(Yicai) Feb. 6 -- Volkswagen Group will use its industrial cluster in Hefei, eastern Anhui province as the site for the development and manufacturing of the new energy vehicles that the German auto giant is co-developing with Chinese electric car startup Xpeng Motors, further strengthening Volkswagen’s R&D and production layout in the city, the Hefei government said recently.

The move reinforces the importance of the Hefei base as a key driver of Volkswagen’s innovation and development in China as well as a gathering place for the group’s key global technologies.

Volkswagen is linking arms with Xpeng to develop two mid-sized EVs under the Volkswagen brand for the China market, the Wolfsgang-based firm said last year. Volkswagen’s Hefei-based unit Volkswagen China Technology will be responsible for the R&D of the cars and the autos are expected to hit the market in 2026. As part of the agreement, Volkswagen invested USD700 million to take a 4.99 percent stake in the Guangzhou-based EV startup.

Volkswagen is forming a highly efficient intelligent connected vehicle cluster in Hefei, made up of its majority-owned joint venture Volkswagen Anhui Automotive, Volkswagen China Technology, which is the group’s biggest R&D base outside of Germany, and battery system plant Volkswagen Group Components Anhui.

Volkswagen has established a complete automotive industrial chain in Hefei, spanning R&D, supplier networks, production, online sales and after-sales services, said Erwin Gabardi, chief executive officer of Volkswagen Anhui. Volkswagen will increase its production capacity in Hefei and leverage the Hefei industrial cluster to develop smart electric vehicles tailored for the Chinese market.

Editor: Kim Taylor