Volkswagen is ramping up its operations in China, aiming to export a significant number of locally produced vehicles to international markets, excluding Europe. This strategy leverages the substantial cost advantages, making vehicle development in China significantly more cost-effective than in other regions.
As established European automakers face increasing pressure from emerging Eastern brands, many are shifting their focus to China’s manufacturing network. For legacy manufacturers like Volkswagen, the allure of this network is particularly strong and hard to ignore.
According to the Financial Times, Volkswagen is considering developing and producing a brand-new electric vehicle in China at approximately half the cost compared to other locations.
Over the years, Volkswagen has invested billions of dollars in the Chinese market. Lower labor costs, shorter development times, favorable battery supply chains, and more efficient supply chain management contribute to a potential 50% reduction in vehicle development costs.
This efficiency is partly attributed to Volkswagen’s new Research and Development Center in Hefei, Anhui Province, China. The center plays a pivotal role in shaping the company’s next generation of electric vehicles. By optimizing collaboration across teams and disciplines, Volkswagen claims it can develop a new electric car in about 30% less time than the previous average of 50 months.
Thomas Ulbrich, Chief Technology Officer of Volkswagen Group China, highlights that the center introduces “a completely new level of integration,” allowing software, hardware, and full-vehicle validation processes to run concurrently.
“We can now simultaneously execute software, hardware, and full-vehicle validation processes, shortening decision loops and bringing innovations to market much faster,” Ulbrich told the Financial Times.
Volkswagen has already begun exporting China-made gasoline sedans to the Middle East. Ulbrich confirmed that the company is exploring similar strategies for Southeast Asia and Central Asia.
However, the company has no plans to introduce China-made vehicles to the European market. This decision stems from two primary reasons: first, the electronic architecture of China-developed models does not meet European standards; second, tariffs on Chinese-made electric vehicles would negate the cost advantages, rendering the strategy ineffective in Europe.
Volkswagen plans to launch 30 new electric vehicle models in China over the next five years. These models will be crucial in helping Volkswagen regain market share in the world’s largest automotive market.
Data from the Financial Times indicates that Volkswagen is not among the top 10 brands in China’s pure electric or plug-in hybrid (PHEV) vehicle segments. In contrast, the German automaker maintains approximately 20% market share in the traditional gasoline vehicle segment.
In Vietnam, Volkswagen began selling China-made vehicles in 2023, including models like the Viloran and Teramont X. It would not be surprising if Volkswagen introduces additional China-made models in Vietnam in the future.
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