Xpeng saw its biggest one-day gain in early Hong Kong trading since the Volkswagen deal late last month.

Chinese electric vehicle (EV) maker Xpeng (NYSE: XPEV) surged in early Hong Kong trading after announcing it would buy the EV business of Chinese ride-hailing giant Didi Global.

At press time, Xpeng rose 14.36 percent to HK$74.45 in Hong Kong, hitting a new high since August 7. The gain was the highest in a single day since July 27.

Earlier today, Xpeng announced that it had agreed to acquire the assets of Didi's smart car development business, covering the research and development, design and engineering of new smart electric vehicles, for up to HK$5.835 billion ($744 million).

Xpeng will issue class A ordinary shares, representing about 3.25 percent of the company's issued share capital upon completion, to acquire the assets related to Didi's EV program.

Didi will become a strategic shareholder in Xpeng, which plans to launch a new EV brand in 2024 based on the partnership and is currently developing the project name "Mona".

Xpeng will leverage the new brand to expand into the RMB 150,000 ($20,630) price point of the mass market segment, and the "Mona" project will accelerate the company's production and sales growth and help realize greater economies of scale, the company said.

The first model in the "Mona" program will be an A-class smart electric model that will launch in 2024. The new model and brand will be distinct from Xpeng's branded products and main brand.

Xpeng's agreement with Didi will establish performance incentives based on the volume production of "Mona" and Didi's achievement of sales targets, and Didi will be entitled to receive share-based incentives.

Xpeng will be the first automotive manufacturer to be fully supported by the Didi ecosystem. The two companies will explore strategic cooperation in a number of areas including marketing, financial and insurance services, charging, Robotaxi, and international market expansion.

This is Xpeng's second major deal in the past two months.

On July 26, Xpeng announced that German automotive giant Volkswagen would invest about $700 million in it, acquiring about 4.99 percent of it.

In the initial phase of the partnership, the two companies plan to co-develop two Volkswagen-branded electric models based on the Xpeng G9 platform 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.

However, it's worth noting that as of Friday, Xpeng stock had completely retraced all of its gains since the deal with Volkswagen was announced.

"Xpeng stock has given up its entire post-VW announcement rally, suggesting to us that markets are missing the forest for the trees," Deutsche Bank analyst Edison Yu's team said in an August 21 research note sent to investors.

Xpeng's deal with Volkswagen provides validation of its technology stack and should start generating recurring high-margin revenue as early as next year, the team said.

($1 = RMB 7.2709)

BREAKING: Xpeng to acquire Didi's EV business, plans to launch new brand codenamed 'Mona' in 2024