Xpeng Inc. is looking to set up a manufacturing base in Europe, becoming the latest Chinese electric vehicle maker to seek to mitigate the impact of import tariffs by building its cars in the region.
Volkswagen AG’s Chinese partner is in the initial phase of selecting a location in the European Union as part of its future plans to localize production, CEO He Xiaopeng said on Thursday in an interview with Bloomberg at the company’s headquarters in Guangzhou, China.
The company expects to expand its capacity in areas with “relatively low labor risks,” he said, adding that Xpeng also plans to set up a large data center in Europe as efficient software collection becomes paramount for cars’ intelligent driving functions.
Xpeng’s broader globalization plans would not be affected by higher tariffs, he insisted, but noted that some “profits from European countries will decline after the tariff increase.”
By establishing a manufacturing base in Europe, Xpeng would join a growing number of Chinese electric car makers, including BYD Co., Chery Automobile Co. and Zhejiang Geely Holding Group Co.’s Zeekr, that are looking to expand production in the region to minimize the impact of the European Union’s decision to raise tariffs on Chinese-made electric cars to as much as 36.3%. Xpeng faces an additional tariff of 21.3%.
Additional European levies are just one aspect of a larger global trade dispute. The US has imposed tariffs on Chinese electric car imports that can reach as high as 100 percent as the world’s two largest economies battle over an industry that has grown rapidly thanks in part to Beijing’s subsidies.
The trade measures have only exacerbated the challenges the decade-old company has faced in recent years. Xpeng has also struggled with weak domestic sales, product planning disputes and an ongoing price war in the Chinese market. The company’s share price has more than halved since January.
The automaker delivered around 50,000 vehicles in the first half of the year, only about a fifth of BYD Co’s monthly sales. Although the delivery forecast for the current quarter exceeded analysts’ estimates, forecast sales fell well short of expectations, according to the latest quarterly report.
One bright spot for Xpeng is its year-old partnership with VW. Hundreds of employees of the German carmaker now work at its headquarters in Guangzhou. The vice presidents of both sides meet at least once a week, He said, noting that the company is making “every effort to ensure that the partnership works well.”
One example of how the collaboration benefits the Chinese company is managing complex supply chains. With Volkswagen’s help, Xpeng’s gross margin rose to 14 percent in the second quarter from minus 3.9 percent a year earlier.
AI advantage
Xpeng also sees its expertise in artificial intelligence and advanced driver assistance features as helpful for its push into Europe. That’s one reason why the company needs to build a large data center there before it can introduce those features in the region, He said.
US-listed Xpeng has also invested heavily in AI research and development, including manufacturing its own chips, he said, noting that semiconductors would play a more crucial role in “smart” vehicles than battery cells.
“Selling a million AI-powered cars a year will be a prerequisite for the companies that emerge as winners in the next decade, when the human driver may touch the steering wheel on average less than once a day on their daily commute,” he said. “By 2025, we will see companies bringing such products to market, and Xpeng will be one of them.”
