Each week, Just Auto’s editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value, or the highest profile. But we select it because of what it tells us about where the leading companies are focusing their efforts, and why. We pick apart the deal itself, and the industry theme behind it. This new, thematic deal coverage is driven by our underlying Disruptor data which tracks all major deals, patents, company filings, hiring patterns and social media buzz across our sectors.  

The deal

Volkswagen will pay US$700m for a 5% stake in electric vehicle (EV) startup XPeng and it is planned the two companies will jointly develop two EVs to be sold as VW models in China by 2026.

The initial stage of the cooperation provides for the joint development of two VW brand electric models for the mid-size segment in the Chinese market. The China-specific vehicles will supplement the MEB product portfolio and are to be rolled out in 2026 in China. This is subject to the conclusion of final agreements.

As part of the close and long-term strategic cooperation, the Volkswagen Group is to invest approximately US$700 million in Xpeng. Volkswagen is thus acquiring 4.99 percent stake in Xpeng by way of a capital increase, and will hold a seat as an observer on the Xpeng board of directors. The share issuance will be subject to customary closing conditions including applicable regulatory approvals.

Xpeng or Xiaopeng Motors, is also known as XMotors. Its vehicle models include Xpeng P7 sport sedan and a number of electric SUVs, primarily aimed at the Chinese market.

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Why it matters

The VW group has a significant presence in China’s conventional ICE vehicle market through JVs with SAIC and FAW but has struggled to keep up with the fast growing EV segment which expanded 36% to 2.1m units in the first five months of 2023 and took 20% of total vehicle sales.

VW EV sales in China through its two main JVs fell 19% to 48,000 units in the first half. Its total sales fell 2% to 982,000 units in a market which expanded 9% to 13.12m units.

Given the increasing local popularity of Chinese NEV brands, a deal with Xpeng could potentially provide significant growth for both companies with Xpeng benefiting from financial investment and greater economies of scale.

VW China CEO Ralf Brandsatter said a deal will allow his company to “expand its position in China by tapping new customer segments and bringing new intelligent, fully connected electric vehicles to the market more quickly”.

VW Group’s Audi unit has also signed a strategic agreement with JV partner SAIC. The partnerships in China aim to swiftly expand the VW Group’s product range with further models developed in China for the China market. The precise details of cooperation on future e-platforms are the subject of further negotiations between the partners.

China’s light vehicle market is set for growth phase and VW Group is adjusting its strategy