Europe's largest automaker, Volkswagen AG, plans to invest $700 million in Chinese electric vehicle manufacturer, Xpeng Inc.(NYSE:XPEV), as it tries to stem a sales decline in its pivotal Chinese market, Bloomberg has reported. VW will eventually hold a nearly 5% stake in Xpeng through capital increases with the company's Audi premium brand looking to deepen ties with Volksawgen's long-term partner SAIC Motor Corp Ltd.
"The objective of the strategic technical collaboration is to leverage each other's complementary strengths and forge a long term win-win strategic partnership," the German automaker said in a statement.
The two companies will jointly develop two B-class battery electric vehicles models for sale in the Chinese market under the famous Volkswagen brand, leveraging respective core competencies as well as XPENG's G9 platform including connectivity and ADAS software. The models are expected to kick off production in 2026.
Volkswagen's EV sales in China dipped in the first half compared to a 20% overall market growth. VW has been struggling to compete with the likes of Tesla Inc.(NASDAQ:TSLA) and China's EV leader BYD Co. thanks to the latter's superior grasp of the Chinese market.
VW has been tapping local Chinese companies in a bid to bolster its "in China, for China" strategy, including developing autonomous-driving technology with Horizon Robotics Technology R&D Co., working with Chinese battery maker Gotion High-Tech Co and partnering with ThunderSoft on in-car software.
XPEV shares jumped more than 25% on Tuesday's intraday session on the news but are still nearly 30% lower than a year ago. The shares have more than doubled in the current month. Previously, the shares sold off after JPMorgan downgraded Xpeng to an Underweight rating on the expectation that the stock would pull back ahead of earnings. JPM says it's not confident XPeng will deliver satisfactory margin rates in the second half of the year:
"While we admit XPeng's G6 pricing is attractive and expect the company to see volume ramp up in 3Q/4Q where we now project ~39k/53k units, our full-year volume estimate is now 133k units, still shy of mgmt's earlier ambition of ~30% yoy growth to 150k units in 2023."
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More