New York, Beijing

Volkswagen AG is exploring potential investments in Chinese automotive suppliers as it seeks to secure access to key technology in the world’s largest car market, people familiar with the matter said.

Options under discussion include buying equity stakes or forging joint ventures with Chinese suppliers, particularly firms with technology used in electric vehicles, according to the people. VW has been examining several possible targets including Guoxuan High-Tech Co., a battery maker based in China’s Anhui province, the people said, asking not to be identified because the information is private.

Shares of Guoxuan High-Tech jumped 6 per cent in Shenzhen trading after Bloomberg reported the talks, more than doubling their gain for the year. The company has a market value of about $2.1 billion. VW was up 0.4 per cent in Frankfurt.

Battery technology is a critical area for VW, the world’s biggest automaker, as it seeks to safeguard vast purchasing volumes needed to power the auto industry’s largest push into electric cars, which is led by China. The German carmaker picked China’s Contemporary Amperex Technology Co. as its initial battery provider in the country.

The Chinese market will take on a bigger role for VW as both a production hub and research centre, Chief Executive Officer Herbert Diess told reporters in April in Shanghai. The company plans to deliver 22 million fully electric vehicles worldwide by 2028, with more than half of them made in China.

No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. VW is “in talks with different local suppliers for possible cooperation in the future,” the company said in an emailed statement.

“The evaluation of our battery supply capacities in China is ongoing and necessary for a high volume of e-mobility production,” VW said.

A representative for Guoxuan declined to comment.

VW is also considering expanding its three vehicle-making joint ventures in China as part of a strategy review. The company has said it’ll work with partners on mobility offerings and plans to add a smaller electric-car platform specifically for China’s megacities.

VW operates ventures with major Chinese carmakers SAIC Motor Corp. and China FAW Group Co. after being one of the first foreign automakers to start business in the country more than three decades ago. It’s also exploring options to acquire a stake in its smallest local partner, Anhui Jianghuai Automobile Group Corp., people familiar with the matter said in April.

China’s top three home-grown electric-car battery makers, CATL, BYD Co. and Guoxuan, dominate the market with about 79 per cent of the country’s new-energy vehicle battery instalments in the first half, according to Bloomberg Intelligence.

Still, they face a risk as the government phases out subsidies that effectively motivated carmakers in China to use locally made batteries. The policy change puts non-Chinese battery makers such as South Korea’s LG Chem Ltd on an equal footing with their local rivals.

By teaming up with VW, Guoxuan can gain additional funding and an endorsement to its brand amid the intensifying competition. The company, which supplies local carmakers including BAIC Motor Corp. and Geely Automobile Holdings Ltd, said in April that it has been talking to a “first-tier international brand” but didn’t share details, citing a confidentiality agreement.