Xpeng Secures $700 Million Investment from Volkswagen for Joint Development

Chinese electric car startup Xpeng has announced a major collaboration with Volkswagen, receiving a $700 million stake to jointly develop two cars specifically designed for the Chinese market. This partnership comes at a crucial time for Xpeng, as the company seeks funding, while foreign automakers look to tap into the Chinese market. The news has caused Xpeng’s stock to soar, with U.S.-traded shares experiencing a 135% increase year to date.

Technological Licensing as a New Profit Model

A recent report published by Everbright Securities highlights the potential for technological licensing to drive profits in the electric car industry. The report emphasizes that while established brands like Volkswagen have supply chain control and strong cash flow, their technological abilities may be lacking. On the other hand, new domestic Chinese brands may possess strong technology but struggle with production management and cash flow.

Leading Technology in China

Xpeng is considered a leader in the Chinese market, offering a software equivalent to Tesla’s Full Self Driving technology, which assists drivers in navigating city streets. However, Xpeng’s cash reserves have significantly decreased in the first quarter of this year, and the company’s monthly deliveries have stagnated. Despite these challenges, Xpeng remains optimistic about its future performance.

Challenges for Volkswagen

Volkswagen, a renowned global automaker, is also facing difficulties in the Chinese electric car market. Its monthly vehicle deliveries in China have declined, and all-electric car deliveries have fallen by 1.6% compared to the same period in 2022. Volkswagen attributes this decline to a parts shortage and increased competition. Nevertheless, Volkswagen’s cash reserves are much higher than Xpeng’s, providing the company with a financial buffer.

Intense Competition and Cash Concerns

The Chinese electric car market is highly competitive, with both established global brands and domestic startups vying for market share. Companies like Nio and Xpeng have faced cash concerns due to lackluster deliveries and investments from local and foreign entities have been crucial in supporting their operations. China’s export of electric cars is also growing, with 35% of exported electric cars in 2022 originating from China.

Growth Opportunities in the Chinese Market

Despite the challenges, the Chinese electric car market is projected to grow significantly, with a 27% increase expected this year alone. This growth presents ample opportunities for companies involved in the industry, including component manufacturers like CATL and Inovance, who provide technologies related to electric cars with assisted driving capabilities.

In conclusion, Xpeng’s partnership with Volkswagen marks a significant development in the Chinese electric car market. With the potential for technological licensing to drive profits, as well as the overall growth of the market, both Xpeng and Volkswagen are positioning themselves to succeed in this dynamic industry.