General Motors faces a “sharp and continued drop in profit” from its GM China joint venture in 2019 and beyond and might consider spinning off the JV, Morgan Stanley analyst Adam Jonas said in a note.

The strategic and financial options available to an automaker like GM in China “likely shrinks as profitability of the JV declines,” Morgan Stanley said.

GM, the largest US carmaker, has four plants in China through its 50:50 joint venture.

“A hypothetical spin-off of GM China to existing shareholders, while not the only option, might provide greater transparency of value and strategy as well as prevent financial resources and IP from moving from the parent company into the JV,” Jonas wrote. “GM has not indicated it is considering a spin-off of its Chinese JV and we have no knowledge of any such intent.”

GM and other top US car manufacturers have for decades relied on growing demand in China, the world’s largest vehicle market, to weather cooling sales at home. But demand is slowing as trade ties with the US fray. GM posted a 15 per cent drop in deliveries in China for the three months ended September 30.

Shares of the GM are down 14 per cent this year but have outperformed the Standard and Poor’s Supercomposite Automobiles & Components Index, which is down 28 per cent.

Jonas, who has an overweight rating and a $44 (Dh161) price target on GM, said its Chinese partner, Shanghai Auto “may be one company with a range of options to maximise the value of the operation,” although it hasn’t expressed interest in taking over its joint venture with GM.

“Our overweight rating on GM is based on our belief that management and the board are prepared to continue to take the steps required to allocate capital efficiently, re-assess the geographic and product portfolio, strike enabling tech partnerships and unlock shareholder value,” wrote Jonas.