German automaker Volkswagen (VOWG_p.DE) and Chinese electric vehicle (EV) partner XPeng (9868.HK) on Thursday said the first car they plan to develop together will be an SUV for which they will jointly source parts.
Under a "master agreement" for platform and software collaboration, the automakers in a statement said they will start a joint sourcing program for platform and vehicle parts used by both partners, leveraging scale to reduce cost.
The announcement marks a step forward in a partnership forged in July when Volkswagen said it would buy 4.99% of Xpeng for around $700 million with plans to jointly launch two EV models by 2026. The purchase was completed in December.
Volkswagen, which is trying to regain market share in China lost to local rivals, said economies of scale from joint purchasing, combined with innovations in design and engineering phases, will slash development time by more than 30%.
"In the world's largest and fastest growing EV market, speed is fundamental," Volkswagen Group board member and China chief Ralf Brandstatter said in Thursday's statement.
Cars produced through the partnership will carry the VW logo but feature a jointly developed platform based on the G9 "Edward" technology of the decade-old startup.
Volkswagen ceded its title of best-selling car brand in China to local EV manufacturer BYD (002594.SZ) in late 2022, as competition with EV makers combined with the storied automaker's reliance on petrol vehicles whose sales have been declining.
Last year, Volkswagen said it would develop another manufacturing platform in China derived from its modular "MEB" platform for entry-level EVs and use more local components to lower cost.
China's new energy vehicle sales fell 38.8% in January versus the previous month, the first such drop since August, as a renewed discounting push led by U.S. EV maker Tesla (TSLA.O) failed to propel demand.
While many EV makers are racing to cut costs, Xpeng this month said it would hire 4,000 people this year and invest millions of dollars in artificial intelligence as it seeks to survive what it described as a "bloody sea" of competition.
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