Volkswagen is accelerating its strategic shift towards the Chinese market, aiming to produce the majority of its vehicles for China within its borders by . This move comes as the German automaker seeks to regain lost ground against increasingly competitive domestic manufacturers.
The cornerstone of this strategy is a new electronic architecture platform, dubbed “China Electronic Architecture” (CEA), developed in collaboration with Chinese electric vehicle (EV) maker XPENG. According to company officials, the CEA platform promises to streamline production, reducing both development time and costs. Specifically, the new architecture is expected to accelerate car development by 30 percent and lower costs by 40 percent compared to Volkswagen’s existing MEB platform, which was developed in Germany.
This partnership with XPENG, formalized through a Master Agreement on platform and software collaboration, represents a significant milestone in Volkswagen’s “In China, for China” approach. In , Volkswagen completed the acquisition of approximately 4.99 percent of XPENG’s total issued share capital, following an initial partnership announcement in . The initial focus of the collaboration is the joint development of two mid-size Volkswagen-branded EVs, with the first model anticipated to be a sport utility vehicle (SUV).
The urgency behind this strategic realignment is evident in Volkswagen’s recent performance in the Chinese market. While China remains Volkswagen’s single largest market, accounting for roughly 40 percent of its global sales and half of its profits, the company has experienced declining sales figures. In the first quarter of , deliveries dropped by 14.5 percent. Although a recovery was observed in April and May, overall deliveries for the first half of the year were still down 1.2 percent compared to the same period in .
The competitive landscape in China has shifted dramatically, with local players like BYD and Tesla gaining significant market share. BYD, in particular, has overtaken Volkswagen as a leading automotive manufacturer in the country. Volkswagen’s fall to third place, with a 17.4 percent sales decline in the fourth quarter of , underscores the challenges it faces.
The CEA platform is designed to address these challenges by enabling faster innovation and more efficient production. Centralized control units and increased in-house component production are key features of the new architecture. This shift aims to reduce reliance on external suppliers and enhance Volkswagen’s ability to respond quickly to changing market demands.
Beyond the XPENG collaboration, Volkswagen’s Audi subsidiary is also strengthening its partnership with SAIC Motor, China’s largest carmaker, to further expand its product range and cater to the evolving needs of Chinese consumers. The company aims to swiftly expand its local electric portfolio and prepare for future innovation steps, according to Ralf Brandstätter, Volkswagen’s board member for China.
The joint development of the two new EVs, slated for release in , will equip vehicles with state-of-the-art software and hardware, offering Chinese customers an intuitive, connected digital experience and advanced automated driving functions. This focus on technology and connectivity is crucial for attracting tech-savvy Chinese consumers.
Volkswagen’s ambition to manufacture the majority of its cars in China by represents a significant commitment to the Chinese market and a strategic response to the evolving automotive landscape. The success of this strategy will depend on Volkswagen’s ability to effectively leverage its partnership with XPENG, adapt to local market preferences, and deliver innovative products that resonate with Chinese consumers. The CEA platform is positioned as a critical enabler of this transformation, promising faster development cycles and reduced costs, ultimately aiming to restore Volkswagen’s position among the top three automotive manufacturers in China.
