Volkswagen to buy 20% of Chinese battery maker Guoxuan

Volkswagen wants to buy 20 per cent of the Chinese electric car battery manufacturer Guoxuan High-Tech. There had already been rumours to this effect in August. According to the Reuters news agency, most of the details of the deal have already been finalised.

+ + Kindly see our update below + +

Based on Guoxuan’s market capitalisation of $2.8 billion, VW’s 20 per cent stake would currently be worth around 560 million dollars. The deal would also mark Volkswagen’s first direct ownership in a Chinese battery maker and had been suspected before.

Volkswagen already is the top-selling foreign automaker in China. It is targeting the sales of 1.5 million new electric vehicles a year in the world’s biggest PEV market by 2025. In a recent update, the Volkswagen Group China announced an increase in its spending on electric cars to around 1.6 billion euros next year to further accelerate its electrification strategy in China. The new funding is about 40 per cent of the company’s total China investment of over four billion euros.

Already, Volkswagen has built a new $2.5 billion electric vehicle plant with partner SAIC Motor that will have an annual output capacity of 300,000 cars once it goes live this autumn as reported. The carmaker is also revamping manufacturing facilities the city of Foshan to build electric cars with partner FAW Group.

Besides, the Group’s VW brand is also working on a New Brand Design in Guangzhou. To reach the 300,000 plug-in car target, VW is planning to launch ten electrified versions of existing models (PHEVs and EVs) in China until the end of 2020, before switching over to MEB-based models. By 2023, VW expects its Modular Electric Drive System to have gained significant traction in China, thus helping the brand to increase the number of offered electric vehicles toward the one-million-mark.

This growth needs batteries and Volkswagen has also identified CATL as a strategic supplier.

Also, Guoxuan is among the most significant battery makers in China behind CATL and BYD. Guoxuan not only builds lithium-ion batteries, but also conducts development and produces cathode materials in addition to cells. Based in the Chinese city of Hefei, it is close to Volkswagen as the carmaker is building electric vehicles with JAC Motor there.

Reporting on the planned stake in Guoxan, Reuters also quotes a third anonymous source, who said Volkswagen has long wanted to control a battery maker to manage its supply chain better.

To make the deal happen, VW would buy into Shenzhen-listed Guoxuan via a discounted private share placement in the coming weeks, Reuters quotes two sources with knowledge of the matter saying. They added that the deal’s details had been mostly finalised. Only the two firms are waiting for new Chinese regulatory rules that will provide a more flexible pricing mechanism and shorter lock-up periods for majority shareholders.

Once the deal is done, Volkswagen will become the battery maker’s second-largest shareholder, behind Zhuhai Guoxuan Trading Ltd, a firm controlled by Guoxuan’s founder Li Zhen, which currently holds 25%.

Volkswagen declined to comment.

Update Wednesday 27 May 2020: As Reuters now reports, the deal is to be closed this week. After several months of silence about the possible participation, Reuters writes that the deal will be officially announced on Friday. The newsagency refers to two persons apparently familiar with the matter but has given no new details about the planned level of participation.

Volkswagen is also in final talks about a 50 per cent share in the parent company of its Chinese electric-car partner JAC Motors. According to Reuters, the deal could also be announced on Friday, and the talk is of a 490 million dollar investment in JAC.

reuters.com, reuters.com (update)