HONG KONG — Chinese EV maker Xpeng said it would buy Didi’s electric car development business in a deal worth up to $744 million that will see it supply vehicles to the ride-hailing giant, boosting production and cutting costs.

The all-stock deal with Didi calls for Xpeng to launch an A-class model next year under a new brand, in a project called MONA, which will be priced in the 150,000 yuan ($20,000) price tier. Xpeng’s current offerings are mostly priced above 200,000 yuan.

The deal comes after Xpeng and Volkswagen Group in July announced a partnership in which VW will invest $700 million in Xpeng and the two companies jointly develop electric vehicles in China.

“As an EV startup, we are not as skilled as established automakers like Volkswagen in terms of scale and cost management in the 150,000 yuan segment … the partnership with Didi will ensure better-than-expected initial scale for the car and achieve a combination of goals in innovation and supply chain management,” Xpeng CEO He Xiaopeng told Chinese media, according to a company-provided transcript.

Didi’s development of an EV car had invited speculation that it had ambitions to shift into manufacturing, but the announcement — Didi’s first major transaction since its apps were restored to China app stores in January after a regulatory crackdown on its business — suggests the company is moving in another direction.

Slower demand and excess manufacturing capacity in China’s EV industry have intensified competition and made it hard for relative newcomers such as Didi to enter the market. Smartphone maker Xiaomi only recently won a regulatory nod to manufacture EVs — two years after first announcing such plans, sources have said.

Didi’s decision to partner with Xpeng over other EV makers likely marked recognition of Xpeng’s technology and the deal will benefit Xpeng as the sedan Didi has developed would be suitable for selling to other businesses, said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.

“It looks like a very good strategic move,” he said.

Under the deal, Didi will gain around 3.25 percent of Xpeng, with the EV maker issuing shares at HK$64.03 each, worth $474 million in total. The offer price represents a 1.7 percent discount to its closing price on Friday.

If vehicle delivery targets are fulfilled, Didi’s stake could climb to 5.26 percent for a deal value of up to $744 million.

Exploring robotaxis

Didi said the two companies will explore strategic cooperation in a number of areas, including marketing, financial and insurance services.

Other possible areas of cooperation include charging, robotaxis and jointly developing an international market. Didi has been working with Chinese carmakers to develop robotaxis which it aims to put in service by 2025.

Xpeng, which is also listed in New York, has been grappling with expanding losses and slumping sales amid an industry-wide price war started by Tesla in January. Its U.S.-listed shares were up 4 percent in pre-market trade.

Xpeng’s He said in April that he expected to see only eight automakers survive in the Chinese auto market by 2030. That compares with 65 auto manufacturers currently.