Shares of Chinese electric car company XPeng (NYSE: XPEV) jumped 8% through 10:25 a.m. ET on Thursday after the company announced it has entered into a "Master Agreement on Strategic Technical Collaboration and Joint Sourcing" with German car giant .

The tie-up allies a struggling Chinese electric vehicle (EV) specialist with the world's biggest car company (by sales), and has the potential to boost both companies' fortunes in China and around the world.

Volkswagen bought a 5% stake in XPeng back in July, and the two companies announced plans to jointly build two new battery electric vehicles (BEVs). The agreement will also allow XPeng to ride Volkswagen's coattails and participate in joint purchasing of "common parts of vehicles and platform," accessing Volkswagen's deep supply chain to score discounts on needed car parts. According to the press release, this joint purchasing program relates to "the B-class BEVs being jointly developed." But if it turns out to be broader than that, this could give XPeng access to discounted car parts that will lower its cost of production more generally, and bring the company closer to profitability.

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Source Fool.com