HANGZHOU/MILAN, China, Oct 26 (Reuters) – Stellantis said on Thursday it is buying a 21% stake in EV maker Leapmotor in a $1.6 billion deal that will give it a fresh shot in China, the world’s biggest car market by sales, and the smaller Chinese carmaker a European foothold.

Meanwhile, a growing number of Chinese EV makers are launching lower-cost models across Europe.

“The Chinese offensive is visible everywhere,” Stellantis CEO Carlos Tavares told reporters. “With this deal we can benefit from it rather than being the victims of it.”

Stellantis, formed at the start of 2021 through the merger of France’s PSA with Fiat Chrysler (FCA), has struggled to sell cars in China and has sought a reset in the country, where it has a joint venture with Dongfeng Motor Group (0489.HK).

The group, whose brands include Fiat and Peugeot, said a year ago it was closing its joint venture with Guangzhou Automobile Group (601238.SS) that makes Jeeps in China.

“I see this move as part of a strategy by Stellantis to gain a foothold in China, before such an opportunity might disappear,” Baggiani said.

Stellantis’ new deal follows a tie-up between Volkswagen (VOWG_p.DE) and Xpeng (9868.HK) announced in July which heralded a new era of automotive alliances in China and reflects how the country has emerged as a global centre of EV technology.

As part of a joint venture 51% controlled by Stellantis, the Chrysler parent will have exclusive rights to export, sale and manufacture Zhejiang Leapmotor Technology’s (9863.HK) products outside Greater China.

“We believe that Stellantis’ relatively cheap move makes absolutely sense and represents an intelligent “de-risking” step,” they wrote.

Some analysts were sceptical that minority-stake partnerships would help foreign auto brands revive their flagging fortunes in China.

Small investments like this are unlikely to be the “silver bullet they (international carmakers) are hoping it is,” said Tu Le, founder of Beijing-based advisory firm Sino Auto Insights.

Stellantis was previously concerned about growing competition from cheap Chinese EVs in Europe, which spurred the EU probe.

Tavares, once a vocal critic of lower-cost Chinese imports into Europe, told reporters the Leapmotor deal did not make Stellantis a “Trojan horse” and was critical of the EU’s probe.

“We like competition. To start a probe is not the best way to tackle those questions,” he said.

More than 40 EV brands are locked in a price war in China, triggered by Tesla (TSLA.O) earlier this year. Despite steep price cuts, sales are slowing due to weak consumer demand, putting margin pressure on automakers and their suppliers.

The partnership will help Stellantis expand its EV lineup and meet a 2030 target of EVs accounting for all of its sales in Europe and half in the U.S.

Leapmotor, ranked ninth by new energy vehicle sales in China, has been looking to license its EV platforms and other EV assets to established foreign automakers to generate cash. The company said last month it needed at least a five-fold increase in sales to survive in a consolidating EV industry.

“We will certainly see more and more such partnerships as Chinese EV startups have a real urgency to survive and they are open to have foreign shareholders,” said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.

($1 = 0.9466 euros)

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SOURCE: https://www.reuters.com/business/autos-transportation/chinas-zhejiang-leapmotor-will-issue-shares-worth-11-bln-stellantis-2023-10-25/