Volkswagen surprisingly joined hands with Xpeng Motors.
On July 26, 2023, the Volkswagen Group announced its collaboration with two Chinese local automotive manufacturers under its Volkswagen and FAW Audi brands- most surprisingly, Volkswagen brand has shaken hands with Xpeng, a new force in China’s automobile manufacturing industry.
Meanwhile, the Volkswagen Group also announced the cooperation of FAW Audi and SAIC Motor.
For Volkswagen, the collaboration with Xpeng can be viewed as a significant step in its deep layout in China’s automobile market- at the same time, for Xpeng, this partnership with Volkswagen is undoubtedly a fruitful achievement after years of deployment in intelligent technology.
In fact, this could even be seen as a victory.
Why does Volkswagen want to collaborate with Xpeng?
The agreement between Volkswagen and Xpeng is a technological framework.
Initially, both parties plan to jointly develop two Volkswagen brand electric vehicle models for China’s mid-size car market. These two new vehicles, exclusive to the Chinese market, will supplement the product mix based on the MEB platform and are scheduled to launch in 2026.
As part of this long-term strategic cooperation, the Volkswagen Group will increase its investment in Xpeng by approximately $700 million, acquiring approximately 4.99% of Xpeng’s shares at a price of $15 per ADS (American Depositary Share).
Once the transaction is complete, the Volkswagen Group will obtain an observer seat on the board of Xpeng. The issue of shares will depend on the fulfillment of customary preliminary conditions, including applicable regulatory approvals.
Worth noting is that the recently established Volkswagen (China) Technology Co., Ltd. (VCTC) will be Xpeng’s partner in technological development.
As known, Volkswagen (China) Technology Co., Ltd was established on May 31, 2023, with its registered location in Hefei, Anhui Province.
In reality, Volkswagen Group has already constructed a highly modernized production, research and innovation base in Hefei, Anhui. Volkswagen Anhui is set to be officially put into production within this year. In addition, Volkswagen (Anhui) Auto Parts Co., Ltd has built a high-voltage battery system manufacturing factory in Hefei. Volkswagen (China) Technology Co., Ltd also set up a research and purchasing center for intelligent connected electric vehicles in Anhui.
Volkswagen Group emphasized that this technological company integrates functions such as research, innovation, and procurement. It is the largest R&D base of Volkswagen Group besides Wolfsburg. In the future, more than 2000 research and procurement experts will carry out relevant work on the new intelligent connected electric vehicle models.
Regarding this collaboration, Bernd, the Volkswagen Group’s managing director responsible for the China region, stated:
Joining hands with Xpeng gives us another strong partner in the field of key technologies in China. In the competitive and dynamic market environment, we combine the core competences of our partners to create synergies and offer new products that meet the unique requirements of Chinese customers more quickly. At the same time, we can optimize the development and procurement costs of everyone involved in the cooperation.Clearly, Volkswagen’s collaboration with Xpeng is undoubtedly for creating a novel localized platform for the next generation of intelligent connected vehicles in the Chinese market. The aim is to create more vehicles that are ‘Made in China, Made for China’, thereby catering to the demands of a clientèle with tremendous potential and the market requirements.
Indeed, besides Volkswagen’s cooperation with Xpeng, the FAW Audi brand has already established a partnership with SAIC Motor. The two parties will expand the high-end market smart connected electric vehicle product combination quickly and efficiently through joint development. As part of the cooperation, Audi will launch a new electric model, invading a previously uncovered sub-market in China.
Consequently, to better maintain their dominance in the Chinese market, Volkswagen Group has let down its once towering stature — a wise move indeed.
A Victory for Xpeng in the field of Intelligence
So, what does this collaboration signify for Xpeng? It’s quite simple: monetize its investment in the intelligence field through capital and technological cooperation.
The Chairman and CEO of Xpeng, He Xiaopeng, said regarding this cooperation:
The highly complementary advantages between Volkswagen Group and Xpeng are the cornerstone of our long-term strategic cooperation. We will share the technology of intelligent electric vehicles and world-class design and engineering capabilities, and learn from each other. I am delighted to contribute our technical expertise to this strategic partnership, creating value for Xpeng and our stakeholders.
So, what are Xpeng’s advantages from Volkswagen Group’s standpoint?
Simplicity again: intelligence.
In fact, as He Xiaopeng stated, since its inception, Xpeng has been dedicated to the self-research of electric vehicle platforms, and internet of vehicles and autonomous driving software.
On a product level, Xpeng’s core competence is its capabilities in intelligent cabins, intelligent connectivity, and intelligent driving. More so, with its strategic positioning in this field, Xpeng has successfully branded itself in intelligence.
Crucial for Volkswagen is Xpeng’s layout in the intelligent driving field.
Technologically, Xpeng has successfully constructed a localized high-speed NOA and city NOA scheme based on proprietary algorithms. To support this scheme, Xpeng has built a 600 PFlops intelligent driving computing center to process localized data.
As a native Chinese automaker, Xpeng also has the advantage of localized data in intelligent driving.
Such capabilities and advantages are hard for Volkswagen Group to have in the short term through R&D investment. Nevertheless, the cooperation with Xpeng enables it to circumvent these formidable limitations, yet still roll out models with intelligent driving capabilities for the Chinese market.
One should note that Xpeng currently also needs partners like Volkswagen.
Even though it has invested heavily in the field of intelligence and has implemented it at the product level, for various reasons, this intelligence has not significantly driven Xpeng’s vehicle sales to cover its initial investment costs.Indeed, in the first quarter of this year, Xpeng’s financial performance was quite pitiful and its cash reserves had reduced. Despite a slight surge in sales in the second quarter, it was still a long way off its original target.
Moreover, although Xpeng has released the competitive G6 on both product and price levels, it is still in the early stages of production ramp-up.
Furthermore, with the increasing competitive climate, Xpeng is indeed facing massive financial pressure.
Under such circumstances, Xpeng has sufficient motivation to convert its intelligence level advantage into financial returns through collaborating with Volkswagen, thus enhancing its survival capacity.
Actually, Volkswagen’s capital increase and share acquisition are just the beginning; within their collaboration framework, the development and ground rolling out of subsequent vehicle types represent new opportunities and potential cash flows for Xpeng’s long-term business development, which could possibly be very broad.
Undoubtedly, this marks a victory for Xpeng in the field of intelligence.
Final Thoughts
In reality, this collaboration is of great significance to both Volkswagen and Xpeng.
On one hand, as a world-class automotive giant, Volkswagen’s decision to cooperate with a Chinese start-up less than ten years old is a vital move for coping with competition and seeking transformation. It suggests that even automotive titans like Volkswagen have recognized the harsh realities of the Chinese automotive market and have made pragmatic decisions.
On the other hand, Xpeng’s decision to open up collaboration with Volkswagen in the field of intelligence marks a triumph. Simultaneously, the move indicates Xpeng’s goal to gain more significant leeway for survival. While it may seem rational now, such a decision was not easy to make.
Eventually, under the harsh market conditions, both parties decided to proceed with the collaboration, each fulfilling its own needs.
It’s noteworthy that following the announcement of the collaboration, Xpeng’s US stock shares skyrocketed by over 37% after the opening of the US stock market. Undeniably, after partnering with Volkswagen, Xpeng’s potential has expanded massively, and it has begun to be recognized by the capital market.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.