China's Xpeng to Acquire Didi's Smart EV Unit

Credit: Visual China

BEIJING, August 30 (TiPost) – Chinese electric vehicle maker Xpeng announced on Monday that it has signed a share purchase agreement with Didi and its subsidiary.

Xpeng will issue Class A ordinary shares, representing approximately 3.25% of the company’s outstanding share capital upon completion of the issuance, to acquire the assets and R&D capabilities of Didi's smart electric vehicle project. Didi will become a strategic shareholder of Xpeng, and the lock-up period for the first batch of shares will be 24 months.

Xpeng will develop an A-class smart electric vehicle, codenamed "MONA", as its first product under the new brand. This model will differentiate itself from Xpeng' existing brand and is expected to be mass-produced by 2024.

After this collaboration announcement, Didi's in-house car-making business, codenamed "Da Vinci," will come to an end. Therefore, the prevailing view is that He Xiaopeng, the co-founder and chairman of Xpeng, has taken over the car-making project from Cheng Wei, the founder, chairman and CEO of DiDi.

Didi: the bumpy road to making cars

As the dominant player in China’s ride-hailing industry, Didi's ambition to enter the car-making industry is well-known, but the journey has been full of twists and turns.

In 2018, Didi and Li Auto announced the establishment of Judian Chuxing, with plans to jointly launch a pure electric MPV.

However, with China’s shopping platform Meituan becoming Li Auto's largest institutional shareholder later on, the collaboration project eventually fell through.

Consequently, Judian Chuxing formally filed for bankruptcy in 2022. On February 8 this year, the court issued a ruling showing that this joint venture company filed for bankruptcy liquidation to the court on the grounds that it could not repay its due debts and that its assets were insufficient to cover all of its debts.

This is not the only car-making path for Didi.

In November 2020, the company released the D1 electric car, jointly developed with China’s automaker BYD. At the D1 press conference, Didi also revealed its 10-year goals: to launch D3 in 2025, sell 1 million vehicles equipped with autonomous driving capabilities; and to remove the driver's cabin and achieve fully autonomous driving by 2030.

However, reality falls far short of ideals. The delivery volume of D1 in 2021 was only 10,200 units, far below expectations in terms of progress speed and sales performance. It has gradually faded from public view since then.

In March 2021, it was reported that Didi had independently established a car-making business codenamed "Da Vinci", with a team of 1,700 people, located in Beijing. It is expected to announce its car-making plans in mid-2023.

According to media reports at the time, the car models of the "Da Vinci" car-making plan for the passenger car market will be named C1, positioned as a compact pure electric sedan priced at 150,000 yuan. It will be led by Didi's senior employee Luo Wen. The car model for the ride-hailing market will be D1 Light, which can be understood as a simplified version of D1, still produced by BYD. It will be deployed on Didi's ride-hailing platform Huaxiaozhu and mainly managed by Yang Jun, the Vice President of Didi and General Manager of Didi’s Xiaoju Car Service.

With news of the "Da Vinci" car-making plan, there were also rumors that Didi would acquire Zedriv, a subsidiary of China National Machinery Industry Corporation, to obtain production qualifications and factories, directly involving in car research, development, production, manufacturing, sales, and operation.

Didi's stock price surged by 60% when the news came out. However, Luo had resigned in the first half of 2023 and devoted himself to a startup related to transportation, which has received angel investment from Sequoia Capital.

In fact, in April 2018, at the press conference where Didi and 31 companies in the automobile industry chain jointly launched the Didi Auto Alliance, Cheng promised firmly never to build cars.

From not building cars to building cars, Didi's transformation occurred between April 2018 and April 2021, which was also a period when new forces in car-making, such as “Wei Xiaoli”, were actively developing intelligent driving technology and cross-boundary car manufacturing was flourishing. Didi was originally in the field of ride-hailing, closest to cars, and had accumulated a large amount of driver, passenger, and road data, which could provide data support for its car-making. Therefore, the transition from a ride-hailing platform to car-making is not surprising.

However, although the automotive intelligence market is enticing, it requires immense financial investment.

Companies like Xiaomi plan to invest $10 billion over 10 years in car manufacturing, while Li Bin, the founder of NIO, initially stated that $20 billion was the threshold for new energy vehicle startups, but later revised it to $40 billion, indicating the difficulty of the task. He, Chairman of Xpeng Motors, also commented that he used to think $10 billion was too exaggerated for car manufacturing, but now realizes that $20 billion is not enough.

