Volkswagen is about to take a 20% stake in Chinese battery maker Guoxuan as the German automaker fortifies its electric vehicle efforts for China, the world’s largest automobile market, Reuters reported. This would mark Volkswagen’s first direct ownership stake in a Chinese battery manufacturer, the report added.

The German marque is the top foreign automaker in China, and it plans to acquire the Guoxuan stake via a discounted share placement in the coming weeks, Reuters quoted two sources with knowledge of the matter as saying. Based on Guoxuan’s market capitalisation of US$2.8 billion (RM11.6 billion), a 20% stake in the company would currently be worth US$560 million (RM2.28 billion).

The deal has been ‘mostly finalised’, according to the report, and both parties are awaiting new Chinese regulatory rules on private share placements in order to provide a more flexible pricing mechanism and short lock-up periods for majority shareholders, said one of the sources. The 20% stake purchase will make Volkswagen the battery maker’s second-largest shareholder, after Zhuhai Guoxuan Trading – a firm controlled by Guoxuan founder Li Zhen – which holds 25%.

BYD Tang.

Guoxuan is among a group of mid-tier Chinese battery producers behind CATL and BYD, and is based in the eastern city of Hefei where Volkswagen is also building EVs with JAC Motor, one of the German brand’s several joint venture partners, Reuters reported. Another source which also declined to be named said that Volkswagen had long wanted to control a battery maker to better manage its supply chain, it added.

The German automaker has also identified CATL as a strategic supplier, and board member Stefan Sommer told the news wire last July that the automaker could even build its own battery cell manufacturing plants in China. CATL also entered into an agreement with Toyota last July to develop and supply EV batteries for the Japanese automaker.

“By holding a stake in the top Chinese battery makers, carmakers can gain more bargaining power on battery prices. Foreign carmakers are now catching up with their Chinese counterparts on securing battery supplies in China,” said Yale Zhang, managing director of consultancy firm AutoForesight.

Even though the Chinese government has been a keen driver of growth for new energy vehicles (NEVs), subsidies for EVs and PHEVs were cut by more than 50% last June according to Automotive News Europe, which instantly diminished demand for these vehicles. BYD saw its sales of EVs and PHEVs drop for the first time in July by 12% compared to 2018, while Jianghuai saw sales drop by 66% in that month.