Total rethink: Why China is shaping Volkswagen's global turnaround

In 1983, in a converted tractor factory on the outskirts of Shanghai, a handful of Volkswagen employees began assembling a car most of Europe had already forgotten. The Santana was a rebadged second-generation Passat, modified, toughened and initially assembled from kits shipped from Germany. It was slow, square and utterly unremarkable. China bought nearly four million of them. That car built an empire. For the next three decades, VW was shorthand for German engineering in a country learning to drive. Santanas filled the taxi ranks. Jettas filled the driving schools. Customers queued for the Lavida. Now the relationship that helped make VW one of the world's most successful car makers is undergoing an extraordinary reversal. Having lost its dominance to Chinese rivals, VW has been forced to rethink how it develops cars, from their mechanical platforms and electronic systems to component costs, supplier relationships and the time required to bring them to market. What began as an attempt to recover lost ground in China is increasingly influencing its global operations. Speaking to Autocar, VW brand CEO Thomas Schäfer has confirmed that technology from a new generation of electric car platforms developed in China is destined for future European models, among them a platform that could underpin some three quarters of volume models from VW, Cupra and Skoda. The implications go well beyond cheaper components or more sophisticated software. They suggest a new direction for VW's engineering expertise. If Wolfsburg remains the mothership, its Chinese operations are increasingly becoming the agile speedboat: able to respond more quickly to changing customer demands, exploit new technology sooner and bring models into production in considerably less time than traditional methods allow. And the lessons learned aboard the speedboat are beginning to influence decisions on the mothership. How VW lost China At its peak in 2019, VW Group sold 4.23 million cars in China, commanding close to one fifth of the passenger car market. The formula was simple, enormously profitable and apparently unassailable: engineer in Germany, adapt for Chinese tastes and build at scale through joint ventures with FAW and SAIC. China didn't just make VW rich. Its success there helped finance investment throughout the group's worldwide operations. Then the ground moved. China shifted towards electrification at a pace few established car makers had anticipated, taking lessons from Tesla along the way. But the challenge wasn't simply replacing internal combustion engines with electric motors and batteries. Chinese car buyers had begun to think about cars differently. Increasingly, they expected sophisticated infotainment, advanced driver assistance and software that could be regularly updated. The car had become a smartphone on wheels. Ralf Brandstätter, VW Group's China chief, offered a blunt assessment of the problem. "Tradition alone no longer sells cars. The Chinese customer buys technology." The consequences for VW were brutal. Both BYD and Geely have gone past VW, whole sales had slumped by more than 1.6m units by the end of 2025. Poor sales of its electric models in particular illustrated how much the Chinese market had changed. After just two years on sale in 2023, the poorly-performing ID 3 had seen its prices cut to the equivalent of around £12,500, less than half the price of the European models, as its relatively modest DC charging performance became a growing disadvantage. VW had developed the ID 3 around European requirements and attempted to adapt it to a Chinese market where charging technology, software and customer expectations were advancing faster than its engineering processes could respond. The experience forced VW to confront a difficult question: What if the technologies and development methods being pioneered by Chinese car makers weren't simply necessary to compete in China? What if they offered a better way of developing cars for the rest of the world? The speedboat takes shape VW's response has been to give its Chinese engineering operations greater independence, placing more responsibility for product development, purchasing and software with local teams. At the centre is VW Group China Technology Company (VCTC) in Hefei. Instead of relying on decisions made thousands of miles away in Germany, Chinese teams have greater freedom to develop cars around local requirements, select components and work directly with suppliers.VW says the approach can shorten development times by up to 30%, while development costs on selected projects can be reduced by as much as 50%. Brandstätter has acknowledged that VW's traditional models have become increasingly disconnected from a market rapidly embracing electrification. Moving greater research and development authority to China is, in his words, "a directional decision". For decades, VW's Chinese operations depended on technology developed primarily in Germany. Now China is becoming a source of new models, electronic systems and engineering expertise in its own right. The technology changing VW Central to the transformation is a platform called China Electronic Architecture (CEA), developed by VCTC, Cariad China and Chinese electric car start-up Xpeng. The system provides the electronic foundation for VW's next generation of Chinese models, bringing together computing power, software, infotainment and driver-assistance functions through a simplified network of central computers. Its zonal design replaces numerous individual electronic controllers with fewer, more powerful computing systems. VW says it reduces the number of electronic control units by approximately 30%, simplifying wiring, cutting complexity and lowering costs. Alongside it, Cariad China has established Carizon, a joint venture with Chinese technology company Horizon Robotics, to develop advanced driver-assistance and automated-driving systems. Carizon combines VW's software engineering expertise with Horizon's artificial intelligence and computing technology. Its locally developed systems are designed to cope with the complexities of Chinese traffic, including urban driving, and are being introduced across VW's new Chinese model families. The distinction is important: Xpeng is helping VW develop the electronic architecture, while Carizon is developing intelligent driving functions that can operate within it. Crucially, CEA can be used across different mechanical platforms and powertrains, including electric, hybrid and combustion-engined models. But CEA is only part of the picture - VW's new Chinese engineering programme also includes the Compact Main Platform (CMP), developed for more affordable mainstream models, and China Scalable Platform (CSP), intended for larger, more sophisticated electric and extended-range cars. Together, they form the basis of VW's attempt to develop cars more quickly and at costs closer to those achieved by Chinese competitors. CMP has already reached production and CSP is scheduled to enter production in 2027. And CSP, in particular, provides an important insight into what could happen next in Europe. Why China is moving faster than Wolfsburg Schäfer's explanation of CSP's development reveals how VW's Chinese engineering operations are beginning to influence the rest of the company. CSP and a platform called Scalable Systems Platform (SSP), which will underpin future European and US models, began development at approximately the same