Volkswagen AG signed a preliminary deal with China’s Anhui Jianghuai Automobile (JAC Motor) to explore making electric and hybrid cars in a new joint venture, the Chinese automaker said on Wednesday.
The two sides are studying the feasibility of a new joint venture and aiming to sign a formal agreement within five months, JAC Motor 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 petrol to electricity as the country battles heavy pollution.
Sales of so-called new energy vehicles, Chinese shorthand for battery electric and 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 finalised 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 ninth 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. Volkswagen is locked in a dead heat with U.S. automaker General Motors for the title of largest automaker in China, the world’s biggest auto market, with GM’s primary joint ventures slightly edging out VW’s to sell the most cars in the market last year, according to automaker association data.
Global auto brands are only allowed to manufacture cars domestically in China through joint ventures with local partners, with automakers typically limited to two JV partners. Volkswagen already has joint ventures with SAIC Motor and China FAW Group.