How Volkswagen plans to conquer the Chinese EV market

Mecha calls localised development “the next level” of Volkswagen’s plan and says the new CMP “is really aimed at the main [mass-market] segment in China, which accounts for around 50% of the volume here”. Development will be fast too: Mecha keeps referring to working at “China speed”, to highlight the accelerated development times.

But he also notes that “in China, you need to have leading-edge technology” that is relevant to the market, “which is why we’ve moved to a ‘team up to speed up’ approach. We don’t want to do everything on our own. We want to become immersed in the ecosystem and work with capable tech companies to develop our technology faster for the Chinese market."

The key partnership is with Chinese EV start-up Xpeng, which will collaborate with Volkswagen on developing at least two new cars on a new shared EE platform. “It's a great help when two companies work together that are relentlessly working on their partnership approach, and both company can learn from each other,” says Mecha. “Xpeng as a start-up is more pragmatic and quicker, with not so many committees. We have a very solid engineering process, and we bring very good ideas to the table.”

Mecha says the Volkswagen is also working with Xpeng on a new Chinese Electronic Architecture (CEA) core computing system, which will be used in the CMP and other vehicles. 

The new CEA system will, Mecha claims, “have features you need for the Chinese ecosystem and form the best-performing platform in the market. That's a big leap ahead, and very important on the technology side.”

Mecha notes that not only does China has a local ecosystem of software, with the likes of Tencent and WeChat instead of Western apps (“Google is not relevant in China”), but the way technology is used in cars is also hugely different. “The key difference is you manage the car predominantly through speech control, and that needs to be developed into the electronic architecture,” he says. 

But he also notes the importance of an on-screen avatar: “A little Pacman or whatever, it depends on the brand, that talks to you and controls the HMI [human-machine interface]. This is required by Chinese customers.”

The CMP platform and architecture will feed into wider Volkswagen efforts to lower the production costs of EVs and their batteries, which Mecha says “is very important because the market is very competitive”. But while it wants a competitive cost position, Mecha says that in the middle of a China EV price war, the aim with ID UX and other cars is “a clear strategy of value over volume. We are not chasing the last number whatever it takes. We need to stay calm.”

The ID UX brand that Volkswagen Anhui will run is aimed at younger customers – but it won’t strictly be an entry-level model. Mecha says: “In China, you have a huge growing middle class, and you find these customers predominantly in 'tier one' like Shanghai, Beijing and Chengdu. They have higher purchase power and are much more demanding, and they want more tech and edgier cars.”

And, of course, Volkswagen absolutely won’t be giving up on its combustion-engined cars in China: they still drive the business there. The firm will launch a new Passat-based saloon and an extended Tiguan L Pro in China this year, but they will be reworked with far greater levels of interior tech than their European equivalents: Mecha promises high levels of driver assistance systems and “pillar-to-pillar really big screens.”

Mecha adds: “We have this stronghold with ICE cars, where we are number one in the market with more than 50% market share. It's very important we have the business, because the current situation in the EV segment is extremely competitive, and from a margin perspective, the price war is very challenging. We are happy we have this backbone, and it's very important for our transformation.”

This change of approach is a big departure for Volkswagen, which has long dominated in China by importing the technology and producing it locally. But as Chinese firms entering the European market have found, the increasing divergence in technology means the global car is no longer a working concept. Volkswagen’s challenge is to utilise its partnerships and production base to move at the pace of its start-up EV rivals.

Mecha insists the firm is up to the task, noting that the VCTC is set to be producing cars on the CMP architecture in a few years, with five ID UX models also lined up. “What we will do here is bespoke to China, and we will make cars that are relevant,” he says. “Can Volkswagen do 'China speed'? Yes, we can.”