Volkswagen AG plans to invest $700 million in Xpeng Inc. and jointly develop electric vehicles in China as the German automaker fights to halt a sales slide in its most important market.
VW will eventually hold a 4.99% stake in the Chinese company via a capital increase and is getting an observer board seat, it said Wednesday. Its Audi premium brand will deepen ties with VW’s long-term partner SAIC Motor Corp Ltd. to also bolster its EV lineup.
VW is trying to turn the tide in China, where Tesla Inc. and local champion BYD Co. have raced ahead because they’re better at churning out EVs with technology and software geared to local tastes. The company’s EV sales in China dipped in the first half in a market that grew 20%.
The deals, which bring VW’s count of carmaker partnerships in China to four, mark a turning point for the country’s manufacturers — from learning from foreign partners to helping them with their own technology and designs.
Xpeng’s American Depositary Receipts rallied as much as 37%. Its Chinese peers Nio Inc. and Li Auto Inc. also gained. VW declined as much as 2.9% in Frankfurt.
Chinese EV makers have been benefiting from the government’s push to expand purchases. Xpeng, which was founded in 2014, recently outperformed as analysts praised the competitive pricing of its new G6 electric SUV.
VW and Xpeng plan at least two new battery-powered models, with the first due to arrive on the market in 2026, the company said.
Audi’s partnership with SAIC will cover premium EVs and start with models in a segment where the brand isn’t yet represented in China.
The vehicles “are to be equipped with state-of-the-art software and hardware,” VW said in a statement.
VW Chief Executive Officer Oliver Blume has made several trips to China to give impetus to turnaround efforts that prioritize driving assist functions, infotainment and adapting products to the Chinese market.
VW has been tapping local companies to bolster its “in China, for China” strategy, developing autonomous-driving technology with Horizon Robotics Technology R&D Co., partnering with ThunderSoft on in-car software and working with Chinese battery maker Gotion High-Tech Co.
Europe’s biggest automaker last month replaced the CEO of Audi partly because it wants to halt the sales slide in the country. The brand has faced delays in developing a new EV platform, hindering its ability to compete.
(Updates with shares in fifth paragraph.)