Volkswagen said it will produce two Volkswagen-branded models co-developed with Xpeng in Hefei, the first of which is scheduled to go into production in 2026.

(Image credit: CnEVPost)

Volkswagen will invest 2.5 billion euros ($2.68 billion) to further expand its production and innovation center in Hefei, Anhui province, and strengthen its local research and development capabilities, the German auto giant announced today.

As one of the key initiatives of its "In China, for China" strategy, Volkswagen is accelerating the pace of innovation, it said in a statement.

Volkswagen said it will produce two Volkswagen-branded models co-developed with Xpeng (NYSE: XPEV) in Hefei, the first of which will be a mid-size SUV scheduled to go into production in 2026.

On July 26, 2023, Volkswagen announced that it would invest about $700 million to acquire an approximate 4.99 percent stake in Xpeng, and that the two companies plan to co-develop two Volkswagen-branded EV models for the mid-size vehicle market in China.

Xpeng and Volkswagen will utilize their respective core competencies, the Xpeng G9 platform, as well as connectivity and ADAS (Advanced Driver Assistance System) software to build the two models.

On February 29, Xpeng said it signed a new agreement with Volkswagen to accelerate the development of joint models and reduce costs through joint sourcing.

The new models will accelerate the electrification of Volkswagen's product matrix in China, with the group's brands offering more than 30 purely electric models in the market by 2030, it said.

Volkswagen is developing its first EV architecture specifically for the Chinese market, the China Main Platform (CMP), on which no fewer than four EV models for the compact entry market will be developed from 2026, according to the company.

The production and innovation center in Hefei will allow new technologies to be brought to market at a rate that will increase by about 30 percent, Ralf Brandstaetter, Volkswagen Group's management board member for China, said.

The continued investment in the center reflects Volkswagen's determination to rapidly strengthen its local innovation capabilities, he said.

Volkswagen kicked off its electrification strategy in the Chinese market in 2017 and set up a joint venture with Anhui Jianghuai Automobile Group (JAC) in the same year.

The company was initially called Jianghuai Volkswagen Automobile and at the end of 2020, Volkswagen increased its stake in the company to 75 percent and had the company renamed Volkswagen Anhui.

(1 $= 0.9318 EUR)

VW Anhui files for 1st model ID.UNYX