Stellantis, the parent company of Jeep and Dodge, is set to invest $1.6 billion in Chinese electric vehicle (EV) startup Leapmotor.

• Leapmotor will receive a 1.5 billion euro ($1.58 billion) investment from Stellantis on Thursday.
• While Leapmotor aims to expand aggressively into Europe, Stellantis seeks to increase its presence in China, where it currently has a limited market share.
• The electric vehicle market in China, the largest globally, is dominated by both domestic company BYD and U.S. automaker Tesla, with domestic startups Xpeng and Nio also intensifying competition.

On Thursday, announced that it will invest 1.5 billion euros ($1.58 billion) in Chinese electric vehicle startup, as traditional automakers search for a competitive edge in China's intense market.

The Leapmotor International joint venture will be formed by the companies, with Stellantis holding a majority 51% stake, with the aim of increasing sales of the Chinese brand's electric cars abroad.

Leapmotor will receive a roughly 20% equity stake and two board seats from Stellantis, which owns brands such as Chrysler and Maserati.

The electric vehicle market in China, the largest globally, is dominated by both domestic and U.S. automakers. However, intense competition is emerging from domestic startups such as NIO, Xpeng, and BYD, while technology firms like Baidu and Huawei are also entering the fray.

Electric vehicle manufacturers have been slow to transition, hindering growth in the Chinese market. Stellantis has struggled to sell cars in China and has a 0.3% market share, according to the company's official numbers.

According to Abhik Mukherjee, an analyst at Counterpoint Research, this deal presents clear synergies for both Stellantis and Leap Motor. Stellantis will benefit from strengthening its presence in the Chinese market, while Leap Motor will gain an easier entry into the European market.

Stellantis eyes China boost

Stellantis could benefit from having a local partner lead its efforts in China through a potential deal.

By investing strategically, we can fill a gap in our business model and take advantage of Leapmotor's competitive edge in China and beyond, as stated by Stellantis CEO Carlos Tavares in a press release on Thursday.

Leapmotor, a Hangzhou-based EV startup, is positioning itself as a tech-first brand by developing its own semi-autonomous driving system and the architecture of its cars. Additionally, the company is expanding its manufacturing capacity.

The company plans to launch various types of vehicles in the near future, with three cars currently available for purchase.

Leapmotor's technology and manufacturing footprint will be granted to Stellantis through the Thursday deal, which aims to increase sales in China.

Leapmotor targets fast overseas growth

The unveiling of the C10 sports utility vehicle by Leapmotor at the IAA motor show in Munich last month could hinder its aspirations to become a global electric vehicle player. The company has announced plans to launch five globally-oriented products worldwide in the next two years.

At a press conference, Leapmotor CEO Zhu Jiangming stated that all future products would be designed and developed with a global mindset and adhere to global standards.

Stellantis and Leapmotor have formed an international joint venture to help Leapmotor sell its cars abroad. The JV has exclusive rights for the export and sale, as well as manufacturing, of Leapmotor products outside Greater China. Car shipments for the JV will begin in the second half of 2024.

Stellantis could potentially allow sales of Leapmotor under its brand by expanding into its network, as Chinese auto companies face challenges in Europe with building consumer trust and establishing robust dealership networks, according to Counterpoint's Mukherjee.

The investment of Stellantis in traditional automakers has been hindered by the history of turbulent deals between traditional automakers and Chinese players.

Bill Russo, CEO of Automobility, stated on CNBC that foreign carmakers have come to the realization that China is leading the way towards an electric future. Despite potential partnerships to regain access to critical technology, such collaborations, particularly minority shareholdings, have a history of failure in the auto industry.

A joint venture between Stellantis and Guangzhou Automobile Company, which produced Jeep products in China, filed for bankruptcy last year.

Chinese players ramp up the pressure

The significant investment of Stellantis in Leapmotor highlights the intense competition that established automakers face from agile and innovative Chinese companies, as the demand for electric vehicles grows.

In July, Xpeng received a $700 million investment from German carmaker Volskwagen.

European expansion is being aggressively pursued by Chinese automakers, including BYD, which is backed by Warren Buffett, challenging the dominance of global automakers such as Mercedes and BMW on their home soil.

This has raised worries among Europe’s automakers and politicians.

The EU's executive arm, the European Commission, launched an investigation into subsidies provided to electric vehicle manufacturers in China last month.

Although Tavares, CEO of Stellantis, has previously criticized the arrival of low-cost Chinese cars in Europe, he stated on Thursday that the partnership with Leapmotor can aid automakers in taking advantage of the growth of Chinese companies.

Tavares stated at a press conference in Hangzhou, China, as reported by Reuters, that the Chinese offensive is evident everywhere. However, with this agreement, we can gain from it instead of being its victims.

Stellantis is not a "Trojan horse" for Leapmotor in Europe, according to him, and he criticized the EU's investigation.

"Starting a probe is not the best way to tackle those questions," he said, according to Reuters.