Toyota partners weigh tie-up as China JV model unravels

A potential tie-up between Toyota's two main Chinese partners is the latest sign that the foreign joint-venture model that shaped China's auto industry for decades is entering a new phase, as a shrinking market and fierce competition force automakers to rethink how they operate in the world's largest car market.

Guangzhou Automobile Group said on Monday that it planned to acquire part of FAW Group's stake in an unnamed auto joint venture with an overseas-listed company, according to an exchange filing. Chinese state media identified the venture as FAW Toyota, a move that could pave the way for closer integration of Toyota's two separate China businesses. GAC and FAW did not respond to requests for comment, and Toyota declined to comment.reuters+1

A Market in Upheaval

China's auto sector, home to more than 100 competing brands, is on the cusp of a shakeout after years of rapid expansion left it with vast overcapacity. S&P Global Ratings warned on Tuesday that weak demand, overcapacity, and the rapid shift to electric vehicles are testing state-owned automakers and their foreign joint ventures. "We anticipate a broader wave of industry restructuring over the next two to three years," S&P said.reuters

Profit margins in China's vehicle manufacturing segment have fallen to 1.5%, the lowest in nearly a decade, according to official data. Last week, China's top economic planner reiterated support for mergers and restructuring among major automakers.reuters

Foreign Automakers Losing Ground

For decades, Toyota expanded in China through separate partnerships with FAW in the north and GAC in the south. But as growth slowed and the EV transition squeezed profits, the rationale for maintaining parallel operations weakened. Toyota's two joint ventures accounted for just 7% of passenger vehicle sales in the first eight months of 2026, ranking behind BYD, Geely Auto, and Volkswagen, according to China Passenger Car Association data. In 2021, the two ventures together ranked second behind only Volkswagen.reuters

FAW Toyota's dealer network has shrunk more than 15% to 651 stores from a peak of 773 in 2022, while GAC Toyota's network fell more than 10% to 620 from 693 over the same period.reuters

Bill Russo, founder of Shanghai-based consultancy Automobility, said there was a "sound industrial logic" to the move but cautioned that efficiency alone would not solve foreign automakers' problems. "You can become more efficient at building a car that consumers increasingly overlook," he said.reuters

Among other Japanese automakers, Honda ↘ 0.86% and Nissan have cut output in China, while Mitsubishi Motors stopped producing cars in the country altogether.reuters