Chinese EV maker Leapmotor launched its first car for the international markets called the C10.
Arjun Kharpal | CNBC
Stellantis on Thursday said it will invest 1.5 billion euros ($1.58 billion) in Chinese electric vehicle startup Leapmotor, as traditional automakers look for a way to compete in China's cutthroat market.
The companies will form the Leapmotor International joint venture, aiming to boost sales of the Chinese brand's electric cars overseas. Stellantis will take a majority 51% interest in the JV.
Stellantis, which owns brands such as Chrysler and Maserati, said that the investment will give it a roughly 20% equity stake and two board seats in Leapmotor.
China, the world's biggest electric vehicle market, is dominated by domestic company BYD, as well as U.S. automaker Tesla. Intense competition is rising from domestic startups like Nio, Xpeng and Li Auto, while technology firms like Xiaomi and Huawei are also entering the mix.
Traditional vehicle companies have been seen to be too slow to transition to manufacturing electric vehicles, hampering potential growth in the Chinese market. Stellantis has struggled to sell cars in China and commands just a 0.3% market share in the country, according to the company's official numbers.
“This deal presents clear synergies for both Stellantis and Leap Motor. Stellantis stands to benefit by strengthening its presence in the Chinese market, while Leap Motor gains an easier entry into the European market,” Abhik Mukherjee, an analyst at Counterpoint Research, told CNBC by email.
Stellantis eyes China boost
The deal could boost Stellantis' efforts in China, by having a local partner lead the way.
“Through this strategic investment, we can address a white space in our business model and benefit from Leapmotor's competitiveness both in China and abroad,” Stellantis CEO Carlos Tavares said in a press release on Thursday.
Like many of China's EV startups, Leapmotor has been looking to position itself as a tech-first brand. The company has developed its own semi-autonomous driving system, and the architecture on which its cars are constructed. Hangzhou-headquartered Leapmotor is also building up its manufacturing capacity.
The Chinese firm has three cars currently on sale and plans to release different styles of vehicles across the spectrum over the coming years.
For Stellantis, the Thursday deal gives it access to Leapmotor's technology and manufacturing footprint to help the European firm boost sales in China.
Leapmotor targets fast overseas growth
The move could back Leapmotor's ambitions to become a global EV player. Last month, the company attended the IAA motor show in Munich — a high-profile European auto event — where it unveiled the C10 sports utility vehicle. In the next two years, the company said it plans to introduce five “globally-oriented” products across the world, the automaker said said at the event.
“All of Leapmotor's subsequent products will be designed and developed with a global mindset and adhere to global standards,” Leapmotor CEO Zhu Jiangming said at a press conference at the time.
The international joint venture with Stellantis can help Leapmotor sell its cars abroad. The JV has exclusive rights for the export and sale, as well as manufacturing, of Leapmotor products outside Greater China, the companies said. Car shipments for the JV will begin in the second half of 2024.
Counterpoint's Mukherjee said Chinese auto companies face challenges in Europe “in building consumer trust and establishing robust dealership networks.” This deal could help Leapmotor expand into Stellantis' network, “potentially allowing sales under the Stellantis brand.”
Still, deals between traditional automakers and Chinese players have not always gone smoothly, casting shadow over Stellantis' big investment.
“Foreign carmakers have woken to the realization that China is leading the race to an electric future. While deals may be struck to regain access to critical technology, such partnerships — especially minority shareholdings like this — have a poor track record for success in the auto industry,” Bill Russo, CEO of investment advisory firm Automobility, told CNBC.
Last year, a joint venture between Stellantis and Guangzhou Automobile Company to produce Jeep products in China, filed for bankruptcy.
Chinese players ramp up the pressure
Chinese companies including Warren Buffett-backed BYD are aggressively expanding into Europe, challenging some of the world's biggest automakers, like Mercedes and BMW, on their home turf.
This has raised worries among Europe's automakers and politicians.
Last month, the European Commission, the EU's executive arm, opened an investigation into subsidies given to electric vehicle makers in China.
Stellantis' CEO Tavares has been critical of low-cost Chinese cars arriving in Europe in the past. However, he on Thursday said that the deal with Leapmotor can help automakers benefit from the expansion of Chinese companies.
“The Chinese offensive is visible everywhere,” Tavares said at a press conference in Hangzhou, China, according to Reuters. “With this deal we can benefit from it rather than being victims of it.”
He added that Stellantis is not a “Trojan horse” for Leapmotor into Europe and criticized the EU's probe.
“We like competition. To start a probe is not the best way to tackle those questions,” he said, according to Reuters.