XPeng may consider overseas production due to Europe regulatory scrutiny

By Sarah Wu

BEIJING (Reuters) -Chinese electric vehicle (EV) maker XPeng said on Thursday an ongoing European probe into Chinese-made EVs and regulatory changes could steer it to invest in plants or suppliers abroad, as the spectre of higher tariffs looms.

The European Commission began investigating in October whether cheaper, Chinese-made EVs benefit unfairly from state subsidies. China has called the investigation protectionist.

Brian Gu, co-president of the Volkswagen-backed automaker, told reporters on the sidelines of the Beijing autoshow that XPeng currently exports small quantities of its EVs but a changing regulatory environment in the European Union could cause it to reassess its strategy.

"There's no strategy that's fixed in stone," Gu said. "We have to work around what is required to compete there. Right now, we are making entries into markets with our products produced in China."

"It's small quantities, initial steps, but we're making products as local as we can. But, in the event that we need to make manufacturing or supply chains or other areas we need to invest in order to compete, we may have to do that."

Still, XPeng is keen for its international business to make up a larger portion of overall sales. This year, its share could grow to around 10% from about 1-2% last year, he added.

XPeng sees the United States as an important market and long-term objective, but the "challenging environment" makes it hard to devise "a bold entry plan" at the moment, Gu said.

Export efforts by Chinese EV makers have come under scrutiny in Europe and the United States, whose governments accuse China of exporting overcapacity.

"Chinese products can help," Gu said. "Maybe we have to localise, we have to build up the local industry... but it's all in the name of helping the major trend of green transition - lowering the cost of it, accelerating the pace of that."

SOFTWARE AND AI UPGRADES

XPeng, whose EV line-up includes the G6 sports utility vehicle, already sells in the Netherlands, Norway and Germany and said it planned to enter other European markets including France, Italy and the UK.

While rival Chinese automakers have been cutting costs amid a price war, XPeng has pledged to invest heavily in technology innovation as buyers in the world's largest auto market increasingly seek more high-tech features when choosing cars.

Earlier in the day, XPeng's founder and CEO He Xiaopeng said its software and artificial intelligence upgrades will enter a "super fast cycle" from May, and that he hopes use of its platform will expand to other Asian countries and Europe.

In February, XPeng said it planned to hire 4,000 people this year and invest 3.5 billion yuan ($482 million) in AI for autonomous driving.

He also said he hoped a smart EV that XPeng is developing under new brand "Mona" will sell better than the SU7 from Xiaomi in the second half of this year, and that XPeng plans pre-sales for a flying car in the fourth quarter.

XPeng counts Volkswagen as a shareholder after the German automaker invested around $700 million for a 4.99% stake.

Volkswagen has said it developed a new architecture for intelligent and electric cars with XPeng that will help the German automaker offer more affordable models.

($1 = 7.2467 Chinese yuan)

(Reporting by Sarah Wu; Writing by Brenda Goh; Editing by Jacqueline Wong, Christopher Cushing and Emelia Sithole)