VW readies $2b to stay strong, smart in China

Carmaker's arm, startup to develop software for autonomous vehicles

Volkswagen said it will spend 2.4 billion euros ($2.35 billion) in China, its largest single investment in the country, to stay competitive in the age of smart electric vehicles. The planned investment will be on co-developing driving-assist functions for electric vehicles with a startup.

The car group said on Friday it is investing $1 billion in Horizon Robotics, which will allow it to get involved earlier in the startup's product development. Volkswagen will spend over 1.3 billion euros to build a joint venture with the company.

"It (the investment) clearly demonstrates the commitment to the future of our business here (in China)," said Ralf Brandstaetter, chairman and CEO of Volkswagen Group China. "We are here to stay. We are here to stay strong."

Beijing-based Horizon is one of the country's leading providers of computing solutions for smart vehicles, specializing in software, algorithms and chip design.

Its solutions for driving-assist and smart cabin functions have been used in a number of models by carmakers including local startup Li Auto.

The transaction with Horizon is expected to be completed in the first half of 2023, said Volkswagen. Its software arm Cariad will hold a 60 percent share in the joint venture that will develop driving-assist and autonomous driving solutions for its electric models in China.

Volkswagen has long been one of the most popular international carmakers in the country, with around one-third of its global sales coming from China last year, but it is losing ground to local companies in the segment of smart electric vehicles.

Chinese marques offer the latest driving-assist functions and infotainment features that virtually make vehicles sleek digital devices on wheels, but such things are so far either absent or less advanced in many models from foreign marques, said analysts.

Brandstaetter said China has been the world's leader in intelligent and connected vehicles since 2015, "always faster than expected".

He attributed China's leading role to factors like the country's clear guidelines as well as the cooperation between the government, scientific institutions and companies.

"To harness this trend of innovation, the best possible way to strengthen our competitive edge is to immerse ourselves in this ecosystem," said Brandstaetter.

Volkswagen did not specify when the software products from the joint venture will be available in its cars but stressed the speed of their development is paramount.

Chang Qing, CEO of Cariad China, said the joint venture will have hundreds of engineers at the start, who will come from both companies.

Brandstaetter said he test-drove some weeks ago an electric Volkswagen ID.4 SUV featuring technology that Cariad and Horizon are already working on together. "It was an amazing experience," he said.

He estimated that annual vehicle sales in China will grow to around 30 million units in 2030, and by then highly autonomous driving will become a decisive factor in competition.

China is the world's largest market for smart vehicles. Over 2.28 million of passenger vehicles sold in China in the first half of this year had driving-assist functions, said Xin Guobin, vice-minister of industry and information technology, at an industry forum late last month.

They accounted for almost one-third of total passenger vehicle deliveries in the first half and were up 46 percent year-on-year, said Xin.