The Dream of Chinese Automakers: The 2.0 Stage of Joint Venture and Cooperation between Automobile Enterprises is Coming Brand | Cooperation | Dream

Recently, Volkswagen Group released two pieces of news, instantly igniting the domestic automotive industry. One news is that Audi has signed a memorandum of understanding with SAIC Group to deepen existing cooperation, and the previously rumored purchase of the Zhiji electrification platform by Audi has landed; Another piece of news was even more unexpected. Volkswagen Group increased its capital by approximately $700 million to acquire approximately 4.99% of Xiaopeng Motors' equity, and announced a technology cooperation framework agreement with Xiaopeng Motors. The two sides will jointly develop two Volkswagen branded electric vehicle models and launch them in the Chinese market in 2026.

As soon as two pieces of news were released, Volkswagen Group was pushed onto the topic of discussion in the Chinese automotive industry. Afterwards, Xiaopeng Motors and SAIC Group also issued announcements to follow up on cooperation with Volkswagen Group.

Volkswagen Group is one of the earliest foreign car companies to enter the Chinese market and establish joint venture brands in China. Nearly forty years ago, Volkswagen and SAIC joined hands for the first time, opening a new chapter in the rapid development of Shanghai's automotive industry. This time, the new actions of Volkswagen Group and local car companies have clearly undergone a reversal in the cooperation mode.

The 2.0 era of joint ventures and cooperation between foreign car companies in China may have arrived.

Why are Xiaopeng and SAIC?

Audi teamed up with Zhiji, Volkswagen teamed up with Xiaopeng, and these two news suddenly broke out, greatly surprising the market. But if more careful consideration is given, it will be found that these two collaborations are not considered "unexpected" actions.

Volkswagen Audi and SAIC already have a cooperative foundation, and this official announcement is an upgrade to the previous cooperation. In 2021, the SAIC Audi brand was officially established. At the beginning of its establishment, both Audi and SAIC had high expectations for it: Audi hoped that SAIC Audi could make up for niche niche markets, while SAIC hoped that SAIC Audi could lead high-end models. However, against the backdrop of a gradual decrease in the market share of gasoline vehicles, SAIC Audi's positioning strategy has experienced many setbacks. In the fierce price war among car companies in the first half of the year, there was a significant price reduction, and SAIC Audi's sales were unable to reverse the decline.

Finally, SAIC Audi turned its attention to pure electric models. Audi had a deep cooperation with FAW earlier, and in 2020, the two were the first to sign a memorandum of understanding on cooperation projects in the field of electric vehicles, and announced the establishment of a new energy joint venture. However, at that time, FAW Audi's electric vehicle platform was still self-developed by Volkswagen. This collaboration between Audi and SAIC is largely driven by SAIC's accumulation of electrification technology in recent years.

At present, SAIC Group's overall electrification layout has basically taken shape. Based on SAIC's "Nebula" platform, Zhiji, Feifan, and MG have all launched pure electric models. Roewe is expected to launch pure electric models in the second half of this year. A few days before confirming cooperation with Audi, SAIC publicly showcased its self-developed 800V silicon carbide electric shaft. The motor has a maximum power of 400 kW, a maximum torque of 500 N · m, and a maximum speed of 21000 rpm. The second generation product of SAIC's Qingtao solid-state battery has a liquid content below 5%, an energy density of 400-500 kWh/kg, and a cost reduction of 20% compared to liquid lithium batteries.

Compared to the electric vehicle configurations of SAIC and Audi, the Xiaopeng and Volkswagen have surprised the market even more. Since the beginning of this year, Xiaopeng has attempted to compete with Tesla Model Y's G9 model, but its sales have failed. Xiaopeng's overall monthly sales have fallen to the "life and death line" of 10000 units, and it has been defeated in the division of the new force "Wei Xiaoli". At the end of May, Xiaopeng released its first quarter financial report with a net loss of 2.34 billion yuan, and its gross profit margin turned negative again after three years.

But it is precisely this financial crisis that has made the cooperation between Volkswagen and Xiaopeng more convincing. Volkswagen needs local technology partners in China to help accelerate its electrification, while Xiaopeng needs capital injection to improve cash flow. Volkswagen and Xiaopeng hit it off at once.

