Chinese EV startup XPeng is at the center of major trade secret disputes with Apple and Tesla

Last summer, a former Apple employee was charged by the FBI for allegedly stealing trade secrets related to the company’s secretive self-driving car project. This week, Tesla sued a former employee for allegedly stealing trade secrets related to Autopilot. While they happened many months apart, both sets of allegations have something in common: the employees were each allegedly trying to get information to a Chinese electric car startup called Xiaopeng Motors.

Xiaopeng Motors, or XPeng, isn’t well-known in the West, but has rapidly grown its profile in China despite an overly crowded field in the EV startup space. Now it finds itself close to the heart of these two major trade secret dustups. So it’s worth taking a step back and getting a better understanding of just exactly what the company is all about.

What is XPeng?

China spent the last few decades relying mostly on state-owned automakers to build up its car industry, according to Michael Dunne, who runs automotive consulting firm ZoZo Go. But that all changed two or three years ago when the Chinese government started encouraging major tech investors to enter the automotive space, he says, which added “a new and fresh dimension to China’s auto industry.” Well-funded tech giants like Tencent and Alibaba were seen as a potential answer to China’s ambitions to build world-class vehicles, he says.

XPeng is backed by Chinese tech giant Alibaba

It was out of this shift that XPeng was born. The company was founded in 2014 as Guangzhou Xiaopeng Motors Technology by Henry Xia and Tao He, and financed (and now run by) mobile internet entrepreneur He Xiaopeng. It goes by a number of different names, like Xiaopeng Motors (the Chinese holding company), or XMotors (the US subsidiary), but is most commonly referred to in the industry by its marketing brand, XPeng.

He Xiaopeng is known for having sold a mobile browser company called UCWeb to Chinese e-commerce behemoth Alibaba in what was, at the time, the biggest internet merger in China’s history. Alibaba then led a $350 million funding round (which also included Foxconn) for He’s next project, XPeng.

XPeng debuted its first electric car at CES 2018 — an all-electric SUV called the G3 that looks an awful lot like Tesla’s Model X, both inside and out. It’s shaped like the Model X, and it also features a very similar cockpit layout, with a giant portrait-oriented touchscreen tablet embedded in the dashboard. The car recently started shipping to the first owners.

The connection to Tesla

Those similarities are not accidental. “Tesla has created a huge impact on me,” He said in a 2018 interview with Quartz. In fact, He said that one of the reasons he founded XPeng was because Tesla open-sourced its patents in 2014. The company has reportedly gone as far as tearing apart Tesla’s cars to get a better understanding of how they’re built.

Tesla has noticed. In the lawsuit Tesla filed against its former employee this week, it acknowledged that XPeng has “reportedly designed its vehicles around Tesla’s open-source patents and has transparently imitated Tesla’s design, technology, and even its business model,” including the fact that the Chinese startup is building out a network of fast chargers and selling directly to consumers.

The company’s founder has often talked about Tesla’s inspiration

Tesla also pointed out in the lawsuit that XPeng introduced “Autopilot-like” software, which the company calls “X-Pilot,” and that the Chinese startup employs “at least five” former Autopilot employees (including the one being sued).

While Tesla encouraged other companies to use its patented EV technology, Autopilot was never really part of the deal. Acquiring and using the confidential source code that powers Autopilot would “give a competitor an enormous advantage in attempting to replicate Tesla’s current self-driving technology, and in anticipating future developments,” the company wrote in this week’s lawsuit.

The connection to Apple

There’s less of a direct connection to Apple beyond the employee who was charged last summer. But Chinese startups taking on talent from Silicon Valley — Chinese nationals or not — has been a common theme over the last few years, according to James Andrew Lewis, senior fellow at the Center for Strategic and International Studies, a bipartisan nonprofit policy research organization. And sometimes, he says, they bring more than just their polished skills with them.

“It is a common practice for Chinese employees to learn some useful skills, and whether they want to go back home, or maybe they want to retire, take some sort of commercial or technological secret and bring it back to China,” Lewis says. “This has been happening for a couple decades. It’s par for the course.”

