As the automobile industry plunges into a brutal price war, Chinese carmaker Xpeng is prepared to explore every strategy to ensure its models find their place in the European market. The company, which recently launched in Germany, is part of a wave of Chinese brands predicted to constitute a quarter of Electric Vehicle (EV) sales in Europe this year. However, the real battle for Xpeng may not be in pricing, but in leasing agreements.
Leasing, Not Buying
“It’s not so much that the customer will buy the car,” Markus Schrick, Xpeng’s managing director for Germany, told Fortune. Instead, he noted that a growing number of drivers are choosing to lease their electric vehicles. This trend is largely driven by the fear that rapid technological advancements in the EV sector will render their vehicles obsolete.
“With the rapid development of electric mobility, with new technology coming in quite quickly. customers tend to not want to own the vehicles but leased vehicles,” Schrick explained. This leasing trend could be a vital strategy to win over EV-skeptics, who have been harder to convert from traditional internal combustion engines than anticipated.
Xpeng
While leasing is already popular among non-EVs, it’s expected to skyrocket in the EV market due to the reasons Schrick outlined. The company is offering competitive lease rates on its vehicles, with starting prices for outright ownership commencing at €49,000 ($53,000) for its P7 standard range. Schrick revealed that four out of every five cars sold by Xpeng are through lease agreements, a much higher ratio than the 35% of new cars leased in Germany, according to data analyzed by McKinsey & Co.
Preparing for Battle
Despite a higher entry point than fellow Chinese disruptor BYD, Xpeng has been vocal about pricing as rivals like Tesla and Volkswagen engage in a lengthy price war. “This year marks the beginning of a fierce competition that may end in a ‘bloodbath’,” Xpeng wrote to staff in February, according to an internal letter shared with staff and reported by CNBC. Schrick assured that Xpeng is prepared to cut lease rates if another price war ensues. “We won’t say: ‘If the lease rates go down 20%, no, we don’t participate.’ Of course, we will find a solution because we need and we want to sell cars,” he affirmed.
Since launching in 2020, Xpeng has focused on increasing deliveries, almost tripling them between the final quarter of 2022 and the same period in 2023. The Chinese automaker already has a presence in the Nordic countries and the Netherlands.
A Promising Partnership
It’s intriguing to see how Xpeng’s strategy will unfold in Germany, especially considering its close ties with the country’s premier carmaker, Volkswagen. Volkswagen purchased a 4.99% stake in Xpeng for $700 million in December, with plans to jointly create two SUVs by 2026.
While competitors may question the extent of this close partnership, Schrick clarified that the relationship between Xpeng and Volkswagen ends there for now. However, he expressed openness to more strategic agreements with the German automaker in the future. “Such a progressive smart technology developer like Xpeng, together with such a traditional and high-tech company like Volkswagen, it can only be a good partnership,” he opined.
Schrick believes the deal has given Xpeng an advantage in the tough battle faced by Chinese brands for brand recognition and consumer trust. “If Volkswagen invests in something, for most German consumers, that’s a good sign,” Schrick posits. “If Volkswagen invests €700 million into another automotive manufacturer, they will have done a very deep and profound analysis. And that decision was not made easy. They have looked at the market intensively, and they chose Xpeng.”
