GAC Group and FAW Group's "share swap merger" kicks off a new round of restructuring among central and local automakers.

The integration of state-owned car companies has been discussed for many years, and this time, assets have finally been touched.

On the evening of September 28, GAC Group released a major asset restructuring plan: it plans to acquire all 50% of FAW Toyota's equity held by FAW Group through the issuance of shares, and raise supporting funds. On September 29, GAC Group's A-shares hit the daily limit on the first day of trading after resumption; on the same day, China FAW and GAC Industry Group signed a strategic cooperation framework agreement.

It took only two weeks to go from the vague phrase "partial equity of a certain vehicle joint venture" in the letter of intent to specifying all Chinese equity in the preliminary plan.

The finalized plan went further than the market had previously speculated. FAW Toyota is currently 50% owned by FAW Group, and the remaining 50% by Toyota Motor and Toyota China. GAC's acquisition of this 50% means that FAW will relinquish all of its direct shareholding.

Before the transaction was disclosed, the market generally speculated that GAC's shareholding might be less than 25%. After the transaction, the shareholding structure of FAW Toyota and GAC Toyota is completely identical: GAC and Toyota each hold 50%. For the first time in more than 20 years, the two Toyota joint ventures have achieved symmetrical shareholding.

The issue price remains the biggest question mark. The issue price is 5.75 yuan per share, a premium of approximately 13% over the closing price before trading was suspended.

When a central state-owned enterprise (SOE) acquires a stake in a local SOE at a price higher than the secondary market price, ensuring "no loss of state-owned assets" hinges first and foremost on the pricing. For GAC's existing shareholders, the premium also means less dilution. The assessed value and valuation of the target asset have not yet been determined, and a shareholders' meeting will not be held until the audit and valuation are completed. The transaction still requires review by the Shanghai Stock Exchange and registration by the China Securities Regulatory Commission. FAW's final stake in GAC depends on how this asset is priced. The supporting funds raised are intended for the construction of the FAW-Toyota project, working capital replenishment, and debt repayment: GAC is not only acquiring assets but also financing their future development.

For GAC, this is a transaction that directly improves its profit statement. In the first half of 2026, GAC reported a net loss attributable to the parent company of 4.467 billion yuan, while still receiving approximately 2.298 billion yuan in cash dividends from GAC Toyota during the same period. GAC Honda's capacity utilization rate has dropped to 59% (two-shift system), and the joint venture's profits are increasingly reliant on GAC Toyota alone. FAW Toyota sold 805,500 vehicles in 2025, making it the only brand among mainstream joint ventures to achieve positive growth for three consecutive years. The preliminary plan states that the transaction will positively contribute to investment income and net profit after completion.

But the turning point has already emerged. Data released by Toyota shows that FAW Toyota's sales in the first half of this year were approximately 274,100 vehicles, a year-on-year decrease of 27%. This is one of the best assets in the joint venture camp, yet the market segment it operates in is shrinking rapidly. FAW sold the asset when it still had a premium, while GAC took it over when profits were bottoming out; the timing of the transactions itself reflects the sense of urgency felt by both parties.

The same asset occupies completely different positions within the two companies' partnerships. For FAW, its core profits are built on its 60% stake in FAW-Volkswagen, while FAW-Toyota is merely the second largest segment of the joint venture. For GAC, whose joint venture profits are shrinking, however, it is currently the most scarce and profitable asset. This asymmetry in marginal value is precisely the micro-foundation upon which this deal was able to be negotiated.

FAW received a different kind of return: from being a shareholder of one joint venture to becoming a shareholder of the entire GAC Group, its own-brand business, two joint ventures, and the export sector, which grew by 132% in the first half of the year, all became part of this equity stake. In late August, FAW had just deepened its cooperation with Leapmotor to find a way out for new energy products; investing in GAC Group deals with the return on existing assets, a one-plus-one swap, and neither party needs to use cash.

Symmetrical shareholding addresses the issue of aligning the interests of Chinese shareholders. However, it also has another side: while Toyota could previously maintain a balance between the north and south through model allocation, now that Chinese interests are aligned, Toyota faces a consistent trading partner in China for the first time, thus narrowing its room for checks and balances.

The costs of collaboration are real: the competition between sister models like the Corolla and Levin, and the redundant investment in two separate distribution channels and procurement processes, have been the legacy of over two decades for both FAW-Toyota and SAIC-Toyota. Preparatory steps have already been taken: a pilot program for channel sharing in lower-tier cities starting in the summer of 2025, and the development of the Platinum 3X under Toyota's ONE R&D system. The pressure is equally real: data from the China Passenger Car Association shows that mainstream joint venture retail sales fell by 35.6% year-on-year in August, and Toyota's sales in China declined by 19% from January to August. Citigroup estimated in mid-September that if FAW-Toyota and SAIC-Toyota were integrated into a unified platform with an annual production capacity of 1.2 million to 1.3 million vehicles, sales costs could be reduced by 2 to 3 percentage points.

However, the decision on how far the integration should proceed is not solely up to the Chinese shareholders. Toyota still holds a 50% stake in each of the two joint ventures, and the interests of the investors behind the two distribution networks cannot be resolved simply by a shareholding agreement. The surge in stock price after the resumption of trading reflects expectations; the realization of synergistic benefits in the financial statements will require negotiations item by item.

The policy direction is clear: the "15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry," released on September 9, explicitly states that new production capacity will be strictly controlled while mergers and acquisitions will be encouraged. With the door to new production capacity closed, competition has shifted from vying for incremental growth to dividing existing market share.

Previously, the integration of state-owned car companies was mostly carried out within the same investor system. The framework agreement between FAW, Dongfeng and Changan in 2017 only resulted in technology platforms such as China Automotive Innovation. There is no ready-made channel for administrative transfer of assets between central and local state-owned enterprises. The factories are connected to the tax, employment and supplier systems of the two places, making it difficult to establish cross-provincial transfers.

On September 15, Zhang Yongwei, chairman of the China Automotive Industry Association Research Institute, commented that the key to the strategic cooperation between GAC and FAW lies not in the "cooperation" itself, but in the reconstruction of capabilities.

This also adds a new role to joint venture equity: clear valuation, stable cash flow, and a necessity for both parties. Between central and local automakers, it is becoming a general equivalent for integration. If this model works, other state-owned automotive groups will likely have to recalculate their own strategies.

The two automotive groups first tied themselves to the same shareholding structure, and then proved that they could make money together within it. This order itself is the biggest difference between this round of automotive industry consolidation and the framework agreements of the past decade.

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