LEAPMOTOR, is using a unique approach to build its global commercial map.
On October 26, LEAPMOTOR and internationally renowned automobile titan, Stellantis Group, jointly announced a deal. Through this deal, Stellantis Group invests around 1.5 billion euros, acquiring approximately 20% of LEAPMOTOR’s equity. This investment makes them a significant shareholder in LEAPMOTOR, securing two seats on LEAPMOTOR’s board of directors.
Simultaneously, Stellantis Group and LEAPMOTOR plan to establish a joint venture under the name ‘LEAPMOTOR International’ at a share ratio of 51%:49%. Beyond the Greater China Region, this joint venture possesses exclusive rights for exporting and selling to all other global markets, coupled with exclusive manufacturing rights for LEAPMOTOR products locally; the joint venture’s export operations expected to commence in 2024.
Notably, the Chief Executive of this joint-venture will be appointed by the Stellantis Group.
From a partnership perspective, collaboration between LEAPMOTOR and Stellantis Group isn’t just a question of finances and branding. A more substantial factor is driving international expansion. Leveraging Stellantis Group’s mature commercial infrastructure in global markets, LEAPMOTOR aims to boost its international sales, starting primarily with the European market.
For Stellantis Group, their partnership with LEAPMOTOR, beyond a financial commitment, is rooted in embracing industry trending developments, such as electrification and intelligence. Although this implicit consideration is yet to manifest in the current collaboration, partnership with LEAPMOTOR underscores Stellantis Group’s appetite for transformation.
Nevertheless, as a new force in car manufacturing seeking a more durable survival space, many details behind this collaboration and its future commercial landscape require clearer answers. Hence, on October 27, a day following the announced collaboration, we held in-depth discussions with Wu Qiang, LEAPMOTOR’s co-president, who oversees the Stellantis Group partnership project.
Here are key points from the discussion, which were edited without altering the original meaning.
Q: What is your strategic consideration for collaborating with the Stellantis Group?
A: As a global company, we have to focus on overseas markets. But in structuring our overseas market presence, we need to consider the input-output ratio. There are mainly two ways Chinese companies operate overseas: we either collaborate and establish our factories, sales, and development; or partner with others, which is our chosen path. Given that LEAPMOTOR hasn’t been around for a long time, and resources are limited, we need to concentrate resources on R&D, products, and our strategies in the domestic market. By cooperating with others, we aim to achieve quicker strides in overseas markets. That’s our overall strategy.I wish to emphasize that LEAPMOTOR is the driving force in this venture. The territories of operation, the pace of advancement, and other such matters, require mutual consultation and depend heavily on Stellantis’ professional judgement. However, specifics such as how to roll out, which country to venture into, the timing of entrance, positioning, appropriate car models, and sales strategy are to be mutually decided and implemented.
Additionally, upon the entry of Stellantis, it will hold a 20% stake. Thus, the majority of the shares still remain with the Chinese shareholders. At the board level, Stellantis adds two members to the board, increasing it from seven to nine. The growth of LEAPMOTOR remains primarily under the leadership of Mr. Zhu as steered by the Chinese side.
Q: In the domestic market, is there any cooperation between LEAPMOTOR and the Stellantis Group?
A: Our present collaboration framework does not include operations of LEAPMOTOR in the domestic market, nor Stellantis’ domestic operations.
Q: How do you see the value of LEAPMOTOR International in the international business system?
A: LEAPMOTOR International is a joint venture registered in Europe, acting as the exclusive agent for sales and service overseas. The current cooperation is limited to automobiles under the LEAPMOTOR brand and does not involve any fuel-driven or electric vehicles under the 14 brands of Stellantis. In terms of technology, software, and services, LEAPMOTOR perceives that these are future trends. However, the immediate focus needs to be on product sales. Without base product sales there cannot be any upgrades to future technological and software services. Hence, our cooperation with Stellantis overseas is focused on the expansion of sales and market products.
Q: With this cooperation with Stellantis Group, Dahua has left the equity structure of LEAPMOTOR. Was it designed to facilitate your future overseas efforts?
A: Dahua’s exit is a good arrangement that smoothered the historical missions of the companies at different stages through dealmaking. Dahua’s primary focus was not the investment in LEAPMOTOR so when it delayed its exit, it was an important move. Moreover, Dahua’s exit could indeed help us decrease needless regulatory frictions for our overseas business expansion.
Q: How long was your negotiation period with Stellantis?
A: Our first contact was on the Lantern Festival, the fifteenth day of the lunar new year. This was directed by President Tang himself, not a bottom-up strategy. It was built through the highest level of direction.
Q: How did you arrive at the 51:49 split in the joint venture?
A: The essence of the 51:49 split is a strategy of leverage enlisting the effective use of Stellantis’s resources in the joint venture overseas. However, that does not imply that we have lost control.We have the capacity to claim 100% ownership in venturing into the overseas market. However, commanding such a large market is challenging. Thus, we have opted for a smarter approach: we have relinquished half of this ‘pie’, allowing it to capitalize on its existing influence to sell our car as quickly as possible. The revenues earned will be shared equally, ensuring a faster business growth and a larger market size. Though receiving only half of the revenues, it is more beneficial than attempting a solo venture for a total pie much smaller.
