What happened
Shares of Chinese electric-vehicle (EV) maker XPeng (XPEV -4.75%) rocketed higher Wednesday morning after it surprised investors with news of a major new partner. The announcement led to a whopping 27.7% increase in XPeng's stock, as of 11:30 a.m. ET. That helped bring the one-month return for XPeng shares to more than 96%.
So what
XPeng and global automotive giant Volkswagen (VWAP.Y 0.16%) are entering into a long-term strategic partnership to jointly develop two Volkswagen-branded EVs. At the same time, the German automaker is taking a 5% stake in XPeng with an investment of $700 million.
Investors in the early-stage Chinese EV maker are sending the stock higher as they see the influx of cash and the addition of a very strong partner as a major boost to its prospects.
Now what
The agreement will tap into the strength of both partners and provide Volkswagen with an easier entrance to the large Chinese EV market. Two new EVs will be jointly developed using XPeng's G9 SUV platform, connectivity, and advanced driver-assistance system software to be sold under the Volkswagen brand in the Chinese market. Production of the new vehicles is scheduled to begin in 2026.
Volkswagen additionally will take a minority 5% stake in XPeng with an initial $700 million investment. Those shares were acquired at a price of $15 per American depositary share. That represented a slight discount to Tuesday's $15.36 per-share closing price.
The companies will also explore collaborations on future EV platforms, software technologies, and supply chain efficiencies. They also plan to share smart EV technologies moving forward.
Investors are betting the new partnership will be lucrative for XPeng as it also will help it expand in Europe. Those benefits explain the stock's sharp move higher today.
