Volkswagen revs up designed-in-China approach to catch up with local rivals in EV market

Volkswagen Group has ramped up its “all in” strategy for China, banking on local development capabilities and a new electric vehicle (EV) architecture to fight back against domestic rivals and regain its leading position in the world’s largest vehicle market.

The German carmaker’s China operations are now able to design and validate new models without going through approvals from headquarters, reducing development time and costs to respond quickly to local needs.

On Tuesday, the company announced the formation of its Volkswagen Group China Technology Company (VCTC), which could “for the first time in Volkswagen’s history”, support the development and validation of new vehicle platforms “from very early phases outside Germany”, it said in a statement.

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“This makes us significantly faster and more efficient because we don’t have to coordinate every single detail over continents and time zones,” said Thomas Ulbrich, chief technology officer of VW China and CEO of VCTC. “We can now run software, hardware and full-vehicle validation processes in parallel, shorten decision loops and bring innovations to maturity much faster.”

Speaking to reporters at VCTC in Hefei, in eastern China’s Anhui province, the CTO added that VW would make its cars safer, more reliable, smarter and more affordable to compete in mainland China, where it had been losing market share to local rivals.

A dominant player in China’s car market since establishing a joint venture in Shanghai in 1984, Volkswagen was overtaken by BYD in 2023, as its petrol-powered models lost appeal among mainland consumers.

Last year, the German carmaker sold 2.9 million units in China, down 9.5 per cent from 2023. Domestic EV manufacturers accounted for more than 90 per cent of mainland EV sales currently, according to the China Passenger Car Association.

VCTC and VW’s software unit Cariad are launching the first edition of the China Electronic Architecture – the automotive group’s first such system specifically tailored to the needs of Chinese customers. An electronic architecture connects all in-car electronic control units, sensors and actuators to support a smart vehicle’s ­self-driving, digital connectivity and infotainment features.

A vehicle model takes shape at Volkswagen Group China Technology Company. Photo: Handout alt=A vehicle model takes shape at Volkswagen Group China Technology Company. Photo: Handout>

VW said it expected its new software-defined vehicle development process to deliver up to a 30 per cent speed advantage over the previous process while reducing the cost of a new model by up to 50 per cent, buoyed by a capable local development team and early supplier integration.

The marque has been actively strengthening its research and development (R&D) capabilities in China over the past two years.

Early this month, VW unveiled plans to develop its own advanced semiconductors in China for its locally manufactured semi-autonomous vehicles.

Carizon, a joint venture with Chinese artificial-intelligence chip designer Horizon Robotics, will create a system-on-a-chip expected to be available in the next three to five years.

It is also poised to launch a new electric car next year that leverages Chinese technology to compete with established domestic players like BYD and Geely.

The German carmaker said on November 11 that its coming sport-utility vehicle, co-developed with Chinese partner Xpeng, would be its most intelligent model to date when it hit the mainland market next year.

VW China currently boasts more than 9,000 engineers to conduct R&D work and improve its EV competitiveness.

Oliver Blume, CEO of Volkswagen Group, said in the statement that the carmaker had created all the conditions necessary to develop, test and locally manufacture the next generation of smart cars for the Chinese market.

In mid-November, the European Union Chamber of Commerce said in a position paper that more foreign professionals were needed to bolster innovation in China. It suggested that local authorities offer foreign companies incentives, such as rent subsidies and partial exemption of employer social security contributions, to lure more overseas talent.

In February, Toyota Motor said it would build a plant for assembling EVs in Shanghai’s Jinshan district, which would tap the local supply chain, logistics network and talent pool to produce 100,000 Lexus-branded electric cars a year from 2027.

BMW was considering making EVs with extended-range battery technology to attract Chinese consumers, Bloomberg reported on Tuesday.

It was likely to become the first German carmaker to bank on the technology, which uses a small internal combustion engine to generate additional power to charge the battery when needed.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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