Guangzhou Automobile Group (GAC), a major Chinese state-owned automaker, is struggling with intense price competition in the electric vehicle market, reporting losses of RMB 8,300 (USD 1,221.8) per vehicle sold under its brands at one point in 2025.
The rapid deterioration in the company’s performance could impact negotiations over its joint venture contract with Japan’s Honda Motor, an agreement that is set to expire in 2028.
“In China’s market in 2025, the decline in prices for our main models was the steepest in the past five years,” GAC said in materials distributed in mid-March, when it said it expected a net loss for the year ending December 2025. This would mark the company’s first full-year loss since its listing on the Hong Kong Stock Exchange in 2010.
GAC’s EV brand Aion ranked third in retail sales of new energy passenger vehicles in China in 2023, behind BYD and Tesla. The line was seen as a success, especially as the state-owned automaker had fallen behind in EVs for younger buyers.
But conditions changed dramatically in just two years. In 2025, GAC’s sales of vehicles under its own brands, just over 30% of total sales, fell 20% from the previous year to 600,000 units. Including joint ventures, overall sales dropped 14% to 1.72 million units. The results contrast with those of rivals such as BYD and Geely, which posted increases over 2024, as well as newer players like Xiaomi and Xpeng, which also gained ground.
Aion, which had been growing, relied heavily on business use sales, such as for ride-hailing and taxis, leading some to note that its brand image among general consumers had fallen.
GAC said it offered discounts of RMB 15,000–30,000 (USD 2,208–4,416.1) at dealerships in an effort to bolster sales, but volumes failed to recover and the discounts eroded profit margins.
In addition, rising material costs and higher fixed expenses because of lower factory utilization pushed per-unit costs up 20% to RMB 121,600 (USD 17,899.7), higher than revenue per unit of RMB 113,300 (USD 16,678). As a result, at the gross profit level, the company incurred a loss of RMB 8,300 (USD 1,221.8) for each vehicle sold.
Amid these developments, attention is turning to GAC Honda, a joint venture co-owned by GAC and Honda Motor. The two automakers agreed to a 30-year contract in 1998, and the following year Honda became the first major Japanese player to begin passenger car production in China, laying the foundation of its business in the country. The agreement is now set to expire in two years.
Honda’s earnings have also deteriorated. On May 14, the company reported a net loss for the fiscal year ended March, its first since going public. While much of this was because of losses associated with halting EV development in North America, the slump in its China business was also significant.
GAC Honda’s sales had grown to 800,000 units in 2020, but the company lagged in the shift to new energy vehicles in the Chinese market. Sales fell to 340,000 units in 2025, down 60% from 2020. While Toyota Motor and Nissan Motor have been rolling out new EV models, GAC Honda has not introduced any additional models since April 2025.
In mid-April, Honda CEO Toshihiro Mibe traveled to Guangzhou, where he met with GAC executives to discuss the joint venture.
GAC appears eager to continue the venture. Although its sales are falling, GAC Honda still accounts for 20% of the Chinese automaker’s annual revenue. In the materials disclosed in mid-March, GAC said that under GAC Honda’s five-year plan, business is expected to begin improving significantly in 2027. But GAC will need to improve its own performance to remain an attractive business partner if it wants to persuade Honda to extend the life of the venture.
The company also established a joint venture with Toyota in 2004, dubbed GAC Toyota. The partnership began with the production of the Camry sedan. Sales of new vehicles by GAC Toyota rose 0.3% in 2025, according to Toyota. The two automakers are strengthening their cooperation on EV development.
GAC is partnering with Chinese firms as well. In June, the company plans to launch its first EV under a new energy vehicle brand developed with Huawei Technologies called Qijing. The brand, aimed at the high-end segment, will incorporate technologies from Huawei and battery maker Contemporary Amperex Technology, or CATL.
In April, total new vehicle sales in the Chinese market, including exports, dropped 2.5% on the year. Despite headwinds such as a reduction in a tax credit for the purchase of new-energy autos, GAC secured a 4% sales increase, supported in part by the launch of new Aion models. The company aims to capitalize and recover with an additional rollout in June.
“Honda hasn’t made any decisions yet about what to do with the joint venture,” a person familiar with the matter said. To find a meaningful result for the venture, both GAC and Honda will need to identify a winning strategy for the Chinese market, which has greatly changed over the past 30 years.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.
Note: RMB figures are converted to USD at rates of RMB 6.79 = USD 1 based on estimates as of June 8, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.