German automaker Volkswagen and Chinese EV maker Xpeng have said their first joint vehicle will be a SUV.

The partners announced this week they had entered into a Master Agreement on strategic technical collaboration to tackle the Chinese market.

Last year VW said it would take a 5% stake in Xpeng, with two EVs to be sold as VW models in China by 2026. The value of the German automaker’s stake was around US$700 million.

In its release, VW said the two parties have entered into a joint sourcing program for common vehicle and platform parts used by both partners to reduce cost.

It was also cited that collaboration in development significantly reduces time to market by more than 30%.

Ralf Brandstätter, Board Member of Volkswagen AG for China, said: “To constantly increase our local portfolio, we are expanding our own development capacities in China. This increases the economic competitiveness in a highly price sensitive market environment significantly.”

Xiaopeng He, Chairman and CEO of XPENG, said: “We have started to realise synergies through our Joint Sourcing Program. I firmly believe there is a lot of upside potential to this partnership that we can explore.

Stefan Mecha, CEO of VW’s brand in China confirmed that both EVs would be on the road by 2026.