SHANGHAI/HONG KONG — Euro-American auto group Stellantis plans to invest 1.5 billion euros ($1.6 billion) to take a 20% stake in Chinese electric vehicle maker Zhejiang Leapmotor Technology. The deal could help Stellantis realize its electrification ambitions and reestablish a foothold in China, plus help Leapmotor accelerate its export push.
The proposal comes as traditional foreign automakers seek to expand their footprint in the world’s largest EV market. Volkswagen Group in July announced a $700 million investment in Chinese EV maker Xpeng, for example.
The move also comes a little over a month after the European Commission launched an investigation into China’s use of subsidies to support its EV sector, which the commission’s president, Ursula von der Leyen, said has led to the global market being “flooded” with cheaper electrics.
In a joint statement, the two companies also said Stellantis will lead a 51-49 joint venture that will have exclusive rights for the export, sale and manufacturing of Leapmotor vehicles outside of China.
“As consolidation unfolds among the capable electric vehicles startups in China, it becomes increasingly apparent that a handful of efficient and agile new-generation EV players, like Leapmotor, will come to dominate the mainstream segments in China,” said Stellantis CEO Carlos Tavares.
In a separate announcement, Leapmotor said it will issue 194 million Hong Kong-listed shares to Stellantis at a 19% premium to Wednesday’s closing price. The total proceeds of 8.5 billion Hong Kong dollars ($1.1 billion) will be utilized for portfolio expansion and overseas penetration, it said.
Leapmotor’s shares opened 11% higher, at HK$41.00, on Thursday morning, but soon fell below Wednesday’s close to finish the trading day at HK$32.8, or 10.9% lower. Despite the favorable initial reaction to the deal, market participants may have been wary of the level of dilution once the transaction is complete.
Also, the board of Dahua Technology, a Shenzhen-listed maker of surveillance cameras that holds 7.9% of Leapmotor shares, announced on Thursday morning that it has agreed to sell all its shares to Stellantis for HK$38.81 apiece, which is an 11% discount from the subscription price. Dahua closed 2.6% higher at 20.07 yuan on Thursday.
Founded in 2015, Leapmotor joined pure EV peers like Nio in riding supportive government policies to growth. The group has three models: two sedans and an SUV in the mid-to-premium segment.
Leapmotor has logged consecutive net losses in the past four years that widened to 5.1 billion yuan ($711 million) in 2022, largely due to higher selling expenses.
In the first six months of 2023, revenue grew 14% to 5.8 billion yuan, while net losses narrowed to 2.2 billion yuan, from 2.4 billion yuan in the same period last year. Leapmotor credited a better average selling price for the improvements.
The group derived most of its sales from the domestic market and is hopeful the deal with Stellentis will raise its profile abroad.
“We feel it’s the perfect time to take a leading role in supporting the global expansion plans of Leapmotor, one of the most impressive new EV players who has a similar tech-first, entrepreneurial mindset to ours,” said Leapmotor founder and CEO Zhu Jiangming.
Such an ambition is understandable given the slowdown in domestic demand amid China’s weakened economic growth.
In the first nine months, sales growth of all new energy vehicles, which include battery-powered and hybrid cars, slowed to 31% from 110% in the same period last year. On the other hand, the country’s EV exports swelled 112% to 825,00 units.
“The Stellantis-Leapmotor deal indicates a greater recognition of the competitiveness of China’s new automakers,” said Phate Zhang, founder of the Chinese auto news outlet CnEVPost.
Stellantis, which was created as a merger of Fiat Chrysler Automobiles and France’s Groupe PSA in 2021, owns a host of brands including Alfa Romeo, Chrysler, Dodge, Fiat, Maserati, Opel, Peugeot and Ram. Tavares said the strategic investment in Leapmotor will enable the company to address a “white space” in its business model.
While the Amsterdam-listed group plans to invest over 50 billion euros to electrify its vehicle range by 2030 to fill that part of the gap, its two joint ventures in China have run into headwinds.
Last week, Dongfeng Peugeot Citroen Automobile, a 50-50 joint venture between Stellantis and Chinese state-owned Dongfeng Motor Group, agreed to sell production assets, including land use rights and buildings, in Wuhan and Xiangyang, both in central China, to Dongfeng. The assets, which were sold for 1.714 billion yuan, were mainly used to assemble passenger vehicles under the Peugeot and Citroen brands.
The joint venture, which was established in 1992, has been undergoing a major restructuring as it struggles to win customers in a competitive market.
Last year, a separate 50-50 joint venture with Guangzhou Automobile Group was dissolved after succumbing to dismal sales. GAC Fiat Chrysler Automobiles, which was established in 2010, had been losing money for at least the previous few years, according to Stellantis’ past disclosures.
Their partnership ended with a rare display of open bickering between Stellantis and GAC, both blaming the other side for the failure of their relationship.
Leapmotor is known for its proprietary electric drive system and independent battery pack, backed by 30 supply chain partners spread around its production facility in Zhejiang province, eastern China.
Thursday’s announcement will give Stellantis “access to technology that it is not able to build in-house fast enough to compete in China,” said Tu Le, founder of EV advisory Sino Auto Insights. At the same time, by facilitating the imports of Chinese EVs, Stellantis will likely undercut the price of the European brands it currently sells in that market, Le added.