BEIJING -- Volkswagen has agreed to acquire a 50% stake in the parent company of Anhui Jianghuai Automobile Group, in the hopes of cementing its foothold in China and leaving behind its Japanese rival Toyota Motor.
China also wants to deepen its relationship with Germany by supporting the German automaker's business expansion in the country, as its relations with the U.S. continue to deteriorate.
Anhui Jianghuai Automobile Group Holding, the parent company of JAC and a wholly owned subsidiary of the Anhui provincial government, will issue new shares by the end of December and Volkswagen will underwrite them.
The parent company will be a joint venture between Volkswagen and Anhui provincial government, with Volkswagen putting in 1 billion euros ($1.1 billion). The deal is expected to be agreed finally by the end of July.
In 2019, JAC sold 420,000 cars, nearly 60% of which were commercial cars and 40% passenger cars. It was likely that JAC would effectively become a unit of Volkswagen Group, sources said.
Volkswagen and JAC already have a 50:50 joint venture which produces and sells new energy vehicles, including electric cars. Through the latest deal, Volkswagen's ownership in that company will increase to 75%.
Volkswagen is the biggest player in the Chinese car market with a share of nearly 20%, but Toyota has been catching up recent years. Last year, Volkswagen's sales in the country fell 1% on the year to 4.23 million units, while Toyota saw its sales jump 10% on the year to 1.69 million units, according to data from British research company LMC Automotive.
Volkswagen has also agreed to acquire a 26% stake in Chinese vehicle battery manufacturer Guoxuan High-Tech.
According to an announcement at midnight Chinese time on Thursday, Volkswagen will become Guoxuan High-Tech's top shareholder via a capital increase in the Chinese company and share purchases from its existing shareholders.
In terms of 2019 production volume, Guoxuan High-Tech is China's third-biggest vehicle battery manufacturer after Contemporary Amperex Technology (CATL), and BYD.
By investing a total of 2 billion euros in JAC and Guoxuan High-Tech, Volkswagen will seek to solidify its operating base in the Chinese market, where it is shifting its focus to electric vehicles.