Why Is Xpeng Rallying Wednesday? Volkswagen Upped The Ante On Tesla, That's Why

Volkswagen AG VWAGY is accelerating its pace in the electric vehicle race by investing in Chinese EV manufacturer XPENG Inc – ADR XPEV.

What Happened: The German auto giant and Xpeng announced Wednesday they have signed a framework agreement for strategic technical collaboration, along with a share purchase agreement for Volkswagen to hold a minority stake in Xpeng.

Under the share purchase agreement, Volkswagen will acquire 4.99% of Xpeng’s outstanding share capital at $15 per American depositary share, amounting to roughly $700 million.

The strategic technical collaboration will see the two companies join forces to develop two B-class battery electric vehicles (BEV) models for the Chinese market, leveraging Xpeng’s G9 platform and Connectivity and ADAS software, Xpeng said in a press release.

The partnership will also explore potential cooperation in future EV platforms, software technologies and supply chain.

Why It’s Important: Xpeng CEO Xiaopeng He expressed enthusiasm about the partnership, highlighting that the companies will share smart EV technologies and leverage their combined design and engineering expertise.

The collaboration aligns with Volkswagen’s "in China for China" strategy, with Ralf Brandstätter, Volkswagen board member for China, emphasizing the partnership will aid in accelerating the German automaker’s local electric portfolio and preparing for the next wave of innovation.

The deal comes as Xpeng continues to take market share from other Chinese EV players. In June, Xpeng delivered 8,620 Smart EVs, a 15% increase compared to the previous month, making it the company’s fifth consecutive month of positive delivery growth.

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Volkswagen announced earlier this year an ambitious investment plan of 180 billion euros ($192.6 billion) between 2023 and 2027 to intensify its focus on EVs and battery technology. The investment represents an increase from the 56% allocated in its last five-year plan.

The deal with Xpeng, along with Volkswagen’s increasing emphasis on EVs, puts the two companies in direct competition with the likes of BYD Company ADR BYDDY, and Tesla Inc TSLA.

Volkswagen is aiming to have EVs make up 50% of its global sales by 2030. So, the investment in Xpeng will not only provide a boost to Volkswagen’s EV portfolio but also contribute significantly to its overall strategic objectives.

XPEV, VWAGY Price action: Shares of Xpeng are trading 29.62% higher to $19.91, according to data from Benzinga Pro. Shares of Volkswagen are trading 1.29% lower to $16.50.

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