Mr Erdogan presented Prince Mohammed with two Turkish-made electric cars as a gift to Saudi Arabia’s royal family.
The two leaders tested the Togg model, Turkey's first electric car brand, in the courtyard of Al Salam Royal Palace in Jeddah, the Anadolu news agency reported.
Mr Erdogan is on a three-day tour of the Gulf region, with Saudi Arabia being his first stop.
An official reception was held in honour of Mr Erdogan upon his arrival in the kingdom and he was welcomed by Prince Mohammed.
The two sides signed deals in various sectors, including the defence and investment fields, Saudi Arabia's news agency Spa said.
Before taking off from Istanbul airport, Mr Erdogan said the visit had two main priorities – “investment and a financial dimension”.
“Turkey will have a serious investment opportunity in the defence industry, infrastructure and superstructure investments in the three countries,” he told reporters.
“In addition, these countries will have the opportunity to purchase certain assets from Turkey,” he said.
Mr Erdogan's next stop will be Qatar.
Qatar’s ambassador to Turkey said the visit by the Turkish leader would “boost co-operation” between the two sides.
“This visit is an important indicator of the solid relations that bind Turkey and Qatar,” Sheikh Mohammed bin Nasser bin Jassim Al Thani told the Anadolu news agency ahead of the visit to Qatar.
Investments would be on top of the agenda for the Turkish President during his visit to Doha, he said.
The last leg of the Gulf tour is Abu Dhabi, where Mr Erdogan is set to hold talks with President Sheikh Mohammed.