Volkswagen has cleared an important hurdle in its push to produce electric cars in China. Beijing’s top planning authority has approved the German carmaker’s joint venture with its Chinese partner, Jianghuai Automobile Group (JAC Motor), both companies confirmed to Handelsblatt.
With that, VW has announced it will start selling the first fully electric cars in China. The pure battery vehicles are expected to roll off the assembly line later this year and will come with a new brand name. Under the joint venture agreement, Volkswagen and JAC Motor will produce 100,000 e-cars annually. According to JAC Motor, which is state-owned, the 25-year partnership is worth more than 5.1 billion yuan, or $727 million. A Volkswagen spokesperson in Beijing confirmed an agreement had been concluded but declined to comment on the size of the investment.
It’s a bold move: Volkswagen is playing catch-up in matters of electric mobility in China. To change that, the Wolfsburg-based carmaker aims to sell 400,000 e-cars and hybrids – cars which combine combustion engines and electric motors – in China by 2020. Five years later, it is hoped that number will rise to 1.5 million vehicles.
The Chinese leadership promised to ease proposed quotas after a direct intervention by German Chancellor Angela Merkel.
The e-cars are slated to be produced at a site belonging to JAC Motor. The Chinese company revealed a production plant and development facility would be built close to its headquarters in Hefei, the capital of Anhui province in Eastern China.
China is the leading global market for electric mobility as the Chinese government attempts to combat smog in the heavily-polluted country. Last year, 507,000 e-cars and hybrids were sold, 53 percent more than the previous year. The government is still supporting the market with lavish buyer subsidies. But it plans to scale back the inducements by forcing carmakers to adhere to strict targets on e-car sales. German carmakers in particular are concerned they wouldn’t be able to meet the targets so quickly.
Foreign Minister Sigmar Gabriel, in comments on Wednesday during a visit to Beijing, said German automakers would not face any reprisals.
“The Chinese side has made it very clear to us that they don’t intend to discriminate against German manufacturers when it comes to the introduction of electric cars – quite the opposite,” Mr. Gabriel said, as quoted by news agency Reuters.
According to Reuters, the foreign minister also said that progress had been made on one of the most disputed issues: the location of production, which China wants to see take place domestically.
“There is no coercion to relocate research and development units,” Mr. Gabriel said after talks with Chinese Premier Li Keqiang and Foreign Minister Wang Yi.
Although the Chinese leadership promised to ease proposed quotas after a direct intervention by German Chancellor Angela Merkel, Chinese politicians have again been putting on the pressure in recent weeks. According to Handelsblatt’s sources within the government, Premier Li Keqiang wants the European Union to recognize China as a market economy – but on his country’s terms.
Market economy status is important to Beijing because it makes it harder to impose punitive trade measures on a country. Mr. Li is planning to add weight to his demand during a visit to Berlin at the end of May. China could withdraw incentives to German carmakers for selling electric cars. For the Germans, that would represent a broken promise.
The topic is likely to come up again when Chinese President Xi Jinping and Prime Minister Li Keqiang will visit Berlin next week.
Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. To contact the author: email@example.com