Q: After the establishment of LEAPMOTOR International, are there more sales of hybrid cars or pure electric cars?
A: Presently, our international sales mainly consist of pure electric cars. However, we have received inquiries regarding the market for hybrid cars, the understanding of which remains ambiguous overseas. As of now, the market for hybrid cars appears minimal, with pure electric cars dominating. Depending on consumer preferences in the future, we can furnish a variety of offerings.
Q: This collaboration of LEAPMOTOR involves sales in Europe. Have you taken into consideration any potential risks caused by ideological differences or geopolitical events?
A: We have duly acknowledged these aspects in our transaction, considering risks stemming from geopolitics and protectionism, which are uncertain. On the bright side, our collaboration with the Stellantis group has effectively equipped us with a ‘glove’ in our overseas operations. In addition to elements such as promotion speed, sales awareness, and rapidly popularizing an unfamiliar brand, we have also factored in cultural and political uncertainties – an integral part of our contingency planning.
Q: In terms of selecting global partners, apart from Stellantis, will you cooperate with other enterprises? What is your rhythm of cooperation?
A: In the overseas market, we have chosen to collaborate exclusively with Stellantis. Currently, we anticipate completing the procedures of supervision and shareholders’ assembly by the end of this year, following which we will commence the strategizing and operational planning in different markets in the first quarter of the coming year. The formal handover of the cars will happen mid-next year.
Q: With such a partnership, do you have plans to set up factories overseas?
A: The joint-venture company, LEAPMOTOR, adopts a light-asset strategy overseas and has no grand plans for constructing factories. Considering the abundant capacity in the automobile industry, including the existing fuel car factories which can be revamped for electric car assembly, there is no necessity for new factories. We have no plans for the same. Should local assembly offer convenience, we would select suitable factories from within Stellantis group or any other third-party entity.
Q: What is your opinion on Europe’s traditional industrial capital investing in China’s new energy corporations?
A: At this stage of industry development, Chinese electric car manufacturers may have the upper hand due to their early start. It’s not a case of revolutionary technological innovation, but an advantage merely from starting early and moving swiftly, thereby accumulating technological competence. Hence, we don’t bank on technology exports but are more focused on propelling complete vehicles, automotive components, and products into international markets. However, we also remain pragmatic, understanding that the difference between being a pioneer and a follower is merely of time, along with the bonuses and cost advantages brought about by Chinese engineers.
International car manufacturers could potentially face a ‘turning a large ship is hard’ scenario, struggling to counter competition from Chinese car enterprises. Cooperation might be a good idea in this situation. Stellantis group, meanwhile, is developing its brand new business ecosystem, highlighting their clear understanding of their situation and their willingness to cooperate and form a joint venture, demonstrating their abilities and execution capabilities.Q: What kind of sales scale is the collaboration company expected to bring to LEAPMOTOR?
A: At present, the same products have a significant premium when sold overseas compared to domestic prices. Currently, T03 is selling in small quantities in France and Israel, where the selling price is 70% or even higher than the domestic price. This is the effect of the local market. We predict that this should be the case for many years in the future, where overseas prices and gross profit margins should be higher than domestic ones.
In future financial reports, whether it is exporting whole cars or parts, it will bring direct sales revenues and positive gross profits. If local manufacturing is involved, that will also be direct income. This income has a higher value because it does not include direct costs. I go to authorize; it is actually costless. This is income from technical authorization.
In addition, we have a 49% stake in the joint venture company. If the joint venture company operates successfully and makes money, half of the profits will belong to LEAPMOTOR, and there will be investment returns on the financial report. This investment income is different from many other companies’ returns; our investment return is entirely part of the main business.
Q: Besides the announced cooperation, will you and the Stellantis Group have more in-depth cooperation?
A: Stellantis Group is a financial investor, but enough trust and connection can be generated between us to explore and cooperate on various business possibilities. There will be cooperation on supply chain and overseas production assembly, cost control, etc. There is much room for future cooperation between us.
Q: The current focus of cooperation is on LEAPMOTOR International. How will this cooperation help LEAPMOTOR’s business development in the Greater China area?
A: Stellantis’ investment and cooperation with LEAPMOTOR should be financial investment cooperation with potential business cooperation. This positioning is quite clear.
This cooperation and partnership aren’t necessarily focusing on Chinese business itself, but by working with Stellantis, it will indirectly benefit Chinese business, serving as a feedback loop. Overseas sales are part of our large volume, and we need to steadily increase sales in China. Overseas sales can also help bring cost-scale advantages and industry influence, which can affect customer perception.
Q: How does LEAPMOTOR foresee the car company’s competitive landscape in a few years?
A: Now is the consolidation phase of the industry; everyone competes fully to improve their competitiveness and stake a claim in future markets. So building a stake is multi-dimensional; the volume is key, and at the same time, we aim to lower the company’s operational financial cost. As for the future, whether there are 8, 5, 10, or 12 companies left, nobody knows. Such predictions and assumptions are simply wishful thinking and hold little significance.
This article is a translation by AI of a Chinese report from 42HOW. If you have any questions about it, please email firstname.lastname@example.org.