(Yicai) Sept. 16 -- GAC Group plans to take a stake in FAW Toyota Motor, a joint venture between Chinese state-owned carmaker FAW Group and the Japanese auto giant, according to sources familiar with the matter.

If the deal goes through, Toyota's ownership structure, sales channels, and product lineup at its two JVs in China with FAW and GAC could change, the sources told Yicai.

On Sept. 14, GAC announced it had signed a letter of intent with China FAW, a subsidiary of FAW, to acquire part of its stake in a JV via a share issuance, but temporarily withheld the target name because the transaction involves an overseas-listed company. The deal would deepen the integration between two of the country's largest state-owned automakers.

After the deal is completed, FAW will become GAC's second-largest shareholder with strategic influence,  the Guangzhou-based firm added, noting that the move is expected to constitute a major asset restructuring and a related-party transaction under Chinese securities regulations, although it would neither change GAC's ultimate controlling shareholder nor constitute a backdoor listing.

Toyota plans to merge its FAW and GAC JVs into a single Toyota China sales company, fully integrating their dealer networks and allowing them to sell and service all of its models, China Economic Net reported recently. Toyota would own half of the new firm, while FAW and GAC would split the rest. 

Toyota's China sales fell 18 percent to about 809,400 vehicles in the seven months ended July 30 from a year earlier. The figure fell to about 1.78 million units last year from a peak of 1.94 million in 2021.

GAC Toyota sold about 341,100 units in the first half of this year, down 6.3 percent from a year ago, while FAW Toyota's sales plunged 27 percent to around 273,700 units.

GAC's investment in FAW is only the first step, and subsequent development remains subject to change, Li Yanwei, an auto industry analyst, said to Yicai. The alliance should be divided into three levels, with the easiest to implement being unified procurement and component standards, followed by sharing back-end capabilities such as testing and validation, basic software, and overseas after-sales services, while the most difficult level involves reallocating vehicle platforms, production bases, and brand resources, Li noted.

Only when cooperation extends from procurement to products and production capacity can their joint operation genuinely change the cost structure, Li stressed.

"FAW and GAC have too many own brands -- Hongqi, Bestune, and Yueyi for FAW and Trumpchi, GAC Aion, and Hyptec for GAC," according to Li. “Their price ranges and models will inevitably overlap. Without a reduction in the number of brands, platform cooperation could ultimately be offset by internal competition.”

Editor: Martin Kadiev