Volkswagen AG and China’s Anhui Jianghuai Automobile Company (JAC) are considering establishing a new joint venture company dedicated to the production of ‘new energy’ vehicles and components.

The two companies this week signed a memorandum of understanding (MoU) to evaluate the feasibility and opportunities for a new 50:50 joint venture, with a view to making a final decision within five months.

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JAC is a Chinese state-owned manufacturer of passenger vehicles and commercial vehicles with sales of close to 334,000 units in the first half of 2016.

It is expected to gain significantly from a manufacturing partnership with Volkswagen in areas such as production and vehicle technology, including IT connectivity. The company so far has not forged a strategic partnership with any other foreign automaker.

New energy vehicles in China include anything from hybrid electric vehicles and pure electric vehicles. Sales of these are growing rapidly in China, with volumes exceeding 331,000 units last year – including 247,000 electric vehicles.

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In the first half of 2016, sales increased by 127% to 170,000 units, with JAC accounting for 9,720 of these. 

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JAC is clearly banking heavily on this segment for future growth. Earlier this year, the company announced an ambitious plan to launch up to 30 new electric vehicle models and sell a total of 2-3m vehicles by 2025

Volkswagen already has two major joint venture partners in China, FAW Group and SAIC Motor, the maximum allowed for a foreign automaker in China under current regulations. The proposed joint venture is understood to have the backing of China’s premier Li Keqiang, meaning that current restrictions may be lifted if the two companies decide to go ahead with their new partnership.