time. Yet CSP is scheduled to enter production in China in 2027, while SSP is not due before the end of the decade. The difference isn't simply that Chinese engineers work faster. CSP has been developed around a narrower range of requirements. SSP must accommodate a much broader selection of models, including those with greater towing capacity, different four-wheel-drive configurations and higher top speeds. CSP, by contrast, has been developed around the requirements of the Chinese market, where towing is uncommon and the drivetrain configurations demanded by buyers are much simpler. This reduced complexity has helped VW bring the Chinese platform to production sooner. It has also allowed engineers to exploit local component suppliers more extensively. "CSP has also used a lot of optimisation with the local ecosystem, the use of local components, e-drives and so on," Schäfer said. The result is a platform developed around Chinese production costs and component availability, rather than a specification intended to satisfy numerous international markets. But Schäfer confirmed that the engineering work won't necessarily remain confined to China. "The platforms are still synergetic, so you can still use it, but you'd have to upgrade it," he said. "So we will use certain modules, components and so on from the CSP, and they're jointly developed anyway."VW isn't proposing to replace SSP wholesale with a Chinese platform. Instead, it intends to draw on components and engineering work already completed for CSP, adapting them where necessary for European requirements. The head of the VW brand also made clear that the advantages extend beyond the hardware: "Our cost advantage lies in using the experience and speed and the cost levels that we could achieve here for Europe," he said. Nor would that necessarily mean importing Chinese-made components - Schäfer pointed to Chinese suppliers establishing production operations in Europe, including Hungary and Slovakia. "We might not import them, we might localise them," he said. "We see a lot of Chinese suppliers are putting roots down in Europe." The result? In the future European-market VW models could incorporate technology developed in China and components supplied by Chinese companies operating in Europe, while retaining mechanical platforms engineered for European requirements. Could China's next big VW replace the Touareg? VW is examining whether selected models developed specifically for China could be introduced into Europe. Autocar can confirm that the company is considering China-developed models for the upper end of its European range, rather than replacing established volume sellers with imported alternatives. That raises the possibility of a new flagship SUV following the departure of the Touareg. Production of the current Touareg has already ended, leaving a gap above the seven-seat Tayron. Although VW previously announced an electric successor, no replacement has been confirmed for production. One potential solution is a European version of a Chinese model called the ID Era 9X. At 5210mm in length, the six-seat SUV is considerably larger than the Touareg and uses a range-extender electric drivetrain combining electric motors with a 1.5-litre petrol engine that acts as a generator to charge its battery. A model derived from it could provide VW with an alternative to both a conventional plug-in hybrid and a large battery-electric SUV, particularly for buyers seeking long-distance capability. Another possibility is a future SUV developed from CSP, which has been engineered to accommodate both battery-electric and range extender drivetrains. Neither has been confirmed for Europe. But the signs are there: a Chinese-developed flagship could allow VW to remain in the large SUV segment without committing to the full expense of an entirely new European development programme. Europe's next wave of VW models More consequential still is the possible adoption of CEA in European-developed cars. As previously revealed by Autocar, VW is examining whether the electronic architecture could underpin as much as 75% of its next-generation European volume models across VW, Skoda and Cupra. Schäfer confirmed that the company is investigating whether CEA represents the most cost-effective solution. Asked whether it would ultimately be adopted, he replied: "I believe it will be, but we're not finished yet." A decision would have substantial implications for VW's future European cars, potentially combining locally developed mechanical platforms with electronic systems originating in China. It would also raise questions about the group's investment in a separate electronic architecture being developed with Rivian. The Rivian and VW Technology joint venture is developing software and electronic systems for future Western-market models, backed by VW's commitment of up to $5.8 billion. Adopting CEA across a substantial proportion of European volume models could reduce the number of cars available to absorb the costs of the Rivian-developed system. Equally, maintaining separate architectures risks duplicating expenditure. The eventual decision will depend on development costs, technical capabilities and the expense of adapting each system to different markets. But the fact that VW is considering Chinese-developed electronics for such a substantial proportion of its European models demonstrates how far the relationship has changed. The reversal None of this guarantees VW will recover its former position in China. Its new range models must demonstrate that improved technology, lower costs and faster development can translate into stronger sales and sustainable profitability. Nor will every innovation developed in China prove suitable for Europe. Different regulations, production costs and customer requirements mean that some systems will require substantial modification, while others may remain specific to the Chinese market. But the changes already under way are significant. VW also acknowledges that the methods used to develop these new systems and platforms may be as valuable as the technology itself: shorter development cycles, closer supplier relationships, reduced component complexity and faster decision-making offer benefits extending well beyond any individual model. Brandstätter has cautioned against expecting an immediate recovery. VW has reduced its 2030 China sales ambition to around 3.2 million cars, with a margin target of between 4 and 6 per cent. "It's like a marathon," he said. "Maybe the first five kilometres are done, but three-quarters are still ahead of us." For more than four decades, VW's success in China was built on taking German engineering to the world's largest car market. Now, having lost its dominance there, it is looking to China for the technology, components and development methods that could help determine its future elsewhere. The company that once helped put China on wheels is increasingly looking to China to show it how to build its next generation of cars.

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Total rethink: Why China is shaping Volkswagen's global turnaround

Having lost its long-standing dominance in the world's largest car market, VW turns to China to shape its future

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Total rethink: Why China is shaping Volkswagen's global turnaround

Having lost its long-standing dominance in the world's largest car market, VW turns to China to shape its future

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