VW Partners with XPENG & Audi Partners with SAIC in China

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Giving a big boost to Chinese smart EV startup XPENG, and also of course getting something for itself, Volkswagen Group announced today that it is investing approximately $700 million (USD) into XPENG, providing a capital increase, and in exchange getting 4.99% of the company’s shares at US$15 per ADS. The partnership also involves “joint development of intelligent, fully connected electric vehicles (ICV) for the Chinese market.”

Audi is forming a similar partnership with Chinese automaker SAIC — not the investment part, but the “joint development of intelligent, fully connected electric vehicles (ICV) for the Chinese market” part. The new models will supplement rather than replace existing models, and are part of Volkswagen Group’s “in China for China” strategy to reach more Chinese customers. “The aim is to swiftly tap into new customer and market segments, thereby systematically leveraging the potential of China’s dynamically growing e-mobility market.”

Volkswagen + XPENG — Match Made In Heaven?

Regarding the Volkswagen–XPENG partnership, the initial plan as far as new models go is that they will jointly develop two new Volkswagen-brand EVs. These will be in the midsize segment. (Though, it’s not clear if that means midsize sedans, crossovers/SUVs, or both.) Dare I say — these Volkswagen EV models will have much better tech than any previous Volkswagen EVs. This seems like a much more reliable, quicker, more effective route than relying on the company’s internal arm Cariad to jump forward in smart software (and hardware). For a taste of what this partnership could bring to the table for Volkswagen, see: “XPeng G6 — Wicked New Electric, Intelligent SUV For $29,000.” Also, just on the self-driving or driver-assist front, I think XPENG has the best tech suite on the auto market (worldwide) in this category. It’s not clear if Volkswagen will tap into that, but I would recommend that it do so.

One concern I had was that it may take a long time for this partnership to bear fruit, but the first car produced by the partnership is supposed to hit the market in 2026 — that’s not too far away. (2025 would be even better, but is surely unrealistic. The final agreements between the companies are not even signed, so there’s still much work ahead to design, develop, and manufacture cars.)

The 4.99% share of XPENG that Volkswagen Group is getting is an interesting portion of the news. If I’m not mistaken, having 5% or more share would grant more rights and influence. As it is, though, Volkswagen Group “will hold a seat as an observer on the XPENG board of directors.” I don’t recall seeing another such arrangement — normally it’s board seat or no board seat, “an observer on the board.” Though, one has to presume that if the partnership goes well, the companies could expand it and Volkswagen could get a real seat on the board. We shall see.

Naturally, the big benefits for XPENG are 1) more funding and 2) more avenues for manufacturing and selling smart electric vehicles and eventually making a profit. Actually, the expectation is that this partnership will help both XPENG and Volkswagen Group on the costs and profits front.

As far as logistical specifics, we have some more info from thee German auto giant: “The recently founded Volkswagen Group China Technology Company (VCTC) is the development partner for XPENG. The new development, innovation and procurement center is the Group’s largest development location outside Wolfsburg. Going forward, this is where over 2,000 development and procurement experts will work on new intelligent, fully connected electric vehicles.” That sounds promising.

“Local partnerships are an important building block in the Volkswagen Group’s ‘in China for China’ strategy. We are now accelerating the expansion of our local electric portfolio and at the same time preparing for the next innovation step,” Ralf Brandstätter, Volkswagen AG Board Member for China, commented. “With XPENG, we now have another strong partner that is one of the leading manufacturers in China in key technology areas.In a competitive and dynamic market environment, we are leveraging the strengths of Volkswagen and our partners to create synergies to bring additional products to market faster. In doing so, we focus on the specific needs of our customers in China. At the same time, we want to significantly optimize development and procurement costs.”

Audi + SAIC

The Audi plus SAIC news is more of an update since they already have an existing partnership. This just expands it. “Audi has signed a strategic memorandum with its Chinese joint venture partner SAIC to further expand existing cooperation. Joint development activities are to extend the portfolio of fully connected electric vehicles on offer in the premium segment swiftly and efficiently. It is planned to start with electric models in a segment where Audi does not as yet have a presence in China.

“The jointly developed e-models are to be equipped with state-of-the-art software and hardware, in order to offer Chinese customers an intuitive, connected digital experience. All parties are contributing their respective core competences to the development effort.

“Both agreements also envisage a planned, future joint development of new local platforms for the next generation of intelligent, fully connected vehicles (ICV).”

China — The Crown Jewel of Auto Markets

Succeeding in the biggest auto market in the world, and the biggest EV market in the world by far, is not as easy as it used to be for Western auto companies. It used to be that Chinese buyers would gobble up the cars from these high-prestige foreign companies. However, the Chinese auto market has matured rapidly and impressively. Chinese auto companies have been playing leapfrog in some ways, including when it comes to electric vehicle evolution and smart technology. Chinese auto companies dominate the Chinese EV market. Take a look at the top selling plugin vehicles in China in the first 5 months of 2023:

Every one of those models comes from a Chinese automaker except the Tesla Model Y and Tesla Model 3 — and some people consider Tesla half Chinese, but it is a well established exception either way. The message is clear: Want to sell electric cars in China? They better be Chinese. How much the new partnerships help Volkswagen and Audi is yet to be seen — they’ll still be selling under their (non-Chinese) brands, but perhaps they will get reputation boosts, and perhaps they’ll offer cars that are more appealing to Chinese buyers.

“The cooperations tie in with the Group’s ‘in China for China’ strategy to address market-defining trends in China at an early stage and leverage the growth dynamics and innovative strength of the Chinese market more effectively. In order to speed up decision-making and development processes in the region, Volkswagen is strengthening its local capacities for e-mobility as well as digitalization and autonomous driving,” the company writes.

We’ll see how this goes. I, for one, am bullish about the plan and think it’s the best I’ve seen from Volkswagen in China, and that it also gives a big boost to XPENG.

Featured image: XPeng G9, courtesy of XPeng.