Toyota Motor Corporation (NYSE:TM) spent decades building its China business around two major partnerships: FAW in the north and GAC in the south. That structure made sense when China’s auto market was growing quickly, but it looks less comfortable today. GAC now plans to acquire part of FAW Group’s stake in an unnamed auto joint venture with an overseas-listed company. Chinese state media identified the venture as FAW Toyota, raising the possibility of closer integration between Toyota’s (NYSE:TM) two main China operations.
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Nothing has been finalized, and Toyota declined to comment as of the time of the initial reporting. Still, the proposal comes as foreign automakers face a very different China market, which is one crowded with more than 100 brands, excess capacity, and increasingly formidable domestic competitors.
Bull Case
There is a straightforward argument for simplifying Toyota’s China operations, which encompasses less duplication. For years, separate FAW Toyota and GAC Toyota operations helped the Japanese automaker build scale and geographic reach. With market growth slowing and competition intensifying, maintaining parallel sales, distribution, and investment structures has become harder to justify. Bill Russo, founder of consultancy Automobility, told Reuters there was “sound industrial logic” behind closer integration because it could make Toyota’s sales and distribution more efficient while reducing overlapping investment.
Toyota has already been moving in this direction. Reuters reported in 2024 that the company was looking to bring its sales and production operations closer together. The automaker has also previously reorganized parts of FAW Toyota to streamline management from development through production and sales.
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There is another reason not to write Toyota off in China, as the problem isn’t that the business has disappeared but whether Toyota can make that scale work harder in a market that has changed around it. A leaner structure could help, AS Faster decisions, lower costs, and less duplicated investment would give Toyota more room to respond as Chinese automakers continue rolling out electric and hybrid models at speed.
Bear Case
Efficiency, however, isn’t the same thing as competitiveness. Toyota’s two joint ventures accounted for 7% of China’s passenger-vehicle sales during the first eight months of 2026, behind BYD, Geely Auto and Volkswagen. Back in 2021, the two ventures ranked second behind Volkswagen. The physical footprint can be seen shrinking too. FAW Toyota’s dealer network has fallen more than 15% from its 2022 peak of 773 stores to 651 this year. GAC Toyota’s network has declined more than 10%, from 693 dealerships to 620.
Local competitors have meanwhile gained share with rapidly developed electric and hybrid vehicles. Russo put the problem bluntly, saying that greater efficiency will not, by itself, restore the relevance of Toyota’s products. And Toyota isn’t operating in an easy market. Official data cited by Reuters put profit margins for China’s vehicle-manufacturing industry at just 1.5%, the lowest in nearly a decade, as years of capacity expansion and aggressive price competition squeeze the industry.
Conclusion
A potential reshuffling of Toyota’s Chinese partnerships would be meaningful, but mainly because of what it says about how much the market has changed. The old structure was designed to capture growth. Today’s challenge is different, revolving around cutting duplication, moving faster, and competing with Chinese manufacturers that have become much stronger in the technologies local buyers increasingly want.
Toyota still has considerable scale in China, and bringing its operations closer together could make that business more efficient. But the numbers also explain why restructuring alone won’t settle the argument. Its two ventures have slipped from second place in 2021 to a 7% passenger-vehicle share through August this year. A leaner Toyota would be a start, but whether Chinese buyers find the next generation of Toyotas compelling is the much harder part.
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This article is originally published at Insider Monkey.
