Volkswagen, one of the first global automakers to establish production facilities in China during the 1980s, yesterday extended its joint venture with FAW Group by 25 years.
Reuters/Berlin
Volkswagen extended its joint venture with China FAW Group Corp by 25 years, as the German manufacturer steps up its bid for the global autos throne by targeting an increasing share of the world’s biggest car market.
European and US carmakers are keen to raise their presence in China, but have been confined to owning 50% or less of joint venture companies run together with Chinese enterprises.
Although Chinese demand is slowing somewhat, car sales in the world’s No. 2 economy have still been up over 10% this year, helping global players such as VW cope with a fragile recovery in its European home market after a six-year slump.
VW, one of the first global automakers to establish production facilities in China during the 1980s, has the biggest manufacturing output and has been working with FAW for over two decades.
By extending the joint venture from 2016 to 2041, VW and FAW will expand their R&D activities and step up work on fuel-saving technology, VW said.
“Enhancing ties with its Chinese partners is a must for VW, which is overly dependent on the market,” Frankfurt-based Bankhaus Metzler analyst Juergen Pieper said.
Wolfsburg-based VW, which also has a joint venture with China’s SAIC Motor Corp, last year sold almost 3.3mn cars in China, its biggest market, about a third of its record global deliveries of 9.73mn.
The German behemoth, whose 12 brands include ultra-luxury marque Bentley and heavy-trucks manufacturer Scania, has enjoyed a period of sustained growth, boosted by emerging market buyers. It is set to hit a 10mn sales target in 2014 – four years early – underscoring its bid to eclipse global sales champion Toyota.
Nine-month group deliveries in China, including the Audi luxury brand and sports-car maker Porsche, jumped 15% to 2.72mn autos, VW said yesterday in a separate statement.
The contract extension with FAW was signed yesterday on the occasion of talks between German Chancellor Angela Merkel and Chinese Premier Li Keqiang in Berlin.
The length of the extension appears customary. VW’s second joint venture with SAIC was extended in 2002 by 28 years until 2030. BMW in June extended its partnership with Brilliance China Automotive Holdings until 2028.
Europe’s largest carmaker said in July it would invest €2bn ($2.53bn) with FAW to build two more assembly plants. The German group currently operates eight car-making factories and nine component plants in China.
VW said it would spend about 100mn euros with SAIC on a new test site and proving ground near the northwestern town of Urumqi where the carmaker opened a factory last year. The German group has also been in talks with FAW for some time about a possible increase of its 40% holding in the venture.
Many industries in China have come under the spotlight as authorities step up efforts to bring companies into compliance with an anti-monopoly law enacted in 2008. The car sector has been under particular scrutiny amid accusations by state media that global carmakers are overcharging customers.
Still, Keqiang, in a guest commentary for German newspaper Die Welt published on October 8, said Chinese authorities would “favourably examine” VW’s quest for a larger stake in FAW. In return, his government hopes Germany will allow Chinese companies to bid for German high-speed rail projects.
Separately, German automaker Daimler and Beijing Automotive Industry Corp agreed to deepen a strategic partnership that will include further localisation of luxury cars by the German manufacturer worth about 1bn euros, Daimler said yesterday.
