Charting New Territories: the Stellantis - Leapmotor Strategic Alliance

At the end of 2023, in a landmark transaction for the electric vehicle (EV) sector, multinational company Stellantis invested €1.5 billion in Leapmotor, a Chinese company known for its innovative EV technologies and cost effectiveness.  Vermilion, as strategic advisor, was pivotal in facilitating this partnership, which is expected to transform the international EV landscape.

Strategic Alliance – Overview

1. Stellantis initiated its alliance with Leapmotor via the acquisition of a 21% equity stake,  establishing it as the single largest shareholder in the company.
2. In addition, the two firms formed Leapmotor International, a new 51:49 joint venture in which Stellantis holds the controlling interest. The JV is designed to spearhead the international sales and distribution of Leapmotor branded vehicles outside of China, leveraging Stellantis' extensive market reach and operational expertise.

Upon the completion of these transactions, Leapmotor’s founding team and their concert parties remain the controlling shareholders, representing approximately 23% of the company's equity. This balance ensures that while Stellantis brings its global scale and industry leadership to the table, the ingenuity and market insight of Leapmotor's founders remain central to the company's strategic direction and innovation drive. Vermilion ensured each component aligned with the overarching strategic vision of both Stellantis and Leapmotor, culminating in a partnership promising to be greater than the sum of its parts.

Synergies and Future Outlook

The benefits to both parties of this alliance are as follows:

1. Global Sales and Manufacturing: with Stellantis at the helm of Leapmotor International, the JV is able to leverage Stellantis' global presence. This may lead to contract manufacturing agreements within Stellantis facilities, thereby mitigating tariff risks and enhancing market accessibility.  For Leapmotor, it promises healthier margins than an increasingly cutthroat home market.
2. Supply Chain Integration: Leapmotor is well positioned to become a key component supplier to Stellantis, leveraging Leapmotor's low-cost engineering solutions, vertically integrated business model and efficient supply chain.
3. Original Equipment Manufacturing (OEM): the potential for Leapmotor to manufacture vehicles for Stellantis brands not only in China but also worldwide opens new avenues for cost-effective production and market expansion.
4. Joint Research and Development: The alliance will foster collaborative R&D efforts, with a focus on shared platforms and technology to drive innovation and reduce development costs.

Trade Tensions

Overcapacity and relatively sluggish demand in China are exerting a major influence on the European Union's strategy towards EVs, with a particular focus on Chinese manufacturers. The EU's position is shaped by an intricate balance of economic interdependence, the imperative to mitigate climate change, as well as the need to ensure supply chain security and fair competition.

In a move to protect its domestic industries, the EU has recently imposed provisional anti-subsidy tariffs on EVs from major Chinese companies, including BYD, Geely, and SAIC.  This action underscores a more protective stance, designed to level the playing field for European manufacturers.

In contrast with the EU, the U.S. has established a more challenging environment for Chinese EV players. Policies such as the Inflation Reduction Act prioritise domestic production, complementing existing trade barriers that complicate market access for foreign EV firms, Chinese ones in particular. Despite these challenges, the EU remains an indispensable market for Chinese EV players. The region’s demand for EVs continues to draw Chinese exports, reflecting the intricate dynamics between trade policies, environmental commitments and industrial strategies in the evolving EV sector worldwide.

Conclusion

In a move redolent of many an Olympic race, Stellantis has pipped its international rivals to the post in adapting its legacy internal combustion engine businesses into a simpler, more EV-focused operation.

As the industry transitions, there exists a natural strategic fit between Chinese and European automotive players.  Chinese EV firms increasingly recognise the need for partnerships in Europe, which is focused on safeguarding local jobs and manufacturing. On the other hand, European companies seek the technology and cost-effective supply chain solutions Chinese manufacturers offer. These are vital components to accelerate the transition to electric and smart vehicles.

This interdependence is the foundation for a symbiotic relationship. The Leapmotor- Stellantis transaction has set a precedent for further Sino-European co-operation.  Vermilion is at the forefront of this development, engaging with multiple Chinese EV companies looking to replicate the Leapmotor-Stellantis model. This approach not only signals potential market expansion, but also underscores the importance of joint innovation in EVs, highlighting the M&A opportunities that such strategic alliances present.