Volkswagen-backed Xpeng braced for lease war to win over EV-skeptics

The carmaker launched in Germany last week, and is part of a growing wave of Chinese brands that are expected to account for a quarter of EV sales in Europe this year. 

But it’s a lease war, rather than a price war, that could get the Volkswagen-backed fledgling carmaker into the hearts and minds of brand-loyal German drivers.

Lease wars

“It’s not so much that the customer will buy the car,” Xpeng’s managing director for Germany, Markus Schrick, told Fortune.

Instead, a growing number of drivers are opting to lease their electric vehicles, partly out of fear that rapid technological advancements in the EV space will cause their cars to fall behind the industry standard. 

“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.”

Xpeng

Leasing may be a way to win over EV-skeptics, who have proved harder than expected to turn away from internal combustion engines.

While leasing already has solid traction among non-EVs, it’s poised to explode in the EV market due to the factors Schrick mentions.

Schrick says the company is offering competitive lease rates on its cars, where starting prices for outright ownership begin at €49,000 ($53,000) for its P7 standard range.

A competitive lease offering is a good thing for the carmaker, with Schrick saying four out of every five cars rolling off Xpeng’s lot are sold through lease agreements.

By comparison, data analyzed by McKinsey & Co. found 35% of new cars were leased in Germany.

While coming in at a more expensive entry point than fellow Chinese disruptor BYD, Xpeng has also been vocal about pricing, as companies like Tesla and Volkswagen get into 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, CNBC reported citing an internal letter shared with staff.   

Like with the price wars, Schrick says Xpeng is prepared to follow its competitors in cutting lease rates if a fresh 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 said.

After launching in 2020, the Chinese automaker has moved to ramp up deliveries this year, almost tripling them between the final quarter of 2022 and the same period in 2023. 

The carmaker already has a presence in the Nordic countries and the Netherlands.

Frenemies

It will be interesting to see how Xpeng’s strategy unfolds in Germany, given its close ties with the country’s premier carmaker Volkswagen.

Volkswagen bought up a 4.99% stake in Xpeng for $700 million in December, with plans for the pair to create two SUVs by 2026.

That might raise eyebrows from competitors about where that close partnership ends—indeed, whether Xpeng and Volkswagen could strategize to divide and conquer.

Xpeng’s Schrick says that for now, the relationship between the Chinese carmaker and Volkswagen stops there.

However, Schrick said he “wouldn’t mind” more strategic agreements with the German carmaking giant going forward. 

“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.”

Schrick also thinks the deal has given the company a leg up in the arduous battle faced by Chinese brands for brand recognition and consumer trust, having grown used to household names like their part-owner Volkswagen.

“If Volkswagen invests in something, for most German consumers, that’s a good sign,” Schrick says.  

“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.”