What's going on?

Back in June, German automaker Volkswagen (VW) outlined a new strategy that focuses heavily on electric cars. In line with that, VW announced plans on Wednesday to partner with a Chinese firm to develop electric cars in China.

What does this mean?

Officially, VW and China�s Anhui Jianghuai Motors signed a �memorandum of understanding� with the aim of launching a formal joint venture within five months (under Chinese law, foreign automakers must partner with a local firm to build and sell cars in China). The market for electric vehicles in China is growing quickly (see below). Given VW�s electric car ambitions, China is an obvious place to focus its efforts.

Why should I care?

The bigger picture: Electric cars are a big deal for China.
China surpassed the US last year as the biggest maker of (pure) electric cars due, mainly, to a huge amount of government support (e.g. subsidies). Pollution is a major concern for the Chinese authorities � and electric vehicles are seen as a possible panacea. Also, China would like its auto companies to eventually be world leaders. If electric vehicles are indeed the future, China wants to be gaining the relevant expertise now (cue the requirement that foreign carmakers must partner with local firms). In short, China sees a lot of upside for itself in the widespread adoption of electric vehicles.


For the stock: And China is a big deal for Volkswagen.
China, which accounts for one-third of its sales, is already VW�s biggest market. And it�s a country where VW isn�t the focus of an emissions scandal. Much of VW�s future success will depend on its ability to sell cars in China, where the future of driving appears to be electric.