“It’s par for the course.”

Last summer, federal prosecutors arrested and charged former Apple employee Xiaolang Zhang with stealing circuit boards and more than 40GB of data related to the company’s secretive self-driving car project. Zhang had told Apple and federal investigators that he was trying get a job at XPeng, but it was initially unclear if he ever did before he was arrested. When XPeng eventually responded to the charges, though, it admitted that Zhang had started a job with the company.

Is XPeng being directly accused of stealing trade secrets?

No. The former Apple and Tesla employees are the ones accused in the respective charges and lawsuit, not the company itself.

There are a few important distinctions between the two cases, too. Zhang, who worked for Apple in California from December 2015 until May 2018, was charged in federal court by the FBI last summer for alleged trade secret theft. Guangzhi Cao worked for Tesla in California from April 2017 to January 2019, and was sued in California civil court this week. He has not been criminally charged with trade secret theft.

XPeng isn’t named as a defendant in Tesla’s lawsuit, and it wasn’t charged by the FBI

A key difference with Cao’s case is that he is, as of this writing, still employed by XPeng. Tesla alleges that he stole hundreds of thousands of files and directories containing Autopilot source code while he was still a Tesla employee, and that XPeng could benefit from that theft — but only Cao is named as a defendant.

For its part XPeng said in a statement to The Verge it “fully respects any third-party’s intellectual property rights and confidential information,” and that it has started an internal investigation into Cao’s alleged theft. XPeng said it “has by no means caused or attempted to cause Mr. Cao to misappropriate trade secrets, confidential and proprietary information of Tesla,” and that it was “not aware of any alleged misconduct by Mr. Cao.”

It offered a similar statement after Zhang’s arrest last year. XPeng “attaches great importance to protecting intellectual property rights and has always regarded compliance as the basic principle for all employees,” the company wrote in a statement. “Zhang signed the intellectual property compliance documents on his first day at the company in early May. Records show that he hasn’t reported any sensitive or violating information to XPeng.”

The EV startup denied any involvement and says now that it assisted in the investigation. The criminal case against Zhang is still progressing in court.

Do these cases have anything to do with numerous accusations of Chinese government-sponsored attacks on US tech companies?

Not directly, according to Dunne. It’s likely more a result of the conditions and pressure of the booming (and highly competitive) Chinese automotive market.

Three years ago, Dunne says, it was “cool and very advanced to build an electric vehicle like Tesla.” But founders like He quickly realized that electrification is not a unique enough technology to differentiate from the dozens, or even hundreds of automotive companies sprouting in China, Dunne says.

Advanced technologies like autonomy could help distinguish a player like XPeng from the rest. “So they find themselves in the hunt for technologies they haven’t been working on, and ones they’d have to either acquire or develop quickly,” Dunne says. “There’s an urgency” that could explain why some companies take shortcuts, including stealing intellectual property, he says.

The urgency to differentiate in a crowded field puts pressure on startups to take shortcuts

Lewis agrees. “When Beijing says ‘everybody should start making electric cars,’ you see a lot of companies eager to gain favor. One of the ways to do that is to leap ahead, and one way to leap ahead is to recruit people from American companies who bring skills or knowledge that they can use,” he says.

Dunne also says that, while XPeng and its competition are, on paper, “independent actors scrambling to compete in an intensely competitive and increasingly crowded arena,” it’s important to remember that it’s hard to truly operate fully removed from the Chinese government. “China being China, in order for them to secure funding and loans, ultimately there’s a trail back to the government,” he says. “Local government or provincial government would direct state banks to make loans to these types of companies.”

Knowing what we know about the Chinese government, which has sponsored decades-spanning “economic espionage” attacks that lifted crucial intellectual property and confidential information from major tech companies, government entities and contractors, it’s not hard to imagine Beijing encouraging this behavior, or at least turning a blind eye. “The Chinese government isn’t always eager to arrest people who bring valuable technology back to the motherland,” Lewis says.

Update March 24th, 12:15PM ET: Added clarifying information from XPeng about its founders and company names throughout.

source : http://www.theverge.com

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