Volkswagen Seeks to Reclaim China Crown in Deal With EV-Maker XPeng
German auto giant buys stake in a Chinese rival after praising the dynamism and innovation of local automakers
SINGAPORE—Volkswagen VOW -1.64%decrease; red down pointing triangle has heaped praise on China’s homegrown electric-vehicle makers for their speed and innovation. Now it is taking a stake in one of them as it seeks to reclaim its position as the bestselling automaker in the world’s largest car market.
The German carmaker is investing $700 million for about 5% in Chinese electric-vehicle maker XPeng. They will jointly develop two new electric vehicles for the Chinese market under the Volkswagen brand, with a rollout expected in 2026, Volkswagen said Wednesday.
Investors piled into Xpeng’s XPEV 3.91%increase; green up pointing triangle shares following the news, with its Hong Kong-listed stock soaring 34% on Thursday. The investment is a boost for U.S.-listed XPeng, which saw months of falling sales earlier this year despite offering more than 10% discounts as a price war raged in China’s slowing EV market.
Volkswagen also said in the statement it would be working with its existing Chinese partner, Shanghai-based SAIC Motor, to develop premium EV models.
Volkswagen’s hold on China, its largest single market, has eroded in recent years, as consumers increasingly shift their purchases to electric vehicles and plug-in hybrids from conventional gasoline sedans. Nimble Chinese electric-vehicle startups have capitalized on the rapid adoption of such vehicles, introducing new models packed with the latest technology and features to attract Chinese buyers.
Ralf Brandstätter, Volkswagen’s China chief who was brought over in August to head the company in China, has previously praised China’s swift speed of innovation in a memo to staff.
In China, “the dynamics and speed of innovation are now many times higher than in Europe or the U.S.A.,” Brandstätter wrote in a message to staff, which was reviewed by The Wall Street Journal. “No other market offers anywhere near this growth potential and this speed of innovation.”
Chinese companies were able to introduce a new product to the market in a little more than 2½ years, he wrote, compared with Volkswagen, which takes about four years.
Volkswagen’s move is a recognition by the German auto giant that the company was unlikely to catch up with local peers without the help of Chinese know-how, said Tu Le, the managing director of industry researcher Sino Auto Insights. It is also a validation that China’s electric-car industry is now globally competitive, said the Shanghai-based Le.
Local automakers outsold their foreign rivals in the first half of the year as sales of so-called new-energy vehicles rose, according to data from industry body the China Passenger Car Association. Domestic brands made up 54% of China’s wholesale car market during the period.
Not all have found it easygoing. XPeng saw sales dip despite offering discounts on several vehicle models since January and launching a new model with more advanced self-driving capabilities.
With growth in the global automobile industry tapering, keeping a strong foothold in China’s electric-vehicle market will be crucial to the success of Western brands, said Eunice Lee, an analyst at research group Bernstein.
Chinese carmaker BYD, which only sells plug-in hybrid and electric vehicles, sold more cars than Volkswagen in the world’s largest automotive market during the first half of the year. Lee said the Volkswagen brand’s share in China’s passenger-vehicle market fell from 14% in 2019 to 10% in the first half of this year, behind BYD’s 11% in the same period.
Volkswagen cut its annual global delivery forecast on Thursday, telling investors that it would deliver between 9 million and 9.5 million vehicles this year, down from a previous estimate of 9.5 million. Last year, the auto maker’s China operation contributed almost 40% of its deliveries.
To address faltering Chinese sales, the Wolfsburg, Germany-based car giant has sought to bolster alliances and expand its operations in the country.
In April, Volkswagen announced it would invest more than $1 billion to build a research and procurement center for electric vehicles in east China. The center would reduce development times for its new products and technologies by about 30%, the maker of Audi and Skoda-branded sedans said then.
Last year, VW invested more than $2 billion in Horizon Robotics, a Chinese software company, in a bid to close the software gap with its local rivals.
Volkswagen is deepening its ties to China even as other foreign marquees have been reducing their exposure to its market.