German auto giant Volkswagen is to cease vehicle production at its Dresden facility and convert the site into an innovation campus.

The initiative brings together Volkswagen Group, the State of Saxony and the Technical University of Dresden (TU Dresden).

The plant, known as the Transparent Factory, will be repurposed to focus on AI, robotics, microelectronics and chip design.

Under the plan, TU Dresden is to take over nearly half of the space.

Volkswagen and the university plan to invest more than €50m ($58.3m) over the next seven years.

Volkswagen passenger cars CEO Thomas Schäfer said: "We have not taken the decision lightly to end vehicle production in the Transparent Factory after more than 20 years.

"But it was urgently necessary from a business point of view.”

According to Schäfer, the parties have signed a memorandum of understanding (MoU) on a viable concept for the future.

The Transparent Factory originally produced the Phaeton model until 2016.

That year, Volkswagen announced the reconfiguration of the plant to produce the e-Golf.

Series production of the VW ID.3 in Dresden is scheduled to end in mid‑December.

Around 230 employees will initially remain at the Dresden location.

For positions that are not maintained in the new structure, alternative roles or other arrangements will be provided, the company said.

The site is expected to continue to function as a delivery hub for new vehicles even after production ceases.

In September, Volkswagen unveiled a substantial investment plan, committing up to €1bn towards the AI expansion by 2030, at the IAA Mobility trade fair in Munich, Germany.

By leveraging AI throughout its operations, the company expects to realise efficiency gains and cost savings of up to €4bn by 2035.