Khaberni - Volkswagen is strongly betting on the Chinese market, the largest and most competitive car markets in the world. The central question today is: Will these bets succeed in bringing the company back to its leadership position?
In this context, the German company, which previously dominated the market with a share exceeding 50%, invested about 3 billion euros (3.5 billion dollars) in establishing a huge research and development center, the largest for it outside China, in the city of "Hefei" in central China, a relatively quiet city with a population of about 10 million people.
The Associated Press said that this investment represents a radical shift from the traditional model that foreign automotive companies in China have followed for decades, where they relied on developing cars abroad and then manufacturing them locally, with sharing technologies with Chinese partners. However, emerging Chinese companies quickly abandoned this model, and succeeded in sharply reducing sales of foreign brands.
In this context, Thomas Ulbricht, the chief technology officer at Volkswagen Group in China, said: "The time of this business model has passed," clearly indicating the end of the stage of depending on imported innovation.
Describing it as a “radical transformation,” Volkswagen has been carrying out a comprehensive review of its strategy towards the Chinese market since 2022, placing the local consumer at the forefront of its priorities.
The company is currently developing cars specifically designed for Chinese drivers, models that are unlikely to be released in European markets, although they may later find their way to markets in the Middle East and Southeast Asia.
With the launch of these new models, Volkswagen will test how much this massive investment can help it catch up with leading Chinese companies such as BYD and Geely, and regain some of its lost market share.
Rella Suskin, an equity analyst specializing in the European automotive sector at Morning Star, believes that this strategy represents a fundamental element for regaining competitiveness in China. However, at the same time, she expected that these steps would enable foreign companies to maintain their current shares more than enabling them to recover losses they have incurred in recent years.
The most pressing question remains: Is it possible to achieve profitability in a highly competitive market that has led to price reductions to levels described as bankrupting?
Audi, a part of the Volkswagen Group, was a pioneer in this path, launching this year a new brand named “AUDI” in uppercase letters. Volkswagen is also preparing to launch a range of new models in 2026, developed under the company's motto: "In China, For China."
In response, Claire Yuan, director of Chinese automaker ratings at Standard & Poor's Global Ratings, said: "The most important question remains: will this strategy bear fruit? We need to monitor developments, but I believe they are on the right track to catch up."
In the past five years, the Chinese market has undergone radical changes that have caused many foreign car manufacturers to fall behind in competition. Sales of electric vehicles have risen to represent about half of new car sales, at a time when consumers expect their cars to be equipped with the latest digital technology, from large touch screens similar to iPads, to autonomous driving capabilities such as full automatic parking.
In a market that represents about a third of Volkswagen's global sales, the company's cars are no longer the first choice as before. Over four decades, since the beginning of sedan production in Shanghai in cooperation with the state-owned SAIC, models like Santana and Jetta were the backbone of taxi fleets and were the first car purchased by many city residents in China.
Today, it is imperative for Volkswagen to update its lineup in line with what is known as "the speed of the Chinese market." Bill Russo, CEO of Automobility Consulting in Shanghai, says that staying in this market depends on the ability to launch new models and features at an accelerated pace.
Chinese electric car companies release new models within just 12 to 18 months, compared to a period ranging from 3 to 5 years for global automotive companies. Russo emphasizes that this pace is "not an option, but a necessity, and a key factor in enhancing global competitiveness."
In the mid-1990s, Ulbricht worked in northeastern China when Volkswagen was manufacturing sedans in cooperation with the government-owned FAW, importing most of the components from abroad, from seats to wheel rims, as they were not available locally at that time.
Thirty years later, the scene has completely changed. Today, most components are made in China and are also designed there. To accelerate product development, Volkswagen's central management has given broader powers to the Chinese branch in decision-making.
Other foreign companies have taken different paths; some have reduced their presence or withdrawn from the Chinese market entirely. In contrast, Toyota followed a similar approach to Volkswagen, granting its teams in China unprecedented autonomy in product planning and development, as explained by Yuan.
Volkswagen also seeks to benefit from the expertise of emerging Chinese companies in the field of electric vehicles, through its cooperation with XPeng, in order to accelerate the launch of new models and develop their electronic infrastructure, that is, the internal computer system that manages all the functions of the car.
This orientation reflects an increasing recognition among foreign companies that learning from China has become a necessity, not just an option. Many agree that the secret to Chinese companies' success lies in their speed in turning ideas into products, reducing development costs, and meeting customer needs.
In this context, Martin Hoffman, the CEO at Volkswagen and president of the German Chamber of Commerce in northern China, said: "Knowledge exchange is a two-way process between China and Germany."
According to a recent survey conducted by the chamber, about half of the companies among more than 600 participating companies expect Chinese competitors to become leaders in innovation within the next five years, while 9% said they are already in a leading position.
