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VW Investing $18 Billion into Chinese Joint Ventures for Automotive Technology

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【Summary】Volkswagen AG’s world-leading development budget is allocating billions more to its Chinese joint ventures, as the German carmaker seeks a competitive edge in producing battery-powered, autonomous vehicles with its Chinese partners.

Eric Walz    Apr 24, 2018 1:07 PM PT
VW Investing $18 Billion into Chinese Joint Ventures for Automotive Technology

BEIJING — Volkswagen AG's world-leading development budget is allocating billions more to its Chinese joint ventures, as the German carmaker seeks a competitive edge in producing battery-powered, autonomous vehicles with its Chinese partners.

The partnerships' technology investments in the next five years will total 15 billion euros ($18 billion), Jochem Heizmann, head of Volkswagen's business in China, said Tuesday at a new-model presentation in Beijing, the day before the opening of Auto China 2018.

The additional investments in China amounts to an additional 44 percent on top of the German manufacturer's own spending to create battery-powered, autonomous systems and related connected-car services. The group is hiking its Chinese investments as the market continues to surprise to the upside, Heizmann said.

"We need to speed up," Chief Executive Officer Herbert Diess said at the event. "Change is getting faster, more dynamic and more ambitious, especially here in China."

Diess replaced Matthias Mueller as CEO just two weeks ago and already has big plans to accelerate Volkswagen's revamp for the electric-auto era. The world's largest automaker outlined a 34 billion-euro investment plan in November 2017 to develop new technology by 2022. Projects include coming out with electric versions of every vehicle in its line-up and introducing an entirely new line up of battery-powered vehicles.

The challenges for Volkswagen include developing models that attract buyers, as well as dealing with consumers' changing attitudes towards car ownership and mobility services. Diess said in a Bloomberg Television interview with Tom Mackenzie that the industry needs to come up with new skills in areas such as software.

China's government signaled last week that it will eventually allow foreign automakers to take full ownership of their local ventures, marking the end of a decades-long rule allowing no more than a 50 percent stake of ownership in any joint venture in China.

The move will benefit electric-vehicle companies such as Tesla Inc. with the restriction on such businesses lifting as soon as this year. The limit for passenger-car producers will end in 2022. Tesla has been looking to built a factory in China, but was unwilling to give up 50 percent ownership to a Chinese partner.

Volkswagen is "well set up" with its Chinese partnerships and doesn't plan any change in the ventures' ownership, Diess said.

Volkswagen saw record sales in 2017 after rebounding back from the ‘dieselgate' emissions scandal. The German automaker announced a 4.2 percent rise in global sales to 6.23 million vehicles in 2017. China was the company's most successful region with 3.18 million cars sold, representing an increase of 5.9 percent over the previous year.

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