Volkswagen AG (VLKAF) has earmarked €10 billion ($11.8 billion) for investment in electric car production in China, becoming the latest automaker to stump up cash in preparation for strict new emission targets in the world's biggest car market.

Germany's biggest car maker said the cash would be invested before 2025 to fund the launch of 40 new hybrid and all-electric vehicles, including fifteen new models over the next two to three years. The new cars will be VW's first Chinese-built electric vehicles.

VW shares traded Thursday at €159.30, up 2.4%, boosted by a European Automobile Manufacturers' Association report that new car registrations in the European Union had grown 5.9% in October, reversing a decline a month earlier.

VW's China head Jochem Heizmann announced the planned investment in China on Thursday, November 16. "We need high volumes of new energy vehicles," Heizman told journalists ahead of the opening of the Guangzhou auto show on Friday. "We are working on full speed on that."

VW expects to sell 400,000 so-called new energy vehicles, or NEV's, in China by 2020 and was targeting 1.5 million per year by 2025, said Heizman. The company, which operates in China through a partnership with state-owned Anhui Jianghuai Automobile Group, will start electric vehicle production in China the first half of 2018.

China's government, in September, detailed a concerted push to reduce the number of petrol driven vehicles on its road and set out penalties for manufacturers whose NEV output is less than 10% of their total in China by 2019, rising to 12% by 2020.

The threat of those penalties, which had been flagged earlier in the year, has drawn a rapid response from car makers.

Last week, Ford Motor Co. (F) and China's Anhui Zotye Automobile, announced plans to invest 5 billion renminbi ($753 million) to establish Zotye Ford Automobile Co. Ltd, a 50-50 joint venture in China that will build electric vehicles. In August, the Renault-Nissan Alliance (RNSDF)   (NSANY) said it will team with Dongfeng Motor Group Co. to launch a new Chinese-made electric vehicle.

Renault-Nissan-Mitsubishi Will Launch 12 Zero Emission Vehicles By 2020

China's push to promote electric vehicles means it is likely to lead the world in near-term adoption of low-emission cars, according to a Goldman Sachs note published in September, The bank forecast sales of electric vehicles in China will account for about 15% of all auto sales by 2030, and 40% by 2040. That compares with forecasts for the U.S. of 7% in 2030, rising to 45% by 2040.

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