In a strategic move to reinforce its position in the burgeoning Chinese automotive market, Volkswagen Group, together with its subsidiary Audi, has embarked on a series of co-operations with Chinese partners. These alliances are aimed at solidifying the group's local electrification strategy and tapping into the rapidly growing e-mobility market in China. In light of VW's huge issues with software development, it could be looking to make up some of the ‘four lost years' that we recently reported on. WhichEV takes a closer look at this partnership deal and what it means.
While the US Government continues to back-peddle from China, European companies are looking to the future.
The VW brand recently signed a technological framework agreement with Xpeng, a leading Chinese manufacturer of intelligent electric cars. As part of this long-term co-operation, both companies will jointly develop two electric models tailored specifically for the mid-size segment of the Chinese market. These new China-specific vehicles will complement the existing MEB (Modular Electric Drive Matrix) product portfolio and are slated for release in 2026, subject to the finalization of agreements. To bolster this partnership, Volkswagen Group will invest approximately US$700 million in Xpeng, acquiring a 4.99 percent stake at a price of US$15 per American Depositary Share (ADS). The investment will also grant Volkswagen a seat as an observer on the Xpeng board of directors.
He Xiaopeng, Chairman and CEO of Xpeng said, “The Volkswagen Group and Xpeng each brings in highly complementary strengths into this long-term strategic partnership. We will share Smart EV technologies and world-class design and engineering capability with each other and learn from each other. Since the founding of Xpeng, we have been developing full-stack technologies from EV platform to connectivity and ADAS software in house. We are excited about the opportunity to contribute our expertise to the strategic partnership and create value for Xpeng and our shareholders.”
Stefan Mecha, CEO VW Brand Region China, was equally enthusiastic about what this new partnership means, “The VW brand has a long-term electrification- strategy for the Chinese market. In doing so, we continue to consistently rely on our high- performance MEB and SSP architectures. With the strong growth of the electric segment, there are now further market opportunities that we want to exploit. We are also focusing on joint development projects with strong local partners in order to rapidly expand our product portfolio. Together with Xpeng, we aim to put two additional fully connected electric vehicles on the road from early 2026 onwards, thus opening up new customer groups for the VW brand.”
The collaboration between Audi and SAIC (Shanghai Automotive Industry Corporation) focuses on expanding their existing co-operation. The objective is to rapidly and efficiently develop a portfolio of fully connected electric vehicles for the premium segment of the Chinese market. Audi aims to enter a segment where it currently does not have a presence in China, strengthening its market position and meeting the increasing demand for premium electric vehicles. It will, naturally, help the Chinese firms with their European plans.
Zu Sijie, Vice President and Chief Engineer of SAIC Group, told media, “SAIC and Audi have signed a memorandum of understanding. Both parties will accelerate SAIC Audi’s electrification of the model portfolio development, leveraging the advantages of both sides to meet the needs of Chinese customers for premium electric intelligent connected vehicles. With SAIC contributing technology, and actively participating in the joint product development, together we are opening a new chapter in joint venture co-operation, aiming to create a win-win situation.”
Jürgen Rittersberger, Member of the Board of Management of AUDI AG responsible for Finance, IT and Legal Affairs said, “Audi has strong plan electrification plan for the world’s largest automotive market. This step marks the systematic continuation of this plan. Following on from the first two successful years of co-operation, we are now strengthening our long-term commitment to SAIC. Our aim is to jointly develop next-generation premium ICV swiftly and efficiently ‘in China for China’. Even closer co-operation with a local partner such as SAIC supports Audi’s ambition to create a premium market segment for all-electric and fully connected cars in China.”
Both partnerships centre on the joint development of intelligent, fully connected electric vehicles (ICV) for the Chinese market. These vehicles will be equipped with cutting-edge software and hardware to provide Chinese customers with an intuitive and connected digital experience. The pooling of resources and expertise from all parties involved is expected to expedite the development process and lead to the creation of a diverse range of locally-tailored models that cater to the specific needs of Chinese consumers.
In addition to their immediate collaborative efforts, both co-operations also envision a future joint development of new local platforms for the next generation of intelligent, fully connected vehicles. The goal is to bolster the group's product range in China with more models that cater to promising customer and market segments. Negotiations between the partners will determine the specifics of this undertaking.
Ralf Brandstätter, Volkswagen AG Board Member for China, emphasized the importance of local partnerships in the group's “in China for China” strategy. The acceleration of the local electric portfolio, combined with preparations for future innovations, aims to leverage the strengths of Volkswagen and its partners to bring products to market more swiftly while optimizing development and procurement costs. This strategy aligns with Volkswagen's commitment to address market-defining trends in China at an early stage and capitalize on the country's dynamic growth and innovative potential.
To facilitate these endeavours, Volkswagen Group has established the Volkswagen Group China Technology Company (VCTC), a newly-founded development, innovation, and procurement centre. VCTC, located in Hefei, is the largest development location for the group outside of Wolfsburg and will employ over 2,000 experts focused on creating new intelligent, fully connected electric vehicles. By consolidating development and procurement volumes, significant synergy potential with cost advantages is expected to be generated, further enhancing the group's position in the Chinese market.
Furthermore, Volkswagen is expanding its Hefei plant into a state-of-the-art production, development, and innovation hub. This expansion will enable the group to respond quickly to market demands and bolster its capacities for e-mobility, digitalization, and autonomous driving in the region.
The strategic co-operations with local partners and the expansion of its capabilities in China reflect Volkswagen Group's commitment to becoming a major player in the new era of intelligent connected vehicles (ICV) by embracing high technology localization and customer-centricity. Through these ventures, Volkswagen aims to capture the immense potential of the Chinese e-mobility market and solidify its position as a leading force in the rapidly evolving automotive landscape.