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Global carmakers, led by VW and China, plan an unprecedented surge of $300 billion in spending to accelerate the transition to electric vehicles.

Spending on electric vehicle development amongst global auto makers has increased from $90 billion only a year ago to this new high. The goal of the massive outlay, to be spread over the next five to 10 years, is to put electric vehicles into mass production in China, Europe and North America. It will focus on extending technological advances that address issues such as battery cost, range and charging time in order to make EVs more popular with consumers and boost demand.

The unprecedented level of spending has been prompted in large part by regulatory and policy changes geared to cutting carbon dioxide emissions. Governments are placing more restrictions on conventional gasoline and diesel engines, particularly in China, propelling the automotive industry’s shift towards more environmentally responsible vehicles. China’s push for more production and sale of EVs includes government quotas, credits and incentives.

China is expected to be the industry’s epicentre. The country trailed Germany, Japan and the U.S. in internal combustion vehicle technology, but automotive industry executives say China is now positioned to lead EV development. The intention is backed by allocation, as nearly half – over $135 billion – of the global industry’s planned EV spending will be in China. This will place more power in the hands of Asian battery and EV technology suppliers.

Nearly a third of the planned EV spending total, about $91 billion, will come from Germany’s Volkswagen Group, which is eager to put the “Dieselgate” scandal behind it. VW’s electrification plans entail building capacity on three continents and ramping up to 15 million electric vehicles by 2025, including both pure electric and hybrid models.

“The future of Volkswagen will be decided in the Chinese market”, said VW’s Chief Executive, Herbert Diess. VW already has long-standing joint ventures with two of China’s biggest automakers, SAIC Motor and FAW Car. Diess said that China “will become one of the automotive powerhouses in the world”, adding that the country has “the right environment to develop the next generation of cars and we find the right skills, which we only partially have in Europe or other places.”

Reuters reports that alliances, such as those between VW and its Chinese partners, will be key drivers of innovation. Spending by Chinese automakers could be equalled or even exceeded by multinational joint-venture partners such as VW, Daimler and GM, which are greatly expanding their EV portfolios in China and ramping up battery purchases from Chinese suppliers. This strategy will help spread the costs of EV development.

Diess added that VW is “evolving from the model where we have been developing and bringing European technology into this market to a new phase where we will co-develop part of the automotive technology in China for the rest of the world. I think this is a significant step change.”

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