Volkswagen Group Establishes Joint Venture with Didi-Chuxing in China

Volkswagen Group has established a joint venture with a Chinese company once again (official announcement will be made as early as this week), but this time it chose the ride-hailing company, Didi Chuxing rather than traditional car companies.

Volkswagen, one of the world’s largest carmakers, will set up a joint venture with Didi Chuxing, according to PEdaily (WeChat ID: pedaily2012). In the new joint venture, Volkswagen will initially hold 40% of the shares, and its goal is to deliver about 100,000 electric or autonomous vehicles, and to build up a fleet with Didi while providing management experience.

According to the agreement, Volkswagen will be able to acquire another 10% of the shares in the future depending on future business development, and extend its shares to a maximum of 50%, thereby enabling both Volkswagen and Didi Chuxing to hold half of the shares.

Other specific details have not yet been confirmed.

Volkswagen’s panic

What does it mean for Volkswagen and Didi Chuxing to work together?

The growing maturity of ridesharing services has undermined the growth in the number of privately-owned cars in Beijing, Shanghai and other first-tier cities. As a result, many carmakers, including Volkswagen, became aware of this crisis. Their top priorities now are making business-level adjustments and looking for new sources of income.

The way out for traditional carmakers are new technologies and new travel services. In March this year, Daimler AG and BMW announced a joint venture that would unite both companies’ carsharing services, providing users with one-stop, sustainable and smart carsharing services. The new company will become one of the largest carsharing providers in the world. Data from the International Financial News, a newspaper published by People’s Daily, shows that Mercedes-Benz’s Car2Go and BMW’s DriveNow have already penetrated over 31 cities around the world. Car2Go now has 14,000 cars and nearly 2 million users while DriveNow has 6,500 cars and about a million users.

The rapid progress of competitors has forced Volkswagen to speed up its pace, however, this is not the first time that Volkswagen has worked with Didi. In October 2014, Volkswagen and Didi has reached an agreement to launch the Didi car-hailing service using Volkswagen’s new energy vehicles; In April 2018, Didi Chuxing and 31 companies in the automobile industry established the DiDi Auto Alliance (D-Alliance), involving corporations such as Volkswagen, BAIC Group, Dongfeng Motor Corporation, Changan Automobile as well as car parts suppliers including Bosch and Contemporary Amperex Technology Co. Limited (CATL).

This time, the new joint venture stipulates that two thirds but not all of the vehicles must be purchased from Volkswagen. It was also reported that Volkswagen Group will help Didi develop its own cars, that is, to design new car products specially made for car-hailing. These have undoubtedly created new sources of income for Volkswagen.

Su Weiming, Executive Vice President of Volkswagen China says:“ Setting up a joint venture with Didi is not for ride-hailing. We hope we can try more projects and taxi operations for autonomous driving.” It is worth noting that Volkswagen will be the sole shareholder of Didi, and the new joint venture won’t get involved in Didi’s existing business, but will play a part in Didi’s globalization landscape and services.

In addition, Volkswagen has also raised 15 billion euros to invest in areas such as autopilot, digitalization, electric vehicles and car-sharing. In November 2017, Volkswagen also invested in a car-sharing project called GoFun under Shou Qi Group, and held 20% of the company’s shares.

Didi’s strategy

Faced with the pressure from Meituan and AutoNazi joining the ride-hailing game, Didi is now caught up in a tough fight.

According to Wang Xing, the CEO of Meituan, if Meituan and Didi go into a fight, it will be a war rather than a battle. Cheng Wei, the founder and CEO of Didi, also gave a strong response that roughly translates to “if you want to fight, we fight”. With the ongoing war between the super unicorns, some are seeking to enter the game in a different way.

In 2016, Volkswagen had the plans to purchase 20% of Didi’s shares and for the two sides to jointly set up a luxurious car-hailing fleet. Didi, however, refused to sell 20% of their shares, and thus the two sides began to discuss the new join venture cooperation model.

At the launch of the D-Alliance, Cheng Wei said, “Didi will not manufacture cars. We hope to work with partners to create a platform for automobile operators, integrate user needs, customize the design, production, ownership and operation of cars, and provide a whole set of aftermarket services.” At this moment, it is difficult for both manufacturers and car-sharing companies to paint the future landscape for car sharing or of the transportation market. However, in the long run, it is clear that the cars built for sharing must be new energy vehicles. It is reported that Didi has already conducted many experiments in this field.

The Volkswagen Group has always been referred to as the “foreign car company that understands China’s market most.” Will Didi and Volkswagen’s joining of hands become the new force that most successfully wins over the hearts of consumers in the car-sharing market?

This article originally appeared in PEdaily and was translated by Pandaily.