In 1984, Volkswagen partnered with a Chinese language automaker as a result of it was required by Chinese language legislation.
Now the German firm is partnering with Chinese language automakers as a result of it desires to make use of their know-how.
Volkswagen Group immediately maintains the unique joint ventures it made with Chinese language automakers in these early days of its foray into what has grow to be the world’s largest automobile market. However the truth that it’s now counting on companies corresponding to Chinese language EV maker Xpeng for {hardware} and software program underscore how the stability of energy within the automotive business is shifting towards the businesses that produce these now high-value parts. Chinese language firms are proving they’ll do it sooner, typically cheaper, than anybody else.
VW Group, which has for a lot of the previous few many years been a top-selling model in China, has currently struggled to take care of its place.
Volkswagen’s China income fell about 45 p.c in 2025 — from roughly $2 billion to $1.1 billion. The corporate stated in its annual report that it now faces intense competitors from Chinese language companies.
It isn’t a novel difficulty. Basically each non-Chinese language automaker is watching market share erode within the nation as homegrown firms create autos that extra immediately serve what Chinese language prospects need.
Specifically, Chinese language patrons have a style for what are sometimes referred to as “software-defined autos.” They’re linked and updatable, and primarily enable drivers to do every part by way of a automobile they might do by way of a cellphone.
“The Chinese language car proprietor can do his banking utilizing voice instructions or order takeout to fulfill him when he arrives at his home, or do any variety of issues that appear slightly uncommon to us right here within the West, as a result of we simply aren’t constructed that approach,” stated AutoForecast Options analyst Conrad Layson. “Nonetheless, the Chinese language purchaser cannot do this in a Chinese language-built Volkswagen, in order that they went the place the comfort was. They have been capable of convey their digital lives together with them into and out of the automobile.”
Chairman and CEO of Chinese language EV producer Xpeng He Xiaopeng visits the sales space of the German carmaker Volkswagen throughout the Worldwide Motor Present IAA on Sept. 8, 2025, in Munich, Germany.
Tobias Schwarz | AFP | Getty Photographs
VW’s personal struggles to construct an in-house software program division have been broadly documented — after years of effort and billions spent, the corporate deserted its go-it-alone strategy and turned to collaborations. Xpeng is a serious accomplice in China, whereas in North America and elsewhere, VW has partnered with Rivian to construct automobiles.
Xpeng, which makes its personal autos as properly, helped VW’s China division construct a {hardware} and firmware structure referred to as CEA for the German firm’s autos within the nation.
In February, information broke that VW Group can be the primary buyer for Xpeng’s VLA 2.0 automated driver help system. If it performs as marketed, it should equal or surpass something made by every other international automaker, Layson stated.
Then in March, the primary car the 2 firms co-developed, the ID.UNYX 08, rolled off the meeting line.
The 2 firms introduced the car to manufacturing automobile in 24 months, the CEA structure in simply 18. That’s “exceptional within the West,” Layson stated. “However that is China’s pace for you.”
International automakers sometimes require a three-to-five-year timeline for a brand new car, or perhaps a vital refresh.
Rivian and VW are collaborating on nearly all the similar issues the German automaker is doing with Xpeng. The deal has given Rivian a roughly $6 billion lifeline at a time when the EV maker is ramping up the manufacturing of its mid-priced, increased quantity R2 SUV.
The comparisons between the 2 firms point out how far Chinese language automakers have come, stated Tu Le, founding father of Sino Auto Insights, a agency that researches the Chinese language automotive market.
Rivian is working by itself chips, for instance. So is Xpeng, however its chip is already being fabbed.
“Xpeng is already there and Rivian desires to get there,” Le stated.
Although Xpeng has a technological edge, its partnership with VW doesn’t essentially pose a right away menace to Rivian — not less than in North America, he added.
Commerce disputes and political rigidity are spurring carmakers to strike these totally different partnerships. For instance, the U.S. has banned sure sorts of Chinese language software program and {hardware} for linked autos.
The longer-term image is unclear. Xpeng, like all Chinese language automakers, desires to compete globally, and never simply by way of partnerships with different automakers. On March 25, the corporate began promoting two fashions in Mexico, for instance.
Firms corresponding to Tesla, Rivian and Lucid Motors are on the forefront of constructing these sorts of linked autos exterior of China.
Nonetheless, if Chinese language companies can show they’ll outpace Western ones of their house market, and export these options to different markets, VW might face a tricky alternative down the street.
“The query most likely it is best to ask is do they use Rivian stack or Xpeng stack in Europe, as a result of we all know that they are going to use Xpeng in China. And we all know that in the intervening time, they are going to use, in North America, the Rivian stack. However in the end whose is healthier, whose might be extra sturdy and extra acceptable?” Le stated.
He added that the long-term danger for an organization like Volkswagen — or Stellantis, which has partnered with Chinese language automaker Leapmotor — is that they grow to be primarily contract producers, Le stated. That will come to fruition if the high-value parts like software program and know-how that outline the trendy car are more and more made in China.
“My query may be: If Xpeng hits on all cylinders, will they even want Volkswagen Group?” Le stated. “The shoe is on the opposite foot. And I believe increasingly individuals are beginning to understand that is actual. Their merchandise are vital, and they’re a menace to our livelihoods.”
Neither Rivian, VW Group nor Xpeng responded to CNBC’s request for remark or interview.
