Author | Zhang Lianyi Editor | Jiang Tianshuang
The priority of Xpeng Motors has been elevated once again.
On October 27 Beijing time, according to a report by Reuters citing the German business magazine Manager Magazin, Volkswagen is considering an aggressive plan that could reshape its global software strategy: introducing the electronic/electrical architecture currently used only in the Chinese market into Volkswagen models for the European market. If this plan materializes, Rivian, the US partner previously backed heavily by Volkswagen, will see its role significantly reduced, or even face marginalization, in the next generation of vehicles for its core brands.
The report states that the "China Electronic/Electrical Architecture" (CEA), jointly developed by Volkswagen and Xpeng Motors, is expected to become the technological foundation for approximately three-quarters of the next-generation vehicles for the three core brands: Volkswagen, Skoda, and CUPRA. These three brands are currently expanding their electric vehicle product lineups in the European market.
Volkswagen declined to comment on the report.
Previously, repeated delays at software subsidiary Cariad had somewhat hindered the iteration of Volkswagen's electric platforms. The SSP platform was pushed back from 2026 to around 2029. Consequently, Volkswagen turned to Rivian and Xpeng for assistance, relying on MEB+ during the transition period.
If this news proves accurate, it means Volkswagen's previously carefully designed "dual-track system"—relying on Xpeng for the Chinese market and Rivian for Western markets—is facing the most direct challenge from the brand side.
01Cost Analysis: Why the "China Solution" Is Preferred
According to sources cited by Manager Magazin, Thomas Schäfer, head of the Volkswagen brand, is expected to submit this proposal to the group management on Tuesday local time.
The core content involves Volkswagen considering the CEA architecture, jointly developed with Xpeng Motors, as the technological foundation for future vehicles under the three core brands: Volkswagen, Skoda, and Cupra.
The scope of this proposal is quite broad. The report indicates that this architecture may apply to approximately three-quarters of the next-generation vehicles for these three brands, specifically involving follow-up models for the ID. Golf and ID. Passat, as well as volume products like the Skoda Enyaq. These three brands are the main forces driving Volkswagen's electrification offensive in Europe, bearing the scale task of diluting platform costs and maintaining market share.
Reuters also pointed out that Volkswagen has consistently struggled to keep pace with the industry in software development. The group has numerous vehicle models, ranging from mass-market brands to premium brands like Audi and Porsche, making it difficult to scale software across different models. The group's internal software department, Cariad, faces similar difficulties.
To date, Volkswagen's software strategy has been clearly divided geographically: relying on cooperation with Xpeng for localized architectures in China; and placing hope on cooperation with US startup Rivian in Western markets. If Schäfer's proposal is approved, it means Volkswagen will no longer prioritize Rivian's technology for its volume models in Western markets.
Financial data is the most direct driver behind this shift.
According to disclosures by Manager Magazin, the labor cost per hour at RVT, the joint venture between Rivian and Volkswagen in Palo Alto, is approximately €174, whereas the labor cost at VCTC, Volkswagen's Chinese technology company in Hefei, is only about €60, compared to €120 in Germany.
Estimates suggest that switching volume models to the CEA architecture could save Volkswagen's core brand group €4 billion to €5 billion in development expenses; even after continuing to share the fixed costs of the Rivian joint venture, the net savings could still reach approximately €3 billion.
Another comparison is more intuitive: for a next-generation electric Tiguan-level model, adopting Rivian's software would increase development costs by approximately €8,000 compared to the Chinese solution. For Volkswagen, whose profit margin has dropped to 2.8% and which is advancing a plan to cut €20 billion in costs by 2030, the priority of this calculation is self-evident.
02Two Partnerships, Different Contents
Volkswagen's earlier cooperation in automotive software was with Xpeng Motors.
In July 2023, Volkswagen announced plans to invest $700 million in Xpeng Motors.
At that time, Xpeng Motors and Volkswagen announced they would jointly develop two Class B pure electric vehicle models based on their respective core competencies, Xpeng's G9 platform, intelligent cockpit, and advanced driver-assistance system software, to be sold under the Volkswagen brand in the Chinese market.
In June of the following year, possibly out of a need to "reduce risk," Volkswagen Group announced a $5 billion investment (approximately CNY 36.3 billion) in US EV startup Rivian Automotive, which is considered a fierce competitor to Tesla.
At that time, a Volkswagen spokesperson stated that the software jointly developed with Xpeng was for use in China only, while the software jointly developed with Rivian could technically be used anywhere, but no final decision had been made.
Furthermore, this deal strengthened Volkswagen's ties with the US, as Volkswagen planned to double its US market share by 2030 to balance against its largest single market, China.
The modes of cooperation also differed slightly. Volkswagen would not develop joint models with Rivian.
Broadly speaking, the cooperation between Volkswagen and Rivian mainly includes two aspects.
First, Volkswagen and Rivian planned to establish a 50:50 joint venture to develop EV software. Volkswagen would invest $2 billion in the joint venture, with half due by the end of 2024 and the other half by the end of 2026. The investment would be made through direct equity and loan agreements.