Xiaopeng's foundation in electrification research and production technology is not weak. Guo Huaiyi, a business analyst at Yiou Automobile, told reporters that in terms of intelligence, such as autonomous driving and intelligent cockpit, Xiaopeng can be said to be a ceiling level presence among new forces. The announcement issued by Xiaopeng also shows that the cooperation between Volkswagen and Xiaopeng is mainly focused on the software field. Xiaopeng will provide the G9 platform, intelligent connectivity, and advanced assisted driving technology, and jointly develop two B-class pure electric models for sale under the Volkswagen brand in the Chinese market.

Xiaopeng G9 at the 2023 Shanghai Auto Show

Whether it is Xiaopeng or SAIC, it can be seen that technological advantages are becoming an important factor for foreign car companies to consider investing and joint ventures in China. On the one hand, Volkswagen's cooperation this time demonstrates recognition of the technological strength of Chinese car companies; On the other hand, as China's new energy industry technology continues to improve, the Chinese automotive industry chain is also constantly reducing costs and increasing efficiency. By cooperating with Chinese car companies, Volkswagen can better enjoy the cost advantage of the local industry chain.

The Future of Joint Venture 2.0

It is worth noting that Volkswagen's announcement of cooperation with Xiaopeng and SAIC has attracted widespread attention. This is because in recent years, although many established car companies such as General Motors and BMW have increased their investment in China, Volkswagen is still the first to directly cooperate with local car companies to "acquire technology".

For the general public, China has always been its largest single market. According to its latest financial report, the Chinese market accounted for 33% of Volkswagen Group's global sales in the first half of 2023. What concerns the public is that this proportion is declining. "Volkswagen is the most dependent multinational car company on the Chinese market, and it cannot afford to lose the Chinese market. Therefore, Volkswagen's current problem is how to quickly become intelligent in China, but it is clear that Volkswagen headquarters cannot solve this problem and can only seek cooperation with the outside world," said Guo Huaiyi.

This reversal inevitably reminds people of the situation when Volkswagen first entered the Chinese market in 1984. In October 1984, Volkswagen Group and SAIC Group signed a joint venture contract at the Great Hall of the People in Beijing, and Shanghai Volkswagen Co., Ltd. was officially established. Afterwards, SAIC Volkswagen introduced advanced automotive manufacturing technology and a sound quality management system into China, producing the first batch of domestically produced Santana. In ten years, the localization rate of Santana was rapidly increased to 90%, and the automotive industry chain in the Yangtze River Delta was continuously improved.

In the 1980s, Shanghai Santana sedan Mercedes Benz ran on mountain roads.

As a foreign car company, Volkswagen has a very special meaning for the development of China's automotive industry, especially for the development of Shanghai's automotive industry. In the 1970s, China sent multiple delegations to Europe, Japan, the United States and other regions, but many foreign car companies politely declined China's cooperation invitation. After Volkswagen's landing in China, a new pattern of accelerating the development of China's automotive industry through foreign investment was launched.

Now, Volkswagen is once again leading the way in technological cooperation with Chinese car companies, which may herald a new trend of joint venture cooperation. Wang Ning, associate professor of Tongji University School of Automobile, said that the domestic electric vehicle industry ecology has taken shape. Whether traditional car companies, new forces or Internet companies are joining the track, the concentration of China's electric vehicle industry will continue to improve in the future. In this context, when the transformation of traditional joint venture brand electric vehicles is not smooth, it is likely to choose to cooperate with top domestic car companies.

The current Chinese automotive industry is no longer comparable to forty years ago. When China's automobile industry took the first step in introducing foreign investment, it hoped to use "market for technology". However, from nearly 40 years of development practice, it can be seen that relying on "bringing" technology is not sustainable, and ultimately it still needs to rely on independent research and development. Guo Huaiyi believes that Volkswagen's investment in Xiaopeng and the cooperation between the two have made the outside world feel that Volkswagen is "reverse joint venture" with Chinese car companies, but the technology of Chinese car companies will not easily flow to Volkswagen.

Since 2020, Volkswagen's investment in China has been increasing day by day, from Guoxuan High Tech and Horizon to Xiaopeng and SAIC. Volkswagen is more focused on buying time and catching up with the pace of the Chinese market. As for whether Volkswagen can break through among traditional car companies in the later stage, industry insiders generally believe that there are still many uncertain factors. Wang Ning said that the sustainability of this new model of cooperation between Chinese and foreign car companies and whether it is recognized by consumers still depends on the performance of the market. If Volkswagen's research and development breakthrough is achieved in the later stage, or if the cooperative models encounter difficulties, Volkswagen may also change its cooperation strategy.