Volkswagen Expands in China, U.S. as Labor Clash Hits Home

(Bloomberg) -- Volkswagen AG struck deals with two Chinese companies and deepened cooperation with Ford Motor Co., broadening its strategic footprint as the coronavirus sparks the worst economic contraction in decades and internal tensions rise.

The German manufacturer will become the biggest shareholder of battery company Guoxuan High-Tech Co. and closed in on a 50% stake in a Chinese electric-vehicle partner. At a meeting to discuss China expansion and other issues, Volkswagen’s supervisory board approved plans to widen cooperation with Ford to electric and self-driving cars after an initial deal to team up on light commercial vehicles.

VW is doubling down in China as its car market is showing signs of revival from a slump exacerbated by the coronavirus outbreak, while vehicle demand in Europe and the U.S. continues to languish. Combinations help automakers pool resources as a seismic industry shift toward electrification and self-driving vehicles requires massive investments.

While VW is expanding abroad, there’s trouble brewing at home. German labor leaders attacked management over software issues that affected the rollout of the ID.3 electric car and the flagship Golf hatchback, while the company came under fire for a recent PR gaffe triggered by a racially insensitive advertising video.

The concern is that those missteps will intensify the impact of the virus crisis, rankling the troops who fear steep job cuts, according to an open letter by officials representing labor union IG Metall.

The pandemic has hit the auto industry hard, disrupting production and crippling demand at a time when companies are faced with huge investment requirements. While demand is gradually recovering in China, the world’s largest car market, a global rebound remains far from certain.

The scale of the challenges was evident in Nissan Motor Co.’s earnings. The Japanese carmaker on Thursday posted its biggest loss in two decades and unveiled a turnaround plan involving cost cuts, capacity contraction and a reduction in its number of car models. Renault SA on Friday said it will eliminate about 14,600 jobs worldwide.

VW’s sprawling Chinese operations are critical for the company, accounting for about 40% of global vehicle deliveries and a large chunk of profits. The deeper links come despite ongoing trade tensions between the U.S. and China and international concern about the Asian country’s role in the spread of the virus.

The German manufacturer will become the biggest shareholder of Guoxuan High-Tech after buying a 26% stake for about 1 billion euros ($1.1 billion), according to a statement from VW Friday. The investment could help VW secure critical battery supplies as the company ramps up production of a new range of electric vehicles aimed at mass-market buyers.

VW also agreed to buy a 50% stake in EV partner Anhui Jianghuai Automobile Group Holdings Ltd. VW said it will invest about 1 billion euros in that effort, which includes it raising its stake in the companies’ joint venture to 75% from 50%. The companies intend to complete the deal by the end of the year.

The local government of Anhui province will hold the other half of Jianghuai after the deal. The province, which also backed electric-car maker NIO Inc.’s $1 billion fundraising this year, is emerging as a powerhouse in the EV industry, which is supported by the central government even as demand has sputtered in recent months.

Shares of Jianghuai’s listed unit, known as JAC Motor, have almost doubled over the past month, giving it a market value of about 17 billion yuan ($2.4 billion). The stock rose 8.1% in Shanghai on Friday, while Guoxuan advanced 10%.

The Jianghuai deal makes VW among the first global manufacturers to take advantage of China’s looser foreign-ownership rules for carmakers. China’s government is following through on a pledge to open up the economy, lifting a 50:50 joint-venture rule in 2018 that restricted global brands’ access to the market for decades.

“By opening up the market, China is giving Volkswagen new business opportunities,” Stephan Wollenstein, VW’s China chief, said in the statement.

Jianghuai is VW’s smallest partner in China. The German company has bigger collaborations with SAIC Motor Corp. and China FAW Group Co. VW is always thinking about deepening its business in the country, but has “nothing concrete” to say about its future plans for those partnerships, Wollenstein told reporters in an online media conference.

©2020 Bloomberg L.P.

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