Investing.com -- Stellantis NV (NYSE:STLA) said on Thursday that it will take a roughly 20% stake in Chinese electric vehicle firm Zhejiang Leapmotor (HK:9863) in a $1.6 billion deal, with the two companies also setting up a joint venture targeting the booming Chinese EV market.
The Euro-American carmaker will buy about 194.3 million Hong Kong shares in Leapmotor at HKD 43.8 per share (HKD 1 = $0.13), representing a 19% premium to Leapmotor’s Wednesday close. Under the venture, Stellantis will sell some Leapmotor vehicles outside China, while also gaining access to the Chinese firm’s EV technology.
Stellantis, which owns several major brands including Chrysler, Fiat, and Peugeot (OTC:PUGOY), has a limited presence in China. The firm, among several of its peers, has repeatedly attempted to establish a foothold in the country, which is the largest automobile market in the world.
The venture also allows Stellantis to increase its EV offerings, with the company targeting a massive sales bump in electric and hybrid offerings by late-2030.
The move comes amid a boom in China’s EV market, which has been among the few bright spots in the country this year as broader economic conditions deteriorated. A slew of other foreign players have attempted to capitalize on this trend, with German automaker Volkswagen (ETR:VOWG_p) (OTC:VWAGY) announcing a tie-up with Xpeng (NYSE:XPEV) earlier this year.
While overall automobile sales have dropped so far this year in China, EV sales have consistently grown, benefiting from increased competition as well as government subsidies for the industry.
Tesla Inc (NASDAQ:TSLA), the world’s most valuable carmaker, had triggered a price war in the Chinese EV market earlier this year amid fierce competition from other players including BYD (SZ:002594), Nio (NYSE:NIO) and Xpeng. But this ate into profit margins across the board.
European carmakers are also facing increased competition from Chinese EV exports- a trend that had recently drawn some ire from European policymakers. The European Commission had in September launched an investigation into whether to impose tariffs on Chinese EV imports, which it said were benefiting from state subsidies.
Leapmotor’s Hong Kong shares surged 11% initially after the deal, before reversing course to trade down 9% by midday. The Hang Seng index was down 0.7%.