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Volkswagen teams up with Xpeng to develop 2 electric cars as it hopes to regain lost ground in the world's largest EV market

Volkswagen Group has signed an agreement with Chinese electric car maker Xpeng to jointly develop two mid-sized battery-powered vehicles for the highly competitive mainland market in 2026, the companies announced on Thursday.

The new electric vehicles (EVs), bearing the VW badge, will be designed and built based on joint purchasing activities and sharing of technologies that will reduce the development time by more than 30 per cent, the German carmaker said in a statement.

The agreement comes after VW completed a US$700 million investment to obtain a 4.99 per cent stake in Guangzhou-based Xpeng, an EV builder well known for its autonomous driving technology, last year.

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"In the world's largest and fastest-growing EV market, speed is fundamental when it comes to tapping into promising market segments," Volkswagen's China chief executive Ralf Brandsatter said in the statement.

"Through the partnership with Xpeng, we are not only accelerating development times, but also boosting efficiency and optimising cost structures. This increases the economic competitiveness in a highly price-sensitive market environment significantly."

The German carmaker added in the statement that its supply chain would be tapped to provide cost advantages, and the first model to hit the mainland market would be an intelligent sport-utility vehicle (SUV).

Global marques including VW and General Motors, once the dominant players in China's automotive industry, are now struggling to keep up with the mainland's electric car makers as their petrol-powered line-ups lose ground in the world's largest market.

VW delivered 3.24 million units in mainland China and Hong Kong last year, a relatively weak 1.2 per cent year-on-year increase in a market that grew 5.6 per cent overall.

The company sold 23.2 per cent more pure-electric cars in mainland China and Hong Kong than it did in 2022, but the total was only 191,800. Meanwhile, the mainland EV market jumped 37 per cent last year, with deliveries of pure-electric and plug-in hybrid cars hitting 8.9 million units.

Xpeng handed the keys to 141,601 fully electric cars to mainland customers in 2023, up 17 per cent on the year.

"With the long-term vision of our strategic partnership, both parties contribute their best to the partnership," He Xiaopeng, co-founder and CEO of Xpeng, said in a separate statement on Thursday.

"We have started to realise synergies through our joint sourcing programme. I firmly believe there is a lot of upside potential to this partnership that we can explore."

China is the world's largest car and EV market, with sales of battery-powered vehicles accounting for about 60 per cent of the global total.

In mid-February, the CEO told his 4,000 employees in a letter that Xpeng will spend a record 3.5 billion yuan (US$486.5 million) this year on ­the development of intelligent cars, as it ups its game in the battle for supremacy in the future of mobility.

The VW-Xpeng tie-up adds to evidence of China's increasing influence in the global EV industry.

Over the past four decades, global car giants like VW have charged their Chinese partners to license their technology.

On Monday, Xpeng's domestic rival Nio announced that it had signed a deal to license its technology to Forseven, a unit of Abu Dhabi government fund CYVN Holdings, allowing the Middle East EV start-up to use Nio's technical information, know-how, software and intellectual property for the research and development, manufacturing and distribution of vehicles.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.