In a historic development, Volkswagen said on Wednesday it will make electric vehicles in a joint effort with Chinese EV startup Xpeng via a $700 million investment plan. The news sent Xpeng stock rocketing as much as 40% during trading on Nasdaq. 

The move is expected to create a win-win situation that will help the two automakers secure their market shares in a brutally competitive market. However, analysts expect big challenges for the partnership. 

Both Volkswagen and Xpeng are in a relatively weak market position when it comes to EVs and face sluggish sales in the world’s largest EV market. Also, cultural clashes and different mindsets could potentially lead to friction in the partnership. 

TechNode spoke to various analysts on the ground about what lies ahead. While some saw the collaboration as being beneficial to both automakers, most saw challenges in the unprecedented deal between a German auto giant and a rising Chinese EV maker. 

A happy union?

The Volkswagen-Xpeng partnership makes perfect sense as they complement each other’s strengths, according to Yale Zhang, managing director of Shanghai-based consultancy AutoForesight. “Xpeng’s vehicle platform is state-of-the-art compared with rivals, while Volkswagen definitely needs a helping hand in making intelligent EVs,” Zhang said.

Elliot Richards, a correspondent at the Fully Charged Show, believes Volkswagen knows how to build good quality affordable cars and has an advantage in terms of economy of scale, while Xpeng has top-of-the-line software stacks with a more lively, fun, and risk-taking brand image. He expects the collaboration to help both “efficiently grow together” in China by pooling their resources.

Volkswagen could accelerate the launch of new EV models with the latest tech in the Chinese market through the alliance, predicts David Zhang, a visiting professor at Huanghe Science and Technology University. Volkswagen has had a relatively late start in electrification and its ID series lacks competitiveness in China, despite a decent performance in Europe, added Zhang.

Looming challenges

Daniel J. Kollar, head of Automotive & Mobility Practice at business development consultancy Intralink Group, said the problem is that neither has been able to effectively differentiate themselves in the market, so it is unclear whether teaming up will allow them to change that. Both foreign and younger Chinese original equipment manufacturers (OEMs) are having a rough time lately, experiencing trouble with penetrating the mid-tier and entry-level markets and gaining the trust of average Chinese consumers, Kollar added.

Meanwhile, cultural fit will remain a challenge in this collaboration. Pitting a rigid process-oriented culture from Germany against a fast and furious startup culture in China, has the potential for problems, according to Lei Xing, former chief editor at China Auto Review. As Xing put it, “Is VW willing to sacrifice certain things for speed?” 

Tu T. Le, founder of business intelligence firm Sino Auto Insights, also expects culture clashes as VW’s careful checks and balances are challenged by Xpeng’s much faster pace. “Volkswagen will have to let go of its want to centrally control everything and do its best to learn from Xpeng if it truly wants success,” according to Le.

There might also be wounded pride on Volkswagen’s part, as global carmakers that used to enjoy the upper hand are now acquiring technologies from newcomers, rather than licensing to them, AutoForesight’s Zhang stated. “This could become an invisible barrier and lead to tension in day-to-day collaboration,” he added.

Reasons for skepticism

Experts have voiced concern about the sales prospects of the two automakers given a relatively late launch date of two new models.

“By virtue of the investment, VW is hopeful that its EV sales can be turned around with these two new products, but the 2026 launch dates could be too little too late,” said Le. His comments were echoed by Xing: “The tie-up does nothing to guarantee the success of VW badged EVs with Xpeng tech ‘inside.’ Also for the time being, at least until 2026, it does nothing to influence the market performance of Volkswagen and Xpeng as each controls their own destiny.” 

Meanwhile, they do not foresee the tie-up with Volkswagen as having a significant impact on Xpeng’s sales and presence in the market, although licensing its technologies is potentially a recurring revenue stream for Xpeng.

Volkswagen will likely have to shell out a huge amount of money as a transfer fee for accessing Xpeng’s technology, which has been a common practice in such collaborations, said David Zhang. “Chinese auto manufacturers used to pay tens of thousands of RMB per unit to their foreign counterparts for localizing a vehicle model that came from abroad.”

Zhang added that the collaboration with Volkswagen could be a significant endorsement of Xpeng to boost its credibility in the European market. Aware of Xpeng’s recent momentum following the launch of its G6 crossover last month, Le also believes the cooperation with VW could help it more in Europe than in China. “Xpeng is still two or three successful products away from becoming a sales leader in the Chinese market,” added Le.

“The game has changed”

Kollar sees the Volkswagen-Xpeng partnership as the latest sign that the Chinese market is now ready for consolidation, which means more young, domestic EV makers are either going to go bust or be acquired. The best way for foreign OEMs to regain their previous standing and catch up in the EV sector is to become an acquirer of some of the promising players, Kollar predicts.

The tie-up ushers in a new era where foreign legacy automakers now depend upon Chinese EV makers for their technologies and speed to market, noted Lei. In this context, Volkswagen can be seen as playing a “pioneering” role yet again, having been one of the first major foreign car brands to enter China, and has now opened the floodgates for similar deals involving other foreign legacy automakers and local firms in the future. The German giant on Wednesday also announced an extended partnership between its Audi brand and China’s SAIC.

Global brands are recognizing that Chinese EV companies have progressed to the point that foreign companies have something to learn from them, said Stephen Dyer, a co-leader for AlixPartners’s Greater China business. “We can expect to see more Chinese auto players become part of the global community of strategic collaboration going forward.”

Richards added that, “They now need their local partnerships more than ever, but the shoe is on the other foot.” 

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Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: or Twitter: @yushan_shen