Volkswagen doubles down on EV push in China with checks worth $2.3 billion

Shares in Chinese automaker JAC Motors and battery supplier Gotion High-tech surged around 10% on Friday, after Volkswagen announced to invest a combined €2.1 billion ($2.3 billion) in the two electric vehicle partners.

Why it matters: The $2.3 billion funding boost from the world’s largest automaker could exert great influence in reshaping the Chinese EV market and also help the flagging market recover from weak demand after the Covid-19 outbreak.

Details: Volkswagen on Friday announced it will spend $1.2 billion on a 26.47% stake in Gotion, becoming the first foreign-owned automaker directly investing in a Chinese battery maker. Gotion shares closed up by 10% to RMB 29.9 ($4.18) on the Shenzhen Stock Exchange.

• The two parties expect to close the deal by the end of this year, when Volkswagen will be the biggest shareholder of the battery supplier.
• Founder and president Li Zhen will maintain control over the company over the next three years. VW will keep its voting right at least 5% less than founding shareholders for a minimum of 36 months, Gotion said in a regulatory filing (in Chinese).
• Mainly producing lithium iron phosphate batteries, safer but in lower energy density than NCA ones, Gotion will become a certified battery supplier to VW in China, including its locally-made all-electric ID. cars.
• The German automaker is stepping up to begin mass producing EVs locally in October with partners SAIC and FAW, aiming to reach a combined production capacity of 600,000 units annually.
• However, that is not enough to fully support its annual sales goal of 1.5 million EVs in China by 2025.
• VW on Friday confirmed it is planning to increase its stake from 50% to 75% in a joint facility with another partner, JAC Motors. It also intends to acquire 50% shares of the state-owned parent of the EV partner with a total investment of around $1.1 billion by year-end.
• The two automakers will jointly make as much as 400,000 EVs over the next 10 years or so, according to a non-binding agreement revealed by JAC Motors (in Chinese), which added all the parties hope to “reach a definitive agreement” for the investment by the end of July.
• JAC shares jumped 8.11% to RMB 9.06 on Friday.

Context: Both JAC and Gotion are headquartered in Hefei, capital of the eastern Anhui province. JAC is also a manufacturing partner of Chinese EV maker Nio.

• Speaking with analysts during the Q1 earnings call on Thursday, Nio CEO William Li said more players will help to improve the regional auto supply chain, adding the “win-win cooperation” will not affect its existing manufacturing plan with JAC.