HONG KONG/FRANKFURT (Reuters) - Volkswagen AG 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, people with direct knowledge of the matter said.

FILE PHOTO: FILE PHOTO: A Volkswagen badge on a production line at the Volkswagen plant in Wolfsburg, Germany, March 1, 2019. REUTERS/Fabian Bimmer/File Photo

The move by VW, the largest foreign automaker in China, to buy into Anhui Jianghuai Automobile Group (JAC Motors) is the latest by foreign automakers to boost ownership in the world’s biggest car market since Beijing relaxed rules last year.

Rival German automaker BMW agreed in October to buy control of its main joint venture in the country for 3.6 billion euros ($4.05 billion). And Daimler AG plans to increase its stake in local partner BAIC Motor.

The stake purchase move shows that JAC would be a key player in VW’s big global bet on 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, said one of the people.

Foreigners were previously prevented from controlling any Chinese automaker or joint venture. Beijing 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.

Chinese Premier Li Keqiang promised the European Union on Tuesday that Beijing would no longer force foreign companies to share sensitive know-how when operating in China and was ready to discuss new global trading rules on industrial subsidies.

VW, which has a market capitalization of nearly $85 billion, does not currently own shares in Shanghai-listed JAC, which has a market value of about $1.9 billion, according to Refinitiv data.

The German car giant’s plans are at an early stage but it is keen to take a big stake, said three of the people. Two of them said it will seek to buy shares from JAC’s major shareholders, which, Refinitiv data showed, are mainly state-backed firms owning over 40 percent.

JAC’s parent, Anhui Jianghuai Automobile Group Holding, holds a 24 percent stake and is fully controlled by the local government.

When contacted by Reuters, VW said: “We are carefully watching what the implications are for our business and for our joint venture partners. In this regard we will explore all possible options together with all stakeholders to secure long-term success in China.”

JAC said in a stock exchange filing late on Wednesday that it has been discussing with Volkswagen on deepening joint venture cooperation on new energy vehicles, but that no formal plan had yet been formed.

Goldman declined to comment. The people declined to be identified as the matter was confidential.

JAC shares again rose by their daily 10 percent maximum limit on Thursday, after rising 10 percent the previous day. VW shares ended slightly lower on Wednesday.

“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, a Hong Kong-based analyst at Jefferies.

VW IN CHINA

Wolfsburg-based VW, which delivered 4.21 million cars in mainland China and Hong Kong last year, has operated in China for decades. Besides JAC, it has joint ventures with state-owned FAW Group and SAIC Motor.

It formed its 50:50 JV with JAC in 2017 to research and develop zero-emission passenger cars as the German automaker has committed almost one-third of the industry’s EV spending, about $91 billion.

Separately, South Korea’s SK Innovation Co said it is in talks to set up separate battery-making JVs with VW and Chinese partners, Reuters reported on Wednesday.

JAC, China’s 11th largest local automaker by group sales, makes a range of commercial vehicles including pickup trucks and heavy duty trucks. It also produces vehicles for electric car maker NIO Inc.

JAC warned in January of a 770 million yuan net loss for 2018 mainly due to a drop in car sales, compared to a 432 million yuan profit in 2017. Excluding exceptional items such as government subsidies, losses would reach 1.9 billion yuan, the company said. It will release annual results on April 30.