Stellantis resets China strategy with $1.6 billion stake in EV firm Leapmotor
HANGZHOU, China (Reuters) -Stellantis is buying a 21% stake in Chinese EV maker Leapmotor for $1.6 billion, it said on Thursday, in a reset of its China strategy to focus on electric vehicles after years of poor sales and manufacturing pullback in the world's biggest auto market.
Leapmotor also announced the formation of a joint venture with Stellantis, in which the Chrysler parent will own a 51% stake giving it exclusive rights for the export, sale and manufacturing of Zhejiang Leapmotor Technology's products outside Greater China.
The deal, which follows a Volkswagen-Xpeng tie-up announced in July, heralds a new era of automotive alliances in China and reflects how the country is emerging as a global centre of EV technology.
"We haven’t been so successful in China so we prefer to rely on a Chinese partner. To win in China is better to win with a Chinese company," Stellantis CEO Carlos Tavares told a news conference in the eastern Chinese city of Hangzhou, seated beside Leapmotor CEO Zhu Jiangming.
Some analysts were sceptical that such a minority-stake taking partnership would help established foreign auto brands revive their declining fortunes in China.
"Small investments that allow them access to newer technology that they're not able to develop in-house doesn't seem like ... the silver bullet they're hoping it is," said Tu Le, founder of Beijing-based advisory firm Sino Auto Insights.
Bill Russo, CEO of Shanghai-based advisory firm Automobility, agreed that "successful automotive partnerships are few in number, and often dissolve when the interests diverge."
Stellantis, formed at the start of 2021 through the merger of France's PSA with Fiat Chrysler (FCA), has struggled to sell cars in China and has looked to change its strategy in the country, where it has a joint venture with Dongfeng Motor Group.
The group, whose brands include Fiat and Peugeot, said a year ago it was closing its joint venture that makes Jeeps in China with Guangzhou Automobile Group after disappointing results.
Stellantis and rivals such as Renault are concerned about growing competition from cheap Chinese electric cars in Europe, a worry shared by the European Commission which has launched an anti-subsidy probe into whether to set tariffs to shield European producers from Chinese EV imports.
Tavares on Thursday criticised the EU probe.
"We like competition. To start a probe is not the best way to tackle those questions," he said.
Asked about how the Leapmotor partnership was different from its tie-ups with Dongfeng and GAC, Tavares said it was better for a Chinese entity to lead the way in the Chinese market.
"If we develop Leapmotor overseas, it gives Leapmotor better competitiveness in the Chinese market," he said.
Concerns about competition and the dilution of existing shareholdings sent Leapmotor shares down 11% on Thursday, reversing an 11% jump upon the market opening.
More than 40 EV brands are locked in a bruising price war in China, triggered by Tesla's price cuts earlier this year. Despite steep price reductions, EV sales are slowing due to weak consumer demand, putting margin pressure on automakers and their suppliers.
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The Netherlands-incorporated joint venture is expected to start its export business in the second half of 2024, while Stellantis would have two seats on the Chinese firm's board of directors, the two companies said.
The partnership will help Stellantis expand its EV lineups and meet a 2030 target of EVs accounting for all of its sales in Europe and half of its U.S. sales.
Leapmotor, ranked ninth by new energy vehicle sales in China, has been looking to license its EV platforms and other EV assets to established foreign automakers to generate cash. The company said last month it needed at least a five-fold increase in sales to survive in a consolidating EV industry.
"We will certainly see more and more such partnerships as Chinese EV startups have a real urgency to survive and they are open to have foreign shareholders," said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.
The deal, which is subject to regulatory approvals, will see Leapmotor issue 194.3 million Hong Kong-listed shares to Stellantis for HK$43.8 per share, a premium of 19% to its last close of HK$36.80.
After the subscription, Stellantis will own about 21.07% of Leapmotor's total issued Hong Kong shares. Shareholder Dahua said it would sell its 90 million Leapmotor shares to Stellantis as part of the deal.
($1 = 0.9466 euros)
(Reporting by Zhang Yan and Brenda Goh; Additional reporting by Sameer Manekar and Kanjyik Ghosh in Bengaluru; Editing by Miyoung Kim and Stephen Coates)
