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Volkswagen to Pump $2.3B Into China EVs, Closes Argo AI Deal

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In a bid to expand foothold in China’s electric car market, Volkswagen VWAGY has agreed to make an investment of 2.1 billion euros (or $2.33 billion) in two China-based electric vehicle (EV) players. The German auto giant — which currently carries a Zacks Rank #5 (Strong Sell) — is injecting €1 billion in a China-based auto maker and €1.1 billion in an EV battery producer.The deals reflect global auto biggies’ including General Motors GM, Toyota and Tesla TSLA increasing efforts to make inroads in the China auto market.

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More on Volkswagen’s EV Deals

Volkswagen is raising its stake in a China-based EV joint venture with JAC Motors from 50% to 75% through the acquisition of 50% of Jianghuai Automobile Group, the parent company of JAC. Subject to regulatory approvals, the transaction is scheduled to close this year.

The JV is set to launch five more electric models by 2025. The venture intends to reboot an existing JAC plant and launch its first electric model based on the MEB platform, which will enable efficient production of various EV models. Notably, Volkswagen aims to sell 1.5 million NEVs — including electric cars and plug-in hybrid — per year in China by 2025.

Further, Volkswagen will pump 1.1 billion euros to acquire 26.5% of Guoxuan High-tech Co. Ltd. and become the biggest shareholder of the EV battery maker. The firm will supply batteries to Volkswagen’s EV models in China.

Importantly, China has set a target of 25% of 2025 annual vehicle sales to be made up of NEVs. As we know, China had scrapped limits on foreign ownership EV makers in 2018 to promote industry development and since then, various global auto bigwigs are spending heavily to expand electric sales in the country. General Motors, Nissan and BMW, among other automakers, have JVs with Chinese partners to manufacture lower-cost electric models. Tesla, in fact, is the first foreign automaker to set up a wholly-owned venture in China. Notably, Tesla’s Shanghai Gigafactory delivered first EVs to customers in January.

Volkswagen Finalizes $2.6B Argo AI Deal

The German automaker beefed up autonomous vehicle (AV) drive by closing $2.6-billion investment in Argo AI. The $2.6-billion deal includes $1 billion in cash and Argo taking over Volkswagen’s European self-driving unit, valued at $1.6 billion.  

Ford F, Volkswagen and Argo AI’s collaborative investment deal — first announced in 2019 — expanded the Pittsburgh-based AV start-up’s foothold in Europe.While Volkswagen has made a total of $2.6 billion investment in Argo AI, Ford has already committed $4 billion through 2023.

In one of the biggest collaborations in the auto industry for the development of self-driving cars, Volkswagen and Ford will each hold equal, minority stakes in Argo AI. The remaining equity belongs to the Argo founders and employees. Given technical challenges and massive investment costs for developing AVs, the deal makes strategic sense for all the three firms. By sharing the technology, Ford and Volkswagen can spread the development costs across both their fleets. In addition to shared development costs, the deal establishes Argo as the first AV company to have commercial partners across both North America and Europe.With ample financial and engineering resources, Argo AI’s efforts to make automated driving a reality are likely to come to fruition.

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