VW Invests 500 Million Euros in Emerging-Market Factories

Volkswagen AG (VOW), Europe’s largest carmaker, is investing 550 million euros ($691 million) in auto- parts manufacturing in Russia and China to prepare for further growth in the countries’ vehicle markets.

VW is spending 250 million euros at its auto plant in Kaluga, Russia, for an assembly line that will build 600 engines a day by 2015, Michael Macht, VW’s production chief, told reporters in Moscow today. Separately, VW plans a 300 million- euro transmission plant in Tianjin, China, a person familiar with the matter said.

Volkswagen, which has a strategy to overtake General Motors Co. (GM) and Toyota Motor Corp. (7203) to become the world’s largest carmaker by 2018, is shifting focus away from western Europe, where industrywide auto sales are forecast to shrink this year. China is the company’s biggest national market globally, and Russia may overtake Germany in industry sales by 2014.

“Russia is the primary strategic growth market in Europe for the Volkswagen group” and by 2018, “we intend to sell a half a million vehicles here annually,” Chief Executive Officer Martin Winterkorn said at the press conference in advance of the Moscow International Motor Show opening tomorrow.

VW, which is based in Wolfsburg, Germany, plans to spend 1 billion euros expanding capacity in Russia until 2018, Macht said. Currently VW can produce 225,000 vehicles in the country.

Kaluga’s Capacity

The plant in Kaluga, about 170 kilometers (106 miles) southwest of Moscow, opened in 2007, and last year it assembled 125,000 vehicles, including the Tiguan sport-utility vehicle, Polo subcompact and the Skoda Octavia and Fabia cars. The Russian auto market is forecast to rise 28 percent to 3.4 million vehicles in 2014, according to the country’s industry ministry.

VW signed a deal in 2011 with billionaire Oleg Deripaska’s OAO GAZ to produce 110,000 VW and Skoda vehicles a year at the Russian manufacturer’s facility in Nizhny Novgorod, 418 kilometers east from Moscow. Production of the Skoda Yeti SUV will be the first vehicle from the partnership, with production slated to start this year.

The Chinese transmission plant is scheduled to start production in 2014 and create 1,500 jobs, the person familiar with the matter said, asking not to be identified because the German carmaker hasn’t yet made an official announcement.

Volkswagen produces more than 20 models in China for its VW, Skoda and Audi brands. The company plans to invest 14 billion euros on Chinese production and models by 2016. VW sold 2.6 million vehicles in the Asia-Pacific region last year.

VW already runs 11 auto factories in China, with four plants currently being set up. German newspaper Frankfurter Allgemeine Zeitung reported earlier today the China transmission plant investment. A Volkswagen spokesman declined to comment on the carmaker’s plans in the country.

To contact the reporters on this story: Christian Wuestner in Berlin at cwuestner@bloomberg.net; Anatoly Temkin in Moscow via atemkin@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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