Two of China’s biggest state-owned automakers are in advanced merger discussions. This could create a new global player in the auto industry, but it will also raise concerns for their American, and Japanese, partners.
The New York Times reported on Tuesday that the two companies had held detailed negotiations, and informed their foreign partners about their plans. This is according to sources who are familiar with the issue.
The merger would be a major consolidation in China’s automotive industry, the largest in the world, as Beijing pushes to increase efficiency and accelerate a transition to electric vehicles.
The Chinese government is looking at the union of Dongfeng with Changan as a way to phase-out older plants and boost EV production.
Dongfeng, along with Changan, produces about five millions cars per year, which is more than Ford Motor, General Motors, or Stellantis (the parent company of Fiat Chrysler, Peugeot, and Chrysler).
Both companies struggle with underutilized lines of production, despite their size.
The merger would allow both companies to consolidate their operations, reduce costs and compete better with China’s growing list of private EV manufacturers such as BYD or Nio.
If Dongfeng, Changan and their reorganization is successful, the new autogroup will have an annual sales volume of 4,58 million units. It will surpass BYD and become China’s number one. 36kr reported in an earlier report that China’s No. 1 automaker and the world’s 5th largest auto group would be formed by reorganizing Dongfeng and Changan.
Foreign partnerships with Ford Nissan and Honda are under scrutiny
The merger proposal has caused concern among foreign partners of the companies.
Ford has been a partner of Changan for more than two decades in China, while Dongfeng is a long-standing partner with Nissan and Honda.
These partnerships could be disrupted if the newly merged entity focuses on independent EV production. This would affect foreign automakers’ presence on the Chinese market.
The United States could also be interested in the deal.
Changan is owned and operated by China South Industries Group (a military contractor), while Dongfeng provides military vehicles to the People’s Liberation Army.
The merger could lead to a larger, state-backed military provider. This would increase scrutiny from the Trump Administration and complicate trade relations between China & the US.
China’s auto production overcapacity is not sustainable
China has struggled with an excess of auto production capacity. State-backed loans have allowed automakers expand aggressively.
While demand for EVs has surged–accounting for over half of all car sales in China since mid-2024–traditional gasoline vehicle sales have struggled.
“The Chinese automotive sector is just at the beginning of a massive consolidation.” S&P Global stated in an analysis that “we believe capacity reductions are necessary to restore profitability, as many entities are on an unsustainable course.”
Dongfeng’s factories only operated at 48% capacity in the last year while Changan’s was at 47%. Both are well below the profitability thresholds of 60-80%.
China has increased auto exports due to an excess of supply, which has prompted retaliation from Western governments.
Both the US as well as the European Union have placed tariffs on Chinese cars in order to protect their domestic automobile industries from a flood of low-cost, electric vehicles.
Growing military role
The merger could also cement the roles of Dongfeng as a major defense contractor.
Dongfeng is known for its military vehicles such as trucks, troop carriers and launch platforms of missiles and drones.
In 2015, the company provided 180 vehicles for an important military parade in Beijing. It is expected to play a similarly significant role in the upcoming parade commemorating the 80th anniversary of Japan’s defeat during World War II.
China has placed a high priority on self-reliance when it comes to defense manufacturing. This means that all military vehicles and parts are manufactured in the country.
Dongfeng is at the forefront of the initiative, producing everything from engines to the most minute screws in-house.
The post China’s Dongfeng & Changan in advanced merger discussions: What it means for Ford, Nissan and the global automotive industry may be modified based on new developments.
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