Two of China’s largest state-owned automakers, Dongfeng Motor and Changan Automobile, are in advanced discussions to merge, a deal that could create a powerful new player in the global auto industry while raising concerns for their American and Japanese partners.
The New York Times reported Tuesday that the two companies have held detailed negotiations and informed their foreign partners of their plans, according to sources familiar with the matter.
The merger would represent a major consolidation of China’s automotive sector, the world’s largest, as Beijing pushes for greater efficiency and an accelerated transition to electric vehicles (EVs).
Both Dongfeng and Changan currently have excess production capacity for gasoline-powered vehicles, and the Chinese government sees their union as a way to phase out older plants while bolstering EV production.
Together, Dongfeng and Changan manufacture about five million cars annually—more than Ford Motor and nearly as many as General Motors or Stellantis, the parent company of Fiat, Chrysler, and Peugeot.
Despite their scale, both companies have struggled with underutilized production lines.
A merger would allow the companies to consolidate operations, reduce costs, and compete more effectively with China’s growing roster of private EV makers such as BYD and Nio.
If Dongfeng and Changan are successfully reorganized, the new auto group will have annual sales of about 4.58 million units and will overtake BYD to become China’s No. 1 carmaker, as well as the world’s fifth-largest auto group, 36kr said in an earlier report.
Foreign partnerships with Ford, Nissan, and Honda under scrutiny
The proposed merger has raised concerns among the companies’ foreign partners.
Changan has been Ford’s primary partner in China for over two decades, while Dongfeng has long-standing joint ventures with Nissan and Honda.
If the newly merged entity shifts focus toward independent EV production, these partnerships could be disrupted, affecting foreign automakers’ presence in the Chinese market.
The deal could also attract attention from the United States.
Changan is owned by China South Industries Group, a military contractor, while Dongfeng is a key supplier of military vehicles to the People’s Liberation Army (PLA).
The merger could result in a larger state-backed military supplier, heightening scrutiny from the Trump administration and potentially complicating trade relations between China and the US.
China’s overcapacity in auto production is not sustainable
China has been grappling with a surplus of auto production capacity, fuelled by state-backed loans that have allowed automakers to 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 auto sector is at the start of a sweeping consolidation. We believe capacity cuts are necessary to restore profits, with many entities on an unsustainable path,” S&P Global said in an analysis.
Dongfeng’s factories operated at just 48% capacity last year, while Changan’s were at 47%, well below the profitability threshold of 60-80%.
With excess supply, China has been ramping up auto exports, triggering pushback from Western governments.
Both the US and the European Union have imposed tariffs on Chinese-made cars, aiming to protect their domestic auto industries from an influx of low-cost electric vehicles.
A growing military role
Beyond commercial vehicles, the merger could solidify Dongfeng and Changan’s role as major defense contractors.
Dongfeng has a history of producing military vehicles, including trucks, troop carriers, and launch platforms for missiles and drones.
In 2015, the company supplied 180 vehicles for a high-profile military parade in Beijing, and it is expected to play a similar role in the upcoming 80th-anniversary parade marking Japan’s defeat in World War II.
China has prioritized self-reliance in defense manufacturing, ensuring that military vehicles and components are produced entirely within the country.
Dongfeng has been at the forefront of this initiative, manufacturing everything from engines to the smallest screws domestically.
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