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XPeng’s ADRs were up almost 14% in early trading.
Courtesy Business Wire
If you can’t beat ’em, join ’em.
That’s the tactic
Volkswagen
(VOW3. Germany) seems to be taking with electric vehicles in China. The German auto maker will invest $700 million in Chinese EV start-up
XPeng
(XPEV). The pair will develop two EVs together. It’s great news for XPeng. It’s cash and a strong partner. The implications for traditional auto makers is mixed.
“The Volkswagen Group and XPeng each brings in highly complementary strengths into this long-term strategic partnership,” said XPeng CEO Xianpeng He in a news release. “Since the founding of XPeng, we have been developing full-stack technologies from EV platform to connectivity and [self-driving] software in house. We are excited about the opportunity to contribute our expertise to the strategic partnership and create value for XPeng and our shareholders.”
XPeng’s U.S.-listed American depositary receipts were up soaring 30%, while the
S&P 500
and
Nasdaq Composite
were both off 0.1%. Volkswagen stock was down 1.8% in overseas trading.
Other EV shares were moving too.
Li Auto
(LI) and
NIO
(NIO) shares were up about 3.9% and 11%, respectively. Investments by traditional car companies in Chinese EV players would represent a new source of capital.
Two of those three EV makers don’t generate free cash flow consistently yet. For XPeng, Wall Street projects cash use of more than $1.2 billion in 2023 and 2024 combined before the company generates roughly $64 million in free cash flow in 2025. Analysts project positive free cash flow for NIO in 2025 as well. Li sells the most cars of those three and is projected to generate positive free cash flow in 2023 and beyond.
The impact on EV leaders was mixed. Stock in
Tesla
(TSLA), the global EV leader, rose 1%. ADRs of
BYD (BYDDY)
,
the EV leader in China, gained 2.4%.
The idea of partnership was boosting
Rivian Automotive
(RIVN) shares too. They were up about 8% on Wednesday. Rivian qualifies as an EV maker that doesn’t generate free cash flow yet.
Rivian is selling roughly 13,000 units a quarter. Car makers need to sell closer to 100,000 a quarter to generate consistent free cash flow. Auto manufacturing requires a lot of scale.
Volkswagen delivered about 62,000 battery-electric vehicles in China in the first half, down about 2% year over year. It is losing market share; total battery-electric sales rose about 30% in the first half, hitting about 2.5 million units.
VW no doubt hopes the new partnership halts that decline.
XPeng has challenges of its own. It delivered about 41,000 vehicles in the first half of 2023, down from about 69,000 in the first half of 2022. Almost all of XPeng’s sales happen in China.
Declines have hit XPeng stock. With Wednesday’s jump, XPeng stock has still fallen about 20% over the past 12 months.
Write to Al Root at allen.root@dowjones.com
