XPENG's Victory, a Triumph for China's New Car Makers

Volkswagen has partnered with XPENG.

On July 26, 2023, the Volkswagen Group announced partnerships between its Volkswagen and Audi brands and two Chinese automakers. The deal that surprised observers most was the collaboration between the Volkswagen brand and XPENG, a Chinese new energy vehicle maker.

At the same time, the Volkswagen Group announced that the Audi brand would partner with Shangqijituan.

For Volkswagen, this partnership with XPENG represents a significant step in deepening its layout within the Chinese automotive market. For XPENG, it is the fruit of years of investment in intelligent technology.

One could even call it a victory.

Why is Volkswagen partnering with XPENG?

The agreement reached between the Volkswagen brand and XPENG is a technical framework agreement.

Specifically, at the outset of the partnership, both parties planned to jointly develop two Volkswagen-branded electric vehicles targeting China's mid-size car market. These new models, exclusive to China, will supplement the product lineup based on the MEB platform and are scheduled for launch in 2026.

As part of this long-term strategic cooperation, Volkswagen Group will inject approximately USD 700 million into XPENG. This capital increase involves acquiring roughly 4.99% of XPENG’s equity at a price of USD 15 per ADS (American Depositary Share).

Upon completion of the transaction, Volkswagen Group will obtain one observer seat on XPENG’s board of directors. The issuance of shares is contingent upon the fulfillment of customary closing conditions, including applicable regulatory approvals.

Notably, in terms of practical execution, the recently established Volkswagen Automotive (China) Technology Co., Ltd. (VCTC) will serve as XPENG’s partner in technology development.

According to available information, Volkswagen Automotive (China) Technology Co., Ltd. was established on May 31, 2023, with its registered address in Hefei, Anhui Province.

In fact, Volkswagen Group has already established a highly modernized production, R&D, and innovation base in Hefei, Anhui Province. Volkswagen Anhui is set to officially commence production later this year. Additionally, Volkswagen Automotive (Anhui) Components Co., Ltd. has built a manufacturing plant for high-voltage battery systems in Hefei. VCTC has also established an R&D and procurement center for smart connected electric vehicles in Anhui.

Volkswagen Group emphasized that this technology company integrates R&D, innovation, and procurement functions, making it the Group’s largest R&D base outside of Wolfsburg. In the future, more than 2,000 R&D and procurement experts will work there on new smart connected electric vehicle models.

Regarding this cooperation, Bei Ruide, Managing Director responsible for Volkswagen Group’s business in China, stated:

Our collaboration with XPENG has provided us with another strong partner in key technology fields in China. In a highly competitive and dynamic market environment, we combine the core competencies of our partners to create synergies, enabling us to bring new products tailored to the unique needs of Chinese customers to market more quickly. At the same time, this allows us to optimize development and procurement costs for all parties involved.

It is clear that Volkswagen's partnership with XPENG aims to develop a new localized platform for next-generation smart connected vehicles in the Chinese market. The goal is to create more "in China, for China" models to meet the needs of a customer base and market with significant potential.

Of course, beyond the cooperation between Volkswagen and XPENG, Audi has also reached a partnership with Shangqijituan. The two parties will jointly develop and rapidly expand their portfolio of smart connected electric vehicles for the high-end market. As part of this collaboration, Audi will launch new electric models to enter market segments that were previously uncovered in China.

It is evident that, in order to better maintain its competitiveness in the Chinese market, Volkswagen Group has set aside its previously aloof stance—a move that proves to be a wise one.

A Victory for XPENG in Intelligent Technology

So, what does this partnership mean for XPENG?

It’s actually quite simple: monetize your own investments in intelligence through capital and technology partnerships.

Regarding this collaboration, XPENG Automobile Chairman and CEO He Xiaopeng stated:

The highly complementary strengths of Volkswagen Group and XPENG form the foundation of their long-term strategic cooperation. We will share intelligent electric vehicle technologies, world-class design capabilities, and engineering expertise, while learning from one another. I am pleased to contribute our technical expertise to this strategic partnership, creating value for both XPENG and our shareholders.

So, what are XPENG’s advantages relative to Volkswagen Group?

Quite simply: intelligence.

As XPENG has stated, since its inception, it has adhered to full-stack self-research in EV platforms, connected car services, and autonomous driving software.

In terms of products, XPENG’s core competencies lie in smart cockpits, connectivity, and intelligent driving; furthermore, through its layout in these areas, XPENG has successfully branded itself as an intelligent vehicle manufacturer.

Among these, XPENG’s layout in intelligent driving is particularly critical for Volkswagen.

From a technological standpoint, XPENG has successfully built localized solutions for highway NGP and city NGP based on self-developed algorithms. To support this, XPENG established an intelligent driving computing center with a capacity of 600 PFlops to process localized data.

Additionally, as a Chinese domestic new-energy automaker, XPENG possesses localized data advantages at the intelligent driving level.

This capability and advantage are difficult for Volkswagen to acquire in the short term through R&D investment alone. The partnership with XPENG allows it to bypass these significant hurdles while still launching intelligent driving-equipped models for the Chinese market.

Currently, XPENG also needs a partner like Volkswagen.

After all, given the current situation, despite its substantial investment and layout in intelligent technologies—which have already been implemented at the product level—these capabilities have not effectively helped XPENG achieve sales volumes sufficient to cover its prior costs, for various reasons.

XPENG’s financial performance in Q1 was dire, with cash reserves shrinking. Although Q2 sales rebounded, they remained far below targets. Additionally, despite launching the competitive G6, production is still ramping up.

Intensifying competition places XPENG under severe financial pressure.

In this scenario, XPENG actually has sufficient motivation to monetize its advantages and capabilities in intelligent driving through its partnership with Volkswagen, thereby enhancing its own survival prospects.

Volkswagen’s capital injection and equity acquisition mark only the beginning. Future co-developed models within the partnership framework present new monetization opportunities for XPENG’s long-term growth, potentially on a vast scale.

This represents a victory for XPENG in the field of intelligent driving.

Final Thoughts

This partnership is of significant importance to both Volkswagen and XPENG.

On one hand, as a global automotive giant, Volkswagen’s decision to partner with a new-entrant automaker that has existed for less than a decade in the Chinese market is a key move to address competition and seek transformation. It also demonstrates that even a titan like Volkswagen recognizes the harsh realities of the Chinese automotive market and has made pragmatic choices.

For XPENG, opening up its intelligent technology capabilities for collaboration with Volkswagen represents a victory in the field of smart vehicle technology. At the same time, this move is a strategic choice by XPENG to secure greater room for survival. While reasonable in hindsight, it was not an easy decision to make.

Ultimately, in a fiercely competitive market environment, both parties decided to meet each other’s needs and finalized the partnership.

Notably, following the announcement of the partnership, XPENG’s U.S. stock price surged after the market opened, with gains exceeding 37% at one point. This indicates that after partnering with Volkswagen, XPENG has expanded its potential for growth and is already being valued by capital markets.

Written by: 308 Edited by: 308