China Why VW is Developing the Future of the Company in Hefei

Related Vendor

Wuxi InfiMotion Technology Co., Ltd.

With the new development center in China, Volkswagen achieves a strategic milestone. What is being developed in Hefei is also planned to be exported to third markets in the future. Waiting loops via Wolfsburg are eliminated.

Volkswagen has completed its development center in Hefei. According to the company, this allows the group to "reduce the development cycle of a complete vehicle by 30 percent." This was stated by VW in a press release.

The Background: VW is under pressure. Chinese manufacturers like BYD and Li Auto are bringing new models to market more quickly and selling them at lower prices. To keep up, the company invested around €2.5 billion/$2.9 billion in the new plant. An area equivalent to 16 football fields has seen the establishment of more than 100 laboratories. Engineers will test batteries, electric drives, and the integration of complete systems there in the future.

No More Waiting Loops Over Wolfsburg

Until now, there have been delays. Engineers and project managers in China had to wait for decisions from Wolfsburg or for the next trip to China by a department head from Germany. The development time for a new car has previously taken about 50 months. With the testing laboratories in Hefei, VW states that the process is now 30 percent faster. The facility is expected to be fully operational next year.

This could also lead to cheaper production of new VW models for the Chinese market, according to the company. "Utilizing local development and earlier supplier integration during the concept phase can reduce the costs of a new model in certain key projects by up to 50 percent," writes the Volkswagen Group in its press release.

"Strategic Milestone" for VW

With the new plant in Hefei, a "completely new level of integration" in vehicle development can be achieved, says Thomas Ulbrich, CEO of Volkswagen Group China Technology Company. For Volkswagen, a "strategic milestone has been reached," the company states. "For the first time in the history of the Volkswagen Group, new vehicle platforms and key technologies can be fully developed and brought to market readiness with all approval processes taking place outside of Germany."

This is about the notorious "China Speed" that VW aims to catch up with. It's also about the urgently needed cost reductions. The Chinese competition is producing modern cars, particularly electric vehicles and hybrids, that are good and significantly cheaper than anything VW currently offers. In short, VW needs to become faster and more cost-efficient.

BYD Surpasses VW

The pressure to act is significant. After Volkswagen had dominated the automotive market in the People's Republic for decades, BYD surpassed it in 2023. Last year, Volkswagen sold 2.9 million cars in China—9.5 percent fewer than the previous year, as calculated by the South China Morning Post. Furthermore, these sales primarily consisted of cars with internal combustion engines, a market that is rapidly shrinking in China.

The billion-dollar investments in China are running parallel to negotiations with the works council in Germany regarding job reductions. From the perspective of the management in Wolfsburg, however, the Hefei project is seen as a necessary investment in the future, as indicated by the statements from Oliver Blume.

The new development center will enable VW to develop, test, and locally manufacture the "next generation of intelligent connected vehicles," says the company’s CEO. The goal is to "strengthen" its position in the world’s largest automotive market. Blume's vision extends beyond China, as made clear by his next statement: VW aims "to become the global technology leader in the automotive industry."

More Than Just "In China for China"

These words reflect a realization among executives: Chinese competitors have outpaced German automakers in electromobility. They are also leading in the next upheaval—autonomous and connected driving.

Consequently, executives in Wolfsburg are no longer focusing solely on the Chinese market. They plan to export more from China to third countries in the future. Although the management publicly speaks a lot about "in China for China," the conceptual thinking has advanced. It is evidently about "in China for China and globally."

Even if this is not explicitly stated in the press release, it can be inferred. VW is already talking about initial exports for which the groundwork is currently being laid in Hefei. Thanks to the dynamics of the Chinese market, a "earlier and more comprehensive validation of key vehicle systems" is being enabled. They can "secure products and technologies for export to regions such as ASEAN and the Middle East," Volkswagen states.