Volkswagen and BYD to form alliance?

It's hard to keep up with the 'musical chairs' scenario in the German auto industry. Volkswagen and Porsche are still hammering out an arrangement whereby neither company will be left standing when the music stops, but not content with one dance partner, Volkswagen has just entered into a memorandum of understanding with Chinese auto manufacturer and battery specialist BYD.

The MOU was signed last week by BYD's Chairman, Wang Chuanfu and Dr Martin Winterkorn, Volkswagen's Chairman (pictured). According to a press release issued by Volkswagen, the MOU lays the groundwork for a partnership between the two companies, focusing on hybrid-drive and electric vehicle development.

A delegation from the Chinese company headed by Wang was invited by Volkswagen's Dr Ulrich Hackenberg to visit the Elektrotraktion Technology Centre at Isenbuttel and test tracks at Wolfsburg. During discussions ahead of the MOU signing, the BYD delegation and Volkswagen technical staff canvassed new technology in the Golf twinDrive and a prototype EV.

"Volkswagen will consistently expand its successful 'BlueMotionTechnologies'," said Hackenberg.

"Hybrids and electric vehicles will play an increasingly important role, of course. Particularly for the Chinese market, potential partners such as BYD could support us in quickly expanding our activities."

With the Chinese market set to take the mantle of largest in the world this year (since the American market has shrunk following the GFC) and -- as we all know from the Beijing Olympics -- air quality in China such a hot-button issue, hybrid and electric vehicles should be an outstanding growth industry there in coming years.

Since Volkswagen already has a long-established presence in China and BYD has the technical expertise in battery development/production and motor vehicle marketing, any alliance between the two companies could be of considerable reciprocal benefit.

The hybrid and EV technology is at least as likely to flow from China to Germany, since BYD already has a plug-in hybrid in production (more here).

Whatever becomes of the MOU may well be a paradigm for other companies in the future. After all, BYD may not have Volkswagen's experience in automotive development and volume marketing, but they have the cheap labour, the battery smarts and the ambition to grow...

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