Volkswagen has signed an agreement with Chinese electric vehicle startup XPeng on strategic technical collaboration to jointly develop two intelligent connected vehicle models for the Chinese market, Volkswagen Group China said Thursday.

The two models, slated to hit the market in 2026, will be equipped with state-of-the-art software and hardware, offering Chinese customers an intuitive, connected digital experience and advanced automated driving functions.

According to the agreement, the two parties have entered into a joint procurement program for common vehicle and platform parts. Through joint procurement and the use of innovative technologies during the design and engineering phase, the development time for these two electric vehicle models will be reduced by over 30 percent.

As Volkswagen's largest development center outside Germany, Volkswagen China Technology Company in Hefei, capital of east China's Anhui Province, is acting as a central interface to ensure the best possible synergies of the two parties, according to the agreement.

"In the world's largest and fastest-growing EV market, speed is fundamental when it comes to tapping into promising market segments. Through the partnership with XPeng, we are not only accelerating development times but also boosting efficiency and optimizing cost structures. This increases the economic competitiveness in a highly price-sensitive market environment significantly," said Ralf Brandstaetter, chairman and CEO of Volkswagen Group China.

Volkswagen announced a partnership with XPeng in July 2023 and completed the acquisition of shares amounting to around 4.99 percent of the total issued and outstanding share capital of XPeng in December last year.