China’s FAW Group is advancing plans to acquire a stake in GAC Group, which led GAC Group (601238.SH) to suddenly announce a trading suspension before the market opened today. According to two individuals familiar with the matter quoted by Caixin, the initiative is being driven by regulatory authorities, with the potential for FAW Group to secure equity through asset allocation, effectively establishing a joint-venture relationship between the two automotive giants.

While the specific structure of the investment and the future shareholding ratio remain fluid, the move signals a renewed push for consolidation among China’s state-owned enterprises (SOEs). Neither company has publicly disclosed the details as of the time of reporting.

A response to market pressures

The automotive industry is currently facing intense competition, with domestic sales in the first half of 2026 declining by 20% year-on-year. Both FAW and GAC are navigating significant financial and operational headwinds.

GAC Group, headquartered in Guangzhou, has struggled recently. In 2025, the group sold 1.72 million vehicles, a 14.06% year-on-year decrease. The company’s financial performance took a sharp downturn, with revenue falling 10.43% to 95.7 billion yuan (billion USD). The group swung from profit to a net loss attributable to shareholders of 8.78 billion yuan (billion USD). The trend continued into the first half of 2026, with net losses widening by 75.98% year-on-year to 4.47 billion yuan (600 million USD).

FAW Group, based in Changchun, is also under pressure to diversify and modernise. In 2025, the group’s total production fell to 3.31 million vehicles, down from 3.73 million in 2020. Notably, new energy vehicles (NEVs) accounted for only 13.5% of its total output. To bolster its competitiveness, FAW signed a strategic investment agreement with the automaker Leapmotor in late 2025.

Regulatory push for consolidation

The potential tie-up aligns with broader government directives. In March 2025, the State-owned Assets Supervision and Administration Commission (SASAC) called for the strategic restructuring of central state-owned automakers to improve industrial concentration and resource efficiency. Most recently, on September 11, 2026, nine government departments, including the Ministry of Industry and Information Technology (MIIT), issued the “15th Five-Year Plan for the Development of the Intelligent Connected New Energy Vehicle Industry,” which emphasises the need for legal mergers, acquisitions, and cross-regional integration.

Synergies and Challenges

Industry analysts suggest that the integration of FAW and GAC offers significant complementary potential:

• Commercial vehicles: FAW Jiefang, a leader in the commercial vehicle sector, could significantly enhance GAC’s capabilities in that area.
• Joint venture management: Both groups maintain significant partnerships with Toyota. With Toyota’s sales in China falling 19% in the first eight months of 2026, there is potential for integrating these joint ventures to optimise capacity and focus resources.

Source: CarNewsChina (View original)