Volkswagen and Xpeng Develop New EV Architecture to Boost Market Share in China

Volkswagen

Volkswagen collaborates with Xpeng to introduce a new electric vehicle architecture, aimed at reducing costs and enhancing competitiveness in China. The China Electrical Architecture (CEA) will debut in VW-branded EVs from 2026, signaling a strategic shift to regain market presence and target the growing demand for affordable EVs in China.

On Wednesday, Volkswagen AG announced the development of a new vehicle architecture for smart and electric cars in collaboration with its Chinese partner Xpeng. This initiative is aimed at manufacturing more cost-effective electric vehicles (EVs) for China, which is Volkswagen’s largest market.

Volkswagen

The new China Electrical Architecture (CEA) will be incorporated into VW-branded EVs that are developed locally, starting in 2026. Volkswagen expects that CEA will help achieve a 40% cost reduction in its China-based platform compared to the German-developed MEB platform. This will be accomplished by minimizing the number of control units, utilizing a central computer and a zonal structure to manage all vehicle electronics, enabling capabilities such as autonomous driving.

Tesla has been a leader in pioneering this streamlined type of architecture, which simplifies the vehicle’s wiring and components, enhancing manufacturing efficiency and reducing costs.

“Competition is very fierce, and we have to adapt our cost structure to be competitive in this environment,” said Ralf Brandstaetter, Volkswagen Group board member and China chief.

“It’s a decisive step in our development of China-specific, intelligent connected vehicles, and the acceleration of our strong ‘In China, for China’ strategy.”

This collaboration builds on a partnership established last year when Volkswagen invested approximately $700 million for a 4.99% stake in Xpeng, and the companies announced plans to introduce two Volkswagen-branded EV models by 2026, which would utilize Xpeng’s G9 ‘Edward’ platform.

In a move to recapture market share lost to local competitors, Volkswagen revealed in February that the first vehicle to be developed with Xpeng will be an SUV. The collaboration is expected to decrease costs and cut development time by 30% due to shared economies of scale and joint platform and software efforts.

After losing its position as the top-selling car brand in China to local EV manufacturer BYD in late 2022, Volkswagen’s market share in China fell to 14% last year from 18% in 2018, mainly due to the decline in combustion-engine sales.

Volkswagen is striving to enhance its product lineup in China, especially targeting the entry- and mid-level EV segments, as its current offerings are priced higher than many Chinese electric-only competitors.

Just last week, Volkswagen declared its intention to invest €2.5 billion ($2.66 billion) to expand its production and innovation facilities in Hefei, Anhui Province. This investment follows the success of its ID.3 model, which became one of China’s top-selling EVs after Volkswagen reduced its price by just over $5,100.

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