Although Didi once occupied nearly 90% of the ride-hailing market, its financial report for 2021 showed that its operating cash flow went from -6.14 billion in the first quarter to -13.41 billion for the year. The company’s operating cash flow turned positive in the first quarter of this year, but the growth space for its main business, ride-hailing, is limited.

Therefore, it is not surprising that at Didi's open day event for autonomous driving on April 13 this year, Didi CTO and CEO of Didi Autonomous Driving, Zhang Bo, unveiled the automated operation and maintenance center, Huiju Port, as well as the first future service concept car, DiDi Neuron. Didi also disclosed its plans for mass production of autonomous vehicles and progress in exploring new businesses.

Perhaps, with a series of major setbacks, Didi may start focusing on autonomous driving, instead of car manufacturing.

Xpeng: What to do after the take-over?

The core of the collaboration between Didi and Xpeng is an A-level intelligent electric vehicle with the code name "MONA". "This is a very attractive asset for us," said Gu Hongdi, Vice Chairman and President of Xpeng Motors, at a cooperation communication meeting held on Monday morning. In addition, Xpeng will acquire the design team, testing equipment, and R&D assets related to the MONA project.

The assets obtained by Xpeng will become a core component of the MONA project and will also serve as the company’s second brand.

It is worth noting that Didi has not completely withdrawn from this project after Xpeng took over. Xpeng will provide the MONA model with intelligent driving capabilities based on the Fuyao 2.0 architecture, while Didi will provide support for the model in areas such as intelligent cabin, intelligent driving, and the shared mobility market. The new car will also be sold within the Didi ecosystem.

In addition, the two parties have established a performance-based clause based on the sales volume of MONA. If Didi sells 100,000 units per year within its system, additional consideration will be paid. If the annual sales volume reaches 180,000 units and achieves this target for two consecutive years, the highest consideration can account for 5% of Xpeng's Class A common shares after the completion of the transaction. He aims to achieve sales of over 100,000 units annually in the consumer market.

According to reports, compared to the previous price of nearly 170,000 yuan for the BYD D1, the production model of the MONA project has dropped to around 150,000 yuan. He stated at the communication meeting that MONA aims to achieve advanced assisted driving capabilities on electric vehicles in the 150,000 yuan range, with Xpeng’s XNGP as the standard.

This price is significantly different from He's comments two years ago. He once mentioned that due to cost factors, no car company could launch a competitive fully autonomous driving car in the 150,000 yuan range.

Why can MONA achieve this now? He explained that firstly, the overall cost of high-level intelligent driving was very high two to three years ago, but in the next one to two years, Xpeng can control the cost through technological innovation.

Prior to Xpeng’s cooperation with Didi, on July 26, Germany’s Volkswagen Group also announced a technical cooperation framework agreement with Xpeng. The group will invest about $700 million in Xpeng to acquire approximately 4.99% of the equity at a price of $15 per ADS. After the transaction is completed, Volkswagen will obtain a seat on Xpeng' board of directors as an observer. In the initial stage of cooperation, based on the MEB platform, the two parties plan to jointly develop two Volkswagen branded electric vehicle models for the Chinese midsize car market, and plan to launch them in 2026.

Regarding cooperation with different companies, He stated that dedicated project teams will be established for all collaborations, and the entire organizational structure will be adjusted and upgraded according to the progress of the projects.

Didi once enjoyed the long-tail economy and sharing economy dividends of the Internet, with a market share of nearly 90%, giving it an absolute monopoly position and definitive market pricing power in the online travel industry. However, after encountering strong regulation and remaining silent for over a year, although it has been lifted from the ban and relaunched, its market share has dropped from 90% to 74%. Therefore, what Didi may face is not the market situation of how to achieve growth and profitability as before, but how to stop the decline in market share and the overall market contraction. Collaborating with Xpeng may be its best choice at the moment.

For Xpeng, it is like buying the market, and the short-term boost effect will be obvious. He stated, "In our view, this collaboration is controllable in terms of resource investment, and the expected value to be obtained is great."

(This article was first published on TiPost App. Reporting by Han Jingxian and Li Qiying; Editing by Zhang Min.)

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