Changan and Dongfeng in Advanced Merger Talks as China Pushes Consolidation

• Changan and Dongfeng are reportedly at advanced stages of merger talks as the government-sponsored bid to consolidate China's automaking industry gains momentum.

• The proposed combine is expected to build a market powerhouse EV player to take on BYD's dominance and seek markets abroad.

• The two automakers own significant foreign joint ventures, providing strategic depth and richness to the merger.

China's state-owned auto industry is set for a radical shakeup. Two of the nation's historic players, Changan and Dongfeng, are said to be in deep merger negotiations, following Beijing's appeal to merge struggling state-owned automobile manufacturers and build competitiveness in the electric vehicle (EV) market.

The pressure to reform comes as China's former patchwork of state-owned auto titans strain to keep pace with BYD and other high-flying private-sector upstarts. While both Changan and Dongfeng have long-standing traditions and high volume — combined last year, 5.16 million vehicles sold — their shift to EVs has been relatively glacial.

According to a report in The South China Morning Post, confirmatory reports of detailed talks between the two have been on the cards, and both the firms have informed their foreign partners of the proposed partnership. Chongqing-based Changan already has partnerships with Ford and Mazda, while Wuhan-based Dongfeng is strongly associated with Nissan, Honda, Peugeot, and Citroen.

The negotiations accelerated after February announcements by both companies of a rumored government-backed restructuring with an unidentified third party. Although still theoretical, this restructuring would merge Changan and Dongfeng under one holding company — a development Morgan Stanley analysts think would be "of great importance to China's auto industry for the longer term."

Central to discussions regarding the merger are the Chinese government's vision to decrease duplication among its state-owned businesses and increase the international competitiveness of its automotive industry — more importantly, in the electric vehicle space. This was steadfastly articulated by Gou Ping, vice chairman of the State-owned Assets Supervision and Administration Commission, who emphasized strategic readjustment and improved allocation of resources in order to explore foreign markets.

As domestic private EV players such as BYD continue to lead the domestic market and make their mark overseas, the state is doubling down on consolidation to remain in the game.

If the Changan–Dongfeng merger happens, the new company could become China's biggest EV maker, even surpassing BYD in size. That possibility is significant not only for the Chinese domestic market, but also for global automakers who do business with both companies via joint ventures.

For the time being, foreign partners — and the world's automotive community — will be observing closely as China guides its state-owned champions into a new era of competition and consolidation.

Source: SCMP