As Europe slides into recession following the pandemic, Volkswagen AG has decided to gamble big. They are investing 2.1 Billion euros, approx $2.33B, in two Chinese electric car manufacturing companies with the aim of bolstering their dwindling European sales.
They will take a 50% stake in Anhui Jianghuai Automobile Group ( Jac Motors ). The aim is to launch more electric cars by 2025 and establish a strong base in China. These New Electric Vehicles or NEV’s as they are known are gaining popularity both in China and around the globe for their quiet, pollution reducing qualities. Combined with battery electric cars Volkswagen hopes to be able to sell an additional 1.5 million cars which will also include plug-in hybrids by the year 2025. This 1 billion euro investment is quite a risk given the proposed changes in operations for the German giant.
The other investment is a 1.1 billion euro purchase of a 26.5% stake in Guoxuan High-Tech Company Ltd who manufactures batteries for electric vehicles. Thus Volkswagen is looking for some backward integration and aiming to mitigate their risks. The stake in the Company guarantees batteries for the cars they are embarking to produce in China.
Volkswagen appear to be retracing the steps of Tesla who were the first foreign automaker to wholly own a car manufacturing plant in China. The Chinese Government has been relaxing rules for inward foreign investment to China enabling these huge investments to take place. Last year the Chinese market saw 25 million NEV cars sold in the Country.