China Market Insider Why Volkswagen Is Developing Its Own System Chip

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VW develops a system-on-chip with a Chinese partner. This technology is important for automated driving functions. Those who do not master it lose their connection. A background report.

The importance of System-on-Chip (SoC) technology for the future of vehicles can be gauged by observing who appears at which press conferences. In early November, the CEO of Volkswagen AG, Oliver Blume, personally flew to Shanghai to announce the first SoC developed by VW.

"By developing the system-on-chip here in China, we are taking control of a key technology that will determine the future of intelligent driving," said Oliver Blume at a press conference on the opening day of the China International Import Expo (CIIE), which this year served as a platform for a dozen major automakers to showcase their innovations, including Tesla, BMW, and Volvo.

Blume stated that the SoC is being developed in China for VW's future smart models, marking "the next logical step in our strategy for outstanding long-term innovation capabilities." In other words, VW is integrating itself into the Chinese automotive chip ecosystem. It now faces competition primarily from American companies, while European OEMs have been left behind.

SoC Developed with Partners

"Self-developed" for this new SoC does not mean "developed solely by VW," but rather by VW and its partner Horizon Robotics, with whom the Wolfsburg-based company has established the joint venture Carizon in China.

VW hopes to reignite its competitive edge against the technologically advancing Chinese rivals with the advanced digital expertise of the Chinese chip manufacturer and specialist in autonomous driving. This marks the first time for the Wolfsburg team that their own engineers have been significantly involved in the design of an automotive system chip, which is why the CEO himself can travel to Shanghai.

In a previous collaboration between the VW Group and the chip manufacturer ST Microelectronics, the term "jointly developed" was still used for the SoC. For the new chip in China, the label "self-developed" is likely accurate, provided that Horizon Robotics is mentioned in the same breath.

System-on-Chip Instead of Microcontroller

SoCs, short for "System-on-Chip," are the new brains for electronics in cockpits and automated driving functions. In the era of the software-defined car, where autonomous and connected driving functions increasingly require more computing power, they are gradually replacing microcontrollers (MCUs) as the central hardware interface for software and AI.

SoCs are complete computers on a chip. They determine the capabilities of a car's electronic functions. Their architecture, system integration, and efficiency have become core competencies that more and more automakers prefer to control themselves.

In-House Development as Part of the Risk Strategy

The new VW SoC in China is expected to be delivered within the "next three to five years" and will feature a "single-chip computing power" of 500 to 700 TOPS, according to VW. It is designed for intelligent driving functions.

Volkswagen is part of a growing group of automakers that prefer to develop their "car brains" in-house. Their goal is to ensure that the value creation during the transition to electric and intelligent driving is not taken over by technology companies or suppliers and to reduce the risk of supply shortages due to epidemics or trade wars.

Auto Start-Ups Rely on Their Own SoCs

Tesla pioneered this strategy many years ago, essentially building a body with wheels around its self-developed chips and proprietary software.

The Chinese electric vehicle manufacturer Nio had already launched its own chip project in 2021. In December 2023, Nio unveiled its first in-house developed SoC named Shenji NX9031. Since March of this year, the Nio sedan ET9 has been delivered equipped with this chip. Additionally, starting in May 2025, Nio will also replace the previously used Orin-X chips from Nvidia in its models ET5, ET5 Touring, ES6, and EC6 with its own SoCs.

The Chinese electric vehicle start-up Xpeng announced this spring that it will utilize its self-developed SoC "Turing" in all of its cars going forward. Furthermore, the chip is also suitable for use in flying cars (eVTOL) and robots, said founder He Xiaopeng.

Two-Thirds of Cars with Level 2 Assistance Systems

The rapid proliferation of self-developed next-generation automotive chips is another example of how competition in the Chinese automotive industry is increasingly defined by intelligent hardware and software rather than traditional performance features. The TOPS of the brain have become more important than horsepower or sporty driving characteristics. This is partly due to the swift adoption of intelligent driving in the People’s Republic, which significantly makes the numerous traffic jams more bearable.

By the end of this year, it is expected that two out of three newly sold cars in China will be equipped with automated driving functions at "Level 2," Zhang Yongwei of the industry association China EV100 stated recently at a conference.