Could VW leverage localised EV manufacturing through Xpeng?

Volkswagen (VW) is taking steps to build electric vehicle (EV) industry resilience through its investments in Chinese pure-play electric car brand Xpeng

There’s no doubt that electrification is shaking up the automotive industry. It leaves the doors cracked for technology firms to enter the market; new players to enter and charge full steam ahead with their electric vehicle (EV) innovations. 

As a result, the traditional original equipment manufacturers (OEMs) are having to navigate the most significant challenges of their reign as more companies have access to the market, many new entrants are heading straight into EV deployment, and the global automotive market is transitioning in such a way that China has come out on top as the leading producer of automotive technologies and vehicles. 

Volkswagen’s growth abounds as shown by its H1 results, having increased its all-electric vehicle deliveries by 50%—primarily in Europe, but with growing numbers of sales across the US, China, and other regions. 

With that said, VW is now committing funds to expand its efforts in China, which also highlights how such a traditional OEM is able to gain access to a new market segment with a global investment, but a localised approach. 

Investing US$700m, VW’s intentions fall in the hands of the Chinese EV maker Xpeng, a rival business that will share 5% of its business to the German car manufacturer. This approach will see the company leverage Xpeng's position in the market and combine this with VW’s experience and branding to create two vehicles fit for the Chinese market. 

Sustainability comes with localised production and distribution

Over recent years, the industry has come to realise the importance of the supply chain and its effects on climate change—as well as disruption’s impacts on global deliveries. The cost of localising production is much greater than attempting to expand distribution to new countries, and for global OEMs it makes significantly more sense to partner up with local automotive firms to increase their presence. 

Further benefits from automotive localisation could be what are sought after by VW in this instance, including:

  • Increased market share - Investment in Xpeng and production through its facilities is a great way to expand VW’s EV offerings and leverage a trusted local firm 
  • Brand reputation - Understanding the impacts of the supply chain, working with Xpeng is a cost-effective way to bring VW EVs into the market
  • Regulations - Navigating regulatory hurdles from country to country is one of the major hurdles of procurement in other regions. Working closely with Xpeng will likely provide VW will more knowledge and expertise in local sourcing and regulatory compliance
  • Increased sales - Ultimately a lower impact decision to improve sales in China and tap into its leading technologies to reduce unit costs 
  • Satisfying customers - Working with a local car maker will help deliver what Chinese consumers want. The industry is more flexible to localising products to meet the needs of different customers

An overview of the Chinese EV market 

According to Statista, Chinese EV market sales are expected to rise by more than 25% by 2028 (based on 2022 figures). In 2023, overall sales of battery-electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) are expected to reach 6.24 million units. 

The country will also sell a consistent number of PHEVs, which are predicted to remain below the two million threshold.

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