BEIJING -- Volkswagen Group signed a preliminary deal with China's Jianghuai Automobile to explore making electric and plug-in hybrid cars in a new joint venture, the German automaker said today in a statement.
The two sides are studying the feasibility of a new joint venture and aiming to sign a formal agreement within five months, JAC said in a stock exchange filing.
China surpassed the U.S. last year to become the largest maker of pure electric cars thanks to a raft of government incentives to promote the switch from gasoline to electricity as the country battles heavy pollution.
Sales of so-called new energy vehicles, China’s expression for electric and plug-in hybrid cars, more than quadrupled last year with rapid growth continuing this year.
The investment size and business model of the possible joint venture have not been finalized yet, the stock exchange statement said.
The memorandum of understanding is not legally binding and a final agreement will be subject to approvals and filing procedures, it said.
JAC, China's ninth0-largest automaker by group sales, halted trading of its shares ahead of the announcement.
Chinese financial news outlet Caixin was first to report the potential partnership, citing sources.
Prior to the JAC filing, a Volkswagen spokesman said the company would release a statement later on Wednesday when contacted about the matter. He did not elaborate.
JAC, among the top sellers of EVs in China, is also one of the last major Chinese carmakers without a foreign venture partner. Chairman An Jin had said in an interview in March that the company was in negotiations with Volkswagen.
Volkswagen has passenger-vehicle ventures in China with SAIC Motor Corp. and China FAW Group. China requires overseas companies to set up businesses with domestic partners as part of an industrial policy to ensure local carmakers gain technology and operational know-how. The debate over whether it's the right time to revise the policy was reignited after a top official said in June the government is looking into lifting the 50 percent cap on foreign ownership, with the state-backed auto association lobbying for a five-year stay.
For Volkswagen, boosting the number of electric vehicles it sells in China will help the automaker meet stringent emission and fuel-economy standards. The government has mandated the lowering of average fuel consumption to 5 liters per 100km (62 miles) by 2020, from 6.9 liters per 100km this year.
Last week, a Chinese website reported that VW will partner with JAC to produce pickups in China.
Reuters and Bloomberg contributed to this report
