PSA Peugeot Citroën is aiming to produce 1m cars a year in China for Asian markets with local automaker Dongfeng, as part of their industrial partnership, according to people briefed on the talks.
The two groups have been hammering out an alliance since last year. Under current proposals, Dongfeng and the French state will take a 14 per cent stake in Peugeot as part of an effort to raise €3bn in capital.
The struggling French automaker, hit by the worst European car market for two decades and bleeding cash, will use the money to invest in new models and shore up its balance sheet. It is relying on the partnership to boost Asian sales.
The joint venture will produce cars under Peugeot, Citroën and Fengshen brands, using common platforms and supply chains, and sharing research and development costs.
Peugeot and Dongfeng plan to increase car sales into China and southeast Asian markets to 1m cars a year in the next three to four years. Total PSA group sales in 2012 were 3m units.
One area of potential R&D collaboration will be over the Hybrid Air, a complex technology to reduce fuel consumption.
Peugeot also hopes to receive a stream of revenue from sharing its technology with the joint venture.
Dongfeng, Peugeot and the French government are still in talks over the exact nature of the financial and industrial agreement.
Peugeot said last week the talks were in their final stages, confirmed the €3bn capital increase, and said it would give more clarity when it released annual results on February 19.
The price of the share issue, thought to be between €7 and €8 a share, is still unknown. Any deal would still need shareholder approval.
Shareholders will be given warrants, allowing the option to buy shares at the same price as the share issue.
A reserve capital increase, giving stakes to Dongfeng and the government, will be followed by a broader capital increase, to which Dongfeng and the government will also subscribe.
Under the current form of the agreement, the Peugeot family will lose control of the company it created more than 100 years ago, moving from its 25 per cent stake and 38 per cent voting right to just a 14 per cent stake.
The family is set to lose its chairmanship of the board under these circumstances, to be replaced by an independent figure.
The make-up of the board has not been decided, but under current proposals each of the three main shareholders will get an equal number of board seats.
A majority of independent directors will be appointed for balance.
This might allay some investor fears that having three very different powerful owners – Beijing, the family and the Elysée Palace – will make decision making difficult. The French press have dubbed the company the “lion with three heads”.
Peugeot is also in talks with Santander over a deal to sell part of its financing arm, currently reliant on €7bn in French state guarantees – all in a bid to leave Carlos Tavares a clean slate when he takes over as chief executive this year.
In an existing partnership, Dongfeng and Peugeot operate three assembly plants together in China. The Wuhan-based company also has joint ventures with Honda, Nissan, and Renault.