Volkswagen is exploring purchasing a big stake in its Chinese electric vehicle joint venture partner, JAC Motors, and has tapped Goldman Sachs as an adviser on the plan. Rival German automaker BMW agreed in October to buy control of its main joint venture in the country for €3.6 billion. Daimler also plans to increase its stake in local partner BAIC Motor. The stake purchase shows that JAC would be a key player in VW’s big global bet on electric vehicles (EVs) and on strong Chinese demand for such vehicles. VW plans to shift a large part of its planned EV production in China to JAC if it ends up getting control of JAC. Foreigners were previously prevented from controlling any Chinese automaker or joint venture. China last year removed such caps for firms making fully electric and plug-in hybrid vehicles. Limits on commercial vehicle makers ease in 2020 and by 2022 for the wider car market.

VW, which has a market capitalization of nearly USD85 billion, does not currently own shares in Shanghai-listed JAC, which has a market value of more than USD1.7 billion, according to Refinitiv. VW plans to buy a big stake from JAC’s major shareholders, which are mainly state-backed firms owning over 40%. JAC’s parent, Anhui Jianghuai Automobile Group Holding, holds a 24% stake and is fully controlled by the local government. JAC is trading at a price-to-book ratio of 0.93, which means VW would have to pay a premium for shares since JAC’s state shareholders cannot sell shares for less than their book value.

“The news shows the bargaining power of companies like JAC and BAIC is stronger, and Volkswagen’s and Daimler’s determination to cooperate with Chinese partners in the long-term is also firm,” said Patrick Yuan, Hong Kong-based Analyst at Jefferies. VW delivered 4.21 million cars on the Chinese mainland and in Hong Kong last year. Besides JAC, it has joint ventures with state-owned FAW Group and SAIC Motor, the Shanghai Daily reports.