VOLKSWAGEN on Wednesday (Jul 26) announced two agreements aimed at strengthening the German automaker’s position in the Chinese market, including a partnership between the Volkswagen brand and China’s Xpeng to build two new models.

Volkswagen and Xpeng agreed to develop the new VW brand models on the MEB platform at Volkswagen’s new technology centre in Hefei. They will be rolled out from 2026 and feature Xpeng software on autonomous driving.

As the electric vehicle (EV) market grows faster than expected, the cars will target the middle-class segment, a space not yet covered by Volkswagen’s planned vehicle line-up in China.

One of the smaller players in China’s EV space, the startup’s sales dropped by 40 per cent in the first half, but is betting on its newly launched G6 crossover, priced 20 per cent below Tesla’s model Y and equipped with the company’s latest software, to boost growth.

Xpeng’s XNGP Advanced Driver Assistance System (ADAS), upgraded in March this year, is similar to Tesla’s Full Self-Driving (FSD) technology that the US automaker rolled out four years ago but has yet to make available in China.

Volkswagen will invest around US$700 million in Xpeng and purchase a 4.99 per cent stake in the company, the latest in a string of partnerships by the carmaker with Chinese firms that have included battery-maker Gotion and technology firm Horizon Robotics.

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The automaker also announced plans for further cooperation between its subsidiary Audi and Chinese heavyweight SAIC . It said the plans included joint development of models and a new platform, but did not give details or a timeline.

The models would be in a segment Audi has yet to broach in China, the company said, as the premium brand plays catch-up in the Chinese electric vehicle market, where its performance has so far been weak. REUTERS