German automotive manufacturer Volkswagen Group has confirmed that it is going to invest hundreds of millions of dollars in China’s XPeng Motors Company Limited for joint effort to manufacture EVs for Chinese market.

Volkswagen Group owns a number of car brands, including Audi, Bentley, Ducati, Volkswagen, Porsche, and Lamborghini. The company announced its plan to invest millions of dollars in XPeng as part of its strategy to accelerate its shift from internal combustion engines (ICEs) to electric powertrains. The two companies will be co-developing EVs for the Chinese market.

The Legacy European manufacturer will invest $700 million for 4.99 per cent stake in XPeng. Through its partnership with XPeng, the German automaker wants to supplement its EV-dedicated MEB platform in China – the world’s largest car market. For the “long-term” collaboration with XPeng, a newly entity called Volkswagen China Technology Company (VCTC) has been formed.

According to Volkswagen Group, it is bolstering its position on electrification in China on the wings of collaborations between Audi and SAIC as well as today’s news of a “long-term cooperation” with XPeng Motors via a newly formed entity called Volkswagen China Technology Company (VCTC). The cooperations join VW’s existing joint venture with FAW founded over 30 years ago.

In the first phase of the partnership, Volkswagen and XPeng, will jointly develop and produce two VW-branded battery electric vehicles (BEVs) for the mid-size segment of the Chinese automobile market. The BEVs will reportedly sit atop XPeng’s EV-dedicated G9 platform and both will have some of the industry’s best advanced driver-assistance system (ADAS) software.

Ralf Brandstätter, Volkswagen Group’s board member for China, said in a statement that local partnerships are very important for the company’s ambitious ‘in China for China’ strategy. He went on to state that the company will continue to accelerate its expansion in China’s electric car market.

Speaking on the topic, Brandstätter added, “With XPeng, we now have another strong partner that is one of the leading manufacturers in China in key technology areas. In a competitive and dynamic market environment, we are leveraging the strengths of Volkswagen and our partners to create synergies to bring additional products to market faster.”

Volkswagen Group’s decision to invest in XPeng points to increasing collaborations between tested European automotive manufacturers and young Chinese EV makers. Just a few weeks back, luxury car brand Audi announced its plans to partner with Chinese brand SAIC Motors to co-develop EVs.