Author | Gao Linglang Editor | Wang Gefa

On June 5, 2025, Changan Auto announced a pivotal milestone: its parent company, China South Industries Group, would spin off its automotive business to form an independent central enterprise. The same day, Dongfeng Auto confirmed it would not participate in this reorganization, quashing rumors of a merger that had swirled for four months.

This development has shifted market perceptions. Initially, analysts anticipated a mega-merger between Changan and Dongfeng, creating an automotive giant with annual sales exceeding 5 million vehicles. Instead, Changan Auto has emerged as an independent central enterprise, now on par with FAW and Dongfeng.

China South Industries Group's decision to spin off its automotive arm signifies a fresh approach to central enterprise reform. Unlike large-scale mergers, specialized division of labor may better align with the current transformation needs of the automotive industry.

In 2024, Changan Auto sold 2.68 million vehicles, with new energy vehicles accounting for 27% of total sales. The company invested 15.1 billion yuan in technology R&D. This independent operation will provide greater latitude for its new energy transformation and future growth.

Earlier this year, on February 9, both Changan Auto and Dongfeng Auto announced plans for reorganization by their controlling shareholders. Speculation immediately arose about a potential merger, with investors envisioning a superpower in China's automotive landscape.

Data supported the rationale behind merger speculations. Combined, Changan Auto's 2.68 million vehicles and Dongfeng Auto's 2.48 million vehicles would total 5.16 million, surpassing BYD's 3.01 million and making it China's largest auto group. Globally, this sales volume would rank among the top five.

The strategic significance of a merger extends beyond scale, encompassing complementary business structures. Dongfeng Auto excels in commercial vehicles and luxury off-road vehicles, selling approximately 600,000 commercial vehicles in 2024. Conversely, Changan Auto shines in passenger car exports, with overseas sales reaching 536,000 vehicles.

On March 29, Gou Ping, deputy director of the State-owned Assets Supervision and Administration Commission (SASAC), clarified at the Electric Vehicle Hundred People Forum that strategic reorganization in the auto industry should concentrate advantageous resources in R&D, manufacturing, and marketing.

Gou Ping's statement provided a policy foundation for merger rumors, noting that investments in new energy vehicles by the three major auto central enterprises increased by 35% in 2024, accounting for over 70% of total investments.

On April 11, Zhu Huarong, chairman of Changan Auto, first responded to the reorganization, stating that the integration plan was nearly complete, aiming to create a globally competitive world-class auto group. On May 27, Zhu reiterated that the reorganization would benefit Changan's development but emphasized that it would not alter its established strategy.

However, throughout the process, the specific reorganization plan remained undisclosed. It was only with the June 5 spin-off announcement that the market realized the reorganization's actual direction deviated significantly from expectations.

Changan Auto's elevation to an independent central enterprise signifies reduced management layers and enhanced decision-making efficiency, crucial for its new energy transformation.

As a first-tier central enterprise on par with FAW and Dongfeng, Changan Auto has gained unprecedented autonomy, having previously been a subsidiary of China South Industries Group.

Changan Auto's new energy business is experiencing rapid growth. In 2024, new energy vehicle sales reached 734,600, a 52.8% increase, accounting for 27.4% of total sales. This year, sales have already reached 350,900 in the first five months, a 46.89% increase. In May alone, sales surged to 94,800, a 69.88% increase, with new energy vehicles accounting for over 42% of total sales.

Changan Auto employs a multi-brand strategy to cater to diverse markets. Qiyuan targets the 80,000-300,000 yuan market, appealing to mass family users and serving as the sales cornerstone. Shenlan focuses on the 150,000-350,000 yuan mid-range market, attracting young consumers with its emphasis on technology and sportiness. Avitar, integrating the technological prowess of Huawei, CATL, and Changan, targets the high-end 200,000-700,000 yuan market.

May sales data validated the multi-brand strategy's efficacy. Qiyuan sold 36,600 vehicles, a 67% year-on-year increase; Shenlan sold 25,500, a 78% increase; and Avitar sold 12,800, a remarkable 179% increase. All three brands achieved rapid growth, demonstrating the success of differentiated positioning.

