Stellantis has launched a partnership with Leapmotor, following Volkswagen’s agreement with XPENG. Though they appear similar, they have different intentions and implications, affecting both the domestic Chinese market and imports from China to Europe.
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Another Major Deal between European OEMs and Chinese Startups
In October, automotive group Stellantis signed a deal with Leapmotor that will see it invest €1.5 billion to acquire a 20% stake in the Chinese Original Equipment Manufacturer (OEM). The agreement also involves the formation of Leapmotor International as a joint venture with the exclusive rights to the export, sale, and manufacturing of Leapmotor’s products outside of China. Stellantis will have control of this joint venture through a 51% share and the ability to appoint its Chief Executive Officer (CEO).
This follows a strategic partnership announced in July between another major European automotive group and an Electric Vehicle (EV)-only Chinese startup: Volkswagen and XPENG. That deal saw Volkswagen take a 4.99% share of XPENG in exchange for US$700 million with plans to launch two upper B-segment EV models for the Chinese market in 2026 using XPENG’s Edward platform. The OEMs plan to collaborate in the long term on topics such as future EV platforms, software, and supply chains.
These agreements represent the dramatic changes in the relationships between Western OEMs and their Chinese counterparts, and with the Chinese market in general. Long gone are the days of the traditional Joint Venture (JV), under which foreign automakers would transfer their superior technology to Chinese companies in exchange for access to the market. Chinese OEMs are no longer simply manufacturers of foreign cars, they are genuine leaders in the electrified and digital technologies that will define the future of the automotive industry.
Mutually Beneficial Cooperation
Though they are superficially similar, these two deals have very different intentions, reflective of separate trends in the Chinese market. Stellantis is planning for a future as a niche player in the Chinese market as part of its “asset light” approach that has seen it shutter its JV manufacturing Jeeps locally. It will maintain its other JV, Dongfeng Peugeot Citroën Automobile (DPCA), but has already shifted assets to its partner Dongfeng. In 3Q, Stellantis shipped just 14,000 units in China, down 36% Year-over-Year (YoY), just 0.9% of its total global sales.
In the future, Stellantis’ main presence in China will be through Leapmotor. Its partner delivered over 44,000 units in China in 3Q and aims to sell 500,000 to 1 million cars annually within the next 3 years, the vast majority of which will be in China. In the long term, outside of China, Leapmotor will function as a low-cost EV-only brand for Stellantis: the European OEM effectively has complete control of Leapmotor International. Leapmotor cars will begin exports to Europe in 2H 2024 and will launch five global models within the next 2 years, with the long-term goal of exporting 500,000 units annually by 2030. Stellantis’ partnership with Leapmotor is based on keeping a stake in the Chinese market, while staying hands-off and using China as an export base for low-cost EVs. Leapmotor will benefit from the additional funding and access to Stellantis’ dealership and service network in the global market, an important asset that other Chinese OEMs lack.
Volkswagen is a major player in the Chinese market and wants to remain as one. It delivered 837,00 units in China in 3Q, 36% of its group-wide total, and its brands are still among the best-selling in the country. The primary goal of its deal with XPENG is gaining access to the Chinese automaker’s technology. The Edward platform that Volkswagen will use for its two VW-branded models is a generation behind the Smart Electric Platform Architecture (SEPA) 2.0, but it is still technologically formidable as an 800 Volt (V) platform with silicon carbide Metal-Oxide-Semiconductor Field-Effect Transistors (MOSFETs).
XPENG also has the most capable Advanced Driver Assistance Systems (ADAS) currently available in China. City Navigation Guided Pilot (NGP) is capable of lane changes, overtaking, reacting to traffic lights, and avoiding pedestrians, and can now function with High-Definition (HD) maps. City NGP will be available in 50 cities this year with plans to roll it out in all Chinese cities by the end of 2024. Furthermore, XPENG in-vehicle software and infotainment system have received great praise, an area in which Volkswagen is renowned for performing poorly. Volkswagen will be leveraging XPENG’s technology advantages to remain competitive in the Chinese market and deliver the high-tech features that local customers demand. XPENG, meanwhile, will receive an extension to its cash runway to help cope with its widening losses and will be able to shift the production lines of its older Edward platform to Volkswagen, while using the more advanced SEPA 2.0 for its own vehicles.
Expect More Deals
These two deals are unlikely to be the last of their nature. For a relatively low cost, these European OEMs have gained valuable assets that will help them compete in the Chinese market and abroad as they electrify. Their Chinese partners have gained help boosting their sales and much-needed injections of cash to sustain them as they struggle with profitability. The next prime targets for global OEMs are Li Auto and NIO, two other EV startups that have achieved significant success in the New Energy Vehicle (NEV) market.
NIO is currently setting up partnerships that will allow other OEMs to use its battery swapping network, as we recommended in a previous insight. Changan and Geely both signed agreements with NIO in November to cooperate on standardized swappable batteries, access to NIO’s swap stations, and a battery asset management mechanism. More Chinese OEMs are likely to follow, but this could also be an interesting route for international automakers to take. Foreign OEMs are generally more concerned around control of their technology and platforms, so they may be hesitant to rely on NIO’s network. Outside of just battery swapping, however, NIO has capabilities for in-house battery cell and control chip development, and a high-performance centralized computing architecture that would be of interest to potential investors.
Agreements such as this add another layer to the already complicated relationship between the European and Chinese automotive industries. Stellantis CEO Carlos Tavares has historically supported tariffs on Chinese cars, but following his company’s investment into Leapmotor, he has started criticizing the European Union’s (EU) probe into Chinese car imports. Stellantis now joins the German OEMs in opposing the EU’s investigation, putting the Commission in an awkward position as it considers tariffs to protect the domestic industry against its wishes. This should temper the expectations of the OEMs hoping to be insulated from Chinese competition by the EU.
See ABI Research’s Chinese Electric Vehicle OEMs report (AN-5809) for further information on the Chinese automotive market and its relationships with Europe.