VW China boss Ralf Brandstätter: “Team China is ready to deliver.” Photo: Volkswagen AG
Hefei. “Team China is ready to deliver,” wrote Ralf Brandstätter on the LinkedIn platform on Monday. Pictures posted by Volkswagen’s China boss show him with VW Supervisory Board Chairman Hans Dieter Pötsch in Beijing, Shanghai – and in Hefei. In the eastern Chinese city, Volkswagen is working on the future – and on its survival in China.
For the first time in the company’s 88-year history, a vehicle will be developed and produced entirely outside of Germany. Mass production of the ID.Unyx 07 started on December 31, 2025, after only 13 months of development. The first model is scheduled to come onto the market in the first half of 2026.
In order to be able to compete in the world’s largest car market in the future, the Volkswagen Group China Technology Company (VCTC) in Hefei has been given great entrepreneurial freedom: decisions are made on site, at “China Speed”. Development and production take place locally, with local suppliers.
VW is not only developing its own electric car platform for the Chinese market, but also its own software architecture, the so-called China Electric Architecture (CEA). Developing the software yourself is now as important as developing the drive train and engine, VCTC boss Thomas Ulbrich recently emphasized to journalists in Hefei.
Ulbrich, who is also head of technology at VW China, speaks of a paradigm shift towards software-driven business models. That’s why VW attaches so much importance to it. The company itself controls eleven million lines of code. Ulbrich wears a black shirt with the print: “Shaping the new future.”
30 percent faster, 50 percent cheaper
By developing and producing independently of the headquarters in Wolfsburg, the development time for new vehicles will be shortened by 30 percent, said Ulbrich. At the same time, the production costs for new battery-powered electric cars are 50 percent lower than in Germany – probably also due to the low exchange rate of the Chinese currency Yuan.
VCTC boss Thomas Ulbrich in the new ID. Unyx 07: The software is as important today as the drive train and engine used to be. Photo: Volkswagen
For decades, VW was the market leader in China with its combustion engines. But the Wolfsburg-based company missed the rapid turnaround to electromobility in the People’s Republic and is losing market share in the important Chinese business. There was no model from VW among the best-selling electric cars in China last year. The Chinese competitors, above all BYD, are overtaking VW – and are increasingly competing with the German car manufacturer on global markets.
The consequences of this development are now clearly visible at the company headquarters in Wolfsburg. For years, the billions in profits from the Chinese business masked structural problems in Germany, where two-fifths of VW’s employees work but only 19 percent of the vehicles are manufactured. In the record years of 2014 and 2015, the Chinese business contributed more than five billion euros to consolidated profits. For 2025, VW from China only expects a profit of half a billion to a billion euros.
This is one of the reasons why the cuts in Germany are now even harder – including the first plant closure on the home market in the group’s history.
VW hopes that the trend reversal in China will come in 2026, also thanks to the new Chinese models from Hefei. In total, the group, together with its Chinese joint venture partners FAW and Saic as well as the Chinese electric car start-up Xpeng, wants to bring more than 20 electrified models onto the market by 2027.
Largest VW research and development center outside of Germany
In order to survive in this environment, VW has invested 3.5 billion euros in Hefei. The group’s largest research and development center outside of Germany was created on an area of around 100,000 square meters with more than 100 laboratories.
VW plant in Hefei: The group’s largest research and development center outside of Germany. Photo: AP
However, the actual heart, the software development, is located to the right of the new factory premises – in a rented, typically Chinese office building, in front of which cars are parked in two rows on the street. On the steps it says in English: “One team. One goal. Step on the gas.”
Around 900 software engineers are programming Volkswagen’s future in Hefei. For many Chinese car buyers, in addition to the price, technological features such as intelligent driving functions are the deciding factor in their purchase.
Software development at VW in Hefei: Around 900 software engineers develop the new intelligent driving functions of Chinese VW models from Hefei. Photo: Volkswagen
A Volkswagen test driver in Hefei demonstrates what capabilities the new models offer. In a multi-story parking garage, the vehicle can remember a favorite parking space, find it autonomously and park there. However, many Chinese competitors already have comparable functions on the market.
In order to catch up technologically, Volkswagen entered into a partnership with the Chinese electric car start-up Xpeng, which is considered to be a technological leader, in 2023 and acquired a stake in the company for 700 million euros. The first of the jointly developed models, the ID. Unyx 08, is scheduled to hit the market in February. However, the cooperation in the development of software and vehicles is “limited in time in order to close the gap,” said Ulbrich. “We are currently not planning any further joint development projects,” he clarified.
Most important partnership with AI start-up Horizon Robotics
However, the announcement also makes it clear that VW’s race to catch up in China is not yet complete. The current software architecture is an “important step in closing the gap,” said software boss Frank Han. The next generation, which the former Huawei manager describes as CEA 2.0, is intended to help VW “differentiate itself from the competition” from 2027. From 2029, with CEA 3.0 and our own high-performance processor, there is a chance of a “leap forward that will put us in a leading position”.
From China for the world market
This applies not only to China, but also to other markets. Even before the market launch of the first model developed in China, it became apparent that the “in China for China” strategy was outdated. In mid-October, exports to the Middle East and Uzbekistan began, said Ulbrich. Other countries in Southeast and Central Asia are currently being evaluated.
A press release from the group from the end of 2025 also mentions South America “in the future”. The shorter development speed and lower prices enabled “modern vehicles adapted to international customer needs to be brought to market more quickly,” it says.
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In the medium term, Ulbrich also sees potential in the “southern hemisphere, which is open to the Chinese tech ecosystem.” Export to Europe is not planned. The group is developing its own software architecture for the western hemisphere, together with the US company Rivian. There is a “collaborative decision-making process” with Wolfsburg about where the new China models will be exported, Ulbrich said diplomatically.
But it will probably only be a matter of time before the cheap tech VWs from China compete with the models from Wolfsburg on the world markets.