Western car companies expected China to be the golden goose. The world’s largest auto market was supposed to turn out cars for companies like Volkswagen and General Motors and BMW, feeding insatiable Chinese buyers until the death of the universe. Somehow, none of those companies counted on their local joint-venture partners and homegrown newcomers getting better at making advanced electric vehicles than they are.
Now, many of those car companies are attempting to get back in the game by outfoxing the local competition they helped build up. Today on Critical Materials, our morning roundup of technology and industry news, we’ll look at Volkswagen’s growing plans to catch up in China.
Also on deck today: Toyota and Honda are teaming up in a novel way (it’s not a merger, don’t worry) and BYD may be picking up the slack in Europe. Let’s dig in.
30%: Volkswagen To Launch 11 New Models In China, For China
Volkswagen ID.Code Beijing Showcar (2024) Sketches
The decline of Western and other Asian automakers in China is a two-fold problem. On one hand, Chinese car companies do seem to be objectively better at things like the software experience, charging and battery technology. But it’s also true that they simply got better at making cars that directly suit Chinese buyers’ tastes—connected and entertainment features, for example, that are must-haves in situations like heavy traffic. Simply shoehorning something like an ID.4 or ID.7 into those buyers’ driveways because it’s what VW sells elsewhere isn’t working anymore.
So to hit back, established automakers are increasingly tailoring their offerings to Chinese tastes, all while partnering with local companies for the technology know-how that they’re currently lacking. Similar to its Rivian tie-up in the West, VW is turning to China’s Xpeng for future software architectures. It’s also leaning on longtime partner FAW Group for a huge new product push, CNBC reports today:
The lineup includes six electric vehicles, two plug-in hybrids and two range-extended EVs under the Volkswagen brand, which will be introduced to China starting in 2026, it said in a statement on Monday that details a new strategic agreement between the companies. The first electric model of the Jetta brand will be released next year to tap into rising demand for EVs, with a focus on the entry-level market, it said.
The new models will come with high-performance digital features, such as autonomous driving capabilities, that can receive over-the-air updates, VW said. Beyond electrification, Volkswagen will incorporate its engine technologies in future internal-combustion engine, plug-in hybrid and extended range models, it said.
The new technology setup, exclusively tailored to China, will enable the company’s joint ventures to respond more quickly and “effectively to new customer requirements and market changes in the future,” Volkswagen’s China head Ralf Brandstaetter said in the statement.
VW is working to speed up the pace with which it releases and updates new products. China already does this at warp speed while our automakers make major changes about once a decade. The automaker is also teaming up with digital cockpit system developer Ecarx to put more advanced software suites into its cars.
Step up, or get smoked. Those seem to be the only options these automakers have in China right now. You may think it’s better to fold their cards and go home at this point, but China is still the VW Group’s largest single market and one responsible for about one-third of global sales in 2023 alone. That’s not revenue any company wants to walk away from. Can they get these models out in time, and will Chinese buyers respond?
60%: Honda To Buy Hybrid Batteries From Toyota’s U.S. Plant
Toyota Battery Manufacturing, North Carolina (under construction)
Tariff threats make for strange bedfellows. If the U.S. does end up imposing stiff import taxes on all sorts of goods, it’s going to make cars more expensive to produce and sell. All of that uncertainty comes at an already complex and expensive time as every automaker aims to figure out an electrified future.
Even if demand for purely electric vehicles is more uneven than expected, American buyers clearly want more hybrids—and that runs into the same battery production challenges as EVs do. Hence, Honda seems poised to purchase hybrid batteries from Toyota’s new U.S. plant, according to a report from Nikkei Asia:
Honda Motor will procure batteries for its hybrid vehicles (HVs) from Toyota Motor’s plant in the U.S., Nikkei has learned, as President Donald Trump’s latest tariff announcements begin to reshape global supply chains.
Starting in fiscal 2025, Honda will take in batteries for approximately 400,000 vehicles, enough for all of the HVs it sells in the country.
Honda now sources batteries for the cars it assembles in the U.S. from Japan and China but is bracing for the higher tariff risk under Trump. Honda’s move is part of a wider effort by Japanese automakers to join forces in establishing new supply chains.
The deal could be a win-win for both as Honda seeks to ramp up its hybrid game here, and Toyota aims to bring costs down:
Honda estimates that 25% reciprocal tariffs on Mexican and Canadian goods could cost the company around $4.7 billion annually. The company plans to shift some production from Canada and Mexico to the U.S. and restructure its supply chain to minimize the impact on its business.
As for Toyota, it plans to increase the ratio of electric models, including hybrids, that it sells in North America from 40% of total sales in 2024 to 80% by 2030. The automaker has allocated huge amounts of money to its U.S. battery factory. By adding Honda to its client list, Toyota can reduce the costs associated with the plant.
Your guess is as good as mine as to what will happen with the tariff threats. But any automaker who was able to invest early on in U.S. manufacturing, especially for batteries, will weather this chaos better than most.
90%: BYD May Have Bigger Plans For Germany
When I was in Brussels two weeks ago for that Toyota event, I saw my first BYD Seal on the road. I have to admit that it looked pretty handsome, and the specs seem to make it a promising alternative to something like a Tesla Model 3 or a Polestar 2.
BYD is just getting started in Germany, Europe’s largest auto market. But as the local industry falters, it may pick up the slack with a dedicated German car factory. This would be BYD’s first in Western Europe and arguably its most important yet to both its global expansion plans and how it aims to duck anti-China tariffs. Here’s Reuters with the scoop:
Chinese electric vehicle giant BYD is considering Germany for a possible third assembly plant in Europe, a source familiar with the matter told Reuters, after the region’s biggest economy and car market opposed EU tariffs on China-made EVs last year.
Chinese carmakers are looking to set up manufacturing and assembly plants in Europe as they seek to sell more lower-cost cars in the region to challenge European competitors as demand slows in China, the world’s largest car market.
[…] BYD’s site in Hungary should launch production in October, while the factory in Turkey should come on line in March 2026. When fully operational, they will have a total production capacity of 500,000 cars per year.
As well as EVs, BYD is also betting on hybrid technology for its European expansion.
It’s important to note that this is unconfirmed for now, but if it happens, it would put BYD into a whole other ball game in Europe.
100%: What Automotive Team-Up Do You Want To See?
Photo by: Mazda
VW is partnering with Rivian, Xiaomi and FAW. Toyota’s teaming up with Honda. BMW is turning to Huawei for help as well. It seems like every day now, we get a new story about some joint venture, tie-up or partnership. This does make sense; delivering the electrified, software-focused future of cars will be an expensive and complex endeavor. Most players won’t be able to pull it off on their own, especially when China has such an advanced lead.
So what partnerships would make sense in your mind? Personally, I’d love to see some entity help Mazda make some great EVs that we can actually buy in America. That would be nice. Drop your own ideas into the comments.
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