Volkswagen’s US$3.5 billion bet: can it regain share in China’s competitive car market?

Volkswagen is making a major bet in China, the largest and one of the most cutthroat auto markets in the world. The question is whether it will work.

The German carmaker, which once dominated the market with a more than 50 per cent share, has invested €3 billion (US$3.5 billion) in a sprawling research and development centre – its largest outside its home country – in Hefei, a low-key central China city of 10 million people.

It is a sea change from how foreign carmakers operated in China for decades by making cars they developed overseas, sharing their technology with local partners. That strategy has been shoved aside by fast-rising local competitors who have sharply cut into the sales of foreign brands.

“This business model is now gone,” Thomas Ulbrich, the chief technology officer of the Volkswagen Group in China, said.

In what Ulbrich calls a paradigm shift, Volkswagen started its latest overhaul of its approach to China in 2022.