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Volkswagen is investing $700mn in electric vehicle group Xpeng as the two join forces to boost the German carmaker’s lagging sales in China.
The deal will give VW a 5 per cent stake in the Guangzhou-based group as well as a seat as an “observer” on its board.
VW said the “initial stage” of their relationship would focus on jointly developing two VW-branded “midsized” electric vehicles, one of which is planned to hit Chinese roads in 2026.
Xpeng’s ADR shares surged 33 per cent to $20.42 in New York morning trade on Wednesday, while VW fell 2 per cent to €123.02 in the Frankfurt afternoon.
The sprawling German group, which other than its eponymous VW brand includes companies such as Porsche and Audi, was one of the first western companies to enter the Chinese market in the late 1970s.
It still sells more cars in China than any other company but is falling behind in the fast-growing electric segment as Chinese rivals such as Xpeng and Warren Buffett-backed BYD quickly gain market share.
BYD dominates China’s new energy vehicle market, which includes plug-in hybrids and pure battery EVs, with a market share of more than 37 per cent.
Including the Xpeng stake, VW has this year alone announced investments worth nearly €5bn in China, the world’s largest car market where the Wolfsburg-based company makes roughly half of its profits.
The VW-Xpeng deal was a vote of confidence in the Chinese EV industry, said Tu Le, of Sino Auto Insights.
However, he added that it was also an admission by VW of its inability to compete in the electric market without Chinese technology.
VW’s increased investments in China also come as Berlin raises concerns over how reliant many German companies are on Beijing for profits amid rising geopolitical tensions.
Germany’s foreign minister Annalena Baerbock this month warned companies investing heavily in China that they would “have to bear more of the financial risk themselves”.
VW also announced on Wednesday that Audi was planning to expand its existing co-operation with SAIC, VW Group’s first partner in China.
The collaboration between Audi and SAIC would start with electric cars “in a segment where Audi does not yet have a presence in China”, VW said, without elaborating on the timing of plans.
