Volkswagen, in strategy shift, plans to globalise China-developed technology

HEFEI, China, Oct 28 (Reuters) - Volkswagen is bringing China-developed technologies to overseas markets including South America and South Africa, as the German automaker seeks to bolster its global competitiveness by banking on China as a key innovation hub.

Volkswagen announced on Wednesday that its Compact Main Platform with the China Electronic Architecture, developed by its research and development center in China's eastern Hefei city in partnership with Chinese firms, will feature in its next-generation models targeting the Global South markets. The rollout will begin in South America by the end of the decade.

“China is a key innovation engine for the Volkswagen Group — and increasingly a product and tech hub for our global markets," Volkswagen Group CEO Oliver Blume said in a statement. "We call it in China, and beyond."

The move marks a shift from Volkswagen's prior "In China, for China" localisation strategy as the automaker struggles to revive its China sales and turn tech tie-ups with local partners such as Xpeng and Horizon Robotics into commercial success. Reuters reported earlier on Volkswagen's weak debut of its first model jointly developed with Xpeng.

The German automaker — undergoing its largest restructuring in 89 years — aims to transform its China operations from an erstwhile profit engine into a cost-efficient development and export base. Volkswagen also announced plans to ship more China-built Volkswagen and Jetta cars to South America and Africa in the coming years.

Legacy automakers, including General Motors, Hyundai and Renault, are increasingly adopting similar strategies to globalise their China-developed technologies as they vie against Chinese competitors in international markets.

As part of its technological advancements, Volkswagen also unveiled VEGA, a package featuring 850-volt fast charging and Level 3 autonomous-driving readiness, slated for a 2027 launch.

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The update comes as Volkswagen battles a dwindling market share in China, where domestic firms such as BYD and Geely have outpaced foreign rivals in electric vehicles, software, and price-driven competition.

Volkswagen's response had been its "In China, for China" localisation strategy. The group has said its local development model can cut development time by up to 30%, while its China Electronic Architecture, jointly developed by Volkswagen and Xpeng, is intended to support software-defined vehicles across multiple platforms and powertrains.

Volkswagen has described its current product offensive in China as part of an effort to "regain the lead" in China.

It has identified Southeast Asia, Latin America and Africa as potential destinations for China-developed models, while ruling out Europe and North America for now.

South America was chosen as the first overseas market for Volkswagen's China-developed architecture as it is cost-sensitive and Chinese automakers are already present in force, Frank Han, chief executive of Volkswagen software unit CARIAD China, said. Deploying the technology in Europe was technically feasible, he added, but any decision would rest with Volkswagen's German headquarters, which would have to consider factors including geopolitics.

A media report said Volkswagen could roll out the software used in its cars sold in China to its mass-market range in Europe.

Chinese automakers are pursuing exports more aggressively as domestic competition intensifies, capacity expands and growth in the home market becomes harder to sustain.

The export push is increasingly central to the growth plans of Chinese manufacturers, although it is meeting trade barriers and political resistance in some markets.

Volkswagen China chief Ralf Brandstatter expects China’s passenger-car market to shrink by 20% this year, or by about 4.5 million vehicles.

For Volkswagen, however, taking Chinese-developed technology abroad is not simply an opportunity to lower costs. It is also a test of whether the group's China reset can produce vehicles that appeal to consumers in China and beyond, analysts have said.

(Reporting by Ju-min Park, Zhang Yan, Qiaoyi Li; Editing by Muralikumar Anantharaman)