(Yicai Global) Sept. 8 -- Volkswagen Group may set up a third joint venture in China, pushing the limits of the existing rule that foreign businesses can set up no more than two joint ventures manufacturing the same kind of vehicular products.
Anhui Jianghuai Automobile Co., Ltd. [SH:600418], better known as JAC Motors, released an announcement yesterday that it had signed a memorandum of understanding with Volkswagen China Investment Co., Ltd., a wholly owned subsidiary of the Volkswagen Group in China.
According to the MOU, both parties plan to set up a joint venture integrating R&D, production and distribution based on new energy vehicles. This will allow Volkswagen to improve its tarnished image after the emissions scandal of last year. Both companies hope to capitalize on the growing market for electric, or new energy vehicles.
VW and JAC hope to capitalize on the NEV sector in China, which has developed in leaps and bounds, giving a big lift to the country's automakers. Supported by government grants for eco-friendly cars, some 90 percent enjoyed earnings gains last year.
For example, Net profit at BYD Auto Co. [SHE:002594], the world's biggest maker of electric cars, surged six-fold to CNY2.85billion (USD437 million). BYD sold over three times more NEVs last year than a year earlier. Out of 69,222 vehicles sold by the company in 2015, 61,722 were NEVs.
However, both JAC Motors and Volkswagen stated they are striving to finalize negotiations and sign a formal agreement within as little as five months.
Whether regulators will allow this exceptional deal between the two carmakers, remains to be seen, however there were previous cases where Volkswagen operated business ahead of regulation.
"For instance, there was not a law concerning joint ventures when the Shanghai Volkswagen joint venture was established. Moreover, the call for lifting the equity stake limit on joint ventures also shows a trend that domestic policies for the auto industry are under adjustment, thus it is not impossible that regulators give a green light to the cooperation between the companies", auto analyst Zhang Zhiyong told Yicai Global.