Xpeng Motors is seeking manufacturing bases in Europe, becoming the latest Chinese electric vehicle maker to try to mitigate the impact of import tariffs by producing cars in the region.
Volkswagen AG's Chinese partner is in the early stages of selecting sites in the European Union as part of future plans to localize production, Chief Executive Officer He Xiaopeng said in an interview with Bloomberg on Thursday at the company's headquarters in Guangzhou, China.
The company plans to build production capacity in regions with “relatively lower labor risks,” He said, adding that Xiaopeng also plans to set up large data centers in Europe, as efficient software collection will be crucial for cars' intelligent driving functions.
He argued that Xpeng's broad plans for global expansion would not be affected by the tariff hike, but noted that “after the tariff hike, our profits from European countries will decline somewhat.”
Establishing a manufacturing base in Europe would see Xiaopeng join a growing number of Chinese EV makers, including BYD, Chery Automobile and Geely Holding Group's Zeekr, looking to expand production in the region to minimize the impact of the European Union's decision to raise tariffs on Chinese-made EVs to up to 36.3%. Xiaopeng will face an additional tariff of 21.3%.
The European tariffs are just one aspect of a broader global trade dispute: The United States has imposed tariffs of more than 100% on Chinese electric vehicle imports as the world's two largest economies battle over a booming electric vehicle industry that has been subsidized by Beijing.
The trade disputes only add to the challenges facing the decade-old company, which has also struggled with sluggish domestic sales, disputes over product plans and a protracted price war in the Chinese market. Its shares have fallen by more than half since January.
The company delivered about 50,000 vehicles in the first half of the year, about one-fifth of BYD's monthly sales. In its latest quarterly report, it said its delivery outlook for the current quarter exceeded analysts' expectations, but its projected sales fell far short of expectations.
One bright spot for Xpeng is its year-old partnership with VW, with hundreds of staff from the German automaker now working at its Guangzhou headquarters. Vice-president-level managers from the two companies meet at least once a week, Mr. He said, and the company is “making every effort to make the partnership work well.”
One example of how the collaboration is benefiting Chinese companies is managing complex supply chains: With Volkswagen's help, Xpeng's second-quarter gross margin rose to 14% from minus 3.9% a year earlier.
The AI Advantage
Xiaopeng also believes its expertise in artificial intelligence and advanced driver-assistance features will help it expand into Europe, which is one reason why it needs to set up large data centers in the region before introducing those capabilities, He said.
U.S.-listed Xpeng Motors is also investing heavily in AI-related research and development, including in its own chips, and noted that semiconductors will play a more important role in “intelligent” vehicles than battery cells.
“Selling 1 million AI-enabled cars per year in the next 10 years will be a prerequisite for the eventual winners. During that decade, human drivers may touch the steering wheel less than once a day on average during their commute,” He said. “From 2025 onwards, we will see companies rolling out such products. Xpeng will be one of them.”
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