According to Financial Times News, Volkswagen is developing its own AI chip for advanced driving capabilities in China through a joint venture between its software unit Cariad and Chinese partner Horizon Robotics. The company expects deliveries to begin within three to five years at a development cost exceeding $200 million. This comes as VW’s market share in China’s EV segment has collapsed so badly that it doesn’t even rank among the top ten manufacturers, while Chinese EV makers have doubled their market share from 35% to nearly 70% since 2020. The chip development is part of VW’s broader €4 billion investment push in China that includes a €1 billion innovation center, a €2.4 billion investment in Horizon Robotics, and a $700 million stake in Xpeng. Volkswagen chair Oliver Blume said developing the system-on-chip technology in China gives them control over “a key technology that will define the future of intelligent driving.”
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This is basically a desperation move
Look, VW is facing an existential crisis in China, and they know it. They’ve gone from being the dominant player in combustion engines with over 20% market share to being completely irrelevant in the electric vehicle space. That’s a stunning collapse that happened remarkably fast. Now they’re throwing billions at the problem, and developing their own chips is the latest Hail Mary pass.
The China localization strategy
Here’s the thing about VW’s approach: they’re not just bringing German technology to China anymore. They’re building everything locally – hardware, software, design. The joint venture with Horizon Robotics and the partnership with Xpeng show they’ve accepted that Chinese companies are now leading in EV technology. It’s a complete reversal from the old model where foreign automakers would just export their “superior” technology to China. Now they’re admitting they need Chinese partners to even compete.
Why chips matter so much
Remember those COVID-era chip shortages that crippled auto production worldwide? VW certainly does. By developing their own AI chips specifically for advanced driver assistance systems, they’re trying to secure their supply chain while also gaining control over a critical competitive advantage. But here’s the real question: can a traditional automaker suddenly become a chip designer? That’s a massive leap that even tech companies struggle with.
It’s going to be a long road back
Three to five years for chip delivery is an eternity in the fast-moving EV market. Chinese companies like BYD and NIO aren’t standing still while VW plays catch-up. And let’s be honest – spending $200 million on chip development is just the tip of the iceberg when you consider the broader €4 billion investment. VW is making the right strategic moves, but the timing might be too late. They’re essentially trying to rebuild their entire Chinese business from scratch while their competitors are already miles ahead.
