Volkswagen pumps 1B euros into China electric vehicle center

Auto Shanghai, which is underway this week, is a yearly opportunity for carmakers and auto suppliers to flex their muscles and show their commitment to China, the world’s largest auto market.

At this year’s edition, Volkswagen announced that it will invest around one billion euros ($1.1 billion) in a new China center for the development, innovation and procurement of fully connected electric cars. Marcus Hafkemeyer, chief technology officer of Volkswagen Group China, will head the new firm as CEO.

Driven by 2,000 staff, the facility named 100%TechCo plans to merge vehicles and components R&D with procurement. The rationale behind the strategy seems to stem from the German auto giant’s urge to better answer China’s fast-changing consumer needs.

“This will leverage synergies in the development process and integrate state-of-the-art local technologies into product development at an early stage,” the company said in its announcement. That is, local suppliers will get to take part in the initial stages of product development so iterations can happen early on.

“The aim is to align the Group’s vehicles even more quickly with the wishes of Chinese customers and to achieve shorter time to market,” the company added.

The launch of 100%TechCo in 2024 will allow Volkswagen to shorten the development cycle of new products and technologies by around 30%, the company said. The center is already expected to “play a major role” in the development of a future Volkswagen brand model to be launched in 2024.

The move came just months after Volkswagen’s other efforts to drive localization for Chinese consumers. In October, the giant announced its joint venture with local auto chip startup Horizon Robotics to develop advanced driver assistance systems (ADAS) and autonomous driving solutions for the Chinese market.

Indeed, Volkswagen is confronting a host of smaller but more agile EV startups in China, its largest market by sales, so adaptation is imperative. Competitors range from internet-native players like Nio, XPeng and Li Auto to new EV subsidiaries of established carmakers, like Geely’s Zeekr, not to mention dominant players BYD and Tesla.

100%TechCo will be based out of Hefei, the capital of China’s eastern Anhui Province where electric vehicle production is booming. Nasdaq-listed EV upstart Nio picked the city as its China headquarters and carries out a big chunk of its manufacturing there. Warren Buffet-backed BYD also has a production base in the city, where one of its bestsellers managed to roll off the assembly line in just a year.

Lastly, the newly minted company will also serve the role of integrating the development projects of all of Volkswagen’s Chinese joint ventures in China, which are SAIC Volkswagen, FAW-VW and Volkswagen Anhui. For decades, foreign automakers entered China by setting up joint ventures with local partners until Tesla became the first wholly foreign-owned automaker in the country.