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VW and JAC to build regular vehicles and NEVs in China, sign JV agreement




Volkswagen (VW) plans to strengthen its offerings in China with light commercial vehicles to be produced with new partner JAC.

IHS Markit perspective

  • Implications: Activity in the new energy vehicle (NEV) segment in China has been enhanced by plans from the government to encourage the light commercial vehicle (LCV) segment, leading to established automakers planning to build models that are both LCVs and NEVs in China.
  • Outlook: The number of players now planning to produce LCVs in China has risen significantly with global automakers forming new JVs in China to tap into the segment, as well as simultaneously strengthening plans to produce NEVs in China.

Volkswagen AG and Volkswagen Group China have formed a joint venture (JV) to produce vehicles with Anhui Jianghuai Automobile Company (JAC). The JV will be owned 50% by JAC and 50% by VW. The JV will be based in Hefei in China's eastern Anhui province, where JAC is headquartered.

The JV agreement was signed yesterday (27 November) between representatives of the three parties in China, with the core of the agreement outlining that the JV will produce regular internal combustion engine (ICE) vehicles as well as new energy vehicles (NEVs).

The JV will also cover research and development (R&D). In a statement sent directly to IHS Markit, VW said, "The intended R&D joint venture will cover both internal combustion engine and new energy models."

The Volkswagen Commercial Vehicles (VWCV) division, on behalf of Volkswagen AG, will lead the new JV with JAC in China. Joern Hasenfuss, member of the board of management of VWCV, said, "Volkswagen has a multi-functional vehicle heritage going back nearly seven decades. Also in China, Volkswagen Commercial Vehicles has attracted a growing band of loyal customers. But there are more chances. With our partner JAC we want to merge the experience and knowhow of both companies for the benefit of the Chinese market." Together, the companies will "actively" explore multi-functional vehicle design and technology and will cover "both internal combustion engine and new energy vehicles", the company states.

VWCV is a 'standalone' brand under the VW Group and is responsible for the development and sales of light commercial vehicles (LCVs), which the automaker refers to as multi-functional vehicles. The VWCV line refers to ranges such as the Transporter, Caddy, Crafter, and Amarok. In 2016, VWCV sold 480,000 LCVs produced at plants in Hanover (Germany), Poznan (Poland), Wrzesnia (Poland), and Pacheco (Argentina).

Outlook and implications

VW's joint venture with JAC includes the production of light commercial vehicles (LCVs) in China, as well as new energy vehicles (NEVs). It is likely therefore that the new JV will produce in China LCVs that are also NEVs; that is, LCVs that are either pure battery electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs). The JV agreement expands the planned partnership that was to be formed under the memorandum of understanding that was signed earlier. The JV has been strengthened amid China's changing policies towards NEVs, which are encouraging production of these vehicles in the LCV segment. Meanwhile, the new VW-JAC joint venture is also to focus on the growth segment of pick-up trucks in China.

Strong activity in LCV market

The Chinese market has recently witnessed increased activity in the LCV segment. In July, the Renault Nissan Alliance announced a JV with Brilliance Auto for the production of LCVs in China. In addition, Daimler, with Chinese partner BAIC Motor, has bought the majority of Fujian Motor's stake in an LCV joint venture in China and is now increasing market penetration. Meanwhile, Ford has formed a JV with Anhui Zotye Automobile for the production passenger NEVs in China, but is also enhancing its line-up with partner Jiangling Motors Corp to build electric variants of LCVs in China. Additionally, Groupe PSA is to produce pick-ups in China under a new arrangement with partner Changan, while earlier this year Nissan began production of the Navara pick-up in China.

As the market develops, the government is expected soon to announce new subsidy policies to encourage the use of NEVs with higher ranges in electric mode. Meanwhile, new policies in the auto finance segment highlight that NEVs may gain higher finance quotas. In addition, the Chinese transportation ministry has announced a higher target for the use of NEV LCVs in China. The ministry has doubled its target for the use of NEVs by 2020 following strong growth, with the ministry expecting NEVs within the transportation fleet will amount to 300,000 units this year.

New JV models

VWCV has already announced it is "behind the curve" in its electrification strategy. In terms of electric LCVs, the VW Group will start to correct this with its "Roadmap E", which will make a total of over 80 new electrified models available to customers by 2025, including 50 battery electric vehicles (BEVs, also referred to as EVs) and 30 PHEVs. These will include the production version of the e-Crafter van, which was first revealed last year and offers a 100 kW, 290 Nm motor powered by a 312-cell, 43 kWh lithium-ion battery pack, giving it a range of more than 200 km. The e-Crafter van is expected to begin production in Poland following design finalisation at the plant in Hanover.

With the sudden surge in activity in the LCV pick-up segment, another possible model destined for China is the Amarok pick-up. Already in the year to date, this model has witnessed a 13.2% year-on-year sales increase globally to 65,200 units.

The new JAC-VW joint venture is expected to begin with a sport utility vehicle in China in 2018.

About this article

The above article is from AutoIntelligence Daily by IHS Markit. AutoIntelligence Daily provides same-day analysis of automotive news, events and trends.​​​​​​ Get a free trial.

About The Author

Ms. Namrita Chow is Principal Analyst at IHS Markit for the China automotive market. With over a decade in China, she has firsthand knowledge of the market, the players and the many nuances. Her expertise has helped in forecasting trends, whether within the domestic Chinese automotive market or linked to Chinese vehicle exports in other markets. She has authored special reports as well as daily news analysis, focusing on the intricacies of the vehicle market in China and is available to speak on subjects relating to the Chinese vehicle market.

Ms. Chow’s education includes a Post Graduate Certificate in Economics and Math and a Master of Science degree in Advanced Macroeconomics and Mathematics from the University of London, U.K., as well as two years of intensive Mandarin at Shanghai Jiao Tong University, Shanghai, China.​