Volkswagen to Invest $700M in XPENG and Partners to Develop EVs for Chinese Market
In a strategic bid to reinforce its position in the Chinese automobile industry, Volkswagen Group has announced partnerships with XPENG and SAIC. The move is part of the VW’s broader agenda to expedite its local electrification efforts, aiming to capitalize on the rapid growth of China’s e-mobility market.
Under a technological framework agreement with XPENG, the VW brand plans to co-develop two mid-size electric models specifically for the Chinese market. The models, expected to hit the Chinese roads in 2026, will enhance VW’s Modular electric drive matrix (MEB) platform product range.
Volkswagen Group also plans to invest nearly US$700 million in Chinese EV auto maker, XPENG, acquiring a 4.99% stake. The move also allows Volkswagen to take a position as an observer on the XPENG board of directors.
The announcement by Volkswagen follows an announcement last week by its subsidiary, Audi. The company will partner with Chinese EV automaker, SAIC to expand the portfolio of fully connected EVs in the premium segment.
The co-developed e-models will be packed with cutting-edge software and hardware to provide an intuitive, connected digital experience tailored to the expectations of Chinese customers. The goal is to bring in the respective core competencies of each partner into the development effort.
Both the VW-XPENG and Audi-SAIC partnerships include a planned, future joint development of local platforms for intelligent, fully connected vehicles (ICV).
“Local partnerships are integral to Volkswagen’s ‘in China for China’ strategy,” says Ralf Brandstätter, Volkswagen AG Board Member for China. “In a competitive market, we aim to create synergies that allow us to bring additional products to market faster. Our focus remains on meeting the specific needs of our Chinese customers while optimizing development and procurement costs.”
The Volkswagen Group China Technology Company (VCTC) will lead the development of the market-specific models. As the Group’s largest development location outside Wolfsburg, the recently established development center will house over 2,000 development and procurement experts to work on the new vehicles.
These partnerships represent a crucial step in Volkswagen Group’s “in China for China” strategy, aiming to capitalize on market trends and the strength of the Chinese market.
Legacy automakers led the market in China for years, but they have fallen behind nimble Chinese manufacturers focused on the growing EV market. International legacy automakers have watched their share of the market shrink from 61% in 2020 to 41% in Q4 of 2022.
The rise of EVs is the most important factor driving the auto market in in China. Due to long product planning cycles for automobiles, many legacy automakers misjudged how fast the Chinese market was shifting to EVs.
International legacy automakers had only 8% of China’s plug-in vehicle market in the final quarter of last year. Many of their EV offerings are not competitive with Chinese domestic automakers on price, range and features. Their share of the Chinese EV market has steadily declined as companies like BYD and Tesla have taken a more nimble and aggressive approach, while offering products that align to the preferences of Chinese consumers.
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