Volkswagen XPeng partnership: German automaker Volkswagen and its Chinese electric vehicle (EV) partner XPeng announced on Thursday that their first jointly developed vehicle will be an electric SUV, marking a significant milestone in their collaboration.

According to a "master agreement" for platform and software collaboration, the two automakers will commence a joint sourcing programme for platform and vehicle parts, leveraging their combined scale to reduce costs.

The partnership, initiated in July with Volkswagen's acquisition of a 4.99 per cent stake in XPeng for approximately $700 million, aims to launch two EV models by 2026. With the purchase finalised in December, the collaboration has now progressed to the next phase of jointly developing vehicles.

Ralf Brandstatter, Volkswagen Group board member and China chief, stressed the importance of speed in the rapidly expanding EV market, highlighting the partnership's ability to accelerate development processes. He noted that economies of scale from joint purchasing, coupled with innovations in design and engineering, will significantly reduce development time.

Cars resulting from this collaboration will bear the VW logo but will be built on a jointly developed platform based on XPeng's G9 "Edward" technology. This strategy enables Volkswagen to leverage XPeng's expertise in EV technology while strengthening its presence in the Chinese market, where it aims to regain lost market share.

The move comes as Volkswagen faces intensified competition in China, where local EV manufacturers like BYD have gained traction. In response, Volkswagen is ramping up efforts to transition to EVs, including the development of new manufacturing platforms and investment in local infrastructure.

Despite a recent downturn in China's new energy vehicle sales, characterised by a 38.8 per cent decline in January, both Volkswagen and XPeng remain committed to the long-term growth potential of the EV market. While Volkswagen focuses on cost reduction and localisation efforts, XPeng is doubling down on investments in talent and technology to navigate the competitive landscape.

(With Reuters inputs.)