16 Nov Bloomberg : VW and Stellantis Show the Script Has Flipped With China’s Carmakers
Media Source : Bloomberg
Western automakers are paying up for minority stakes in Chinese EV companies to gain access to their technology.
Bloomberg News
November 9, 2023
VW, Stellantis Pay Up for Chinese Tech
Two recent deals between legacy auto giants and Chinese electric vehicle upstarts have upended the traditional flow of technology and know-how from west to east.
In July, Volkswagen announced plans to spend $700 million on a 5% stake in China’s Xpeng. While the German automaker sells more cars in a day than nine-year-old Xpeng does every month, it’s losing ground in China, with local champion BYD dethroning VW as the top-selling car brand earlier this year. Volkswagen and Xpeng are planning at least two new VW-badged models for the market, with the first due to arrive in 2026.
Late last month, Stellantis laid an even bigger bet. Shortly after shuttering its Jeep plant in the country, the company struck a $1.1 billion deal for a stake in Zhejiang Leapmotor, which ranks 36th in China’s EV market.
The transaction is “a sign of how far behind global automakers have fallen in the EV race,” said Bill Russo, founder and chief executive officer of Shanghai-based advisory firm Automobility.
Stellantis will emerge with a 21% stake in Leapmotor and two board seats. The companies also will set up a joint venture in which Stellantis will make and sell some Leapmotor cars outside China. More importantly, Stellantis will gain access to Leapmotor’s technology, including automated driving functions.
Stellantis CEO Carlos Tavares said the tie-up filled a “white space” in its business model.
The deals also signify a sea change in the structure of China’s auto market. For roughly 40 years, global automakers wanting to operate in China had to establish a joint venture with a local manufacturer, and were limited to 50% ownership as Beijing sought to cultivate and protect domestic carmakers. It was a position the likes of VW, Toyota, and General Motors were willing to grudgingly accept to gain access to the burgeoning market, which grew to become the world’s biggest.
In the past, the concern was the Chinese automakers would gain access to their partners’ intellectual property. The VW and Stellantis deals show legacy automakers now are willing to pay premiums for minority stakes in Chinese EV makers to gain access to their technology.
Stellantis called Leapmotor a “tech leader with a unique vertical integration model and full suite of inhouse R&D and manufacturing capabilities.” VW is betting on Xpeng’s intelligent-driving features and software abilities to help reverse its decline in China, where car buyers tend to be younger and keen to have the most advanced tech.
The moves also highlight the competitive threat that little-known Chinese automakers pose to the established order. UBS analysts recently projected that western automakers will lose a fifth of their global market share to Chinese rivals by the end of the decade.
The nation overtook Japan to be the world’s biggest auto exporter in the first half of the year, shipping 2.3 million vehicles, a 77% increase, data from he General Administration of Customs of China show.
There’s a hint of desperation to VW and Stellantis’ deals. Neither Xpeng nor Leapmotor are well known outside China, and both are struggling at home. Xpeng has been racking up larger-than-expected losses and pushed back its breakeven goal to 2025. The company sold just over 20,000 vehicles in October, barely a rounding error in an overall market of 2.02 million — of which 767,000 were EVs and plug-in hybrids.
Attention is now turning to whether more deals will be struck, though according to Yale Zhang, managing director at Shanghai-based consultancy Autoforesight, the window may be closing. “There’s not many options left in the market,” he said.
One option, Zhang said, may be Hozon New Energy Automobile, which targets buyers in smaller cities with models priced as low as 73,800 yuan ($10,140), but with up to 400 kilometers of battery range.
Nio, which in June sold a 7% stake to an investment fund controlled by the Abu Dhabi government, could also be a potential target. Once considered one of the brightest rising stars in China’s EV industry, the unprofitable company has fallen well short of its sales targets and last week announced plans to cut 10% of its workforce.
Another lesser-known candidate is Human Horizons, a high-end EV maker establishing a joint venture with Saudi Arabia. The kingdom’s sovereign wealth fund is in talks to invest at least $250 million in the company.
It’s also yet to be seen whether the VW-Xpeng and Stellantis-Leapmotor tie-ups will bear fruit.
“It’s just like a marriage,” Zhang said. “You will only know whether you are a good match with time spent together.”
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