Chinese electric vehicle startup Xpeng (XPEV) agreed to buy ride-hailing company Didi Global Inc.'s smart-car development business for $744 million in an all-stock deal that could give Xpeng a tech edge in the competitive market.

DiDi will become a strategic shareholder of Xpeng in an all-stock deal, gaining about 3.25% of the smart EV maker's outstanding shares, with a lock-up period of 24 months after the initial closing. At the indicated rate, the offer price is at a 1.7% discount to Xpeng's closing price on Friday.

Xpeng, in partnership with Didi Global Inc., plans to launch a new EV brand in 2024 that is being developed under the project name "MONA". The new brand is targeted at the mass market segment at an expected price point of about Yuan 150,000 (approximately $20,500).

Generally, Xpeng's cars are priced at around $27,400 or more, but the company says vehicles developed under project MONA will be marketed differently from its usual products and main brand.

Last month, Xpeng and German auto giant Volkswagen signed a deal to develop two new EV cars for China under the VW brand but with Xpeng tech for software and autonomous driving. Targeting the middle-class segment, the cars are set to launch in 2026.

DiDi had developed an EV model earlier, leading to speculations about its ambition to shift into manufacturing. However, there is excess manufacturing capacity in China, and demand has been slowing down, intensifying competition and making it hard for newcomers to be successful.

Xpeng's investment might enable it to enhance its autonomous driving algorithms by tapping DiDi's intensive vehicle-generated data from its mobility platform. Going forward, Xpeng said it will explore further collaborations on fleet management, marketing, insurance, charging facilities, robotaxis, and international markets.

After the news, Xpeng's shares were up 5.5% in pre-market trading on Monday.