Workers on the production line at Anhui Jianghuai Automobile Co in Hefei, Anhui province. [Photo/China Daily]

Chinese auto firm to establish new-energy vehicle joint venture with the German automobile giant

German carmaker Volkswagen AG is to set up a 50:50 joint venture on new-energy vehicles with China's Anhui Jianghuai Automobile Co, according to a memorandum of understanding the two signed in Germany on Wednesday.

The two have agreed to enter into discussions to evaluate the perspectives and feasibility of a new joint venture that will focus on research, manufacturing and sales of new-energy vehicles and spare parts, said Volkswagen in an e-mail to China Daily.

Details such as the timeframe have yet to be specified but the two automakers aim to sign a formal agreement on their partnership within five months, as laid down in the MOU.

JAC is one of the major Chinese carmakers without a foreign partner. It delivered 333,639 vehicles and chassis in the first six months of 2016, 14.15 percent growth year-on-year.

The initial contact between the two carmakers started after Premier Li Keqiang's visit to JAC in October 2015. Chinese media reported that JAC told Li of its intention to work with Volkswagen, and Li agreed to convey the message.

Zhang Zhiyong, an independent auto analyst in Beijing, said JAC will gain from the move.

"JAC is betting big on new-energy vehicles to boost its performance, so it has long shown a strong intention to join forces with international automakers so that it can gain financial and technological support."

JAC sold 9,720 new energy vehicles in the first half of the year, surging 261 percent year-on-year, according to its mid-year financial report.

Experts believe the move will also help to promote Volkswagen's e-mobility strategy, as China has become the world's largest new-energy vehicle market.

The automaker said in June that it intends to develop more than 30 new, purely battery-powered electric vehicle models by 2025 worldwide, with annual sales reaching two to three million units.

Matthias Muller, Volkswagen's CEO, told China Daily in an earlier interview that "China will be the fastest-growing market for NEVs worldwide, and Volkswagen aims to be at the forefront of electrifying China".

However, John Zeng, managing director of LMC Automotive Consulting Shanghai, said setting up a new joint venture is "not that necessary".

He said it can arrange new-energy vehicle production in its existing facilities, but he admitted that a new partnership dedicated to purely electric cars would be easier to manage.

Volkswagen now has two joint ventures in China, one with FAW Group and the other with SAIC Motor, and both of them specialize in passenger cars.

The fact raises the concern of how Volkswagen and JAC would specify the nature of their cooperation as one international automaker is now allowed to have no more than two partners in the same category in China.

Zhang said if the deal gains the nod from the authorities, it may signal a change in automotive policies, including whether China should allow international carmakers to have more partners and whether it should lift the 50 percent cap on foreign ownership.