German legacy automaker Volkswagen and Chinese electric automaker XPeng announced that the first electric vehicle model they aim to co-develop is a sports utility vehicle (SUV). The two major players will apparently jointly source automotive parts to build the model.
Master agreement details
According to the press release, Volkswagen and XPeng officially entered a Master Agreement on Platform and Software strategic technical collaboration on February 28.
Under the agreement, the two major automakers announced plans to initiate a joint sourcing program for the platform and vehicle parts they both utilize in developing their first electric SUV. This strategy enables the partnership to leverage scale, resulting in lower costs.
The upcoming electric vehicle models under the partnership will carry the VW logo. However, it will ride on a co-developed platform based on XPeng’s G9 “Edward” technology.
“With the long-term vision of our strategic partnership, both parties contribute their best to the partnership. We have started to realize synergies through our Joint Sourcing Program. I firmly believe there is a lot of upside potential to this partnership that we can explore.”
Mr. Xiaopeng He, XPeng Chairman and CEO
VW-XPeng partnership
This recent development follows a partnership between Volkswagen and XPeng formed in July.
The German legacy brand acquired a 4.99% stock at $15/American Depositary Share (ADS) in XPeng for approximately $700 million. As part of the partnership, they seek to launch two new electric vehicle models by 2026.
“The fast finalisation of the Master Agreement after the strategic partnership announcement last year already shows the great potential of this collaboration. The two teams are working closely together with a clear goal: to combine the strengths of both parties to bring smart products onto the road for our customers.”
Volkswagen Group Board Member and China Chief Ralf Brandstatter said on Thursday
Push in the Chinese market
After losing to local brands amid the shift to electric vehicles, Volkswagen continues to catch up in the Chinese automotive market.
It contends that economies of scale from joint acquisition, along with design and engineering innovations, will substantially aid in cutting development time by over 30%.
“In the world’s largest and fastest growing EV market, speed is fundamental when it comes to tapping into promising market segments. To constantly increase our local portfolio, we are expanding our own development capacities in China.”
Volkswagen Group Board Member and China Chief Ralf Brandstatter said on Thursday
Volkswagen’s push in China is part of its strategy to reclaim its market share there. It lost its “best-selling car brand” in the world’s largest auto market to BYD in late 2022. This defeat is largely due to the growing shift to electric vehicles in China, while Volkswagen’s portfolio primarily consists of gas-powered models.
In response, VW announced plans to develop a new production platform for the Chinese market. Based on its modular “MEB” platform, it will feature local parts to produce cheaper entry-level models. In addition, it will allocate approximately 1 billion euros ($1.08 billion) to erecting a new EV development and procurement hub in Hefei City.
Volkswagen’s partnership with XPeng can potentially help the company understand the Chinese market and customers better, enabling them to deliver the appropriate models the local buyers would love. It can also potentially challenge Tesla Model Y’s dominance, considering that the Volkswagen-XPeng partnership aims to focus on electric SUVs. The partners have yet to disclose more details about the planned electric SUV.
