CHINA REPORT
Facing intense competition in China’s new energy vehicle market, Volkswagen has decided to increase investment in its Hefei base. On April 11, Volkswagen announced an additional investment of €2.5 billion in its production and innovation center in Hefei to further strengthen its local R&D capabilities.
It has been reported that this investment will also be used to accelerate the development and production of two Volkswagen brand smart electric vehicle models co-developed with Xiaopeng Motors. Volkswagen revealed that the first model, a mid-size SUV, is planned to enter production in 2026.
The Chinese automotive market is rapidly moving towards an era of fully interconnected electric mobility, and as the multinational automaker with the largest market share in China, Volkswagen is pushing to keep this position.
Currently, the Volkswagen Hefei base, centered around the joint venture vehicle manufacturing enterprise Volkswagen Anhui, has become Volkswagen’s smart connected electric vehicle hub in China and a focal point of Volkswagen’s investments in the country. In May 2023, Harjo Kern, CFO of Volkswagen Anhui, stated that Volkswagen’s total investment in the Hefei base amounted to 23.1 billion yuan, with the first phase of production base and R&D center fixed asset investment totaling 14.1 billion yuan; pre-model launch R&D total investment was about 9.05 billion yuan.
After three years of construction, the Volkswagen Hefei base currently has five parts: Volkswagen Technology (China) Co., Ltd., Volkswagen Anhui, Volkswagen Digital Sales Company, Volkswagen Anhui Parts Company, and software development company, Cariad China.
Among these, the Volkswagen Technology Company, established in April 2023 with an investment of 1 billion euros by Volkswagen, is the largest R&D center outside of Volkswagen’s German headquarters. The main task of this R&D center is to develop customized models for the Chinese market, with its first goal being to reduce the development cycle of new products by 30% and costs by 30%, to compete on equal footing with local Chinese automakers in terms of speed.
Source: Economic Observer Read The Article
PSR Analysis. China is one of the largest automotive markets globally, with a vast consumer base and significant growth potential. China’s position as the world’s largest market for new energy vehicles presents an irresistible allure for multinational automakers. This enormous market size offers vast sales potential and growth opportunities for these companies.
The Chinese government has been promoting further market opening and providing favorable policy support for foreign enterprises. China continues to optimize its business environment, offering solid guarantees and support to attract foreign investment. Additionally, the Chinese government has shown strong support for the new energy vehicle industry, including subsidy policies and infrastructure development, creating a favorable environment for multinational automakers.
As the automotive industry transitions towards electrification, intelligence, and connectivity, China has demonstrated formidable technological strength and innovation capabilities in these areas. Through cooperation with Chinese companies and research institutions, multinational automakers have boosted local R&D and technological collaboration, driving the development and application of new technologies.
With a complete automotive industry chain and supply chain system, China can provide efficient, low-cost production and ancillary services for multinational automakers. Foreign automakers bring high-quality products and service standards to the Chinese market, along with advanced production philosophies and talent cultivation mechanisms, which help elevate the overall level of China’s automotive industry.
This collaboration demonstrates Volkswagen’s determination to achieve its set goals in China and also reveals the increasing competitive pressure it faces. If Volkswagen were to develop independently, the launch time would be delayed. Although the ID series of electric vehicles has made some progress in the domestic market, there is still a gap in software intelligence compared to mainstream new energy products.
The joint development between Volkswagen and Xiaopeng Motors leverages each other’s strengths to quickly launch products and seize the market. Xiaopeng Motors will provide the vehicle platform, smart cockpit, and intelligent driving systems, while Volkswagen will contribute its globally leading engineering and supply chain capabilities.
The advantage of this collaboration is the faster development of new vehicles. Moreover, Volkswagen and Xiaopeng Motors have established a joint procurement plan for common components and platforms, which will help reduce costs and enhance product competitiveness. PSR
Jack Hao is Senior Research Manager – China for Power Systems Research
