Guoxuan High-tech, a Chinese electric vehicle battery maker, has confirmed it is in discussions with Volkswagen AG about a potential investment, as the German automaker accelerates its shift to electrification in its largest consumer market.

Why it matters: Global automakers’ push toward electric vehicles will drive growth for Chinese auto suppliers like battery and component makers.

  • An equity partnership with a Chinese battery maker is expected to grant Volkswagen more bargaining power on battery prices and smooth out its supply, giving it an edge against Tesla and its fellow German carmakers in China.
  • Electric vehicle batteries account for as much as 50% of the total vehicle costs, driving EV prices higher relative to gasoline-powered vehicles, according to Chinese media reports citing TF Securities.
  • Guoxuan’s shares on the Shenzhen Stock Exchange rose 1.6% to RMB 21.01 by market close on Tuesday.

Details: Guoxuan High-tech is in talks with Volkswagen over a potential partnership in technology, product development, and capital, but has not signed “a substantive, binding agreement,” the company said in an announcement released Monday (in Chinese).

  • Rumors about VW’s investment began circulating last week when Reuters reported the German automaker was planning to nab a 20% share in the Shenzhen-listed battery supplier through a private share sale at a discounted price.
  • If the deal goes through, VW will become the second-biggest shareholder after Zhuhai Guoxuan Trading, which holds a 25% stake and is controlled by Guoxuan’s founder Li Zhen.
  • Based in Hefei, the capital of Anhui province in eastern China, Guoxuan falls a distant third to CATL and BYD in terms of gigawatt hours, an industry sales metric. It delivered 3.43 GWh in 2019, or around 10% of what industry leader CATL produced.
  • Guoxuan produces lithium iron phosphate batteries, known for having a higher discharge rate and better safety but a lower energy density, compared with NCA batteries, which are used in Tesla cars and those of Chinese EV makers.
  • Guoxuan supplies batteries to commercial vehicles produced by Chinese OEMs including JAC, a long-time manufacturing partner for both VW and China EV maker Nio.
  • VW did not respond to a request for comment. Guoxuan High-tech was not available for comment.

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Context: Volkswagen is making the switch to electric with a goal of selling a combined total of 1.5 million all-electric and plug-in hybrid vehicles per year in China by 2025.

  • Currently VW purchases batteries from its “strategic suppliers” including CATL and Korean battery makers LG and SK Innovation, the company said, but has no deal for an equity stake in CATL, which has joint ventures with two Chinese automakers, SAIC and GAC.
  • VW is on track to start domestic production of its first entry-level long-range electric car, the ID.3, with its partner SAIC in a new plant in Shanghai by the end of this year. The plant will have annual output capacity of 300,000 cars.
  • The German auto giant last week reported an annual increase of 0.6% in vehicle sales to 4.23 million units in 2019, outperforming the larger auto market in China, which declined 8.2% year on year according to China Association of Automobile Manufacturers. China accounted for more than half of VW brand vehicles sold in the world and is its largest market.

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: or Twitter: @yushan_shen

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