Volkswagen and its Chinese partners will pour €15bn into electric vehicles in the country over the next four years as competition intensifies to sell low carbon cars in the world’s largest auto market.

The group on Monday said the investment, made with Chinese joint venture partners SAIC Motor, FAW Group and JAC Motors, will be used to design and manufacture 15 electrified models for the Beijing market by 2025.

The announcement comes on top of VW’s pledged €33bn for a global transition away from fuel-burning engines, as the Wolfsburg-based group manoeuvres to take on Tesla and become the world’s largest manufacturer of electric vehicles.

Success in China, the world’s biggest market for both electric vehicles and passenger cars, will be crucial for any carmaker hoping to lead global sales. 

By October, VW will begin production in two new Chinese factories dedicated to electric vehicles, with a combined maximum capacity of 600,000 units per year, it said.

It follows VW’s announcement in May of a €2bn injection towards expanding electric vehicle production, taking a majority stake in its joint venture with JAC Motors.

Electric vehicle sales in China returned to growth in July after a year-long slump followed a drastic reduction in subsidies. Electric vehicles only make up about 5 per cent of China’s total new car sales.

The government wants to raise that to a quarter of sales by 2025 as part of sweeping plans to curb air pollution and carbon dioxide emissions.

VW’s announcement came as traditional carmakers declared their green credentials at the Beijing motor show, the first big international car exhibition to take place since the Covid-19 pandemic began.

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VW’s ID-range of battery powered models is set to launch in China in October in an effort to take on Tesla, whose Model 3 saloon is China’s most popular electric vehicle.

The group also faces stiff competition from several leading Chinese electric vehicle start-ups — Nio, XPeng Motors, WM Motors and Li Auto. They have capitalised on Tesla-driven interest in the sector to raise funds and expand capacity.

XPeng on Monday broke ground on a factory in Guangzhou with planned capacity for 100,000 units to be funded in part by a Rmb4bn ($587m) investment from local government-backed Guangzhou GET Investment Holdings.

In an interview on Saturday at the Beijing motor show, Brian Gu, vice-chairman and president of XPeng, said that the established brands have advantages from economies of scale and being familiar to customers.

“In the end, our competitors are the traditional [manufacturers]. They take up the [largest share] of the market,” he said.

Additional reporting by Emma Zhou in Beijing

Via Financial Times