Place a 16x12" sheet of heavy-duty foil on a large rimmed baking sheet. Toss onion and chiles with oil in a large bowl; season generously with salt and pepper. Mound vegetables in center of prepared baking sheet; top with sausages. Place another large sheet of foil over. Fold and crimp all edges tightly to form a sealed packet. DO AHEAD: Can be made 4 hours ahead. Chill. Let stand at room temperature for 15 minutes before continuing.

Preheat oven to 350°. Alternatively, build a medium fire in a charcoal grill, or heat a gas grill to medium-high. Bake or transfer packet to grill and cook until onions and peppers are softened (open the packet carefully to check; steam will escape), about 25 minutes.

If using an oven, turn on broiler. Carefully cut open packet. Arrange sausages on top if necessary. Broil until sausages are browned and crisp, about 5 minutes. If grilling, remove sausages from packet and grill until browned and crisp, about 5 minutes. Serve with mustard, sauerkraut, and bread alongside.