September 8, 2005

Volkswagen to Make Hybrid Cars with China

SHANGHAI -- Volkswagen will start making hybrid cars by 2008 with its main Chinese partner and may kick off large-scale production of the energy-efficient vehicles by 2010, the Chinese company said on Thursday.

Europe's biggest car maker is teaming up with Shanghai Automotive in a project that could spur China's hunt for alternative energy sources and curb pollution as demand for cars soars in the world's seventh largest economy.

Their venture intends to make 500 hybrid Touran cars to be used as people carriers during the 2008 Beijing Olympics, Shanghai Automotive, China's largest car manufacturer, said in a statement.

"We expect that large-scale production will start before the 2010 World Expo in Shanghai," Shanghai Auto said, without providing an investment figure.

Hybrids burn less fuel by adding one or more electric motors to a standard petrol or diesel engine. The batteries help power the vehicle and recharge by capturing energy during braking.

Shanghai Auto is also working with General Motors Corp. on similar technology, the company added.

The Volkswagen venture will develop hybrid technology for the Chinese market, a Volkswagen spokesman in Germany said, but the European firm would work alone to develop its own hybrid engine technology for the United States and Europe.

Volkswagen shares were down 0.6 percent at 44.71 euros by 1048 GMT, while the German blue-chip DAX index was off 0.1 percent.

On Wednesday, German luxury carmaker BMW joined DaimlerChrysler and GM in an alliance to develop new hybrid vehicle technology.

Last September, Toyota Motor Corp. said it would start building its Prius hybrid sedans in China with FAW Group in a step it hopes would promote the vehicles as the global standard for fuel-efficient cars.

Toyota's Prius, first launched in Japan in 1997, has emerged as the most popular hybrid.

The Japanese firm plans to build 180,000 Prius cars this year and is targeting combined annual output of 62,000 Lexus luxury sport utility vehicles and Highlander hybrid cars, both launched earlier this year.

Toyota had initially set a goal of selling 300,000 hybrid vehicles annually by this year or next, and has said it aims to boost that to 1 million as soon as possible.

China is the world's largest consumer of oil after the United States, importing more than a third of its oil needs. Beijing is concerned that an energy shortage could harm economic growth.

Beijing has said it wants to raise the average fuel efficiency on vehicles by 15 percent by 2010 from 2003's levels.

To do so, it has said it would support research into alternative powertrain -- such as hybrids and cleaner diesel engines -- while also exploring fuel-cell vehicles.

(Additional reporting by Jan Schwartz in Frankfurt)