Volkswagn will invest €2.5 billion ($2.7 billion) to expand its operations in China, it announced on Thursday.

The move comes as the German auto giant tries to compete with local manufacturers in order to prevent a sales slide in its most important market.

Volkswagen will use the multi-billion-euro investment to expand its production and innovation hub in Hefei, in the eastern province of Anhui.

"This additional investment in the (Hefei) site underlines our ambition to quickly expand our local innovative strength," said Volkswagen's China chief Ralf Brandstätter.

Sizing up the local competition 

Volkswagen has a 40-year history in China and was the top selling auto brand for many years until 2023, when it lost its crown to homegrown electric vehicle maker BYD.

China accounts for 69% of the world's electric car sales, and established international brands are competing fiercely with local automakers as well as relative newcomers like smartphone maker Xiaomi.

Volkswagen's newly-announced investment will also go towards factories for two new models created in a joint venture with Chinese EV manufacturer Xpeng.

The first of the two models is a mid-sized SUV that is due to roll off the assembly line in 2026.

zc/wmr (AFP, Reuters)