Dusseldorf Volkswagen electric cars are inferior to many competing products on the Chinese market. The vehicles developed in Germany offer customers in China too few digital features and also leave a lot to be desired when it comes to autonomous driving. In order to catch up in these areas, the automaker is founding a joint venture with the Chinese software and chip specialist Horizon Robotics. The VW supervisory board approved the billion-euro investment on Thursday.
The joint venture with Horizon Robotics should help to quickly become competitive again in terms of software and digitization. The group also wants to get involved in joint chip development with its new Chinese partner. The semiconductors will then be used primarily in autonomous driving.
“From our point of view, Horizon Robotics is one of the world’s leading providers of autonomous driving,” said VW China Board Member Ralf Brandstätter, explaining the choice of partner company. Overall, the VW Group wants to invest 2.4 billion euros in its additional digitization efforts in China. Volkswagen sells around 40 percent of its annual production on the local car market alone.
Billion investment for Horizon
Volkswagen is investing around 1.3 billion euros of the total amount of 2.4 billion euros in the new joint venture, which is expected to start operations next year. The VW Group wants to subscribe to 60 percent of the shares in the joint venture. With the remaining amount, the Wolfsburg-based car manufacturer will take a direct stake in Horizon Robotics.
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Last year, the Volkswagen brand fell well short of its own sales expectations for electric cars from the ID series. Just 70,000 units were sold in 2021, and 100,000 vehicles were announced. In September 2022, Volkswagen was able to sell just 16,000 electric cars.
Tesla is outstripping its German competitor in China: in September, the US manufacturer sold 83,000 electric cars in the People’s Republic. The increasingly strong Chinese competitor BYD even managed to sell around 200,000 NEV (“New Energy Vehicle”) last month. Tesla and the new Chinese e-car manufacturers are much further ahead than the German competitor when it comes to digitization.
Cariad, the software unit of the VW Group founded two years ago, will work with Horizon Robotics. The Wolfsburg-based manufacturer had announced a few months ago that Cariad in the People’s Republic should be increased from 600 to more than 1,200 employees. The VW Group hopes that with this step alone, the special software requests of Chinese customers can be better met. In addition, Cariad had also founded its own Chinese subsidiary.
“Through Cariad, we are on the field ourselves in the joint venture. This gives us a better understanding of the design of semiconductors and enables us to increase our own added value,” added VW Group Board Member Brandstätter. China is already one of the most important markets for the development of intelligent digitized vehicles.
Own chip development
In the joint venture, Volkswagen wants to develop chips according to its own needs. The semiconductors are intended as a more or less immediate help. They are used in cars of the MEB platform with the software of expansion level 1.1, i.e. in the ID series from Volkswagen. This is exactly what is anything but competitive in China. With Horizon Robotics, VW wants to bring its ID vehicles up to par with Chinese competitors such as BYD, Nio and Great Wall Motor, who have surpassed Wolfsburg in terms of car software.
The group currently has no plans for the future digital solutions developed together with Horizon Robotics to be used outside of the People’s Republic. “We are concentrating on solutions from China for China,” emphasized Brandstätter. Volkswagen consciously accepts the additional development costs.
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Because with its own technological solutions for China, the group is not only accommodating the customers there. With this, Volkswagen is also adjusting to the regulatory differences between China and Western countries. VW and Porsche CEO Oliver Blume said in an interview with the Handelsblatt last week that the company was preparing for a divided world.
“For the infotainment systems, we design our own Western and Chinese ecosystems, each with software partners from the regions. In the west, these are Apple and Google, for example, and in China the big Chinese tech players,” said the CEO.
Unlike its predecessor Diess, Blume wants to rely more on partners when it comes to software development. However, the joint venture with Horizon Robotics is not part of this strategy. In this case, Volkswagen had no choice but to enter into a joint venture with a domestic technology company. China’s restrictive data policy requires national development. For example, camera data for the development of algorithms for automated driving are not allowed to leave the country.
Volkswagen protects itself
With its own, practically self-sufficient Chinese solutions, Volkswagen is also preparing for the fact that the political climate between the West and China is continuing to deteriorate and that the regions are therefore taking different paths. “The investment in Horizon has now been made primarily for technological reasons. But of course it could also be helpful on other levels in the future to use local solutions,” Brandstätter indicated.
>> Read herewhich fundamental problems the German car manufacturers have with digitization.
Volkswagen’s new Chinese investment has met with approval among investors. “It is positive that the group is increasingly focusing on partnerships and does not want to do everything completely alone,” said UBS auto analyst Patrick Hummel. With a partner like Horizon, VW can make progress faster and more cost-effectively. VW shares were among the winners on Thursday, gaining almost two percent by early afternoon.
In China, Volkswagen not only spoke to Horizon, but also to other possible partners from the software industry. Negotiations between the VW group and Huawei became known in February. In the summer, the Chinese Volkswagen national company poached Huawei’s chief strategist.
More: For German car manufacturers, the golden days in China are over