Volkswagen [VOW:GR] has announced its plan to invest USD700m in Xpeng [9868:HK], a Chinese electric vehicle (EV) manufacturer, as part of a joint development and production agreement for two mid-sized EVs targeted at the Chinese market, as reported by the Financial Times on July 27. Through this investment, Volkswagen will also acquire a 5% stake in Xpeng and gain a seat as an “observer” on the company’s board. The move is aimed at strengthening Volkswagen’s position in China’s highly competitive EV market, where it has faced challenges due to the lack of EV models compared to other players like Tesla [TSLA:US] and BYD [1211:HK].

With this strategic investment, Volkswagen aims to boost its sales performance in China, its largest market, which has experienced weakened sales compared to other regions. The German automaker’s global deliveries have seen a 12.8% year-on-year increase in the first six months of the year, with growth in every region except China. The joint venture with Xpeng will help Volkswagen fill the gap in its product lineup with new EV models, which are scheduled for release starting from 2026. The investment in Xpeng has also led to a significant surge in the Chinese EV maker’s shares. In addition, to strengthen its presence in the Chinese car market, Volkswagen has announced plans for enhanced collaboration between its subsidiary Audi and Chinese premium car brand SAIC Motor [600104:CH].

Sources:

https://www.ft.com/content/f82f5f17-b4f8-4fb4-b0ec-a655b048ee75

https://www.reuters.com/business/autos-transportation/volkswagen-expand-china-line-up-with-xpeng-saic-partnerships-2023-07-26/

https://www.reuters.com/business/autos-transportation/volkswagens-h1-deliveries-up-every-region-china-2023-07-14/

https://techcrunch.com/2023/07/26/volkswagen-takes-stake-in-xpeng-as-part-of-chinese-ev-deal/