Volkswagen's XPeng deal sets example of West-China EV alliance
The top news from the Chinese auto industry this week is Volkswagen's $700 million investment in the country's electric vehicle startup, XPeng. This partnership has the potential to set a precedent for Western automakers looking to leverage Chinese companies for their electric vehicle expertise, while their Chinese counterparts can benefit from the global distribution of their overseas allies.
>The deal involves the production of two new battery-powered models under the Volkswagen brand using some of XPeng's key technologies. These include XPeng's V2X (vehicle-to-anything) and XNGP solutions, its ADAS system comparable to Tesla's FSD system, and its battery frame architecture.
Although XPeng's sales are well below those of Tesla and local electric vehicle giant BYD, it has earned a reputation for focusing on advanced technologies. The Guangzhou-based automaker has sought to differentiate itself in the heated electric vehicle race by investing heavily in its own proprietary self-driving vehicle technology, while competitors often choose to partner with AV startups.
By acquiring a 5% stake in XPeng, Volkswagen not only gains access to its AV expertise, but also its battery and smart cabin technology, which software-focused AV companies obviously cannot offer.
For XPeng, the benefits of this partnership lie in adoption. Its customer base is still limited, accounting for just 2.1% of China's new-energy vehicle market (including hybrids) in 2022, according to the country's passenger car industry association. Meanwhile, Volkswagen's two local joint ventures collectively accounted for 15% of China's automotive retail market last year.
This means the partnership can help scale XPeng's AV systems to more users, collect more data, and ultimately improve its algorithms, creating a feedback loop data that Tesla has long enjoyed, should the two new models prove effective. Volkswagen hasn't had much luck with plug-ins in China. Last year, its electric vehicles accounted for only about 3% of the national new energy vehicle market.
Furthermore, this deal could strengthen XPeng's global reach. According to a note from Morgan Stanley analyst Tim Hsiao to investors, such cooperation should "lay the groundwork for Chinese automakers to expand overseas" and, in the case of XPeng, "could open more opportunities for future collaboration with the Volkswagen Group in China and around the world."
XPeng and its big rival Nio are actively pursuing their overseas expansion, although their global business has yet to take off significantly. If the two jointly developed models are successful, it is conceivable that Volkswagen will launch them in other markets. For now, this investment appears to be a win-win situation, and other Chinese EV makers and global OEMs may follow suit.
The top news from the Chinese auto industry this week is Volkswagen's $700 million investment in the country's electric vehicle startup, XPeng. This partnership has the potential to set a precedent for Western automakers looking to leverage Chinese companies for their electric vehicle expertise, while their Chinese counterparts can benefit from the global distribution of their overseas allies.
>The deal involves the production of two new battery-powered models under the Volkswagen brand using some of XPeng's key technologies. These include XPeng's V2X (vehicle-to-anything) and XNGP solutions, its ADAS system comparable to Tesla's FSD system, and its battery frame architecture.
Although XPeng's sales are well below those of Tesla and local electric vehicle giant BYD, it has earned a reputation for focusing on advanced technologies. The Guangzhou-based automaker has sought to differentiate itself in the heated electric vehicle race by investing heavily in its own proprietary self-driving vehicle technology, while competitors often choose to partner with AV startups.
By acquiring a 5% stake in XPeng, Volkswagen not only gains access to its AV expertise, but also its battery and smart cabin technology, which software-focused AV companies obviously cannot offer.
For XPeng, the benefits of this partnership lie in adoption. Its customer base is still limited, accounting for just 2.1% of China's new-energy vehicle market (including hybrids) in 2022, according to the country's passenger car industry association. Meanwhile, Volkswagen's two local joint ventures collectively accounted for 15% of China's automotive retail market last year.
This means the partnership can help scale XPeng's AV systems to more users, collect more data, and ultimately improve its algorithms, creating a feedback loop data that Tesla has long enjoyed, should the two new models prove effective. Volkswagen hasn't had much luck with plug-ins in China. Last year, its electric vehicles accounted for only about 3% of the national new energy vehicle market.
Furthermore, this deal could strengthen XPeng's global reach. According to a note from Morgan Stanley analyst Tim Hsiao to investors, such cooperation should "lay the groundwork for Chinese automakers to expand overseas" and, in the case of XPeng, "could open more opportunities for future collaboration with the Volkswagen Group in China and around the world."
XPeng and its big rival Nio are actively pursuing their overseas expansion, although their global business has yet to take off significantly. If the two jointly developed models are successful, it is conceivable that Volkswagen will launch them in other markets. For now, this investment appears to be a win-win situation, and other Chinese EV makers and global OEMs may follow suit.
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