SHANGHAI (Reuters) - Volkswagen (ETR:VOWG_p) will exit its controversial plant in China's Xinjiang region, after years of investor pressure to abandon its presence in the region, where rights groups have documented abuses including mass forced labour in detention camps.
Volkswagen and its Chinese partner agreed to sell the asset to a Shanghai government-owned buyer, the German car maker said on Wednesday, confirming an earlier report by Reuters.
The move will bring to an end years of mounting investor pressure to abandon VW's presence in the region, where rights groups have documented abuses including mass forced labour in detention camps. Beijing denies any such abuses.
The transaction value of the deal was not revealed.
The significance of the plant, which previously assembled Volkswagen's Santana vehicle, has dwindled in recent years after the carmaker cut jobs, leaving about 200 employees to just conduct final quality checks and handing over vehicles to dealers in the region.
Volkswagen has denied reports that it kept the plant open as a condition from Beijing to keep producing across China, its largest market where sales have been flagging. The German automaker and SAIC will sell the plant to Shanghai Motor Vehicle Inspection Certification (SMVIC), a subsidiary of state-owned Shanghai Lingang Development Group, which will take on all the plant's employees.
The decision to free itself from the plant comes as Volkswagen is battling to boost flagging sales in China amid intense competition and sluggish demand.
Europe's car companies also have to contend with the impact of a potential trade war between Beijing and the European Union after the EU imposed anti-subsidy import tariffs on China-made electric vehicles.
The VW brand, which has lost its title as the best-selling brand in China to BYD (SZ:002594), is working with Chinese partners like Xpeng (NYSE:XPEV) to develop new models better suited to Chinese consumers, aiming for over 30 new electric or hybrid models by 2030.
Under the deal, SMVIC will also take over SAIC/VW's test tracks in Turpan Xinjiang and Anting in Shanghai, they added. Following the deals, Volkswagen will no longer have a presence in Xinjiang. At the same time, Volkswagen will extend its partnership with SAIC by a decade to 2040 and the joint venture aims to release 18 new models by 2030, including two extended range models for Chinese consumers in 2026.
VW said earlier this year it is talking to SAIC about the future direction of its business activities in Xinjiang and considering various scenarios.