China takes a larger role in Volkswagen’s next generation of EVs

• Volkswagen lets its China teams design and approve new EVs.
• Tech efforts in China aim to speed development and cut costs.

Volkswagen is pushing harder to rebuild its position in China’s car market, where local brands have been pulling ahead in popularity, especially in electric vehicles. According to the South China Morning Postthe company is betting that more decisions made inside China, faster product cycles, and a new EV platform will help it catch up.

For many years, Volkswagen ran most of its core development work from Germany. That structure slowed its teams in China, which had to align designs and approvals with headquarters. The company has now shifted much of that work onshore. Its China unit can design and approve new models on its own, which trims development time and lowers costs.

The approach is now formalised with the launch of Volkswagen Group China Technology Company, or VCTC. The company said VCTC will allow China-based teams to develop and validate new vehicle platforms from the earliest stages without routing every step back to Germany. It described the move as a first for the group.

Thomas Ulbrich, chief technology officer of Volkswagen China and CEO of VCTC, told reporters that the new structure cuts out long coordination cycles. “The makes us significantly faster and more efficient because we don’t have to coordinate every single detail over continents and time zones,” he said. “We can now run software, hardware and full-vehicle validation processes in parallel, shorten decision loops and bring innovations to maturity much faster.”

Speaking at VCTC’s facility in Hefei, Ulbrich said the company aims to make its next wave of cars safer, more reliable, smarter and more affordable. He said the changes are needed to stand up to China’s domestic EV players, which have gained ground while Volkswagen has watched its market share slip.

Volkswagen has been a major presence in China since its first joint venture in 1984. For decades, its petrol cars were among the most common on Chinese roads. That changed in 2023, when BYD passed Volkswagen to become the top carmaker in China by sales. Local buyers have been shifting rapidly to EVs and hybrids, where domestic brands have far stronger product lines.

Volkswagen sold 2.9 million vehicles in China in 2024, a 9.5% drop from the previous year. Local EV makers now account for more than 90% of EV sales in the country, according to the China Passenger Car Association.

As part of its effort to close the gap, VCTC and Volkswagen’s software arm, Cariad, are launching the first version of a new China Electronic Architecture. The system connects the many electronic units inside a car – like sensors, control modules and infotainment – to support features like driver assistance, connectivity and digital services. It is the first time Volkswagen has built such an architecture just for China.

Volkswagen expects this “software-defined vehicle” approach to speed up development by as much as 30% compared with its older processes. It also estimates that building a new model could cost up to half as much as before. Those gains, the company said, come from having a large engineering team in China and bringing suppliers into the process earlier.

The company has been expanding its local R&D efforts for the past two years. Earlier this month, it announced plans to develop advanced semiconductors in China for its semi-autonomous vehicles. Carizon – a joint venture with Horizon Robotics, a Chinese AI chip designer – will work on a system-on-a-chip that Volkswagen expects to be ready in three to five years.

Volkswagen also plans to roll out a new electric car next year that uses Chinese technologies to compete more directly with brands like BYD and Geely. The company said on November 11 that an upcoming SUV, built with Xpeng, will be its most advanced model when it reaches the Chinese market.

Today, Volkswagen has more than 9,000 engineers in China working on EV development. Oliver Blume, CEO of Volkswagen Group, said the company now has the right setup to design, test and build its next generation of smart cars inside the country.

China’s appeal as a development hub is not limited to Volkswagen. The European Union Chamber of Commerce said in mid-November that China still needs more foreign professionals to strengthen innovation. It suggested that local authorities could encourage this by offering incentives like rent support or partial exemption from social security contributions for employers.

Other global carmakers are also moving to expand their EV presence in the country. In February, Toyota said it would build a plant for electric vehicle assembly in Shanghai’s Jinshan district. That factory is expected to rely on the local supply chain and workforce to produce about 100,000 Lexus EVs a year starting in 2027.

BMW is also weighing new approaches to suit Chinese buyers. Bloomberg reported this week that the company is considering adding extended-range EVs – which use a small petrol engine to charge the battery when needed. If BMW moves ahead, it would be the first German brand to adopt this type of system in China.

Volkswagen’s new setup in China signals how seriously global automakers are taking the rise of local rivals. Domestic EV companies now dominate the market, shape consumer expectations, and move faster on software-driven features. By giving its China arm more control, Volkswagen is trying to match that pace – and rebuild momentum in a market it once led.

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