Robust R&D investment underpins technological competitiveness. In 2024, Changan Auto's total R&D expenditure was 15.158 billion yuan, including 2.67 billion yuan invested in Avitar. Over the past decade, the company has invested over 110 billion yuan in new energy and intelligent technologies, ranking among the top in Chinese auto companies.

The steady growth of new energy vehicles has begun to enhance Changan Auto's profitability. Zhang Deyong, the company's chief accountant, revealed at the shareholders' meeting that the Shenlan brand achieved monthly break-even in 2024 and can achieve overall profitability at a monthly sales level of 30,000 vehicles. The Avitar brand aims to reach the break-even point in 2026.

Independent operation will grant Changan Auto greater strategic autonomy. The company can swiftly adjust product planning and investment priorities in response to market changes, avoiding the coordination costs and decision-making delays inherent in large groups.

In an environment where new energy vehicle technology is rapidly evolving, this agility is invaluable. Changan Auto also plans to complete test flights of its new generation of flying cars by year-end and launch humanoid robots in 2028, showcasing its proactive stance in cutting-edge technologies.

Overall, Changan Auto's independence embodies a new direction in central enterprise reform. SASAC promotes specialized integration, mitigating the management complexities and cultural conflicts that large-scale mergers may entail.

This reform approach has precedents in other industries, such as the integration of China Shipbuilding Industry Corporation (CSIC) and China Shipbuilding Heavy Industry Group Co., Ltd. (CSIC Heavy Industry). However, the specialized spin-off in the automotive industry marks a first.

China South Industries Group's original business encompassed military equipment and automobile manufacturing, with significant differences in business attributes. Spinning off the automotive business facilitates specialized operation and market-oriented management. Post-spin-off, the automotive business will be directly managed by SASAC, while the military business will merge into China North Industries Group Corporation Limited.

Dongfeng Auto's decision not to participate in the reorganization leaves it facing the challenges and opportunities of independent development. The company sold 1.8959 million vehicles in 2024, falling short of the 3.2 million vehicle target set at the beginning of the year.

Most notably, Dongfeng Auto's joint venture business continues to face pressure. Sales of Dongfeng Nissan declined by 12.72%, Dongfeng Honda by 29.2%, and Dongfeng Peugeot Citroen Automobile Company by 15%. These joint venture brands were once the profit pillars of Dongfeng Auto but now grapple with market shrinkage.

Fortunately, Dongfeng Auto's independent brands have performed well. Dongfeng Passenger Vehicles sales increased by 82.4% in 2024, and sales of the high-end new energy brand HOVO grew by 59.3%.

In terms of new energy transformation, Dongfeng Auto sold 860,000 new energy vehicles in 2024, a 64.4% increase. This year, sales of new energy vehicles have reached 299,000 in the first five months, a 118.1% increase. These figures demonstrate Dongfeng Auto's competitiveness in this emerging field.

Going forward, China's auto central enterprises will form a new competitive landscape. In 2024, FAW Group sold 3.504 million vehicles, including approximately 400,000 new energy vehicles; Dongfeng Auto sold 2.48 million vehicles, including 860,000 new energy vehicles; and Changan Auto sold 2.68 million vehicles, including 730,000 new energy vehicles.

It is evident that the three companies are comparable in the traditional fuel vehicle sector but differ in the pace of new energy transformation.

The differentiated development of these three auto central enterprises is expected to drive further progress across the entire industry. FAW Group excels in high-end brands and technology R&D, Dongfeng Auto has advantages in the commercial vehicle sector, and Changan Auto stands out in passenger car exports and new energy transformation.

Generally, the complex nature of central enterprises often complicates the integration process. With Dongfeng Auto opting out of the reorganization and Changan Auto's independent upgrade, China's central enterprise reform and automotive industry competition have entered a new era of "efficiency first, professional deep cultivation".

Disclaimer: The content of this article is for reference only. The information or opinions expressed herein do not constitute any investment advice. Readers are advised to make investment decisions cautiously.