Volkswagen Invests $700 Million in Xpeng to Revitalize Chinese Sales

Volkswagen acquires nearly 5% of Xpeng, collaborates on new EV models, and strengthens its position in China’s competitive EV market.

• Volkswagen invests $700 million in Chinese EV maker Xpeng, acquiring nearly 5% ownership.

• The strategic partnership involves joint development of two mid-sized VW-branded EVs for the Chinese market.

• Volkswagen aims to counter sluggish sales in China and enhance its presence in the world’s largest car market.

Volkswagen aims to rejuvenate its sales in China, the largest car market globally, by investing $700 million in Chinese electric vehicle maker Xpeng and forging a strategic partnership. The companies plan to co-develop two mid-sized VW-branded EVs specifically for the Chinese market, expected to be released in 2026. This move comes as Volkswagen confronts sluggish sales and fierce competition from local rivals, including BYD and Tesla.

China constitutes about 40% of Volkswagen’s global sales and half of its profits. However, the company has faced challenges due to a 14.5% decline in deliveries during the first quarter. While the sales showed some signs of recovery in April and May, the first-half figures remained 1.2% lower than the same period in 2022.

To counter shrinking market share and expand its product range, Volkswagen aims to accelerate the growth of its local electric portfolio in China through partnerships with local car manufacturers. The collaboration with Xpeng, founded in 2015, is seen as a strategic move leveraging their “complementary strengths” in technology and engineering.

Ralf Brandstätter, Volkswagen’s board member for China, emphasized the importance of the partnership, stating it allows the company to expand its local electric portfolio swiftly while preparing for future innovations.

Geopolitical tensions between China and the West have raised concerns for companies relying on China. For Volkswagen, the strategic partnership with Xpeng will be essential for navigating these complexities and maintaining a strong position in the Chinese market.

Volkswagen, which entered China in 1984, has been a major foreign player in the country’s automotive industry. However, it has been losing ground to local competitors, leading to a market share decline to 15% in 2022 from 20% in 2019. In the first quarter of 2023, Chinese EV maker BYD surpassed Volkswagen to become the largest brand by sales in China, signaling the growing competition in the region.

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Despite the challenges in China, Volkswagen’s global EV sales have shown significant growth, increasing by 50% compared to the first half of 2022 and by as much as 68% in Europe, where the company leads the market. To strengthen its position in China, Volkswagen is investing in e-mobility, digitalization, autonomous driving, and expanding its production and innovation hub at its Hefei plant in Anhui province.

Additionally, Volkswagen is constructing a manufacturing facility for high-voltage battery systems and establishing a development and procurement center for fully connected, intelligent EVs in Hefei city. These initiatives aim to position Volkswagen as a major player in China’s rapidly evolving and competitive electric vehicle market.