Volkswagen to finalise its largest M&A investments in Chinese EV firms

By: Wajeeh Khan
Wajeeh Khan
Wajeeh is an active follower of world affairs, technology, an avid reader, and loves to play table tennis in… read more.
on May 27, 2020
  • Volkswagen is close to finalising its largest M&A investments in Chinese EV firms.
  • VW to get a 50% stake in Anhui Jianghuai Automobile Group Holding for £401 million.
  • The German car manufacturer to get a 27% stake in Guoxuan High-tech for £950 million.

Volkswagen (ETR: VOW) is in the final phase of negotiation to close its investment deals with electric vehicle (EV) companies in China. The investments dubbed its largest are aimed at expanding VW’s footprint in the world’s largest EV market. The Chinese government eased its rules and regulations for ownership in 2018.

Volkswagen posted a more than 2% intraday gain on Wednesday. At £114.56 per share, VW is over 20% down year to date in the stock market after recovering from £71 per share in March. Volkswagen was ordered by a German court earlier this week to pay the damages to owners who bought VW vehicles with rigged diesel engines.

VW to get a 50% stake in Anhui Jianghuai Automobile Group Holding

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According to the sources, VW expressed confidence that it will be taking a 50% stake in Anhui Jianghuai Automobile Group Holding for £401 million. The said company is the owner of JAC Motors that focuses on manufacturing electric vehicles. Anhui Jianghuai is fully owned by the state and has a market capitalisation at £1.50 billion.

Sources also informed that VW’s second investment in China will make it the largest shareholder of Guoxuan High-tech Co Ltd that produces EV batteries. Before Guoxuan, none of the other Chinese battery makers were under direct ownership of Volkswagen. All three companies refused to comment any further on the news at this stage.

Guoxuan is currently valued at £3.52 billion. VW is expected to get a 27% stake in the battery maker with an investment of £950 million.

VW is the biggest foreign car manufacturer in China

The move, as per experts, hints at VW’s undying commitment to keeping its status of the biggest foreign car manufacturer in China despite the Coronavirus pandemic that is weighing heavily on sales. It is also now in competition with Tesla in China that established its Giga factory in Shanghai last year. In the league of foreign automakers, Tesla became the first in China to wholly own a production house.

Following the completion of the transaction, the 50:50 venture between VW and JAC will see new capital investment from Volkswagen. The German car manufacturer will also commit to expanding the capacity of its MEB platform that helps improve the efficiency of EV production.  

Shares of JAC climbed 10% on Wednesday to hit a record high since last April.

Volkswagen’s other ventures in China include SAIC Motor Corp and FAW Group. In China, VW has a target of selling 1.5 million electric vehicles per year by 2025.  

At the time of writing, Volkswagen is valued at £59.73 billion and has a price to earnings ratio of 6.48.

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