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Volkswagen in talks with China's Didi on taxi-hailing joint venture

A Volkswagen concept car displayed at a media event ahead of the Beijing Auto Show. Photo: Reuters

Volkswagen AG is reportedly in negotiation with Didi Chuxing to establish a joint venture company, which will allow the German carmaker to manage part of the Chinese taxi-hailing company's fleet of cars and to develop dedicated vehicles for Didi's services.

The German automaker will initially manage a fleet of about 100,000 new cars for Didi, two thirds of which will be Volkswagen-branded cars. Moreover, the two partners will jointly buy some new vehicles to accelerate Didi's domestic and global expansion, as the ride-hailing company has reached out to several foreign countries.

Last month, Didi announced the launch of taxi-hailing service in the Mexican city of Toluca, marking its first expansion outside Asia.

The cooperation between Volkswagen and Didi goes beyond the management of car fleet.

The German automaker will offer technical support related to autonomous driving and electrification to the Didi fleet, with its executive saying that the ultimate goal is the production and use of driverless cars.

With many big Chinese cities rolling out policies to limit private car ownership and the Chinese government calling for wider use of electric cars, global traditional carmakers doing business in China are exploring new ways to create revenue streams, with some having established partnerships with Chinese carmakers and technology giants to develop electric or autonomous cars, which Didi believes would be widely used in the car-sharing business.

Obviously, Volkswagen has got the point.

In April, the German automaker, together with 30 domestic and foreign companies in the automobile industry including Toyota Motor, the Franco-Japanese alliance of Renault, Nissan Motor and Mitsubishi Motors and BYD, joined the Didi Auto Alliance, which aims to build a comprehensive sharing platform for purpose-built, artificial intelligence-powered new energy vehicles by leveraging its members' expertise in autonomous driving, electric vehicles, charging stations and battery development.

Didi has set a goal of operating 10 million shared electric cars by 2028, as part of its plan to form public awareness that vehicles are transportation tools that will be rented by hours and kilometers rather than sold. In 2017, Didi's ride-hailing platform already operated some 260,000 new energy cars, which accounted for one third of sales of electric cars in China in the same year.

Volkswagen is groping for a renewed strategy fit for the new ecosystem that Didi is trying to create in China, as the executive from the German carmaker said that "we need to know who our customer is, what their journey is and what our strategy should be" in order to survive in "this new ecosystem".

The Wolfsburg-based firm has created a war chest of $18.2 billion for its investment in ride-hailing, autonomous driving, digitalization, electric mobility and other services by 2022 in China, where technology giants including Baidu, Alibaba Group and Tencent are stepping up efforts in testing their prototypes of driverless cars. In January, Volkswagen opened the Future Center Asia in Beijing, which is supposed to play a significant role in the company's plans to develop new car models for China, the world's largest automobile market.

Meanwhile, Didi, as an operator of shared cars, is also loath to staying behind. The Chinese car-hailing leader has shed light on its blueprint for autonomous driving, saying that it will focus on developing sets of software for autonomous cars and providing a comprehensive platform where domestic and foreign automakers can market the sharing services of their driverless cars.

And Didi is definitely a good partner for Volkswagen because the German automaker will be authorized to gain access to Didi's massive data regarding customer behavior and cars that is needed for developing technologies applied in autonomous cars.

According to Weiming Soh, a board member in charge of strategy at Volkswagen Group China, Volkswagen will initially hold a 40 percent stake in the joint venture company, and the proportion of shareholding will be half-half as the business expands, which will give the German carmaker a greater say in the joint management of the autonomous car development.

In April, China announced to scrap the foreign ownership limit for companies making fully electric and plug-in hybrid cars in 2018, for manufacturers of commercial cars in 2020, and the wider car market by 2022.

A 1994 rule limits foreign ownership in auto joint ventures with domestic companies to 50 percent.

Analysts believe that the policy change will mainly benefit to automakers focusing on new energy vehicles, as the Chinese government is mulling an all-out ban on the production and sales of gasoline-powered cars, which will be replaced by electric cars.

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