China's domestic vehicle sales fell 23% to 1.903 million units in September 2026 while exports surged 61% to 1.053 million, according to CAAM wholesale data — and the squeeze has now triggered the first big restructuring move among state-owned automakers.

In September, GAC Group and FAW Group signed a letter of intent for GAC to acquire FAW's 50% stake in FAW Toyota. The letter of intent, not a closed deal, paves the way for closer integration of Toyota's two Chinese joint ventures in R&D, procurement and product strategy. FAW Toyota was established in 2000, with Toyota and Toyota Motor China Investment holding the other 50% of the equity. Its sales fell 20% to 395,000 vehicles in the first eight months of 2026, according to industry data.

How weak is the broader market?

Total sales of Chinese-made vehicles, including exports, dropped 8.4% year-on-year to 2.956 million units in September, after a 15% rise to 3.226 million a year earlier. Production declined 8.7% to 2.990 million units. Light passenger vehicle sales fell 9.5% to 2.588 million units; commercial vehicles were flat at 368,000.

For the first nine months of 2026, total sales declined 4.5% to 23.271 million units. Domestic sales fell 19% to 15.066 million units. Exports surged 66% to 8.205 million units, including a 32% rise in non-NEV shipments to 4.199 million. NEV sales rose 10% to 12.472 million units — but domestic NEV sales fell 11% to 8.466 million while NEV exports jumped 130% to 4.006 million. GlobalData forecasts a 19% decline in China light vehicle sales to 21.8 million units in 2026, down from 26.9 million in 2025.

Policy is doing some of the work. Subsidies and tax exemptions for NEVs ended last year, dragging demand, while the trade-in subsidy programme was extended to end-2026. GDP growth slowed to 4.3% in Q2 from 5.0% in Q1, and government consumption measures have been offset by rising fuel and energy prices from the Middle East war.

Why are foreign JVs consolidating?

Estimates put China's production overcapacity as high as 20 million vehicles per year, despite plant closures and the export surge, and a significant share sits with foreign joint ventures still dependent on ICE and hybrid volume. SAIC-VW sold 1,024,000 units in 2025 and SAIC-GM 535,000 — both down from peaks above 2 million less than a decade ago. FAW-VW sold 1.59 million last year, down from 2.2 million in 2020; Hyundai-Kia fell to 464,000 from 1.8 million ten years ago. Honda and Nissan show similar declines.

Foreign strategies have shifted from importing technology for local share toward tapping Chinese supply chains and exporting from China. VW Group's partnership with Xpeng — covering EV platforms and software architecture, with Xpeng supplying R&D services — is the template, though VW's China sales continue to fall as local OEMs dominate mass-market NEV segments.

Who gained and who lost?

• SAIC Motor: group sales down 1.4% to 3,147,080 units; overseas up 52% to 1,165,588; SAIC-VW down 35% to 492,643.
• BYD: down 4% to 3,131,576 units; domestic down 33% to 1,788,616; overseas up 92% to 1,342,960.
• Geely (ex-Volvo, Polestar, Proton): up 3% to 2,235,481, with overseas sales up 169% to 797,670.
• Chery: up 10% to 2,206,789, exports up 66% to 1,551,178.
• Changan: down 18% to 1,692,666. GAC Group: down 3.5% to 1,141,237. Great Wall: 920,302, overseas up 42%.
• Tesla Shanghai: up 23% to 743,060 units, with exports up 108% to 361,972 and China retail down 12% to 381,088.

Note what the GAC-FAW announcement does not say: no price, no timeline, no word from Toyota on how it will govern two JVs under one state partner. A letter of intent is an intention, not a completed transfer.

Watch next: whether the FAW Toyota stake sale closes before year-end, whether the trade-in subsidy extension stabilises Q4 domestic volumes, and whether other foreign JVs follow the consolidation route as GlobalData's 21.8 million forecast bites.