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Shares in Chinese language electric-vehicle makers rose sharply on Thursday after Volkswagen introduced a tie-up with Chinese language rival Xpeng designed to spice up the German automobile producer’s lagging gross sales within the nation.

Xpeng’s Hong Kong-listed shares climbed greater than 33 per cent whereas these of home friends Nio and Li Auto rose 12 per cent and 4.2 per cent respectively. XPeng’s inventory has doubled prior to now six months, with analysts noting a powerful restoration in gross sales momentum as a result of aggressive pricing of its new G6 mannequin.

Volkswagen mentioned on Wednesday it might make investments $700mn within the group because it makes an attempt to spice up its presence in China’s extremely aggressive electric-vehicle market. The deal will give VW a 5 per cent stake within the Guangzhou-based EV maker in addition to a seat as an “observer” on its board.

VW mentioned the “preliminary stage” of their relationship would deal with collectively creating two VW-branded “midsized” electrical automobiles, one in every of which is deliberate to hit Chinese language roads in 2026.

The sprawling German group, which apart from its eponymous VW model consists of corporations corresponding to Porsche and Audi, was one of many first western corporations to enter the Chinese language market within the late Nineteen Seventies.

It nonetheless sells extra vehicles in China than in another firm however is falling behind within the fast-growing electrical phase as Chinese language rivals corresponding to Xpeng and Warren Buffett-backed BYD shortly achieve market share.

BYD dominates China’s new-energy automobile market, which incorporates plug-in hybrids and pure battery EVs, with a market share of greater than 37 per cent.

Together with the Xpeng stake, VW has this yr alone introduced investments price almost €5bn in China, the world’s largest automobile market and the place the Wolfsburg-based firm makes roughly half of its earnings.

The VW-Xpeng deal was a vote of confidence within the Chinese language EV business, mentioned Tu Le of Sino Auto Insights.

Nevertheless, he added that it was additionally an admission by VW of its lack of ability to compete within the electrical market with out Chinese language know-how.

VW’s elevated investments in China additionally come as Berlin raises considerations over how reliant many German corporations are on Beijing for earnings amid rising geopolitical tensions.

Germany’s overseas minister Annalena Baerbock this month warned corporations investing closely in China that they’d “should bear extra of the monetary threat themselves”.

VW additionally introduced on Wednesday that Audi was planning to broaden its current co-operation with SAIC, VW Group’s first associate in China.

The collaboration between Audi and SAIC would begin with electrical vehicles “in a phase the place Audi doesn’t but have a presence in China”, VW mentioned, with out elaborating on the timing of plans.