Landmark agreement could turn into a massive deal for both sides

In the midst of all the issues plaguing the company right now, the Volkswagen Group is still finding time to wheel and deal with new partners in an effort to further expand its business empire. The latest example of this comes as the German auto conglomerate has signed a memorandum of understanding with China’s Anhui Jianghuai Automobile, more commonly known as JAC in the auto industry, for a possible joint venture centered around developing electric vehicles for the Chinese market.

Specific details surrounding the partnership, including the investment size and business model of the possible joint venture, have yet to be revealed because no formal deals have been signed. The MOU, as it stands now, is also not legally binding until a final agreement is signed and approved by relevant bodies. According to Automotive News Europe, a formal agreement isn’t expected for another five months.

The German automaker did say in a press release that both parties intend to enter discussions on partnerships involving a variety of avenues, including research and development, manufacturing, sales, and zero-emission mobility services.

The two companies also plan to enter into a joint venture to develop, build, and sell electric vehicles in the Chinese market, a potentially lucrative arrangement for both Volkswagen and JAC given the growing popularity of electric vehicles in the market – sales of electric and plug-in hybrid models quadrupled in the country in 2015 and has no signs of slowing down – and the Chinese government openly embracing the models and pushing for consumers to buy them.

Continue after the jump to read the full story.

High stakes involved if this partnership pushes through

It may not sound like a big deal now since no formal agreements have been signed, but rest assured, when Volkswagen and JAC dots those i’s and crosses those t’s, this partnership could change the landscape of the EV market in China.

For Volkswagen, this deal could solidify its presence in the Chinese market, arguably the most important auto market in the world now that it has surpassed the U.S. as the largest market for pure electric vehicles. Thank the Chinese government for that for all the incentives it’s giving in it continued attempt to cut down on the country’s pollution levels. Having a partner like JAC is a huge step in the right direction for Volkswagen’s goal of becoming the biggest automaker in China, not because the Chinese company is the ninth biggest automaker in the country, but because it’s one of the most aggressive car companies in pushing for electric vehicles in the country.

Make no mistake though, as much as Volkswagen stands to get from partnering with JAC, the latter is likely to get more out of the deal simply because of Volkswagen’s place in the hierarchy of automakers all over the world. Scandals notwithstanding, the German auto conglomerate is still the second largest automaker in the world, only sitting behind Toyota in that category. Having Volkswagen as a partner immediately allows JAC to tap into the auto giant’s vast resources in an effort to grow its own business and climb up the ranks among local automakers in China.

Granted, the full scope of details surrounding the partnership are still being discussed, but if this deal does push through in a mutually beneficial way for both Volkswagen and JAC, it has a chance of becoming one of the biggest auto partnerships the industry has seen in a long time.

Press Release

Volkswagen Group and Anhui Jianghuai Automobile (JAC) aim for joint development of electric vehicles in China

Memorandum of understanding on long-term partnership for joint development of innovative battery-powered electric vehicles in China

Discussions on the establishment of a new joint venture company have started

Zero-emission mobility solutions crucial for the sustainable development of China’s environment and society

Volkswagen AG and Anhui Jianghuai Automobile Co., Ltd. (JAC) yesterday signed a Memorandum of Understanding (MoU) in Wolfsburg to define the next phase of negotiations between the two companies in order to achieve long-term cooperation in the joint development of all-electric vehicles in China.

"As we aim to be at the forefront of e-mobility, Volkswagen Group is looking forward to explore all options to set up a close and mutually beneficial partnership with JAC. We believe this cooperation would not only benefit our two organizations, but would also be of great value to our customers, a sound environment and the Chinese society in general," said Matthias Müller, Chairman of the Board of Management of Volkswagen AG.

According to the MoU the parties intend to enter into discussions to evaluate the perspectives and feasibility of a new joint venture company ("JV"), focusing on new energy vehicles (NEV), to carry out full scope cooperation in areas including research and development, manufacture, sales and mobility services in the field of NEV and parts in order to improve fuel efficiency. The top priority will be to develop zero-emission mobility solutions.

Commenting on the agreement, Mr. An Jin, Chairman of the Anhui Jianghuai Automobile Co., Ltd, said, "We look forward to a full scope cooperation together with Volkswagen Group, focus on new energy vehicles, to provide Chinese consumers with highly cost-effective battery-powered electric vehicle (BEV) products that promote the development of the Chinese new energy vehicle sector as well as the Chinese auto industry’s transformation and upgrading. The intended cooperation between JAC and Volkswagen Group can be called a ‘Creating Together’ model, which embodies mutual benefit and a win-win situation. We hope to develop this cooperation into a brand new business model during the process of Chinese auto industry’s opening up."

"Together, Volkswagen Group and JAC will thoroughly explore all options how to concentrate our resources, including existing and future model platforms, technologies and other expertise, to achieve a competitive product strategy as soon as possible," said Prof. Dr. Jochem Heizmann, Member of the Board of Management of Volkswagen Aktiengesellschaft as well as President and CEO of Volkswagen Group China. "We at Volkswagen Group China are enhancing our efforts in terms of e-mobility to meet the demands of the customers."

As part of its comprehensive new Group Strategy "Together – Strategy 2025" Volkswagen is also intensifying efforts for sustainable mobility worldwide. The Group will be launching a broad-based initiative for electro-mobility and intends to develop more than 30 new, purely battery-powered electric vehicles (BEVs) over the next ten years.

Anhui Jianghuai Automobile Co., Ltd (JAC) is a comprehensive automobile company encompassing R&D, production, sales and service and other businesses related to the production and sale of commercial and passenger vehicles, including powertrains. It has two vehicle brands, "Jianghuai" and "Ankai".

JAC delivered 333,639 vehicles and chassis in the first six months of 2016 (+14.15%), with new energy vehicle sales increased massively compared with last year (+261%), while SUV sales maintained stable growth (+30%).

JAC’s main products include: heavy, medium, light and miniature trucks, multi-function commercial vehicles, SUVs, sedans, buses, and core components such as chassis, gearboxes, engines and axle assemblies.

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