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 start within three to five years at a development cost exceeding $200 million. This move comes as VW doesn’t rank among China’s top ten EV makers despite having over 20% market share for combustion engine vehicles. The German automaker has invested nearly €4 billion in China since late 2022, including €2.4 billion into Horizon Robotics and $700 million for a 5% stake in Xpeng. VW plans to release about 30 electric vehicles in China over the next five years as Chinese EV makers’ market share has doubled from 35% in 2020 to nearly 70% today.
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Desperate Times Call for Desperate Measures
Here’s the thing: Volkswagen is playing catch-up in a market that’s already left them behind. They went from being China’s top carmaker to not even making the top ten in EVs. That’s a stunning collapse. And let’s be honest – developing your own chips is incredibly difficult and expensive. Even Apple, with all its resources, relies heavily on partners for chip manufacturing.
But VW doesn’t really have a choice. The COVID chip shortages exposed how vulnerable global supply chains are. Plus, with US-China tensions creating uncertainty around chip imports, they need control over this critical technology. The question is whether three to five years is fast enough when Chinese competitors are already multiple generations ahead.
A Massive Bet on Chinese Partnerships
Look at the numbers – nearly €4 billion invested in China since late 2022. That’s not just dipping a toe in the water, that’s going all in. The €2.4 billion into Horizon Robotics and the Xpeng stake show they’re serious about localizing their tech stack.
Interestingly, the FT reported that Xpeng’s own Turing AI chip will be used in the VW-branded cars they’re developing together. So they’re simultaneously developing their own chip while relying on a partner’s technology. That seems… complicated. Are they hedging their bets, or creating internal competition?
The Uphill Battle Ahead
Chinese consumers have completely shifted to preferring domestic EV brands. BYD, Nio, Xpeng – these companies understand local preferences and can move faster. VW’s traditional strengths in manufacturing quality and brand reputation just don’t matter as much in the EV space.
And developing chips is notoriously difficult with long lead times. By the time VW’s chip is ready in 3-5 years, Chinese competitors will likely be on their third or fourth generation. They’ll be chasing a moving target while spending hundreds of millions just to stay in the game.
A Necessary But Risky Gamble
Basically, VW is doing what they have to do. Controlling their own chip destiny gives them independence from supply chain disruptions and geopolitical tensions. But the timeline worries me. Three to five years is an eternity in the fast-moving EV and AI chip spaces.
The real test will be whether Chinese consumers care that VW is developing local technology, or if they’ve already moved on to homegrown brands. At least they’re trying something ambitious rather than slowly fading into irrelevance. But this feels like one of those “too little, too late” situations that we see so often in tech transitions.
