Volkswagen AG has teamed up with Chinese partner Xpeng to develop a new architecture for intelligent and electric vehicles, aiming to offer more affordable EVs in its largest market, the German automaker announced on Wednesday.
The new China Electrical Architecture (CEA) will be utilized in locally developed VW-branded EVs starting from 2026, Volkswagen said. This move is part of the company’s strategy to achieve a 40% cost reduction target for its China-developed platform compared to its German-developed MEB platform by streamlining the number of control units.
“Competition is very fierce, and we have to adapt our cost structure to be competitive in this environment,” said Ralf Brandstaetter, Volkswagen Group board member and China chief.
The CEA architecture, featuring a central computer and a zonal structure to control all electronics, is designed to enable functions such as autonomous driving while reducing wiring and components in vehicles, making them more efficient and cheaper to produce.
Volkswagen’s partnership with Xpeng, which began last year with Volkswagen’s acquisition of a 4.99% stake in Xpeng for around $700 million, aims to jointly launch two Volkswagen-branded EV models by 2026. The companies previously announced that the models would utilize Xpeng’s G9 ‘Edward’ platform.
The first of these models, an SUV, is part of Volkswagen’s efforts to regain market share in China, where it lost ground to local rivals. Volkswagen’s market share in China dropped to 14% last year from 18% in 2018, primarily due to declining sales of combustion-engine vehicles.
To attract customers in the entry- and mid-level segments of the EV market, Volkswagen is expanding its product range in China. The company announced last week that it plans to invest 2.5 billion euros ($2.66 billion) in China to expand its production and innovation hub in the city of Hefei in Anhui Province.
Despite facing tough competition from local EV maker BYD, which surpassed Volkswagen as the best-selling car brand in China in late 2022, Volkswagen’s ID.3 has become one of the top-selling EVs in China after the automaker reduced its price by just over $5,100.
The partnership with Xpeng and the development of the CEA architecture are key steps in Volkswagen’s strategy to offer competitive, China-specific, intelligent connected vehicles, aligning with its ‘In China, for China’ approach.
