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Foxconn Chairman Terry Gou, right, gives Xiaopeng's SUV a test drive.
Auto Industry Upheaval

Alibaba-backed Xpeng emerges as China's answer to Tesla

EV startup chases market leader with feature-rich SUV due out this year

YU NAKAMURA, Nikkei staff writer | China

GUANGZHOU -- Inside a cluster of startups on the outskirts of the city, one of China's most talked-about automotive companies is looking to move to the front of the pack.

Xiaopeng Motors has emerged out of a field of dozens of would-be Teslas and is chasing the U.S. electric car leader with a feature-rich sport utility vehicle due out later this year.

Founded in 2014, Xiaopeng -- styled Xpeng in English -- now has around 1,000 employees working at its offices in Guangzhou Science City. The company's first vehicle, a compact car, had a limited release last October.

Xpeng plans to complete a factory by mid-2019 that can produce 200,000 vehicles a year, and aims to be "the leader in this new industry," 34-year-old president Xia Heng told The Nikkei.

Even among electric-vehicle makers, Xpeng is a latecomer to China's auto market, the biggest and most competitive in the world. But that was by choice. Before starting Xpeng with co-founder He Xiaopeng, Xia oversaw joint electric vehicle development by China's Guangzhou Automobile Group and partner Toyota Motor, exposing him to the Japanese automaker's technology.

With the auto sector becoming increasingly tech-driven, Xia said he felt "startups with strength in IT have a chance to succeed." 

Xiaopeng Motors President Xia Heng.

For years, established automakers were wary of putting information technology into their vehicles. As a result, the industry has little technology for connected cars and electric vehicles to show for itself, leaving room for outsiders to move in.

One company has exploited that opening better than any other. "Tesla had a major impact'" on Xpeng, Xia said. Though Elon Musk's car company has yet to turn a full-year profit, it eclipsed General Motors in market capitalization last year to become the most valuable U.S. automaker.

Xpeng is not alone in aiming high. "When we started in 2014, there were 300 companies hoping to become the Tesla of China," Xia said. "Now, there are 60."

Hardly any of these survivors have factories of their own. But the American automaker's stock market success has nevertheless stoked an appetite for investment in electric vehicles among China's big, well-financed tech groups, according to Tang Jin, a Chinese auto market analyst at Japan's Mizuho Bank. The country's three internet leaders, Alibaba Group Holding, Baidu and Tencent Holdings, have invested heavily in local electric-vehicle startups, hoping to secure a place for their own technologies in the future of transportation.

Xpeng has raised more than $700 million in all, mostly from the IT industry. Alibaba has taken a stake in the company, while prominent tech executives, including Lei Jun, CEO of smartphone maker Xiaomi, and Wang Gaofei, CEO of social media company Weibo, have been investors from the beginning. Xpeng recently lined up a capital infusion from Taiwanese contract manufacturer Hon Hai Precision Industry, or Foxconn, and received a visit from its Chairman Terry Gou.

"Only 10 electric vehicle startups will clear the financial and technological hurdles to reach mass production," Xia predicts. "And only three are likely to become profitable and still be around in five years." 

Tencent-backed Nio, formerly known as NextEV, and Baidu-backed WM Motor also aim to be China's electric vehicle leader, having both unveiled their own electric SUVs. 

Xia says Xpeng will use its strength in software "to make cars into 'smart' vehicles." Self-driving capacity is one focus. "We hired our head of automated driving away from Tesla," and "plan to increase our pool of automated driving engineers by a factor of six to 600 this year," he said.

Among the places Xpeng is hunting for talent are Silicon Valley and Tokyo, where it will hold a job fair in March. The company already employs designers formerly with Mazda Motor

Xpeng is also working to equip its vehicles with voice recognition. Drivers will be able to ask for information on the weather and nearby attractions, choose music and adjust seat position and air conditioning with voice commands.

"Startups rich in information technology and software have an advantage when it comes to making their ideas reality," helping them take on established automakers, Xia said. "It's fine to leave the hardware to someone else."

"Our goal is to be less a maker of electric vehicles than a producer of new kinds of cars that are more fun to drive than anything before," he said.

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