown Kluger/Highlander. This allowed Toyota to collect two sets of technology licensing fees and component procurement profits while keeping its Chinese partners competing against each other.
That model worked when the market was growing and consumer choice was limited. But with China's new-energy vehicle penetration rate exceeding 50% and domestic brands pushing plug-in hybrid SUV starting prices below 79,800 yuan (about $11,200), the twin strategy has become self-destructive. In August 2026, FAW-Toyota sold 54993 vehicles, down 21.4% year-on-year, while GAC-Toyota sold 52368, down 20.7%. Toyota's total China sales in the first half of 2026 were 694,700 units, a 17.1% decline. Both joint ventures are now hovering near the breakeven threshold of around 50,000 monthly sales, down from peaks of 80,000 to 90,000.
Insiders told Huxiu that Toyota itself has been pushing for the merger. With margins squeezed by the price war and factories in Tianjin and Nansha running below capacity, maintaining two overlapping R&D, marketing and distribution systems has become a financial drain rather than a competitive advantage.
First cross-regional state-owned auto merger
The deal is also notable as the first major integration between a central state-owned enterprise (FAW, controlled by the central government) and a local state-owned enterprise (GAC, controlled by Guangzhou). Previous merger attempts between central SOEs like Dongfeng and Changan have stalled due to scale and local interests. By using a share swap rather than cash, GAC avoids immediate financial strain — its interim 2026 report showed revenue of 46.5 billion yuan (about $6.5 billion) but a widening net loss, partly due to declining profits from its GAC-Honda venture and the ongoing repositioning of its Aion EV brand.
The merger aligns with the '15th Five-Year Plan for Intelligent Connected New Energy Vehicles' issued by nine central government ministries, which encourages consolidation and cross-regional integration in the auto industry. As Huxiu notes, the policy direction has been clear for some time, but it took market pressure — falling sales and vanishing profits — to force action.
