Volkswagen: Leaning in On China, For China

Torsten Wendler, Head of Chassis and ADAS/AD for Volkswagen Group (China) Technology Company (VCTC), kicked off AutoSens Europe in Barcelona with a powerful and not-so-subtle message for the entire automotive industry.  We’re all better off working with China, in China, than trying to stop China.

Perhaps I am attributing too much import to his keynote.  One slide early in his presentation, though, made a huge impression on me.  (The slide appears above.)

The slide shows several critical pieces of information capturing the pace of electrification in China’s automotive market, the shift to domestic brands, and the pace of adoption of semi-automated driving technology.  Global auto makers, many of whom still have one or more domestic joint venture partners in China, might draw different conclusions from this data.

Volkswagen has clearly concluded that China has become the New York, New York of the global automotive market.  In other words, if you can make it and hold onto it in China, you can make it anywhere.

Volkswagen has long been a leader in the China market – selling more than 3M cars there in 2023 – nearly as many as the company sold in all of Western Europe.  With so much at stake the company arguably had no choice but to double down on its local investment.

Wendler, though, detailed the depth of Volkswagen’s commitment to what might be called a China-first strategy.  The creation of VCTC, a joint venture with Xpeng, is a manifestation of that effort.

At a time when Volkswagen’s Cariad software division has been facing criticism and reorganization outside China.  Its operations in China, in partnership with Xpeng and Horizon Robotics, is defining a new car development plan that may well establish or extend Volkswagen's reputation as a technology leader in the industry.

The importance of VCTC and the vision it reflects should not be lost on any of Volkswagen’s global competitors.  Looking at the numbers and the nature of what is happening on the ground in China, the decision to shift development to China almost seems obvious.

By now, most leading SoC semiconductor manufacturers targeting the automotive industry have shifted their focus to China as have Mobileye, BlackBerry and others.  The message is clear.  China already accounts for a third of global vehicle production and represents the largest and fastest moving automotive market in the world.

Car makers operating in China are rapidly accelerating their development and deployment of the latest technologies while simultaneously scaling up volume and reducing costs.  Domestic brands are on the rise in the context of increasing “new energy vehicle” sales volumes, while some “Western” auto makers are suffering devastating market share losses.

Volkswagen clearly saw the writing on the wall.  Innovation, volume, adoption, and rising sales are all happening in China – while Western markets are still adrift in a post-COVID funk.

I was speaking with an auto industry supplier who had recently visited Shanghai who said that downtown in the city there wasn’t an internal combustion vehicle anywhere to be seen.  And the air seemed unusually clear.  (He also complained about all the electric scooters that tend to silently sneak up on you.)

While Western regulators are focused on defining and enabling higher levels of automated driving, Wendler says regulations do not yet exist in China for fostering Level 3-5 driving automation.  Yet, so-called Level 2 and Level 2++ semi-automated driving solutions (which usually require driver engagement) have proliferated and are rapidly moving into lower and lower price points.

The development activity at VCTC is defining vehicle architecture for the rest of the Volkswagen Group and, very likely, its various sub-brands and joint venture partners in China.  The joint venture partnership with Horizon Robotics, called Carizon, has more than 150 vehicle models in development, more than 50 models already on the road, and 10B user miles driven, according to Wendler.

VCTC/Carizon’s vision includes Carizon Lite (Level 2+), Carizon Pro (Level 2++) and Carizon Max (Level 3&4).  The message is clear.  Develop the cars where technology is moving, selling, and scaling the fastest.

It’s nothing less than a cultural commitment.  The car culture in China lies somewhere between measure-twice-cut-once and fail-fast.  While 10-15 years ago domestic car makers in China might have appeared reckless with their deployment of minimally tested innovations, today they are radiating innovation and vision and, yes, safety.

While Wendler did not discuss connectivity, it is worth noting that China-based auto makers are moving more rapidly toward adopting 5G wireless and vehicle-to-vehicle and vehicle-to-infrastructure technology.  While VCTC is primarily focused on vehicle architectures, the industry more broadly is pushing forward on connectivity technologies that the U.S. and E.U. are still struggling to sort out.

Chinese auto makers such as Geely are even forging ahead with satellite connectivity.  A month ago, Geespace launched a third batch of satellites as part of its plan to form a megaconstellation it described as China's equivalent of U.S. firm SpaceX's Starlink.  The 10 low Earth orbit (LEO) satellites were launched from the Taiyuan Satellite Launch Centre, located in the northern province of Shanxi, Geespace said in a statement.

For the past 20 years, the automotive industry in China has been racing ahead sometimes helped by, sometimes impeded by, local and Federal regulatory activities.  Like the semiconductor industry, automobiles are increasingly recognized as a strategic economic engine of growth locally and globally.

By now it seems obvious that raising trade barriers represents a road to ruin for legacy global auto makers.  The VCTC vision of partnering and leaning into the local market opportunity looks much more like the winning way forward.