Stellantis’ Chinese gamble

Collaborations between Western and Chinese automakers are nothing new. But the deal struck between Franco-Italian OEM Stellantis and China’s Leapmotor could represent the start of a new phase, a Western-led version of the Geely-Volvo-Polestar or Saic-MG relationships, rather than the deals signed earlier this year by Germany’s VW with China’s Xpeng and Saic.

The classic Western-China tie-ups belong to a very different era, when the Chinese industry was playing catch-up and access to established OEMs’ ICE technology and their brand cachet had value for Chinese automakers. Now, at least on BEVs, Chinese firms vie with Tesla for global leadership and it is European legacy players that want access to the expertise of East Asian EV makers.

But, when VW signed July deals with Xpeng for its Volkswagen brand and Saic for Audi, the focus of the agreements was on the Chinese firms making VW-branded vehicles for the Chinese market, not on bringing Chinese-designed BEVs to Western markets under more familiar brands. So Stellantis’ exclusive right to sell, export, and manufacture Leapmotor products outside of China under this deal marks a very different type of collaboration.

It is more similar to how Chinese OEMs Geely and Saic access international markets through Western brands Volvo and Polestar for the former, and MG for the latter. The difference is that these partnerships came about through the Chinese firms swooping on stricken European OEMs in financial turmoil. In contrast, Stellantis is the driving force here, acquired a minority stake of approximately 20pc in Leapmotor for €1.5bn ($1.6bn).

Going international

 Stellantis’ export exclusivity rights come as part of a newly formed joint venture (JV) between the two companies, called Leapmotor International, which will be controlled 51pc by Stellantis. The JV expects to begin shipments in the second half of 2024.

“This will be an industry-first global electric vehicle relationship between a leading automaker and a Chinese pure play NEV OEM,” the Amsterdam-headquartered firm says. “Stellantis intends to leverage Leapmotor’s highly innovative, cost-efficient EV ecosystem in China to help meet core Dare Forward 2030 electrification targets, with the possibility to further explore mutually beneficial synergies.”

Leapmotor currently produces just three models: the T03 city car, the C01 sedan and C11 SUV. All are BEVs, although the latter two are available as extended range EVs (EREVs) too. The company sold more than 110,000 vehicles in China last year.

But this range is enough to convince Stellantis of synergies. “The two companies consider Leapmotor’s EV product offering to be complementary to Stellantis’ current technology and portfolio of iconic brands and will bring more affordable mobility solutions to global customers,” it says.

The tie-up is a “very wise strategic move to cover all price bands, all markets, and protect the entire company”, according to Jean-Philippe Imparato, CEO of Stellantis’ brand Alfa Romeo and head of the conglomerate’s commercial vehicles business unit, adding the deal has his “full support”.

The T03 could be particularly useful asset for the firm. The deal is a “bold strategy that provides access to technology adapted for city cars, in addition to the Stellantis offer”, in the view of Pascal Moser, network and development director at French financial services firm Financo.

And others are equally positive, not least on timing. Leapmotor’s share price is currently at HKD32.20 ($4.12), down by almost 33pc from a peak just shy of HKD48 in early July. His firm has been “super smart considering Chinese asset valuations are at record low compared to earnings”, suggests Srinath Gopinath, a Stellantis process automation manager based in Detroit.

“Stellantis moves once again faster and more decisively than any other European competitor,” says Dimitris Kavvouris, chief strategy officer at Greek Stellantis importer and distributor Syngelidis Automotive Companies. But it is not just the firm’s employees and partners that are positive.

“It is a canny move by the company in the face of enormous challenges the automotive industry faces with electrification, says Conrad Layson, senior alternative propulsion analyst at US consultancy Autoforecast Solutions.

 Challenges

But Layson also has some concerns, not least what restrictions US and European regulatory authorities might put on ‘how domestic’ Chinese vehicles accessing their markets through tie-ups with Western OEMs will have to be. “It will be interesting to see what compromises with the Chinese supply chain Stellantis will have to make producing Leapmotor-designed products in protectionist markets like the EU and North America,” he predicts.

“Also, how those market requirements will in turn affect Leapmotor product development. It is a two-way street,” Layson continues.

Another question is whether Stellantis has picked the right partner. “As consolidation unfolds among the capable electric vehicles start-ups 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,” says Stellantis CEO Carlos Tavares.

But will Leapmotor definitely be one of those winners? Leapmotor is not yet a technical leader in the EV game in China, suggests Weiran Zhang. Albeit Zhang is head of aerodynamics at Li Auto, a Leapmotor competitor, but he argues that his rival's cars are currently “overpriced”.

And Bill Russo, formerly Northeast Asia vice-president for Chrysler — now a Stellantis brand — and founder and CEO of Shanghai-based consultancy Automobility, cautions that making these corporate partnerships work is not easy. “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,” he tells broadcaster CNBC, noting that they “often dissolve when the interests diverge".