Xpeng gets Volkswagen’s US$700 million investment to jointly develop EVs in China, the world’s largest vehicle market

The German carmaker would invest about US$700 million for 4.99 per cent of Xpeng, according to a LinkedIn post by Volkswagen’s China chief executive Ralf Brandsatter
The two companies plan to roll out two Volkswagen-badged midsize EVs in 2026 in China, according to their technological framework agreement

Electric & new energy vehicles

Daniel Renin Shanghai

Published: 9:35am, 27 Jul 2023

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Volkswagen Group said it would invest in one of China’s fastest-growing electric-car (EV) makers to jointly develop automobiles powered by non-fossil fuels, expanding its footprint in the world’s largest market for such vehicles.

The German carmaker would invest about US$700 million for 4.99 per cent of Xpeng and an observer’s board seat in the Chinese carmaker, according to a LinkedIn post by Volkswagen’s China chief executive Ralf Brandsatter. The two companies plan to roll out two Volkswagen-badged midsize EVs in 2026 in China, according to their technological framework agreement.

“This allows Volkswagen Group to expand its position in China, by tapping new customer segments and bringing new intelligent, fully connected electric vehicles (ICV) to the market more quickly,” Brandstatter said in his LinkedIn post. “The reason we are doing this is clear. Already, more than 30 per cent of newly registered vehicles in China are electrified. The tipping point is expected in 2025, when that figure will reach 50 per cent. We will seize this huge market growth potential.”

He added that two new electric car models, which will target China’s middle-class segment, will be jointly developed for VW after the deals with Xpeng are signed.

An undated selfie of Xpeng’s co-founder and chairman He Xiaopeng and Volkswagen’s China chief executive Ralf Brandstatter. Photo: LinkedIn

The German marque, the top car brand in terms of overall sales on the mainland, has been lagging Tesla and BYD in developing electric cars in China.

Over the past three years, VW has established partnerships with artificial intelligence chip designer Horizon Robotics, battery producer Gotion High-tech, and intelligent car operating system products provider Thundersoft in China to strengthen its EV development capabilities, hoping to churn out new models that can hit a consumer nerve.

“VW is aware of the urgent needs to catch up with global and Chinese rivals in this big EV market,” said Gao Shen, an independent analyst in Shanghai. “Working with Chinese partners with some mature technologies can offer the auto giant a fast track to chase its growth of EV business here.”

Xpeng co-founder and CEO He Xiaopeng shared a selfie with Brandstatter on his Weibo account late on Wednesday evening, saying that the picture had been taken sometime ago, indicating the talks on investment and cooperation had been going on for a while.

Xpeng’s Hong Kong-listed shares surged as much as 34.5 per cent to a record high of HK$81.35, before closing at HK$81 on Thursday. The carmaker’s shares soared by as much as 42 per cent overnight before closing 26.7 per cent higher at US$19.46 in New York. Alibaba Group Holding, which owns this newspaper, has a 13.9 per cent stake in Xpeng.

Separately, Volkswagen’s Audi brand signed a pact to formalise its alliance with Shanghai-based SAIC Motor “to extend the portfolio of fully connected electric vehicles on offer in the premium segment swiftly and efficiently.”

The partnerships underscore the urgency for the Wolfsburg-based carmaker as it tries to turn the tide in China, where it has been upstaged by nimbler start-ups like Xpeng and Nio in churning out smart electric cars. EV sales by Volkswagen, the first European carmaker to enter China, shrank in the first six months, even as the overall EV market grew 25 per cent.

Japan’s largest carmakers had also fallen behind in China. Toyota, Nissan, Honda, Mazda, Mitsubishi and Subaru – all of which assemble and sell cars through their joint ventures with Chinese partners – sold 1.71 million vehicles between January and June, a decline of 19.9 per cent from last year, according to industry data provider MarkLines.

Overall car sales in the first half in China rose 2.7 per cent year on year to 9.52 million units, according to the China Passenger Car Association (CPCA).

Pure electric and plug-in hybrid cars drove the growth. A total of 3.08 million units were delivered in the first half, up 25 per cent from last year’s 2.47 million. The environmentally friendly cars accounted for 32.4 per cent of the total sales.

China, which surpassed the United States in 2009 as the largest vehicle on the planet, also has the world’s fastest EV penetration rate, helped by generous state investments in a nationwide charging infrastructure. Three of every five new vehicles entering China’s roads by 2030 are likely to be powered by batteries instead of fossil fuels, according to a forecast by UBS.