Volkswagen Xpeng deal reveals risk to Rivian, U.S. automakers

In 1984, Volkswagen partnered with a Chinese language automaker as a result of it was required by Chinese language regulation.

Now the German firm is partnering with Chinese language automakers as a result of it needs to make use of their expertise.

Volkswagen Group immediately maintains the unique joint ventures it made with Chinese language automakers in these early days of its foray into what has grow to be the world’s largest automobile market. However the truth that it’s now counting on corporations akin to Chinese language EV maker Xpeng for {hardware} and software program underscore how the steadiness of energy within the automotive trade is shifting towards the businesses that produce these now high-value parts. Chinese language firms are proving they’ll do it sooner, typically cheaper, than anybody else.

VW Group, which has for a lot of the previous few a long time been a top-selling model in China, has recently struggled to keep up its place.

Volkswagen’s China income fell about 45 p.c in 2025 — from roughly $2 billion to $1.1 billion. The corporate mentioned in its annual report that it now faces intense competitors from Chinese language corporations.

It’s not a singular concern. Basically each non-Chinese language automaker is watching market share erode within the nation as homegrown firms create autos that extra instantly serve what Chinese language prospects need.

Particularly, Chinese language consumers have a style for what are sometimes known as “software-defined autos.” They’re linked and updatable, and basically enable drivers to do every part by way of a automobile they might do by way of a cellphone.

“The Chinese language car proprietor can do his banking utilizing voice instructions or order takeout to fulfill him when he arrives at his home, or do any variety of issues that appear a little bit uncommon to us right here within the West, as a result of we simply aren’t constructed that means,” mentioned AutoForecast Options analyst Conrad Layson. “Nonetheless, the Chinese language purchaser cannot try this in a Chinese language-built Volkswagen, in order that they went the place the comfort was. They had been capable of deliver their digital lives together with them into and out of the automobile.”

VW’s personal struggles to construct an in-house software program division have been broadly documented — after years of effort and billions spent, the corporate deserted its go-it-alone strategy and turned to collaborations. Xpeng is a serious associate in China, whereas in North America and elsewhere, VW has partnered with Rivian to construct vehicles.

Xpeng, which makes its personal autos as nicely, helped VW’s China division construct a {hardware} and firmware structure known as CEA for the German firm’s autos within the nation.

In February, information broke that VW Group could be the primary buyer for Xpeng’s VLA 2.0 automated driver help system. If it performs as marketed, it would equal or surpass something made by some other international automaker, Layson mentioned.

Then in March, the primary car the 2 firms co-developed, the ID.UNYX 08, rolled off the meeting line.

The 2 firms introduced the car to manufacturing automobile in 24 months, the CEA structure in simply 18. That’s “remarkable within the West,” Layson mentioned. “However that is China’s velocity for you.”

World automakers usually require a three-to-five-year timeline for a brand new car, or perhaps a important refresh.

Rivian and VW are collaborating on nearly all the similar issues the German automaker is doing with Xpeng. The deal has given Rivian a roughly $6 billion lifeline at a time when the EV maker is ramping up the manufacturing of its mid-priced, greater quantity R2 SUV.

The comparisons between the 2 firms point out how far Chinese language automakers have come, mentioned Tu Le, founding father of Sino Auto Insights, a agency that researches the Chinese language automotive market.

Rivian is working by itself chips, for instance. So is Xpeng, however its chip is already being fabbed.

“Xpeng is already there and Rivian needs to get there,” Le mentioned.

Although Xpeng has a technological edge, its partnership with VW doesn’t essentially pose a right away risk to Rivian — at the very least in North America, he added.

Commerce disputes and political pressure are spurring carmakers to strike these totally different partnerships. For instance, the U.S. has banned sure sorts of Chinese language software program and {hardware} for linked autos.

The longer-term image is unclear. Xpeng, like all Chinese language automakers, needs to compete globally, and never simply by way of partnerships with different automakers. On March 25, the corporate began promoting two fashions in Mexico, for instance.

Corporations akin to Tesla, Rivian and Lucid Motors are on the forefront of constructing these sorts of linked autos outdoors of China.

Nonetheless, if Chinese language corporations can show they’ll outpace Western ones of their house market, and export these options to different markets, VW could face a tricky selection down the highway.

“The query in all probability you must ask is do they use Rivian stack or Xpeng stack in Europe, as a result of we all know that they will use Xpeng in China. And we all know that in the meanwhile, they will use, in North America, the Rivian stack. However in the end whose is healthier, whose might be extra strong and extra applicable?” Le mentioned.

He added that the long-term danger for a corporation like Volkswagen — or Stellantis, which has partnered with Chinese language automaker Leapmotor — is that they grow to be basically contract producers, Le mentioned. That will come to fruition if the high-value parts like software program and expertise that outline the trendy car are more and more made in China.

“My query is perhaps: If Xpeng hits on all cylinders, will they even want Volkswagen Group?” Le mentioned. “The shoe is on the opposite foot. And I believe increasingly persons are beginning to understand that is actual. Their merchandise are important, and they’re a risk to our livelihoods.”

Neither Rivian, VW Group nor Xpeng responded to CNBC’s request for remark or interview.