The main information from China’s auto business this week is Volkswagen’s $700 million funding in the nation’s electrical automobile startup, Xpeng. This partnership has the potential to set a precedent for Western automakers in search of to leverage Chinese companies for their EV experience, whereas their Chinese counterparts can profit from their overseas allies’ world distribution.
The settlement entails the manufacturing of two new battery-powered fashions below the Volkswagen model using a few of Xpeng’s key applied sciences. These embrace Xpeng’s vehicle-to-anything (V2X) and XNGP options, its ADAS system corresponding to Tesla’s FSD system, in addition to its battery chassis structure.
Although Xpeng’s gross sales lag properly behind these of Tesla and native EV large BYD, it has earned a status for its give attention to superior applied sciences. The Guangzhou-based automaker has sought to distinguish itself in the heated EV race by investing closely in its personal proprietary autonomous automobile expertise, whereas its rivals usually select to associate with AV startups.
By buying a 5% stake in Xpeng, Volkswagen positive factors entry not solely to its AV experience but additionally its battery and good cabin expertise, one thing that software-focused AV corporations clearly can’t provide.
For Xpeng, the advantages of this partnership lie in adoption. Its buyer base continues to be restricted, accounting for only a 2.1% share of China’s new vitality automobile (together with hybrids) market in 2022, in line with the nation’s passenger automobile business affiliation. Meanwhile, Volkswagen’s two native joint ventures collectively accounted for a whopping 15% of China’s retail auto market final yr.
This means the partnership may help scale Xpeng’s AV programs to extra customers, acquire extra information, and finally enhance its algorithms, creating a knowledge suggestions loop that Tesla has lengthy loved — if the two new fashions show profitable. Volkswagen hasn’t had a lot luck with plug-ins in China. Last yr, its EVs represented solely about 3% of the nation’s new vitality automobile market.
Additionally, this deal might increase Xpeng’s world attain. According to a word from Morgan Stanley analyst Tim Hsiao to buyers, this kind of cooperation is “expected to lay the foundation for Chinese carmakers’ overseas expansion” and, in Xpeng’s case, “could open up more opportunities for future collaboration with the Volkswagen Group in China and around the world.”
Xpeng and its archrival Nio have been aggressively pursuing abroad enlargement, although their world companies have but to take off meaningfully. If the two collectively developed fashions show profitable, it’s conceivable that Volkswagen will introduce them to different markets. For the time being, this funding seems to be a win-win state of affairs, and different Chinese EV makers and world OEMs could observe swimsuit.