(Yicai Global) Aug. 7 -- China's three state-owned automakers First Automobile Works (FAW), Dongfeng Automobile and Chang'an Automobile are forging closer ties as the car industry shifts gears toward an electric, intelligent, connected and shared future.

This is a consequence of the slow development of their independent brands, underperformance and intensifying competition, an insider said.

The three carmakers announced their setup of a joint venture last month for a ride-sharing platform that uses intelligent driving technologies to offer Uber-style services, state China Daily reported. 

This is not the first time they have teamed up, however. The three signed a framework agreement to jointly establish a technology innovation center in December, per which they will invest in and develop light-weight novel technologies for intelligent, connected new energy vehicles and share their results.

"Private companies such as Geely and Chang'an Automobiles have gained market share and boosted their technology while these large state-owned enterprises have dallied in developing their independent brand products, so they must band together now and cooperate," Zeng Zhiling, managing director of LMC Automotive Consulting told Yicai Global.

"Their previous business models will be unsustainable in the new market competition and policies. Propelling their business capacity in the frontier field is thus urgent," Zeng said.

Shanghai-based SAIC Motor has undergone quite rapid growth among the four biggest state-owned carmakers, but the independent brands of the other three have underperformed.

Dongfeng sold 1.9 million vehicles in the first half, up 3.6 percent annually, with joint-venture brands mainly driving growth, while many of its own marques declined in the period. FAW sold 1.7 million vehicles in the first half, up 7 percent per year, and its JV brands also drove its growth.

Chang'an's performance was even more dispiriting. It sold 1.2 million vehicles in the half, down 15.5 percent per year. Both its JV and independent brands declined. It recently issued a performance warning, projecting net profit attributable to shareholders will plummet 63.2 to 67.5 percent per year.

The sluggish performance of their independent brands has prompted the closer cooperation among Dongfeng, FAW and Chang'an, though they have all denied merger rumors.

The initial focus of their cooperation will be NEVs, said Xu Qian, AlixPartners investment consulting director and head of its automotive business in Greater China. Compared with China's leading companies in the NEV sector, such as SAIC, BAIC and BYD, the three parties' deployment in the new energy technology sector is clearly inadequate.

The trio has thus decided to band together to carve out greater market share, reduce redundant research and development and so introduce mature NEVs that are popular in the market, Zeng also noted.

"The technological alliance formed by the three automakers can lower product development costs and they can still develop new products independently on their respective platforms. By allying amid savage competition, they are attempting to secure their foothold in the marketplace."

Compared with the three automakers, SAIC Motor, another large state-owned automaker, has had quite a sound performance.

SAIC's sales volume reached 3.5 million in the first half, up 11 percent annually. The sales volume of SAIC Motor Passenger Vehicle, a wholly-owned subsidiary and a self-owned brand of SAIC group, rose over 50 percent.

"SAIC now enjoys the best momentum among the four major automaker groups, and the alliance of the three major automakers will not pose a threat to it," Zeng explained. "By cooperating with joint ventures, SAIC has absorbed and internalized many technologies and has comparatively sound strategic planning in intelligent and electric vehicle technologies."

"At this stage, SAIC is less likely to cooperate with the other three major automakers, because it is fully able to follow its own path, but this does not rule out future cooperation," Zeng said.

Editor: Ben Armour