Volkswagen takes 5% stake in Xpeng as part of Chinese EV deal

VW Group announced Wednesday a pair of deals with Chinese automakers aimed at shoring up sales in China.

The German automaker said it will invest $700 million into Chinese automaker Xpeng as part of a deal to jointly develop and produce two mid-sized EVs for China. Volkswagen will acquire a 4.99% stake in Xpeng, under the agreement.

The new battery-electric vehicles will be produced at VW’s new development, innovation and procurement center in Hefei and sold in China under the Volkswagen brand. Earlier this year, VW Group announced plans to invest 1 billion euros ($1.1 billion) into the facility, called 100%TechCo., in an attempt to respond to China’s fast-changing consumer needs.

The EVs will have DNA from each automaker. The vehicles will be based off of Xpeng’s flagship G9 SUV. The connectivity and advanced driver assistance system software, which is often compared to Tesla’s FSD system, will also come from Xpeng. The models are expected to start production in 2026, according to Xpeng.

In a separate agreement, which was also announced Wednesday, VW brand Audi said it’s expanding its partnership with SAIC to produce luxury EVs for the Chinese market. The companies plan to develop a new platform for premium EVs. The company didn’t announce any other details, including when these EVs might hit the marketplace.

Both deals come as VW has seen sales fall in China — one of its most important markets — as EV leaders Tesla and BYD roar ahead.