Volkswagen to Build Electric Cars in China

Volkswagen AG is in talk with a Chinese state-run company about the possibility of creating a joint venture to make electric and hybrid cars in China.

The German car maker announced Wednesday that it has signed a preliminary agreement with China Anhui Jianghuai Automobile Co. (JAC Motor) for a potential partnership. In a separate statement, Jianghuai said the companies will share equal ownership of the joint venture, and are aiming for a formal agreement within five months.

“We believe this cooperation would not only benefit our two organizations, but would also be of great value to our customers, a sound environment and the Chinese society in general,” Volkswagen CEO Matthias Mueller said in a statement.

Under China government rules, foreign car makers must partner with local car makers to produce cars. Volkswagen currently partners with two car makers in China: SAIC Motor Co. and FAW Group Co. The company’s sales in the country grew by 6.9 percent in the first six months of 2016. Sales in China accounted for a third of its global vehicle sales.

“You may get a better agreement from a company who values your technology more. SAIC and FAW may already have [electric-vehicle] technologies and do not need VW as much as JAC,” said Bill Russo, a Shanghai-based managing director at consultancy Gao Feng Advisory Co.

Volkswagen plans to develop around 30 new battery-powered electric vehicles over the next 10 years, which could account for 25 percent of company’s total sales.

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