Second, Volkswagen would directly invest $3 billion in Rivian, distributed evenly between 2024 and 2026. The first tranche would be via mandatory convertible notes in 2024, while the other two tranches were linked to undisclosed financial and technical milestones in subsequent years.
Volkswagen's large-scale capital injection would enable Rivian to develop more models and reduce operating costs by leveraging production volumes.
Rivian also contributed its intellectual property in software, which would be licensed to the joint venture for application in Rivian vehicles such as the R2, and subsequently in vehicles under various Volkswagen Group brands, including Audi, Porsche, and the revived Scout brand.
According to Rivian's introduction, the cooperation aimed to focus on the design and development of software, electronic control units, and related network architectures. Under the original plan, Rivian technology would first be equipped in the ID.Every1, launched in 2027.
03Volkswagen's Difficult Path to Software
Behind the shifts from Xpeng to Rivian, and even rumors of cooperation with Huawei, lies Volkswagen's "software crisis."
Volkswagen was one of the early companies to recognize the importance of software, but unfortunately, the results have been insignificant, and software capability has always been a weakness for the Volkswagen Group.
In 2020, the delivery of Volkswagen Group's first pure electric model, the ID.3, was delayed because the software was not ready in time. Later, the infotainment system experienced widespread black screens and freezes during cold weather, leading to collective complaints from owners and frequent trending topics.
A classic "story" goes that after the ID.3 delivery delay caused by software issues in 2020, Volkswagen engineers had to perform "wired OTA" updates on approximately 12,000 new cars using laptops in a "tent workshop," working in three shifts to fix software bugs.
Having learned from pain.
In July of the same year, Volkswagen Group released its "2030 NEW AUTO" strategy, proposing to accelerate its transformation into a software-driven mobility service provider.
CARIAD was tasked with playing a key role in transforming Volkswagen from a car manufacturer to an intelligent mobility service provider through software. Its main work included developing a new vehicle electronic/electrical architecture, the Volkswagen Operating System (VW.OS), and the Volkswagen Cloud (VW.AC). In terms of autonomous driving, CARIAD planned to develop driver-assistance and advanced autonomous driving systems together with partners.
As the master architecture for all group models, CARIAD began developing three software platforms:
The E³ 1.1 version has already been launched, capable of upgrading and remotely updating MEB platform products, and has been applied to models such as the Volkswagen ID.4, Skoda Enyaq, and CUPRA Born;
In 2023, CARIAD planned to release the high-end software platform E³ 1.2. This platform would achieve multiple functions, including a new unified infotainment stack and remote online updates for Audi and Porsche vehicles;
In 2025, CARIAD planned to launch a new, unified, scalable software platform and end-to-end electronic architecture: the Software Stack 2.0 would include a universal operating system applicable to all brand models in the group, and more importantly, support Level 4 autonomous driving.
According to this plan, Software Platform 2.0, together with the SSP platform (Scalable Systems Platform), would become the "soul and body" of all vehicles under the Volkswagen Group. That is: by 2025, the Volkswagen Group would undergo a complete transformation, launching not only a new ecosystem but also new business models.
Currently, CARIAD's R&D speed is far behind schedule, resulting in repeated delays in new car launches.
In May 2022, the Volkswagen Supervisory Board pointed out in a meeting that CARIAD's delays in the E³ architecture had led to setbacks in projects such as the Audi Artemis and the pure electric Porsche Macan.
In May 2023, Volkswagen CFO Arno Antlitz stated externally that CARIAD might not bring its next-generation 2.0 platform to market until 2027 or 2028, further delaying the new software release.
Meanwhile, foreign media reported that the Trinity project, the first electric vehicle built on Volkswagen's SSP platform, would also be delayed to 2030.
In October of the same year, there were even reports that Cariad would lay off 2,000 employees.
In March 2024, Volkswagen Group CEO Oliver Blume announced the 2024 "Ten-Point Action Plan," elevating digitalization and software upgrades to independent strategies and stating that Volkswagen would also introduce a platform strategy in the software sector. He particularly emphasized that Cariad would continue to develop its own projects, including autonomous driving software.
Most of these plans have since failed to materialize on schedule: the implementation of E³ 1.2 has been repeatedly postponed, and the combination of Software Stack 2.0 and the SSP platform has been delayed to around 2029.
Clearly, as a top global automaker with long-standing sales leadership, the Volkswagen Group aims to maintain its global advantage in the next era of automobiles. But this is not easy.
If the Volkswagen management meeting on Tuesday ultimately approves the latest proposal, it means a German giant, having bet billions of dollars in the US, has finally chosen a technology solution from China for its core products in its home market.
For Rivian, losing the volume models of Volkswagen's core brands as carriers means the commercial prospects and strategic weight of its joint venture with Volkswagen will face reassessment.
Of course, obstacles remain. Chinese software needs to adapt to European cybersecurity and approval standards, and geopolitical factors mean this solution is almost impossible to enter the US market. The final decision rests with Oliver Blume.
Volkswagen's path to software has taken many detours. This time, it remains to be seen whether it can find the right way.