The shares of Xpeng Inc. soared after it agreed to buy Didi Global Inc.’s development arm. for smart cars in a deal that both eliminates a potential competitor in the crowded electric vehicle market and gives it a tech-savvy partner in a new venture.
The full HK$5.84 billion ($744 million) equity deal will see Didi take a 3.25% stake in Xpeng, according to a stock market filing Monday. Xpeng shares rose more than 16% in Hong Kong trading before cutting profits to close 11% higher. U.S. certificates were up 5% by 4:27 a.m. in New York.
As part of the deal, Xpeng plans to launch a new EV brand in 2024 in partnership with Didi. Named Project ‘MONA’, the cars will target the mass market segment with a price tag of around 150,000 yuan – or about $20,000. The partnership comes just over a month after Xpeng received a $700 million investment from German auto giant Volkswagen AG to jointly develop electric vehicles for the Chinese market – and should allay investors’ concerns about slow sales in the face of increasing competition from, among others, Nio Inc. ., BYD Co. and Tesla Inc.
Xpeng, which has invested heavily in autonomous driving features, said it would explore partnering with Didi in fleet management, marketing, insurance, charging facilities, robotaxis and international markets.
For Didi, the deal means a withdrawal from the auto manufacturing sector, once considered a potential growth engine for the auto transport business.
Chinese technology leaders, including Didi and Xiaomi Corp., have been trying to capitalize on the capital-intensive EV boom, with a bet to make the cars more “intelligent” with autonomous driving and other personalized interactive features. Yet the already overcrowded market has made it even more difficult for the latecomers to obtain a production license and gain market share.
Didi, once celebrated as the national champion of Uber Technologies Inc. pushed out of the country was ousted from New York’s main stock exchange after Chinese regulators launched an investigation into the security of its data. The company is gradually resuming its expansion in the field of car traffic.
Investors counted on Didi to come out of the penalty area. More than a year after leaving the New York Stock Exchange following Beijing’s crackdown on technology, the Chinese taxi company has a market value of about $15 billion. That’s larger than virtually any other company whose stock is primarily listed over-the-counter in the U.S., and even puts it in the top tier of NYSE-listed American Depositary Receipts, according to data compiled by Bloomberg.
Nine-year-old Xpeng just reported a larger-than-expected quarterly loss as it struggles to ramp up deliveries. It has fueled investor concerns over declining sales and weak margins, forcing it to postpone its profitability target and review internal management.
Didi could increase its stake in Xpeng to 5% if the new mass brand reaches 100,000 deliveries for two consecutive years, according to the agreement.