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VW may raise stake in FAW Chinese joint venture
Volkswagen’s only acquisition deal on the horizon is a possible increase of its stake in its highly profitable Chinese joint venture with First Automobile Works Corp., VW finance chief Hans Dieter Poetsch said.
Unlike its other Chinese joint venture with Shanghai Automotive Group that is a 50-50 split in ownership, Volkswagen controls only 40 percent of the equity in FAW-Volkswagen Automotive.
UBS auto analyst Philippe Houchois has estimated the cost to VW for increasing the stake in FAW to 50 percent at around €4.5 billion.
VW does not include earnings from its two joint ventures in China in its operating profit. Their earnings are instead booked as part of its financial result since it is accounted for at equity.
But Volkswagen does break out its Chinese JV results separately and its six-month report showed VW’s share of the two joint ventures’ profits rose to €2.62 billion, up more than 10 percent from €2.37 billion in the previous year’s period. According to Audi’s accounts for last year, it received a €382 million dividend for its 10 percent share in FAW-Volkswagen Automotive. That would imply that the venture’s overall profits were €3.82 billion in 2013.
VW currently builds VW and Audi brand cars together with FAW in plants in Changchun, Chengdu and Foshan.
Early last month Volkswagen announced its FAW-VW joint venture would spend €2 billion to build two new factories in Qingdao and Tianjin, additional funds that were not included in a combined €18.2 billion investment plan through 2018 drawn up for both JVs.
Poetsch told analysts on a conference call Thursday VW is in discussions with FAW on an extension of the joint venture agreement, “which could also include the point that we would increase our stake in FAW-VW.”
Poetsch said VW has no further plans for acquisitions, quashing recent reports suggesting that the company plans to buy the Agnelli family’s stake in Fiat or acquire U.S. commercial truckmaker Paccar.
“There are no acquisition projects on the table and that gives management the opportunity to totally focus on improving the operating performance,” he said.
“I cannot commit to a term like ‘forever,’ Poetsch said, but since all VW group brands and regions have been told to improve efficiency and reduce complexity as part of a €5 billion cost-cutting program they need “a decent amount of time necessary to get this all running and working and that is why I clearly say this again, there is nothing on the table right now.”