Picture: ISTOCK
Picture: ISTOCK

Hong Kong/Frankfurt — Volkswagen (VW) is exploring purchasing a big stake in its Chinese electric vehicle joint venture partner JAC Motors and has tapped Goldman Sachs as an adviser on the plan, people with direct knowledge of the matter said.

The move by VW, the largest foreign car maker in China, to buy into Anhui Jianghuai Automobile Group (JAC Motors) is the latest by foreign car makers to boost ownership in the world's biggest car market since Beijing relaxed rules in 2018.

Rival German car maker BMW agreed in October to buy control of its main joint venture in the country for €3.6bn. And Daimler plans to increase its stake in local partner BAIC Motor.

The stake purchase move shows that JAC would be a key player in VW's big global bet on electric vehicles and on strong Chinese demand for such vehicles. VW plans to shift a large part of its planned electric vehicle production in China to JAC if it ends up getting control of JAC, said one of the people.

Foreigners were previously prevented from controlling any Chinese car maker or joint venture. In 2018, Beijing removed such caps for firms making fully electric and plug-in hybrid vehicles. Limits on commercial vehicle makers ease in 2020 and by 2022 for the wider car market.

Chinese Premier Li Keqiang promised the EU on Tuesday that Beijing would no longer force foreign companies to share sensitive know-how when operating in China and was ready to discuss new global trading rules on industrial subsidies.

VW, which has a market capitalisation of nearly $85bn, does not currently own shares in Shanghai-listed JAC, which has a market value of about $1.9bn, according to Refinitiv data.

The German car giant's plans are at an early stage but it is keen to take a big stake, said three of the people. Two of them said it will seek to buy shares from JAC's major shareholders, which, Refinitiv data showed, are mainly state-backed firms owning over 40%.

JAC's parent, Anhui Jianghuai Automobile Group Holding, holds a 24% stake and is fully controlled by the local government.

When contacted by Reuters, VW said: "We are carefully watching what the implications are for our business and for our joint venture partners. In this regard we will explore all possible options together with all stakeholders to secure long-term success in China."

JAC said in a stock exchange filing late on Wednesday that it has been talking to VW about deepening joint venture co-operation on new energy vehicles, but that no formal plan had yet been formed.

Goldman declined to comment. The people declined to be identified as the matter was confidential.

JAC shares again rose by their daily 10% maximum limit on Thursday, after rising 10% the previous day. VW shares ended slightly lower on Wednesday.

"The news shows the bargaining power of companies like JAC and BAIC is stronger, and VW's and Daimler's determination to co-operate with Chinese partners in the long-term is also firm," said Patrick Yuan, a Hong Kong-based analyst at Jefferies.

VW in China

Wolfsburg-based VW, which delivered 4.21-million cars in mainland China and Hong Kong in 2018, has operated in China for decades. Besides JAC, it has joint ventures with state-owned FAW Group and SAIC Motor.

It formed its 50-50 joint venture with JAC in 2017 to research and develop zero-emission passenger cars as the German vehicle maker has committed almost one-third of the industry’s electric vehicle spending, about $91bn.

Separately, South Korea's SK Innovation said it is in talks to set up separate battery-making joint ventures with VW and Chinese partners, Reuters reported on Wednesday.

JAC, China's 11th largest local vehicle maker by group sales, makes a range of commercial vehicles including pickup trucks and heavy duty trucks. It also produces vehicles for electric car maker NIO.

JAC warned in January of a 770-million yuan net loss for 2018 mainly due to a drop in car sales, compared to a 432-million yuan profit in 2017. Excluding exceptional items such as government subsidies, losses would reach 1.9-billion yuan, the company said. It will release annual results on April 30.