VW investing $2.3 billion in Chinese autonomous driving venture

Volkswagen will invest €2.4 billion euros ($2.3 billion) to set up an autonomous driving joint venture with China’s Horizon Robotics Inc. to strengthen the automaker’s tech presence in its biggest market.

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The new unit will develop automated and assisted driving systems for China, integrating numerous functions on one chip to save costs and lower energy consumption, VW said Thursday. The technology will be built for the carmaker’s battery-only models sold in China to accelerate innovation in a market where consumers increasingly pick local EV brands.

The joint venture “will enable us to tailor our products and services even faster and more consistently to the needs of our Chinese customers,” said Ralf Brandstaetter, who runs VW’s China business. Teaming up with Horizon will help “drive the repositioning of our China business.”

VW is under pressure to improve its offering in China, its biggest market with roughly 40% of deliveries. Sales last year slid, outpacing an overall drop as the company struggled to keep up with local consumer tastes, particularly on digital offerings with many VW models exasperating drivers with frozen screens and complex functionality.

Cariad, the manufacturer’s software subsidiary will take a 60% stake in the joint venture, with the transaction due to be completed next year. Cariad is attempting to get back on track after software development hiccups delayed several models, including the important electric Porsche Macan. The disarray culminated in the departure of Chief Executive Officer Herbert Diess with Oliver Blume now in charge at Europe biggest carmaker.

Horizon, backed by investors including Intel Corp., Hillhouse Capital and electric-vehicle maker BYD Co., has technology that can be installed in everything from cars to smart speakers, and already counts Volkswagen’s Audi among its partners, according to its website. As part of the deal, VW will take a stake in the company, gaining a board seat, and invest €1.3 billion to set up the joint venture.

VW’s move to start making advanced chips in China for local models also comes at a time of deep upheaval for the global chip industry. The US on Friday outlined restrictions on doing business with China to hamper its ability to develop the most advanced chips and equip its military, prompting manufacturers to reel in servicing customers in the country.

Having development capability “in China and for China” will help with offering an “independent solution here for the future,” Cariad CEO Dirk Hilgenberg said on a call with reporters.