Following Tesla steps, Volkswagen AG is in talks with Chinese electric vehicle (EV) firms for investment deals in China. China has established itself as the largest market for electric cars and has been stirring investment interest from automakers from around the world.
The German company is buying 50% of Anhui Jianghuai Automobile Group Holding, the parent of EV partner JAC Motors for 3.5 billion yuan ($491 million) according to Reuters.
In 2019, Tesla ventured into China to become the first foreign company to establish an auto making plant in the south Asian country. With huge interest in environmentally friendly cars, China has become the biggest market for the automobile industry.
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Volkswagen is also investing in EV battery maker Guoxuan High-tech Co Ltd, with the aim of becoming the highest shareholder according to the report.
China’s 2018 review of government ownership rules to allow more foreign direct investors has resulted in the surge of interest among western carmakers. And New Energy Vehicles (NEV) is becoming the focus as calls for cleaner energy continue. Volkswagen is keenly looking to retain its position as the highest car producer in China.
China sold 25 million cars at the end 2019 to maintain its position as the world’s biggest auto market. According to Reuters, Volkswagen targeted Anhui Jianghuai, a state owned company in the eastern city of Hefei. Part of its core assets is 25.23% stake in JAC, with a market value of $1.84 billion.
According to people familiar with the matter, Volkswagen plans to make fresh investment in its 50:50 venture with JAC, and build capacity with its modular MEB platform, an architecture enabling efficient production of various EV models.
Volkswagen interest in China is not limited to car manufacturing. Battery is also becoming of huge interest. The company plans to buy about 27% of Guoxuan mostly via a discounted private share placement as well as from top shareholder Zhuhai Guoxuan Trading Ltd, which holds 18%, and the founder Li Zhen, who owns 12%.
The Guoxuan’s market capitalization stood at $4.3 billion, which means that a 27% stake is worth $1.16 billion.
Volkswagen also has investment with another Chinese company, state-owned China FAW Group Corp Ltd and SAIC Motor Corp Ltd.
While the deal remains confidential, Guoxuan has stopped trading its stock since May 20. The company said on Tuesday that Zhuhai Guoxuan and Li Zhen would sell part of their holdings to a strategist whose identity was not made known. It added that the shares will be issued via private offering.
The deal is yet to be finalized and there is a tendency for change in investment sizes according to the sources.
Volkswagen’s big dream to be the biggest player in the automobile industry lies on finding its place in the world’s biggest automobile market, and putting up a fierce competition. The company aims to sell 1.5 million new energy vehicles in China by 2025.
The company told Reuters that it is poised to deepen its relationship with local partners and thereby secure long-term deals.
“Volkswagen consistently searches for ways to strengthen and deepen our relationship with local partners. In this regard we will explore possible options together with all stakeholders to secure long-term success.”
The German automaker is pushing to get over the strains of the 2015 scandal that rocked its market value and cost it billions in fines and legal fees. Volkswagen admitted that it installed software that lowered harmful emissions of nitrogen compounds under test conditions. The case involved 11 million vehicles produced by the Volkswagen Group.
Volkswagen has been made to pay more than €30 billion around the world in fines, compensation and legal costs since 2015 when the scandal became known. The company’s reputation and value went down so fast that investors feared it would take a long time to make up for the losses.
The company has struggled to break off the shackles of the scandal. With a new wave of suits springing up now and then, Volkswagen appears to be tied to the regrettable past. Its executives admitted that the scandal has pushed them to venture into electric vehicles faster than the company should, in a bid to repair the company’s reputation.