According to Financial Times News, Volkswagen is developing its first in-house AI chip 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 as part of a broader push to release about 30 electric vehicles in China over the next five years. VW has invested €2.4 billion into Horizon Robotics and paid $700 million for a 5% stake in Xpeng last year. The chip development alone will cost over $200 million, according to sources familiar with the matter. This comes as VW, once China’s biggest carmaker, doesn’t rank among the top ten companies in the EV segment where Chinese makers now hold nearly 70% market share.
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The Desperate China Catch-Up Game
Here’s the thing about Volkswagen in China: they’re getting absolutely crushed in the EV space. We’re talking about a company that dominated the combustion engine market with over 20% share now not even making the top ten in electric vehicles. Meanwhile, Chinese EV makers have doubled their market share from 35% to nearly 70% since 2020. That’s a staggering reversal of fortune.
So VW is basically throwing everything at the wall to see what sticks. They’ve committed nearly €4 billion in Chinese investments since late 2022. The €1 billion innovation center, the Horizon Robotics partnership, the Xpeng stake – it’s all part of the same desperate scramble. Developing their own AI chips is the logical next step when you realize how far behind they’ve fallen.
Why Chip Control Matters Now
Remember those COVID chip shortages that brought auto production to its knees? Yeah, VW definitely does. Chair Oliver Blume said developing this system-on-chip in China means “taking control of a key technology that will define the future of intelligent driving.” Translation: we can’t afford to be at the mercy of global supply chains or US-China tensions anymore.
And there’s another layer here. The fact that VW’s Chinese partner Xpeng already has its own Turing AI chip that will be used in their joint vehicles probably lit a fire under them. When your partner has better tech than you do, that’s… uncomfortable. Developing their own chip isn’t just about performance – it’s about maintaining some semblance of technological independence.
Is This VW’s Make-or-Break Move?
Look, spending $200 million on chip development sounds like a lot, but in the auto industry? That’s basically pocket change. The real question is whether this three-to-five year timeline is fast enough. Chinese EV companies are moving at startup speed while VW is operating on traditional auto industry timelines.
The joint venture approach is smart – leveraging Horizon’s expertise while keeping development in China where the market demands are. But will it be enough to close the gap? Chinese consumers have shown they prefer domestic EV brands that understand local preferences better. VW’s betting that controlling the AI brain of their cars will make them competitive again. It’s a huge gamble, but honestly, what choice do they have?
