"RENA" CARIAD set up a Chinese subsidiary, "China Speed" to catch up with Tesla?

Author: Song Jiating

"Our competitors are no longer Mercedes-Benz, Toyota or Stellantis, but Tesla, Foxconn, Apple, LG Electronics and Uber." Shortly after Herbert Diess, CEO of Volkswagen Group, made this statement, Volkswagen's subsidiaries began to make moves.

On April 28, CARIAD, a software company owned by the Volkswagen Group, officially established its Subsidiary in China. At this time, it was only one year after the official establishment of CARIAD. The Chinese subsidiary is also the first overseas subsidiary outside of CARIAD Europe.

Obviously, Volkswagen wants to use this move to demonstrate the strategic importance of China as the largest single market for the Volkswagen Group.

However, to understand its significance for the Chinese market, we may first need to understand why Volkswagen set up such a company as CARIAD.

Why did Volkswagen establish CARIAD?

According to official information, CARIAD's predecessor is the Car.Software Organisation, a Volkswagen software division established in 2020, which has become independent from Volkswagen with the strengthening of the software business, allegedly led by Diess himself, in an attempt to consolidate and further expand the group's software strength and reshape mobility.

Volkswagen's eagerness to build a high-tech software company is based on its previous failures in the software business – which is an important part of the electrification and intelligence of the global automotive industry today. As Diess said, Volkswagen, one of the top in the global market and the European market, has encountered a fierce rival Tesla this time.

It is no wonder that Tesla has been regarded as a little brother by the giants until the Model 3 turned Tesla directly from catfish to shark, not only competing with Volkswagen in Europe, but also riding the Dust in Volkswagen's second hometown of the Chinese market.

Volkswagen's first pure electric vehicle, the Volkswagen ID.3, which was originally scheduled to launch in 2019, was repeatedly delayed for a year due to "unsolvable software problems", resulting in missed the best time to suppress Tesla.

After this battle, the attitude of the giants towards Tesla has undergone a qualitative change. Volkswagen Group executives have admitted that Tesla has been ahead of its competitors in electric vehicle manufacturing and software development for ten years, and Volkswagen has also prepared a "Tesla catch-up plan" for this purpose.

The independence of CARIAD clearly came for this purpose. At present, CARIAD has about 5,000 engineers and developers worldwide, and its main task is to build a unified software platform for all brands of the Volkswagen Group, including a unified and scalable architecture, support VW.OS, an operating system independently developed by Volkswagen, and connect to the Volkswagen Cloud VW.AC.

The new software platform will be released for the first time around 2025. According to the plan, the software developed by CARIAD will account for 30% of the total product usage of the public in 2025, and this proportion will increase to 60% in 2030, and core functions such as artificial intelligence, big data, and security systems must be 100% independently developed.

CARIAD is developing the vehicle's digital capabilities, including ADAS (Advanced Driver Assistance Systems), standardized infotainment systems, software functions for connecting powertrains, chassis and charging technologies, and new ecosystems for vehicles as well as new digital business models.

How much does Volkswagen attach to CARIAD? This can be seen from the amount of investment. According to media estimates, Volkswagen's annual support for CARIAD is 2 billion to 2.5 billion euros, accounting for more than one-sixth of the Volkswagen Group's research and development.

In addition, CARIAD has established R&D centers in Wolfsburg, Ingolstadt, Stuttgart, Berlin, Munich and other cities in Germany, and has also established close cooperation with the Volkswagen Group's international R&D teams in the United States and China.

What do Chinese companies do?

Why did CARIAD take the lead in setting up a subsidiary in China? Here, Diess' statement is also very clear, the most urgent issue facing volkswagen at present is to expand its business in China and develop the software division CARIAD.

The Chinese market accounts for about 40% of Volkswagen's global sales, but in the Chinese electric vehicle market, Volkswagen is far behind its local competitors - in 2021, Volkswagen's ID. series models are doing well, but they are still a little far from the goal of selling 80,000 to 100,000 electric vehicles in China.

Therefore, in order to achieve their own small goals, the public needs to work harder. In order to beat Tesla in its second home, Volkswagen needs strong local software capabilities.

So, what is the CARIAD China team going to do?

"We will develop, update and iterate on our products at Chinese speed based on local customer experience." Changqing Chang, CEO of CARIAD's China subsidiary, said that in line with the mission of "R&D in China, Innovation for China; R&D in China, Innovation for the World", the CARIAD China team will promote the development of software products for Chinese consumers, including the development of a unified and scalable new software platform, advanced driver assistance systems and autonomous driving, and next-generation intelligent interconnection functions with headquarters.

Local software talent is the key to enhancing the R&D strength of CARIAD's Chinese subsidiary.

CARIAD China CEO Evergreen

The CARIAD China team is made up of Chinese faces. Among them, CEO Changqing has more than 30 years of experience in the Volkswagen Group, and has successively held important positions in the development department and product management department of the group, leading the development of modular platforms such as Volkswagen MQB and MEB.

Sun Wei, CHIEF TECHNOLOGY OFFICER of CARIAD China, joined volkswagen group in 2017 and is also the highest-ranking software engineer in china. Previously, he worked at IBM Research Institute for many years and has several years of experience in automotive-related software development.

CARIAD China Chief Technology Officer Sun Wei

In addition, by integrating the best talent from the Volkswagen Group (China), the Volkswagen brand and the Audi brand, CARIAD already has more than 600 employees in China and expects to double its number by the end of 2023, of which more than 90% will be local software talents.

At the same time, CARIAD China is also building R&D forces in Beijing, Shanghai, Chengdu and Hefei, hoping to gradually build a national distributed R&D network.

"The China team will also work closely with the Group's various brands in China and three joint venture partners to provide consumers with software-defined mobility solutions that achieve group scale at the software level." Evergreen explains further.

In just half an hour of release, the CARIAD China team did not have time to disclose more information. However, RENA Media noted that not long ago, CARIAD just invited about 20 local Chinese suppliers to participate in its CARIAD E3 2.0 hardware procurement online kick-off meeting.

E3 2.0 is a unified and scalable software platform architecture developed by CARIAD, a software company owned by the Volkswagen Group, and will be applicable to all brand models of the Group in the future. According to public reports, the hardware procurement tender around CARIAD E3 2.0 focuses on four key areas: digital interconnection, smart cockpit, autonomous driving and shared mobility.

This is also the first time that Volkswagen Group has invited leading Chinese technology companies to participate in the group's global procurement. There is no doubt that although the CARIAD China strategy has just been released, the rehearsal has already begun. Volkswagen's software-centric strategic transformation is accelerating in China, and this is a war that cannot be lost.