Volkswagen is spending 2 billion euros ($ 2.2 billion) to expand its presence in China's electric car industry in the largest foreign investment announced since the country's economy began to reopen after the coronavirus pandemic.
Volkswagen AG said on Friday that it would buy control of its electric vehicle venture with a Chinese partner in a € 1 billion ($ 1.1 billion) deal. The German automaker said it would spend another 1 billion euros ($ 1.1 billion) to become the largest shareholder in a battery producer.
The ruling Communist Party eliminated the limits on foreign ownership of electric vehicle manufacturers in 2018 to promote the development of the industry. Beijing sees electric cars as a profitable technology, in which China can become a global leader.
China accounts for about half of the world's sales of electric cars, but demand fell when Beijing reduced its billion-dollar subsidies and shifted the burden to automakers by imposing sales quotas. Sales of hybrid models of pure electricity and gasoline-electric fell 43.4% in the first four months of this year compared to the previous year, to 205,000 vehicles.
VW, General Motors Co., Nissan Motors Co. and other brands are spending a lot to develop models that can compete on price, range and features without subsidies.
Beijing announced in April that subsidies to buyers and producers that were due to end this year would be extended until 2022 to support falling demand.
Volkswagen said it will acquire 50% of the Jianghuai Automobile Group, parent of its electric vehicle partner, JAC Volkswagen, and increase its stake in JAC from 50% to 75%. He said the transaction is expected to close this year, subject to regulatory approval.
"By gaining managerial control, Volkswagen is paving the way for more electric models and infrastructure," said the company's announcement.
VW said it was also acquiring 26% of battery supplier Gotion. The company said it made it the first global automaker to invest directly in a Chinese battery manufacturer.
GM, Nissan, BMW AG and other automakers also have joint ventures with Chinese partners to develop low-cost electric models.
Tesla Inc. is the first foreign brand to establish a wholly owned venture in China. Its Shanghai plant delivered its first electric sedans to customers in January.