Xpeng and Volkswagen will initially co-develop two B-segment BEVs sold under the Volkswagen brand in the Chinese market using Xpeng's G9 platform and ADAS software, with production expected to begin in 2026.

German auto giant Volkswagen is investing in Xpeng and will co-develop electric vehicles (EVs) with it as it steps up its bet on the Chinese market.

Volkswagen has signed an agreement with Xpeng to invest about $700 million in the Chinese EV maker, acquiring about 4.99 percent of the latter's equity at a price of $15 per ADS. Upon completion of the deal, Volkswagen will gain an observer seat on Xpeng's board of directors.

In the initial phase of the partnership, the two companies plan to co-develop two Volkswagen-branded EV models for China's mid-size car market. The two new vehicles will complement Volkswagen's MEB platform-based portfolio and are scheduled to hit the market in 2026.

Separately, Xpeng's statement said it and Volkswagen will leverage their respective core competencies, the Xpeng G9 platform, and Connectivity and ADAS software to co-develop two B-segment battery electric vehicles (BEVs) marketed in China under the Volkswagen brand.

In addition, the two companies will explore additional potential strategic collaborations in a number of areas, including future EV platforms, software technology and supply chain, Xpeng said.

The G9 is Xpeng's flagship SUV, released on September 21, 2022. The model's confusing pricing system at the time of its launch caused a lot of confusion and affected its sales performance in the following months.