German automaker Volkswagen is developing a specialized semiconductor in-house for its assisted driving systems in China, a strategic pivot aimed at reclaiming market share and gaining control over critical technology. The move, part of the company’s “In China, for China” strategy, seeks to counter the rapid rise of domestic competitors and insulate the manufacturing giant from global supply chain volatility and geopolitical tensions.
The new system-on-chip, or SoC, will be designed to power advanced autonomous driving features, positioning Volkswagen to compete more effectively with tech-forward local brands like BYD, Nio, and XPeng. Responsibility for the chip’s development falls to Carizon, a joint venture established in 2023 between Volkswagen’s software division, CARIAD, and Chinese technology firm Horizon Robotics. This initiative marks the first time Volkswagen has designed such a component in-house, signaling a deeper commitment to mastering core technologies directly within the world’s largest auto market.
Countering Fierce Local Competition
Volkswagen remains the leading foreign automaker in China, but its position has been challenged by the surging popularity of domestic brands that are adept at integrating sophisticated technology tailored to local consumer preferences. Chinese electric vehicle manufacturers have set a high bar for smart driving capabilities, which have become a key differentiator for customers. Competitors such as Nio and XPeng have already developed their own chips to power the autonomous features in their popular vehicles.
To address this, Volkswagen is accelerating its localization strategy, moving beyond simply manufacturing vehicles in the country to developing core systems there as well. “We are accelerating and deepening the implementation of our ‘In China, for China’ strategy—moving beyond localised production to mastering the core technologies that shape tomorrow’s mobility,” said Ralf Brandstatter, CEO of Volkswagen Group China. This approach aims to create a fully localized research and development ecosystem, from software and chips to the final vehicle.
The CARIAD-Horizon Robotics Partnership
The chip development project is spearheaded by Carizon, the joint venture between Volkswagen’s software unit, CARIAD, and its Chinese partner, Horizon Robotics. This collaboration is central to the automaker’s goal of creating advanced driver-assistance systems (ADAS) specifically for the Chinese market. The joint venture, formed in 2023, combines Volkswagen’s automotive expertise with Horizon Robotics’ proficiency in intelligent driving solutions.
By partnering with a local tech firm, Volkswagen gains crucial expertise in a highly specialized field while ensuring its systems are aligned with the nuances of China’s traffic conditions and regulatory environment. The venture is already bearing fruit, with its first ADAS solution slated for integration into Volkswagen’s vehicles in 2026. The development of a unique SoC is the next major step in this collaboration, deepening the technological integration between the two companies.
Aiming for Higher Levels of Autonomy
The ultimate goal for the new chip is to enable Level 3 automated driving and beyond. This level of autonomy allows a vehicle to make independent decisions, such as accelerating to pass a slower car on a highway, though it still requires the driver to be available to take back control when prompted. Such capabilities depend on processing immense amounts of data from a vehicle’s cameras and sensors to navigate roads and react to traffic, a task for which a powerful, specialized SoC is essential.
In a statement, Volkswagen Chairman Oliver Blume emphasized the strategic importance of this technology, calling it key to “define the future of intelligent driving.” Chinese automakers are racing to commercialize these advanced features, with some already claiming their vehicles possess Level 3 computing power. Volkswagen’s in-house chip is intended to provide the necessary performance to compete at this high-tech frontier, giving its vehicles the ability to “think” and respond with greater sophistication.
Securing Critical Supply Chains
The decision to design a proprietary chip is also a defensive measure against the supply chain disruptions that have plagued the auto industry. Severe semiconductor shortages during the COVID-19 pandemic forced many manufacturers to halt production or sell vehicles without certain electronic features. More recently, geopolitical friction has become a significant factor. Washington has steadily tightened export controls on advanced semiconductors, while a dispute between China and the Netherlands over chipmaker Nexperia has created supply uncertainty for European carmakers, including Volkswagen.
By developing its own chip in China, Volkswagen reduces its reliance on third-party suppliers and gains greater control over a component that is fundamental to modern vehicle architecture. “By designing and developing the system-on-chip here in China, we are taking control of a key technology,” Blume stated. This vertical integration is a crucial step toward ensuring production stability in a turbulent global landscape.
Project Timeline and Future Outlook
According to the company, the new assisted driving chip is expected to be ready for deployment within the next three to five years. This timeline positions the technology to be a core component of Volkswagen’s next generation of intelligent vehicles for the Chinese market. While the initial focus is on China, Volkswagen plans to align these advancements with its global technology roadmap. This suggests that innovations and expertise developed through the Carizon venture could eventually be shared across Volkswagen’s worldwide operations, strengthening its capabilities globally.
