According to Financial Times News, Volkswagen is developing its own AI chip for advanced driving capabilities in China 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 at a development cost exceeding $200 million. This marks VW’s latest move to localize R&D as it prepares to launch about 30 electric vehicles in China over the next five years. The German automaker, which once dominated China’s car market with over 20% share of combustion engine vehicles, now doesn’t even rank among the top ten EV makers in the country. Since late 2022, VW has invested nearly €4 billion in China, including €2.4 billion into Horizon Robotics and $700 million for a 5% stake in Xpeng.
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Desperation Move
Here’s the thing: VW is playing serious catch-up. Chinese EV makers have doubled their market share from about 35% in 2020 to nearly 70% today. That’s an incredible shift in just a few years. Meanwhile, VW—the company that basically owned China’s car market for decades—can’t even crack the top ten in EVs. That’s gotta hurt.
So they’re throwing money at the problem. Billions of euros, actually. But developing your own AI chip? That’s next-level commitment. It’s expensive, technically challenging, and takes years to pay off. Basically, VW is admitting that off-the-shelf solutions from Western suppliers aren’t cutting it in China’s hyper-competitive market.
China-Specific Strategy
What’s really interesting is how China-specific this whole approach is. They’re not developing this chip in Germany—they’re doing it in China, with Chinese partners, for Chinese consumers. That tells you everything about how different China’s EV market has become. Chinese buyers want different features, different software experiences, and apparently different hardware too.
Remember those COVID chip shortages? And the ongoing US-China tech tensions? VW got burned by supply chain issues and doesn’t want to be caught again. By developing their own silicon in China, they’re trying to control their destiny. But it’s a massive gamble—chip development is brutally hard, and $200 million is just the starting point.
Partnership Paradox
Now here’s where it gets complicated. VW is pouring money into multiple Chinese tech companies simultaneously. They’ve got the Horizon Robotics partnership for this chip development. But they also own a stake in Xpeng and are partnering with them on vehicles that will use Xpeng’s own Turing AI chip. So which technology wins? Are they hedging their bets, or creating internal competition?
It feels like VW is trying everything at once because they’re not sure what will work. And honestly, can you blame them? When your market share evaporates that quickly, you throw everything at the wall and see what sticks. The question is whether this scattershot approach can produce the focused innovation they desperately need.
Long Road Ahead
Three to five years for chip delivery is an eternity in the EV world. Look how much the market has changed since 2021. By the time VW’s custom AI chips hit the road in 2027 or 2028, Chinese competitors will be on their third or fourth generation of silicon. Can VW really close that gap?
The analysts are right to credit VW for trying—most foreign automakers are just watching their Chinese businesses slowly decline. But developing chips is a different ballgame than building cars. It requires different talent, different timelines, and different risk tolerance. VW’s betting that controlling the silicon will let them control their fate in China. I’m skeptical, but honestly? It might be their only shot.
