Volkswagen Group has taken a 5 percent stake worth $700 million in EV startup XPeng in a surprise move that's part of the German company's efforts to strengthen its position on the Chinese car market.

In addition to the XPeng deal, Volkswagen Group has released more details on the cooperation deal between Audi and SAIC. The automaker says the goal with the two deals is to "swiftly tap into new customer and market segments" in order to leverage the potential of China's fast-growing e-mobility market.

As part of the Volkswagen brand's technological framework agreement with XPeng, the two companies will initially jointly develop two VW brand mid-size electric models for the Chinese market. The EVs will supplement Volkswagen's MEB product portfolio and are to be launched in 2026 in China.

As part of the close and long-term strategic cooperation, the Volkswagen Group said it would invest approximately $700 million in XPeng, which is equivalent to a 4.99 percent stake at $15 per ADS, where 1 ADS (American Depositary Share) represents 2 Class A Shares.

Volkswagen Group will become an XPeng shareholder by way of a capital increase, and will hold a seat as an observer on the XPeng board of directors.

"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. In doing so, we focus on the specific needs of our customers in China. At the same time, we want to significantly optimize development and procurement costs."

Ralf Brandstätter, Volkswagen AG Board Member for China

Gallery: 2023 XPeng G6

As for Audi's deal with SAIC Motor, the two parties have signed a strategic memorandum to further expand existing cooperation. This will include joint development activities that will extend Audi's portfolio of fully connected electric vehicles on offer in the premium segment “swiftly and efficiently.”

The cooperation will start with electric models in a segment where Audi does not as yet have a presence in China. The jointly developed EVs will feature state-of-the-art software and hardware, offering Chinese customers an intuitive, connected digital experience.

"Following on from the first two successful years of cooperation, we are now strengthening our long-term commitment to SAIC. Our aim is to jointly develop next-generation premium ICV swiftly and efficiently 'in China for China.' Even closer cooperation with a local partner such as SAIC supports Audi's ambition to create a premium market segment for all-electric and fully connected cars in China."

Jürgen Rittersberger, Member of the Board of Management of AUDI AG responsible for Finance, IT and Legal Affairs

Both agreements also include a planned, future joint development of new local platforms for the next generation of intelligent, fully connected vehicles (ICV). This will lead to a further expansion of the VW Group's product range in China "in particularly promising customer and market segments."

Volkswagen said that details of cooperation on future e-platform are the subject of further negotiations between Volkswagen and its partners. The responsibility for the development of new Volkswagen models will be assumed by the recently founded Volkswagen Group China Technology Company (VCTC), which will work together with XPeng.