The key to the deal is that can get more sales by tapping into Didi's massive network of 19 million drivers in China, Deutsche Bank said.

(Image credit: CnEVPost)

Xpeng (NYSE: XPEV) announced yesterday that it will buy the electric vehicle (EV) business of Chinese ride-hailing giant Didi Global and plans to launch a new brand code-named Mona in 2024. In a research note sent to investors earlier today, Deutsche Bank analyst Edison Yu's team shared their thoughts.

"Key to this deal, we believe XPeng gains greater volume/scale (targeting >100,000 incremental units per year) by getting access to Didi's vast network of 19 million drivers in China," the team wrote in the note.

Xpeng will issue class A ordinary shares to acquire the assets related to Didi's EV program. Didi will become a strategic shareholder of Xpeng with a lock-up period of 24 months after the initial closing, according to the company's announcement yesterday.

The first model of the Mona project will be built on Didi's existing in-development product to target the mass market segment at the RMB 150,000 ($20,580) price point.

Selling affordable cars profitably in China is notoriously difficult, and Xpeng's G3 and P5 have certainly experienced the pain firsthand, Yu's team noted.

Didi's primary focus on developing a low-cost mass-market EV wasn't far from completion, and Xpeng management sees promise in those efforts and believes it can now commercialize those designs using some of its own technology, the team said.

Perhaps more importantly, Xpeng gains access to Didi's large fleet of drivers, which can likely boost volume and scale, as well as garner support from its ecosystem through on-board advertising, and charging infrastructure sharing, the note said.

Scale is also a meaningful driver of cost savings, especially as it relates to component procurement power, Yu's team said.

The deal with Didi is Xpeng's second major transaction in the past two months.

On July 26, Xpeng announced that German auto giant Volkswagen would invest about $700 million in it, and in the initial phase of the partnership, the two companies plan to co-develop two Volkswagen-branded EV models for the Chinese market based on the Xpeng G9 platform.

Combined with Volkswagen, Didi unlocks another large volume funnel that Xpeng doesn't need to generate organically, Yu's team said.

Additionally, Xpeng emphasized that Didi will provide support from its mobility ecosystem for the Mona project, and that the new model and brand will be differentiated from Xpeng-branded products and the main brand.

Yu's team believes this makes sense by preventing brand dilution.

Competing vehicles will come primarily from GAC, and Changan, and to lesser extent the Japanese automakers on the gasoline side, the team added.

($1 = RMB 7.2879)

BREAKING: Xpeng to acquire Didi's EV business, plans to launch new brand codenamed 'Mona' in 2024