The automotive industry is in constant flux, demanding that carmakers adapt to new technologies or face obsolescence. Volkswagen (VW) appears to be embracing this reality, particularly in China, its second-largest market. After experiencing a sales downturn in 2024 due to increased competition from local electric vehicle (EV) manufacturers, VW is now strategizing a comeback centered around artificial intelligence (AI) and advanced driver assistance systems (ADAS). This initiative aims to regain lost market share by leveraging cutting-edge technology.
Volkswagen is betting on AI and ADAS to revitalize its market position in China.
In 2024, the VW Group faced a significant setback in China, with sales dropping by nearly 10%. This decline underscores the increasing difficulty Western automakers face in competing with Chinese giants like BYD and Geely. These domestic manufacturers are producing high-quality, low-cost EVs equipped with advanced ADAS technology, appealing to a broad consumer base. The shift in consumer preference towards these local brands has prompted VW to reassess its strategy and invest in innovative solutions.
At the upcoming Auto Shanghai, Volkswagen plans to unveil its new AI-powered ADAS platform, designed to enable automated systems that mimic human driving capabilities. This platform is the result of a joint venture between VW’s software division, Cariad, and Chinese tech firm Horizon Robotics, operating under the name Carizon. Remarkably, the platform was developed in just 18 months. Initially, it will support Level 2++ automated driving, paving the way for Level 3 and higher automation. (Note: L2+ and L2++ are terms used to describe systems that exceed SAE Level 2 but do not fully meet Level 3 standards.)
The platform, created by approximately 500 software engineers in Shanghai and Beijing, is capable of collecting two terabytes of data per vehicle daily and recording 100,000 kilometers (62,000 miles) of test driving information each day. VW intends to integrate this technology into its China-specific Compact Main Platform (CMP), making it accessible in more affordable vehicles. This move aims to democratize advanced driving assistance features, enhancing safety and convenience for a broader range of consumers.
The specific hardware approach VW will adopt for its full-stack ADAS software remains to be seen. Different companies employ varying strategies: Tesla, for instance, relies solely on AI and camera-based vision technology for its Autopilot and Full Self-Driving (Supervised) systems, while Waymo uses a more comprehensive sensor suite, including radar, lidar, and cameras. VW’s choice of hardware will be crucial in determining the effectiveness and reliability of its ADAS platform.
China is at the forefront of autonomous vehicle testing, with at least 19 cities permitting automakers to conduct tests on public roads as of January 2025. Companies like Baidu, WeRide, and BYD are leading these efforts. This environment provides VW with a valuable opportunity to develop and refine its autonomous driving technology. However, China is also addressing issues related to misleading marketing of ADAS features, emphasizing the need for clear communication and responsible deployment of these technologies.
In response to China’s rapid advancements in EVs and autonomous driving, Japanese automakers are joining forces to develop their own semiconductors. This collaboration aims to reduce costs, accelerate development, and regain competitiveness in the global automotive market.
The automotive industry relies heavily on advanced semiconductors for various functions.
Toyota, Honda, and Nissan have formed a consortium called ASRA to create a standardized design for next-generation semiconductors used in cars, according to Nikkei. The project leader acknowledged that Japan is lagging in the development of software-defined vehicles and autonomous driving. The first chips from this project are expected to be ready by 2029. This initiative reflects a concerted effort to catch up with international competitors by pooling resources and expertise.
The consortium plans to use chiplets, which are tiny integrated circuits with specific functions that can be combined into larger packages. This approach allows for greater flexibility and customization in chip design. Thaddeus Fortenberry, vice president of automotive at U.S. chip startup Tenstorrent, noted that Chinese manufacturers prioritize speed and cost over architectural details, enabling them to mass-produce and commoditize automotive technology quickly.
The Japanese government is supporting this effort with a $286 million subsidy, highlighting the country’s commitment to regaining its competitive edge. The standardized chips are designed to be scalable, similar to a common car platform, which can save costs. A basic car would require only a single chip, while a driverless EV would use multiple chips and an AI chip, as reported.
| Automaker | Participation | Objective |
|---|---|---|
| Toyota | Consortium Member | Develop standardized semiconductor designs |
| Honda | Consortium Member | Enhance competitiveness in software-defined vehicles |
| Nissan | Consortium Member | Accelerate autonomous driving technology |
Table illustrating the collaboration among Japanese automakers.
In the EV industry, the quality of patents is more significant than the quantity. A Nikkei report highlights the difference between China and the rest of the world in the EV race: Chinese automakers hold fewer EV-related patents than legacy automakers, but their patents are more relevant and impactful.
BYD is one of the leading Chinese automakers with impactful EV patents.
Toyota owns over 6,000 EV-related patents, more than any other automaker, followed by Volkswagen (2,464), Hyundai (2,250), Honda (1,933), and Ford (1,539), according to Japan’s Mitsui & Co. Global Strategic Studies Institute. Chinese companies lag in overall patent count, with BYD holding just 828 patents, followed by Huawei with 285 patents and CATL with 263.
However, when the institute ranked the patents based on technological impact, number of citations, and licensing scope, Chinese companies ranked highest. CATL, the world’s largest battery maker, has the highest impact score, followed by Korea’s LG Energy Solution. Huawei, Alton New Energy, and BYD—all Chinese OEMs—complete the top five. This suggests that while Chinese companies may not have as many patents, their innovations are more influential and widely adopted.
| Company | Patent Count | Impact Ranking |
|---|---|---|
| Toyota | 6,000+ | – |
| Volkswagen | 2,464 | – |
| BYD | 828 | Top 5 |
| CATL | 263 | 1 |
Table comparing patent counts and impact rankings of various companies.
The Trump administration announced a 90-day pause on tariffs on imported goods from all countries, but the tariffs on the auto industry and on China were exempt. This has led to strategic moves by Chinese companies to navigate these trade barriers.
CATL’s LFP battery technology is being licensed to U.S. manufacturers.
CATL already has licensing agreements with Ford to build lithium-iron phosphate (LFP) battery packs in the U.S. This allows Ford to build batteries locally and avoid tariffs, while CATL earns royalties by sharing its technology. General Motors is also in talks with CATL for a similar deal. This approach allows Chinese companies to benefit from their technological advancements while circumventing trade restrictions.
Patent licensing could be a tool that Chinese companies increasingly deploy against American protectionism. However, questions remain about whether this is a sustainable proposition for American OEMs as Chinese companies continue to grow their technological advantage. The reliance on foreign technology may create long-term dependencies and strategic challenges for the U.S. automotive industry.
| Company | Agreement Type | Benefit |
|---|---|---|
| CATL | Licensing Agreement with Ford | Earns royalties while Ford avoids tariffs |
| Ford | Builds LFP batteries locally | Avoids tariffs on imported batteries |
| General Motors | In talks with CATL | Potential for similar licensing agreement |
Table outlining patent licensing agreements and their benefits.
