The Acquisition of
Vossloh Locomotives

In August 2019, the German firm Vossloh announced that it was planning on selling its subsidiary Vossloh Locomotives to the Chinese firm CRRC Zhuzhou Electric Locomotive Co., Ltd. (CRRC ZELC). CRRC ZELC is a subsidiary of China Railway Rolling Corporation Ltd. (CRRC). The majority of all CRRC shares are held by the State Council of the People’s Republic of China through a tree of different shareholders and state-owned enterprises, as visible in the graph below. Additionally, the CRRC is also a key company in the Made In China 2025 and New Silk Road initiatives of the Chinese government.

Vossloh Locomotives is based in Kiel, Germany, and is specialised in diesel-electric locomotives and the maintenance and repairing of these. The firm has established itself as a key player in the European market for the production of diesel-powered locomotives ever since its establishment in the late 1800s. Now, the locomotive manufacturer has been sold to the largest rail-vehicle manufacturer of China, CRRC ZELC, which is mainly active in the Chinese market.

View the ownership tree of Vossloh Locomotives

A Road to New Opportunities

The Chief Executive Officer of the German firm, Oliver Schuster, referred to the acquisition as an “extremely important milestone” as it would lead to new opportunities in the development of new products and further innovation. Vossloh Locomotives would be in need for new innovative input to keep up with the rapidly advancing competition.

Vossloh Locomotives has not been the first unit of the Vossloh transportation branch to be sold to another firm. A few years earlier, in 2015 and 2017 to be exact, two other units, Rail Vehicles and Electrical Systems, have been sold to new (non-Chinese) owners. The Locomotives unit marks the last unit of the three to be sold to another owner, giving the entire Vossloh transportation branch out of hands.

The deal brings fresh opportunities for both partners, as it allows Vossloh Locomotives to develop new products and innovate, and the Chinese acquirer to gain direct access to the European market, which it has been struggling to do for years.

Access to the European Railway Market

Even though CRRC ZELC is a core player in the rail-vehicle manufacturing industry in China, it has had a more difficult time engaging with the European market and gaining its own spot. The firm has, previously, provided shunting locomotives to German Rail (DB) and Rail Cargo Hungaria, and supplied Sirius EMUs to Leo Express, Czech Republic. However, aside from that, the firm has not been able to successfully enter the market.

When it comes to EU firms active in the railway industry, it is easy to expand services between and in other EU nations as European market for EU railway operators has been completely liberalised. Any EU railway operator is allowed to be active in and between other EU nations with their services. The aim of this liberalisation is to allow the market to have fair and open competition. However, this is different for Non-EU firms which have increasingly faced a higher demand for more regulations regarding their access to the European market.

The European Commission brought the “Guidance on the participation of third-country bidders and goods in the EU procurement market” into place, which included the statement that Chinese operators do not have set access to the necessary acquisition procedures and could therefore be blocked from any tenders. The nation does not have the translational agreements with Europe that would be necessary for such access, as the nation itself does not assure mutual opening of the acquisition market. After the Vossloh Locomotives acquisition, the Association of the European Rail Industry (UNIFE) took it a step further and demanded more restrictions on Chinese firms aiming for the EU market as it warned for the negative influences that Chinese enterprises could have on the European market and its fair competition.

Given that on the one hand inter-EU operations have become easier and more open, while Chinese activities in the EU have become more difficult, the acquisition of Vossloh Locomotives by CRCC ZELC has become a great strategic decision in gaining access to the EU market without any restrictions as it is an settled EU firm that has free access to the rest of Europe.

A Potential Block by the German Government

Before the acquisition took place, the German government was expected to block the merger when the German Federal Cartel Office expressed its concerns and started an investigation into the acquisition. The government considered the block based on foreign trade and investment regulations. The concerns were mainly rooted in the fact that the acquirer is practically owned by the Chinese government, and lead to uncertainty whether this involvement could cause problems or not. The fear was that this state-involvement could harm fair competition, as CRRC ZELC has access to continuous large funds and technological resources due to their government backup. Aside from state funding, also the threat of price-dumping strategies caused worry among the German officials. The creation of unfair competition towards the rest of the European market had to be avoided.

The Final Approval

However, the Office conducted an elaborate examination and risk-assessment regarding the acquisition and internally concluded that there was no reason for blocking the acquisition. Even though the merger might cause some disbalance in competition given the CRRC’s background, it would level out with the fact that Vossloh Locomotives itself has been losing competitiveness for years. Likewise, government involvement did not have to instantly be labeled as problematic and threatening, the Office concluded. Hence, on April 27, 2020, the German Federal Cartel Office gave its approval of the acquisition. Following, the sale became completely effective on May 31.

Through this acquisition, Vossloh Locomotives hopes to regain competitiveness through innovation and the development of new products guided by the new owner. Likewise, CRRC ZELC has allowed itself to gain better access to the European railway market by means of this acquisition, and will be able to truly extend its business abroad.