Volkswagen is expanding its strategy to use China as a low-cost manufacturing and development base for vehicles destined for overseas markets, though the group has ruled out exports to Europe, citing regulatory and tariff barriers.
The German automaker can now develop and build a new electric vehicle in China at roughly half the cost of doing so in other regions, the Financial Times reported, as European carmakers face mounting pressure from lower-cost Asian rivals.
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The cost savings stem from lower labour expenses, faster development cycles, local battery sourcing and supply-chain efficiencies. A central pillar of the strategy is Volkswagen’s new research and development hub in Hefei, which has been established to accelerate next-generation vehicle development.
Thomas Ulbrich, chief technology officer at Volkswagen Group China, said the facility allows software, hardware and vehicle engineering to move forward at the same time. “We can now run software, hardware and full-vehicle validation processes in parallel, shorten decision loops and bring innovations to maturity much faster,” Ulbrich told the Financial Times.
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Volkswagen said these changes have reduced development time by about 30%, compared with a traditional vehicle programme that typically takes around 50 months. The company has invested billions of dollars in China in recent years as part of this transformation.
The automaker has already started exporting China-built petrol sedans to the Middle East and is assessing further shipments to Southeast and Central Asia. However, it does not plan to ship China-made vehicles to Europe. Executives said differences in vehicle electronic architectures and European import tariffs on Chinese-built EVs would erode the cost advantage.
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Volkswagen is also stepping up its product push inside China, where it plans to introduce 30 new electric models over the next five years. Despite its historical strength in conventional vehicles, the group currently does not rank among the top 10 brands in China’s battery-electric or plug-in hybrid segments, although it still holds about 20% share of the internal combustion engine market.
