Volkswagen Collaborates with Xpeng to Introduce Cost-Cutting EV Architecture in China

Volkswagen AG revealed on Wednesday its collaboration with Chinese partner Xpeng to develop a new architecture tailored for intelligent and electric vehicles . The initiative aims to facilitate the production of more affordable electric vehicles (EVs) in Volkswagen's largest market.

Scheduled for implementation in locally produced VW-branded EVs starting from 2026, the China Electrical Architecture ( CEA ) is projected to achieve a significant 40% cost reduction for the China-developed platform compared to the existing German-developed MEB platform.

This reduction will be achieved by streamlining control units, leveraging a centralized computer, and adopting a zonal structure to manage all electronics, including functions such as autonomous driving.

The move aligns with Volkswagen's strategic focus on developing China-specific, intelligent connected vehicles, as emphasized by Ralf Brandstaetter, a board member of the Volkswagen Group and its China chief. He underscored the necessity of adapting the cost structure to remain competitive in the challenging market environment.

The announcement builds upon a partnership established last year, marked by Volkswagen's acquisition of a 4.99% stake in Xpeng for approximately $700 million. The collaboration aims to introduce two Volkswagen-branded EV models by 2026, with both vehicles utilizing Xpeng's G9 'Edward' platform.

In February, Volkswagen disclosed plans for the initial release of an SUV as part of its efforts to reclaim lost market share in China, where it yielded its position as the best-selling car brand to local EV manufacturer BYD in late 2022. Volkswagen's market share in China declined from 18% in 2018 to 14% in the past year amid dwindling combustion-engine sales.

To bolster its presence in China's EV market, Volkswagen intends to invest 2.5 billion euros ($2.66 billion) in expanding its production and innovation hub in the city of Hefei, Anhui Province. This expansion aims to cater to customers in the entry- and mid-level segments, positioning Volkswagen competitively against Chinese electric-only rivals.

Volkswagen's ID.3 model has emerged as one of the top-selling EVs in China following a price reduction of just over $5,100, highlighting the company's efforts to penetrate and thrive in the dynamic Chinese EV market landscape.