Stellantis renews China drive with $1.6 bln Leapmotor stake

HANGZHOU, China, Oct 26 (Reuters) – Stellantis said on Thursday it is buying a 21% stake in EV maker Leapmotor in a $1.6 billion deal that will give it a fresh shot in China and the smaller Chinese carmaker a European foothold.

Legacy international carmakers are playing catch-up in the shift to electric vehicles and the deal gives Stellantis (STLAM.MI) access to Leapmotor’s advanced technology.

Meanwhile, a growing number of Chinese EV makers are launching lower-cost models across Europe.

“The Chinese offensive is visible everywhere,” Stellantis CEO Carlos Tavares told reporters. “With this deal we can benefit from it rather than being the victims of it.”

Stellantis, formed at the start of 2021 through the merger of France’s PSA with Fiat Chrysler (FCA), has struggled to sell cars in China and has sought a reset in the country, where it has a joint venture with Dongfeng Motor Group (0489.HK).

The group, whose brands include Fiat and Peugeot, said a year ago it was closing its joint venture with Guangzhou Automobile Group (601238.SS) that makes Jeeps in China.

Its new deal follows a tie-up between Volkswagen (VOWG_p.DE) and Xpeng (9868.HK) announced in July which heralded a new era of automotive alliances in China and reflects how the country has emerged as a global centre of EV technology.

As part of a joint venture where Stellantis will hold a 51%stake, the Chrysler parent will have exclusive rights to export, sale and manufacture Zhejiang Leapmotor Technology’s (9863.HK) products outside Greater China.

Some analysts were sceptical that such minority-stake partnerships would help established foreign auto brands revive their declining fortunes in China.

“Small investments that allow them access to newer technology that they’re not able to develop in-house doesn’t seem like … the silver bullet they’re hoping it is,” said Tu Le, founder of Beijing-based advisory firm Sino Auto Insights.

Bill Russo, CEO of Shanghai-based advisory firm Automobility, agreed that “successful automotive partnerships are few in number, and often dissolve when the interests diverge.”

Stellantis has been concerned about growing competition from cheap Chinese EVs in Europe, a worry shared by the European Commission which launched an anti-subsidy probe into whether to set tariffs to shield European producers from Chinese imports.

Tavares has in the past been a vocal critic of lower-cost Chinese imports into Europe, but told reporters the Leapmotor deal did not make Stellantis a “Trojan horse” and was critical of the EU probe.

“We like competition. To start a probe is not the best way to tackle those questions,” he said.

Leapmotor shares fell 11% on Thursday on concerns about competition and the dilution of existing shareholdings, while shares in Stellantis were down 1.3% in early trade.

More than 40 EV brands are locked in a price war in China, triggered by Tesla (TSLA.O) earlier this year. Despite steep price cuts, sales are slowing due to weak consumer demand, putting margin pressure on automakers and their suppliers.

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The Netherlands-incorporated joint venture is expected to start its export business in the second half of 2024, while Stellantis would have two seats on the Chinese firm’s board.

The partnership will help Stellantis expand its EV lineup and meet a 2030 target of EVs accounting for all of its sales in Europe and half in the U.S.

Leapmotor, ranked ninth by new energy vehicle sales in China, has been looking to license its EV platforms and other EV assets to established foreign automakers to generate cash. The company said last month it needed at least a five-fold increase in sales to survive in a consolidating EV industry.

“We will certainly see more and more such partnerships as Chinese EV startups have a real urgency to survive and they are open to have foreign shareholders,” said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.

Under the deal, which is subject to regulatory approval, Leapmotor will issue 194.3 million shares to Stellantis for HK$43.8 per share, a premium of 19% to its last close, giving Stellantis about 21.07% of the total Hong Kong listed shares.

Shareholder Dahua (002236.SZ) said it would sell its 90 million Leapmotor shares to Stellantis as part of the deal.

($1 = 0.9466 euros)

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