German auto giant Volkswagen has bought a 5% stake in Chinese electric vehicle maker Xpeng at the cost of $700 million and signed a strategic partnership with the manufacturer to develop two news models in a bid to overturn it's declining sales, reported CNN.
Volkswagen, in a statement, said if the deal is granted regulatory approval then both companies will develop two mid-sized VW-branded electric vehicles for the Chinese market. They plan to release the car in 2026.
After the announcement, Xpeng shares jumped over 30% in Hong Kong, leading a broad rally in Chinese EV stocks.
As per CNN, China accounts for 40% of Volkswagen’s global sales and half of its profits making it the single largest market for the company. However, the company faces sluggish sales and fierce competition from local rivals, such as BYD, and Tesla.
“Volkswagen Group is stepping up the pace of its transformation in China, where the group aims to remain … amongst the top three in the market,” the company said in an earnings statement Thursday.
The American media outlet reported that Volkswagen shared a 14.5% decline in its deliveries in China in the first quarter. However, it did see a recovery in April and May but deliveries in the first half overall were still 1.2% down on the same period in 2022.
On Wednesday, Volkswagen said its partnerships with Chinese car makers are being done to expand the company’s product range for China.
“We are now accelerating the expansion of our local electric portfolio and at the same time preparing for the next innovation step,” said Ralf Brandstätter, Volkswagen’s board member for China.
“With Xpeng, we now have another strong partner that is one of the leading manufacturers in China in key technology areas.”
Xpeng, the Chinese EV maker established in 2015, said Wednesday that the partnership was based on “complementary strengths.”
“We will share smart EV technologies and world-class design and engineering capability with each other and learn from each other,” said Xiaopeng He, chairman and CEO of Xpeng.
Volkswagen entered the Chinese market in 1984 and is one of the most successful foreign car makers in China. It was the top-selling brand in 2019, controlling 20% of the market. But after the pandemic, it has been losing out to local competitors, with its market share falling to 15% last year.
In the first quarter of 2023, BYD, the Chinese EV maker backed by Warren Buffett, surpassed Volkswagen to become the largest brand by sales in China, according to official car insurance registration data.