广汽集团与一汽股份签署重组意向协议，一汽股份将成广汽第二大股东；广汽A/H股双双停牌

HONG KONG -- Two major Chinese state-owned carmakers are weighing a resource consolidation amid Beijing's push to rein in overcapacity.
Guangzhou Automobile (GAC) Group said on Monday that it has reached a stake acquisition agreement with First Automotive Works (FAW) Group, paving the way for the latter to become its second-largest shareholder with "strategic influence".
The deal was designed to "optimize" and "integrate" the industrial resources of the two state-owned automakers, GAC Group said in a filing to the Shanghai Stock Exchange.
Under the Agreement of Intent signed on Monday, GAC Group will acquire part of the equity interest in an automobile manufacturing joint venture held by FAW Group and raise supporting funds through the issuance of A shares.
The transaction will also involve an overseas listed company and a related-party transaction, the announcement said without elaborating.
Shares of GAC Group were suspended from trading in Hong Kong and Shanghai earlier in the day. Following the announcement, its Shanghai-listed A shares will remain suspended for no more than 10 trading days.
Established in 1953, Changchun-based FAW Group is controlled by the State-Owned Assets Supervision and Administration Commission. Its luxury brand Hongqi has been used as the official car of successive Chinese leaders, including President Xi Jinping.
A stake transfer between the two leading Chinese automakers could herald a new season of consolidation in the country's hypercompetitive car industry.
China's state-owned carmakers -- which in the gasoline car era relied on their ventures with foreign legacy marques as cash cows -- are now bleeding heavily amid a subsidy-driven electric vehicle boom.
Compared with the nimbleness of local EV upstarts and their breakneck pace of innovation, the state-owned automakers' slow transition to EVs has dragged their financial results into the red. GAC Group's first-half net loss widened 76% year on year to 4.5 billion yuan ($670 million). The Guangzhou city government controls about two-thirds of the automaker via several investment companies.
BAIC Motor, a Chinese joint-venture partner of Mercedes-Benz owned by the Beijing city government, reported a net loss of 1.59 billion yuan for the six months, compared with a profit of 360 million yuan a year earlier.
Full financial disclosure at FAW Group is unavailable as the group has listed only part of its assets, while its truck arm recorded a 1,459% increase in profit in the first half of the year. The group acquired a 5% stake in homegrown EV startup Leapmotor for 3.74 billion yuan in December. Both companies sealed a deal last month to explore "in-depth" collaboration in areas like capital cooperation, assisted and intelligent driving, and finance.
In China, GAC Group and FAW Group are partners of Japan's Toyota. First-half sales declined 6.3% year on year at GAC-Toyota and 27.4% at FAW-Toyota. FAW Group also operates joint ventures with Volkswagen in China.
Overcapacity and a prolonged price war have some analysts anticipating a consolidation that could reshape China's competitive landscape.
"We believe the divergent performance trend should... eventually lead to market consolidation, with top-tier automakers gaining market share faster," Citi analysts wrote in a research note earlier this month, singling out BAIC Motor and GAC Group among six loss-making Chinese carmakers during the second quarter.
The market share commanded by the top five Chinese EV brands rose by 1.4 percentage points to 53.5% in July from the previous month, according to Citi.
Last week, China's top economic planning agency signaled support for mergers among major auto groups to "effectively" consolidate production resources and avoid "homogeneous" competition, an official of the National Development and Reform Commission said at a briefing.
However, some earlier attempts faced strong resistance. Last year, a proposed merger between state-owned carmakers Dongfeng Motor and Changan Automobile fell apart due to government concerns about the potential impact on local employment, according to people familiar with the matter.
The quoted price of GAC Group's Hong Kong-listed stock rose 8.6% on Monday before the suspension.