(News Bulletin 247) – The company will spend 1.5 billion euros to acquire more than 20% of the capital of this company which sold 111,000 vehicles in 2022. A joint venture will also be created, and it will own the rights to Leapmotor products excluding China.

After having significantly reduced its size in China in recent years, Stellantis is once again forging links with a local manufacturer in the world’s largest automobile market.

The group resulting from the merger between Fiat Chrysler and Peugeot SA announced during the night from Wednesday to Thursday a partnership with the young Chinese manufacturer Leapmotor. The Italian-French-American group plans to invest nearly 1.5 billion euros to take 20% of the capital of this company specializing in electric vehicles which sold 111,000 automobiles last year.

This participation will reach exactly 21.2%, said Carlos Tavares, CEO of Stellantis, during a conference call with journalists.

The agreement will also allow the creation of a joint venture in which Stellantis would own 51% of the capital and Leapmotor 49%. This joint company will hold the exclusive rights to manufacture, export and sell Leapmotor products outside of China. “This will be the first international partnership of its kind in the electric vehicle market between one of the world’s leading automobile manufacturers and a next-generation Chinese automobile manufacturer,” underlines Stellantis.

The joint venture is expected to start deliveries in the second half of 2024. “The transaction is subject to customary closing conditions, including regulatory approvals,” the manufacturer said in a press release.

Several virtues

“This partnership has a dual objective: on the one hand to further stimulate sales of Leapmotor in China, the largest global market, and on the other hand to use the international commercial presence of Stellantis to significantly accelerate sales of the Leapmotor brand in other regions, starting with Europe,” Stellantis explained.

The Franco-Italian-American group will have two seats on the Leapmotor board of directors. Stellantis believes that Leapmotor’s offering will allow it to complement its current technologies and brand portfolio.

During a conference with journalists, Carlos Tavares, CEO of Stellantis, elaborated in detail on the merits of this merger. The manager explained that Leapmotor benefited from significant cost competitiveness (with a 20% advantage compared to American or European companies) while “the affordability of electric vehicles” for households constitutes, according to him, the first boquant factor to develop this type of engine. The leader cited the examples of Germany and Italy where as soon as aid was withdrawn “demand collapsed”.

Carlos Tavares also stressed that Leapmotor, China’s fourth largest electric manufacturer, was currently improving its financial results and would therefore not be “a burden” for Stellantis. “They are not taking market share with accounts in the red,” he said.

The manager explained that Leapmotor’s products should arrive in Europe “within two years”, although he recognized that this forecast was “cautious”.

The joint venture between the two manufacturers must also have several virtues. For Leapmotor, entrusting the export of its vehicles and technologies to Stellantis will create a new profit center which will allow it “to survive with the low margins of the Chinese market”, explained Carlos Tavares.

Not a “Trojan horse”

As for Stellantis, the advantages are multiple. The joint venture will allow the group to “benefit from the Chinese offensive” in Europe, explained Carlos Tavares.

Many Chinese groups, such as BYD, have indeed set out to conquer the Old Continent in recent months with very low prices for electricity. This has led several analysts to worry about the consequences for European “mass market” groups, such as Volkswagen, Stellantis and Renault.

So via this partnership. Stellantis will be “an actor” and not “a victim” of this offensive, said Carlos Tavares. The group does not “want to be passengers in a car that another person is driving,” he assured.

Leapmotor will therefore manage its activity in China while Stellantis will manage export. Carlos Tavares, however, assured that his group was not “a Trojan horse” for the Chinese company in Europe because “we control their export activity”.

In addition, with a stake of more than 20% in the Chinese group – which Stellantis does not intend to increase in the short term, according to Carlos Tavares – the manufacturer will find itself more exposed to the Chinese market, since Stellantis will consolidate part of Leapmotor’s net income. in his accounts. Carlos Tavares recognized that this point was critical for his group.

China, a major weak point for Stellantis

China has been the Achilles heel of Stellantis (and previously of PSA and Fiat Chrysler) for many years. Last year the group sold only 94,000 vehicles in the country, a drop in the ocean compared to the 5.6 million units sold by the company worldwide, or less than 2%. Its market share was only 0.4% in China.

As part of its Dare Forward strategic plan, the group intends to raise the bar, targeting 20 billion euros in revenues by 2030 in this country (knowing that it intends to generate global revenues of 300 billion euros by same deadline).

Carlos Tavares explained that the company would, in the coming months, assess the potential of the Chinese market. His group will then confirm or adjust its medium-term outlook in China during a day dedicated to investors. “But to the extent that this potential has increased I am confident that we will at least be able to confirm these prospects,” said Carlos Tavares.

Last year, the group significantly reduced its industrial presence in China. Stellantis has deployed an “asset light” strategy, also ending its joint venture with local manufacturer Changsha and local production of Jeep. Carlos Tavares then underlined the increase in political tensions and the difficulties for European players in evolving in this market which is being renationalized at great speed.

This last month, Stellantis also concluded an agreement with Dongfeng Motor, its historic partner in China, to sell three factories previously owned by DPCA, the joint venture between Stellantis and Dongfeng.