SHANGHAI – Volkswagen (VOWG.DE) announced on Wednesday that its joint venture with China’s Horizon Robotics (9660.HK), CARIZON, will develop the automaker’s first in-house chip to power smart driving features in next-generation vehicles for the Chinese market.

The chip is designed to process data from vehicle cameras and sensors, delivering computing performance of 500 to 700 tera operations per second (TOPS). Volkswagen expects to roll out the chip within three to five years. The move aims to strengthen Volkswagen’s research and development capabilities “in China, for China,” though the company did not confirm whether the chip will be used in vehicles sold outside China.

Volkswagen is seeking to regain market share in China, its largest market, where annual sales dropped to 2.75 million units in 2024 from a peak of over 4 million units in 2018. Chinese rival BYD overtook Volkswagen as the country’s best-selling brand in 2023, fueled by growth in affordable electric and plug-in hybrid vehicles.

The new chip will be manufactured using a 3–4 nanometre process, according to Frank Han, China CEO of Volkswagen subsidiary Cariad. It is slated for deployment in Volkswagen’s third-generation China Electrical Architecture (CEA), with the first Horizon Robotics J-series-powered vehicle expected by the end of 2025. By 2030, 80% of Volkswagen Group cars sold in China will be developed on the CEA platform.

Volkswagen has also expanded its partnership with Chinese EV maker Xpeng (9868.HK) to jointly develop electronics architecture for additional models in China, as the company works to keep pace with rapidly evolving local competitors.