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

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.

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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 economy of scale.

VW China CEO Ralf Brandsatter said a deal would allow his company to “expand its position in China by tapping new customer segments and bringing new intelligent, fully connected electric vehicles (ICV) to the market more quickly”.
Brandsatter added he expected the market to experience a “tipping point” in 2025 when NEVs would account for half of sales, adding VW aims to “seize this huge market growth potential”.

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Xpengs shares jumped by 27% in overnight trading in New York on the news. According to reports, VW is paying US$15 per share for its stake and would gain a seat on thw board, subject to approvals.

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Seperately, Audi plans to strengthen collaboration with Shanghai-based SAIC Motor to expand its range of EVs.