Title: Volkswagen Group and Xiaopeng Motors Sign Landmark Cooperation Agreement in China’s Auto Industry
Subtitle: Partnership will pave the way for Chinese car companies to achieve reverse technology export
Date: July 26, 2022
Volkswagen Group and Xiaopeng Motors have announced a groundbreaking long-term technical cooperation framework agreement, marking a significant milestone in China’s auto industry. Under the agreement, Xiaopeng Motors will issue approximately 4.99% of Class A ordinary shares, valued at approximately US$700 million, to the Volkswagen Group. Following the completion of the transaction, Volkswagen will receive an observer seat on the board of directors of Xpeng Motors.
Investors have hailed this cooperation as revolutionary, as it signifies the reverse export of technology for Chinese car companies. Unlike previous collaborations where Chinese companies relied on joint ventures and technology trade with European and American counterparts, Xiaopeng’s partnership with Volkswagen represents China’s ability to develop cutting-edge technology independently.
The cooperation between Xiaopeng and Volkswagen aims to jointly develop two B-class electric vehicles based on the E/E architecture platform of Xiaopeng G9. Xiaopeng will provide the platform and intelligent driving software and hardware capabilities, while Volkswagen will be responsible for design, production, and manufacturing. The collaboration will prioritize the integration of smart driving capabilities, allowing Xiaopeng’s technology to be directly deployed to the public through over-the-air (OTA) updates.
This collaboration stands out in the industry as most original equipment manufacturers (OEMs) either purchase technical solutions from autonomous driving software companies or engage in joint development. However, Xiaopeng and Volkswagen’s partnership leverages mass-produced platforms and software, providing a more streamlined and efficient approach to autonomous driving development. Moreover, Xiaopeng’s cooperation will potentially grant them access to valuable real vehicle driving data.
Furthermore, investors have speculated on the implications of this collaboration for Xiaopeng’s business model. Currently, the company’s revenue primarily comes from vehicle sales. However, by exporting their smart driving technology, Xiaopeng may expand their customer base beyond Volkswagen. This move aligns with Xiaopeng’s ambition to pursue a future where cars are sold based on self-driving capabilities.
Unlike typical profit methods in the automotive software industry, Xiaopeng plans to generate revenue through technical service fees. Starting in 2024, the company will charge for its technology, potentially based on the actual sales of mass-produced vehicles from 2026 onwards. This model presents significant profit margins for Xiaopeng while reducing labor costs with OTA software updates.
This partnership between Xiaopeng and Volkswagen is indicative of a growing trend in the industry, with other automakers considering external supply of autonomous driving technology. Tesla, for instance, has also been in discussions regarding external supply with OEMs.
Volkswagen’s decision to partner with Xiaopeng comes after the automaker’s previous collaboration with Argo AI, which was terminated last year. The partnership with Xiaopeng signals a shift in strategy for Volkswagen, emphasizing the importance of immediate usability of technology. Moreover, if successful in the Chinese market, Xiaopeng could potentially secure cooperation with Volkswagen Group overseas.
Volkswagen’s choice to partner with Xiaopeng can be attributed to several factors: the need for localization, strong vertical integration capabilities, and an opportunity to implement technology quickly. As global car companies face challenges in the Chinese market, Xiaopeng’s status among domestic autonomous driving leaders and its self-developed technology make it an attractive partner.
The cooperation between Xiaopeng Motors and Volkswagen Group paves the way for greater collaboration and technological advancements within China’s auto industry. By exporting autonomous driving technology, Chinese car companies can achieve a new level of independence and establish themselves as global leaders in the sector.