China’s very first carmaker is entering the fray to assemble electric cars, as it joins the shift towards electrification in the world’s largest automotive industry, where one in every five vehicles will be powered by electricity by 2025. FAW Group, founded in 1953 to spearhead Mao Zedong’s industrialisation, will team up with its German partner Audi to build a 30 billion yuan (US$4.6 billion) plant in the Jilin provincial capital of Changchun in north-eastern China. FAW, which already makes cars in China with Audi and its parent Volkswagen, will own 40 per cent of the venture while the two German carmakers will own 60 per cent, according to a statement. “With the new Audi-FAW company in Changchun, we are further expanding our presence in the Chinese market and strengthening our position as a manufacturer of fully electric premium vehicles through local production,” said Audi’s chairman Markus Duesmann, in the statement. The first Audi-FAW electric vehicle will go into production in 2024. The plan is one of the most ambitious and significant developments in the world’s largest market for new-energy vehicles (NEVs), where 2020 sales jumped 12 per cent to 1.17 million units, defying the consumption slump and depressed sentiments during the coronavirus pandemic. Sales this year may increase by 50 per cent to 1.8 million units and up to 3 million by 2025, spurred by generous government subsidies and a wider variety of attractive models launched, according to an estimate by China’s automotive industry officials. Audi, which makes the Chinese ministerial standard-issue A6 sedans in Changchun, has been eyeing the NEV market for a long time, announcing last year that it wants electric models to make up one-third of its sales in China by 2025. BMW, which competes with Audi in the premium segment, has a 50:50 venture with China’s biggest sports-utility vehicle maker Great Wall Motors called Spotlight Automotive, where they aim to produce electric cars. General Motors, the largest US carmaker, already sells the Hongguang MINI electric vehicles with its SAIC-GM-Wuling venture, which tops the sales charts with its US$5,000 price tag. For FAW, whose name stands for First Automotive Works owning to its history, the investment helps it catch up with its larger competitors Geely Automotive Holding and SAIC Motors. Besides its models made with the German carmakers, FAW also assembles the iconic Red Flag limousines, most famously used by Mao and subsequent Chinese leaders to inspect the troops during their military parades in Beijing. The Audi-FAW investment, following a 1 trillion yuan in bank credit lined up in 2018, is also a way to help the Chinese state-owned carmaker stay competitive in an industry that has seen a flurry of new entrants in the past three years. NIO, Xpeng, WM Motor Technology and Li Auto are among the technology start-ups that are beginning to make electric cars in China to displace petrol-guzzlers powered by internal combustion engines (ICEs). SCMP Infographics: Global carmakers and their venture partners in China The industry has been made even more competitive, with Tesla building two China-designed electric cars since the first Model 3 rolled off its US$2 billion Gigafactory in Shanghai last year. Last week, the world’s largest contract manufacturer of consumer electronics joined Geely in announcing a venture to assemble made-to-order electric cars , which would lower the cost barrier for other carmakers to join the fray. Geely, owner of the Volvo brand and the largest shareholder of Daimler, also plans to make electric cars with the Chinese internet search engine Baidu. “Car builders are not supposed to focus on just assemblies with existing production facilities. It is advisable [for them] to develop and own smart technologies in manufacturing,” said Paul Gong, a UBS analyst. “Production capacity is not an issue [for conventional carmakers] at all – the crux is to have value-added technologies that are baked into car building.” The new investments are coming at a time when the production of automobiles had been forced to be suspended among several assemblers, due to a shortage of semiconductor chips used in cars, as producers rushed to churn out higher-value chips for game consoles and gadgets, leaving the lower end of the industry in short supply. Volkswagen said in December that it would cut its first-quarter production in China, Europe and North America because of the chips shortage. Toyota Motor, Nissan Motor, Honda Motor have also announced disruptions in their output due to the shortage, according to a Bloomberg report . “Some makers have adjusted their production due to the disruptions in chip supply in Southeast Asia, but the situation should be eased when vaccines are widely adopted,” said Wang Bin, China auto analyst in Credit Suisse. “We have not seen much impact in China as supply has never been a problem in China.”