A deal between a top Chinese electric-car maker and a local ride-hailing giant may seem an odd way to address losses at both companies. But Xpeng’s decision to acquire Didi’s electric car development business means the pair both now have a shot at profitability. 

For Didi, the deal puts an end to years of investment in its smart-car unit. It will receive about 3.25 per cent of Xpeng shares in exchange, worth as much as $744mn. Xpeng will use the acquisition to launch an electric A-class smart-car model next year under a new brand called MONA. Didi could increase its stake in Xpeng if the new brand hits a target of 100,000 deliveries for two consecutive years.

That is not an impossible target. Electric cars are expected to account for a third of all Chinese cars sold this year. Xpeng’s total sales could cover that figure in about three quarters. Local peer BYD sells about that number of cars every month.