October 23, 2020

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    German automaker Volkswagen AG is in final talks to seal its largest investment deals with Chinese electric vehicle companies, two sources said, as the German automaker speeds up its push into the world’s largest auto market for eco-friendlier cars.

    The firm is poised to purchase 50% of Anhui Jianghuai Automobile Group Holding, the parent of electric vehicle partner JAC Motors, for about 3.5 billion yuan ($491 million), the people said on condition of anonymity.

    It is also set to become the biggest shareholder of the electric vehicle battery maker Guoxuan High-tech, the people said, adding both deals could be declared as early as Friday.

    Volkswagen refused to comment on the deals, information about which are reported here for the first time. JAC and Guoxuan declined to comment.

    The deals highlight how Volkswagen is eager to retain its status as the largest foreign automaker in China even as Chinese government’s measures decimate sales, in the face of encroaching competitors such as Tesla Inc which last year became the first foreign automaker to completely own a car plant.

    At the end of last year when 25 million vehicles were sold in the country – and right before the coronavirus was first reported in December – the government targeted 25% of 2025 annual vehicle sales to be comprised of new energy vehicles.

    The deals would make Volkswagen the recent foreign automaker to boost ownership in China since the government started to relax ownership regulations in 2018 with German automaker BMW AG quick to take control of its main local venture.

    Volkswagen target Anhui Jianghuai, based in the eastern city of Hefei, is wholly state owned. It counts its core asset as its 25.23% stake in JAC – officially Anhui Jianghuai Automobile Group, which has a market value of $1.84 billion.

    The Anhui provincial office of the State-owned Asset Supervision and Administration Commission refused to comment.

    After completing the deal, Volkswagen prepares to invest fresh capital in its 50:50 venture with JAC and build capacity with its modular MEB platform, an architecture allowing efficient production of various EV models, stated one of the people.

    JAC shares increased by their maximum 10% on the news on Wednesday, to trade at their highest level since mid-April 2019.

    Shanghai-listed JAC last week stated its parent planned to bring in a strategic investor, which will not result in change in its control.

    Volkswagen’s purchase of a stake in Shenzhen-listed Guoxuan, also based in Hefei, would become it first direct ownership in a Chinese battery maker.

    It prepares to purchase about 27% of Guoxuan mostly through a discounted private share placement and also from top shareholder Zhuhai Guoxuan Trading Ltd, which holds 18%, and founder Li Zhen, who owns 12%, said one of the people. Son Li Chen also owns 2.5%, showed filings to the stock exchange in May this year.

    Based on Guoxuan’s market capitalization of $4.3 billion, a 27% stake is worth $1.16 billion.

    Volkswagen has also got ventures with state-owned China FAW Group and SAIC Motor. It intends to sell 1.5 million new energy vehicles annually in China by 2025.


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