Volkswagen and the Shanghai Automotive Industry Corporation (SAIC) have signed an agreement to build Audi-branded cars. The shareholders are Shanghai-Volkswagen and Audi, with each holding a 50% stake. The first vehicle will be shown in concept form on the Shanghai Auto Show in April 2017. Production is set to start in early 2018. The joint venture will be called ‘Shanghai-Volkswagen Audi’.

Volkswagen has two joint ventures in China: FAW-Volkswagen, based in Changchun, makes Audi and Volkswagen cars. Shanghai-Volkswagen, based in Shanghai, makes Volkswagen cars.

The latter also makes Skodas for the Chinese market under a similar agreement as with the new Audi deal: a 50-50% joint venture with Shanghai-Volkswagen and Skoda as the sole shareholders. This joint venture is called ‘Shanghai-Volkswagen Skoda’.

Volkswagen hasn’t announced which cars Shanghai-Volkswagen Audi is going to make. However, based on rumors and some informed guesswork we believe there will be two initially: an Audi variant of the upcoming Volkswagen Teramont (VW Atlas), and a new luxury sedan that will be positioned between the locally made Audi A6L and the Audi A8.

The move to make Audis in Shanghai signifies a closer relationship between Volkswagen and SAIC and a worsening relationship with FAW, which appears unable and unwilling to live up to their part of the joint venture deal with Volkswagen. Recent product launches already told the story: the shiny new Phideon and the above mentioned Teramont both went to Shanghai, with FAW missing out.

Interestingly, Shanghai-Volkswagen has made Audis before. Back in 1985 they trial-produced a small number of Audi 100’s from CKD kits. SAIC however decided they didn’t want the Audi, they thought it would be too expensive to sell, and opted instead for the Volkswagen Santana. Volkswagen then took the Audi 100 to FAW which produced it into 1999, with the many Hongqi variants soldiering on until 2004.

SAIC has apparently changed its mind…