Volkswagen (OTCMKTS:VWAGY) stock is on the move today as the company continues its quest to gain exposure to China’s electric vehicle (EV) market. Notably, the German automotive conglomerate recently increased its stake in XPeng (NYSE:XPEV) stock, raising its long position to nearly 7%.
While XPEV stock hasn’t seen shares rise today on this news, that doesn’t mean that Volkswagen’s recent investment isn’t good news. XPEV has been enjoying an excellent season and this endorsement from the industry leader means its positive momentum will likely continue.
Of course, Chinese EV stocks in general have done quite well this quarter. But XPeng has demonstrated in particular that it has the ability to hold its own despite increasing competition. Indeed, XPEV stock has surged 43% just over the past one month. Shares are also well-positioned to keep climbing.
What’s Happening With XPEV Stock?
This week hasn’t started off well for Xpeng. Yesterday brought news of a downgrade from analysts at UBS. While XPEV stock hasn’t recovered from this development, the increased investment from Volkswagen might be exactly what it needs to turn around. As of this writing, shares are down more than 3% for the day after some early morning volatility. Meanwhile, VWAGY has also been turbulent, currently trending barely in the red.
This isn’t the first time in the past month that Volkswagen has poured money into XPeng. Late in July, the company announced a $700 million investment in the Chinese EV maker, amounting to a 5% stake. This came as part of a deal for the two companies to jointly produce two mid-size EVs for Chinese markets. TechCrunch reports:
“The new battery-electric vehicles will be produced at VW’s new development, innovation and procurement center in Hefei and sold in China under the Volkswagen brand. Earlier this year, VW Group announced plans to invest €1 billion ($1.1 billion) into the facility, called 100%TechCo., in an attempt to respond to China’s fast-changing consumer needs.”
According to recent filings, though, Volkswagen has upped its stake in Xpeng to 6.85% by purchasing an additional 1.38 billion shares of XPEV stock. The German auto giant has made it clear that it wants to gain further exposure to China’s booming EV market.
Given how fast the sector is growing, this seems a prudent growth strategy. Recent data indicates that the market is expected to expand at a compound annual growth rate (CAGR) of 6.38% over the next five years. This means ample opportunity for investors and Volkswagen is staking its claim.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
