China's SAIC Motor Set To Build And Sell Audis

SHANGHAI—SAIC Motor Corp., China’s largest auto maker by sales, has struck an agreement that paves the way for it to build and sell Audi AG vehicles in the country, people familiar with the deal said Saturday, as the German car maker seeks to strengthen its position at the top of China’s luxury-vehicle market.

Audi A4L at a new transmission plant in Tianjin, China, in August 2016

Audi and SAIC this week signed a cooperation agreement, the people said, and will likely set up a joint venture to sell Audi cars. Separately, SAIC Volkswagen Co.—an existing joint venture between SAIC and Audi parent Volkswagen AG—will take up the manufacture of Audis, the people said.

SAIC will be Audi’s second partner in China. Currently, Audi makes and sells its cars in the country through a three-party joint venture with Volkswagen and China’s FAW Group Corp. According to Chinese regulations, foreign car companies must team up with domestic manufacturers to build vehicles there.


The new deal with the Shanghai-based SAIC underlines Volkswagen and Audi’s frustration with FAW, which has been embroiled in a series of corruption scandals in the past two years, includingthe ouster of the former chairman.

Volkswagen and Audi declined to comment Saturday, while officials at SAIC and FAW weren’t immediately available for comment. SAIC is also a partner of General Motors Co., building Buick, Chevrolet and Cadillac in China.

Analysts said the move by Audi illustrates its anxiety to keep the top position in China’s luxury-car market as competition grows.

Audi, which arrived in China the mid-1980s and quickly gained a reputation as the maker of limousines favored by government officials, has long been the best-selling premium car brand there.

Today in China, Audi sells annually about 15% more cars than rival BMW Group, and nearly 30% more than Daimler AG’s Mercedes, according to data from these companies.

However, the gap has been narrowing in recent years because of Audi’s lack of fresh models and growing competition from BMW, Mercedes and new entrants such as General Motors Co.’s Cadillac and Ford Motor Co.’s Lincoln models. Also, China’s crackdown on official use of luxury cars has also dealt a bigger blow to Audi than others.

In the first three quarters of this year, Audi sold 6.4% more cars in China from a year earlier, while BMW’s China sales rose 11% and Mercedes’s jumped 30%.

Audi is expected to announce the deal with SAIC on Monday, the people familiar with the deal said Saturday. It remains unclear which cars Audi will produce at SAIC Volkswagen. More than 90% of Audi cars sold in China are produced by FAW-Volkswagen, with the remaining 10% imported.

Analysts say the likelihood of Volkswagen’s two joint ventures sharing the manufacture of Audi’s current models is small given the potential conflict with the existing dealer network. More likely, they say, SAIC and Audi will jointlydevelop electric carsas both are eager to increase their share of China’s alternative-energy vehicle market.

Volkswagen has been has been rocked by a global diesel-emissions scandal in recent years, and has reached a deal with U.S. authorities to pay more than $15 billionto compensate U.S. consumers and dealers over the scandal. However, the crisis has had little impact on the Chinese market, where diesel fuel is mainly for trucks.

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