TM Toyota Motor Corporation

By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 1, 2018).

BEIJING -- Volkswagen AG and ride-hailing giant Didi Chuxing said Monday they are closing in on a joint venture to share technology and develop mobility services in China.

The deal, which could be announced early next week, would mark the first step for a potential broader alliance between the world's biggest auto maker by sales and the global leader in ride-hailing, as China races to get ahead in mobility services such as car sharing.

It is also highlights that even as China begins to loosen requirements on joint ventures, foreign manufacturers are wary of going it alone and want a strong local partner to boost their chances of success in the country.

"The joint venture with Didi is not just about ride-hailing. We want to explore mobility projects as well as autonomous driving and robo-taxis," said Weiming Soh, board member in charge of strategy at Volkswagen's China subsidiary.

A spokeswoman for Didi said: "The parties are still exploring details of the cooperation. Potentially, both parties will focus on building together a fleet operation business, and look into other potential areas such as designing new car models for ride-hailing."

As a first step in the joint venture with Didi, Volkswagen has agreed to provide around 100,000 vehicles, plus electric and autonomous-vehicle technology, and manage the fleet of vehicles. Volkswagen won't be the venture's exclusive provider of vehicles, but Mr. Soh said the company would be Didi's sole equity partner in the venture.

Initially, Volkswagen would hold 40% in the venture and acquire another 10% at a later date to give the two partners equal stakes.

Didi's business with its ride-hailing app would remain outside the venture, but it is eager to tap Volkswagen's experience in fleet management.

Didi, the largest ride-hailing company in the biggest auto market by sales, has global ambitions and has begun reaching out to car manufacturers to help it expand.

Didi announced a separate global undertaking last week with 31 auto makers including Volkswagen, Toyota Motor Corp. and the three-way alliance of Renault SA, Nissan Motor Co. and Mitsubishi Motors Corp. Didi is inviting auto makers to jointly develop affordable electric vehicles for China, but some car makers said they had yet to commit to the project.

"China could play a pivotal role in transforming the existing automotive and transportation structure that has been in place for over 100 years," Didi Chief Executive Cheng Wei told reporters last week in Beijing.

Didi recently launched operations in Mexico, the first time it has offered services under its own name outside of China. Initially, it will operate in Toluca, which is about 40 miles west of Mexico City, with plans to expand to other cities in the country.

Volkswagen CEO Herbert Diess told reporters last week that the German auto maker would invest around EUR15 billion ($18 billion) in electric cars, autonomous driving, business digitization and new mobility services in China, as part of a global push to spend EUR34 billion on new technology. Mr. Diess took control of Volkswagen in April after his predecessor, Matthias Müller, was pushed out.

The two companies have been in discussions for more than a year. In late 2016, they said they were discussing setting up a high-end ride-hailing service. And about a year ago, the companies considered the idea of the German auto maker taking a stake in Didi, Mr. Soh said. When Volkswagen rejected the idea, the two sides decided instead to create a joint venture.

Foreign companies have made few inroads into China's ride-hailing and car-sharing markets. In 2016, Uber Technologies Inc., the biggest ride-hailing service in the U.S., threw in the towel, shutting down its service in China and taking an 18% stake in Didi, which also became a minority shareholder in Uber.

Volkswagen owns an undisclosed stake in Gett, the Israel-based ride-hailing service, which is focused on Europe and the U.S. But Volkswagen officials, citing Uber's failure, said it was necessary to have a local partner to be a mobility player in China.

In the country, Volkswagen also has a car-sharing venture with Shouqi, a state-owned provider. Shouqi offers services in 23 cities in China and aims to expand to 40 cities. Volkswagen holds a 20% stake in the company and provides management support. Volkswagen's electric-car venture with JAC is providing Shouqi with 7,000 vehicles.

Mr. Soh said Volkswagen was also in talks with potential partners about creating a luxury ride-hailing service and building charging stations for electric vehicles. He wouldn't provide any details about those talks or the potential partners.

--Yoko Kubota in Beijing contributed to this article

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

May 01, 2018 02:47 ET (06:47 GMT)

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