Can Volkswagen Reclaim Its Crown? A Deep Dive into the “In China for China” Strategy and the Fight for VW’s Future

For decades, Volkswagen wasn’t just a player in the Chinese auto market; it was the market. As the undisputed “King of Sales,” VW was synonymous with the automobile for millions of Chinese consumers. But in the last few years, the ground has violently shifted. The explosive growth of domestic Chinese brands and the lightning-fast transition to New Energy Vehicles (NEVs) have shaken Volkswagen’s throne.

Now, facing an unprecedented challenge, VW is betting its future on a radical new strategy: “In China for China.” This isn’t just a marketing slogan; it’s a desperate, all-in effort to transform the German giant from the inside out. From my vantage point here in China, the question is not just whether VW can reclaim its former glory, but whether it can adapt fast enough to survive.

1. The Lost Crown: Charting Volkswagen’s Decline

Since 2022, Volkswagen’s sales and market share in China have been in a steady decline. Its once-dominant market share, which hovered above 20%, has fallen into the mid-teens. The reasons for this decline are a case study in being outmaneuvered in your own stronghold:

• Slow on the NEV Transition: While China became the world’s fastest-moving NEV market, VW was slow to react. Despite launching the ID. series, its lineup felt sparse and its pace of electrification sluggish compared to nimble local brands.

• Losing the “Smart” Battle: Chinese consumers now prioritize the “smart” features of a car above almost all else. Early VW ID. models were plagued by software glitches and a lack of localized smart features, drawing heavy criticism.

• Outpaced by Local Champions: Domestic OEMs like BYD, Geely, and Changan armed themselves with price competitiveness, rapid development cycles, and deeply localized smart technology, rapidly eroding VW’s market share.

This decline hasn’t just hurt pride; it’s impacting the Volkswagen Group’s global profitability and has led to shareholders questioning the leadership of CEO Oliver Blume.

2. “In China for China”: The Anatomy of a Necessary Revolution

To stop the bleeding, Volkswagen has gone all-in on its “In China for China” strategy. This represents a fundamental shift: from simply selling German-engineered products in China to developing, designing, producing, and sourcing everything from China, for China.

Here are the core pillars of this transformation:

• Localized R&D and Design: As CEO Oliver Blume emphasized, “We are tailoring our vehicles to the needs of our Chinese customers in terms of technology and design.” The first locally designed vehicles are set to launch this year and next.

• New Platforms and Tech Partnerships:

  • China Electrical Architecture (CEA): A new, self-developed E/E architecture designed to solve VW’s software woes and deliver the smart, connected features Chinese consumers demand.

  • Compact Car Platform (CMP): A locally developed platform to produce competitive models in terms of both technology and, crucially, price.

  • Strategic Alliances: Acknowledging they can’t do it alone, VW is aggressively partnering with local tech firms. This includes a landmark deal with XPeng to co-develop E/E architecture and a partnership with Horizon Robotics for autonomous driving chipsets. This is a direct attempt to catch up to “China Speed.”

• Aggressive Product Offensive: VW plans to launch 40 new models in China by 2027, with 20 of them being pure battery electric vehicles (BEVs). This demonstrates the sheer urgency of their NEV push.

• A 40% Cost Reduction Target: This ambitious goal is essential for survival and profitability in a market defined by a brutal price war.

3. The Road Ahead: Challenges and Opportunities

While “In China for China” is undoubtedly the correct strategy, the path to success is fraught with peril.

The Challenges:

• The Nèijuǎn (Internal Involution) Meat Grinder: The Chinese market is already a bloodbath of “profitless sales,” where intense price and technology competition is the norm.

• The Speed of Local OEMs: Chinese competitors operate on brutally short development cycles of 1.5 to 2 years, allowing them to lead market trends.

• Shifting the Brand Image: Can the “traditional, reliable German automaker” successfully transform its image into a “smart, innovative NEV leader” in the eyes of the consumer? This is a monumental task.

• The Porsche Problem: Even within the VW Group, the premium brand Porsche has seen its sales in China plummet to a third of what they were two years ago, a stark reminder of how difficult this market has become for foreign brands.

Volkswagen’s Strengths:

• Deep Roots and a Massive Customer Base: With over 40 years in the market and a base of more than 50 million customers, VW possesses an asset that no startup can replicate.

• Vast Network: Its extensive dealer and service network across China is a huge advantage in terms of customer trust and accessibility.

• Reputation for Quality and Safety: The long-standing reputation for build quality and safety is still a significant purchasing factor for many Chinese consumers.

• The ICE Cash Cow: Strong, ongoing profits from its internal combustion engine vehicles provide the financial firepower needed to fund the costly NEV transition.

An Insider’s Conclusion:

CEO Oliver Blume has stated that 2025 will be another challenging year in China, but he believes the company can realize its full potential starting in 2026.

The “In China for China” strategy is Volkswagen’s last, best hope to reclaim its leadership. Whether the German giant can truly understand the nuances of the Chinese market and win back the hearts of consumers with localized technology and products will be a defining test case for the future of the entire global auto industry. The king is fighting for its crown, and the world is watching.