China's auto industry needs to shift its focus from the rapid rollout of new technologies to turning innovation into sustainable economic value, Ralf Brandstaetter, CEO of Volkswagen Group China, said on Tuesday.

Speaking at the World New Energy Vehicle Congress, Brandstaetter said the Chinese passenger vehicle market is expected to decline by around 20 percent this year to about 20 million units, potentially resulting in up to 4.5 million fewer vehicles than in 2025.

"The challenge is no longer innovation itself. The challenge is turning innovation into sustainable value creation," he said.

China has developed one of the world's most advanced new energy vehicle ecosystems, bringing together strong supply chains, charging infrastructure and rapid technological innovation, Brandstaetter said.

But the speed of transformation is also putting increasing pressure on automakers' economics.

More than 500 new or updated models are expected to be launched in China this year, while product cycles that once lasted around seven years are moving toward three years, he said.

At the same time, technologies such as intelligent driving, artificial intelligence and fast charging are rapidly spreading across vehicle segments and price ranges.

While the technology is accelerating industry-wide progress, it is also making it harder for automakers to recover development costs, Brandstaetter said. Average profit margins in China's auto market have fallen to around 1.5 percent, according to his remarks.

"Healthy returns are not an end in themselves. They are the foundation for continuous investments in the next generation of technologies, in quality and safety," he said.

For Volkswagen, the response has been to deepen its localization of technology development. Three years ago, the company shifted its strategy from "from Europe, for China" to "in China, for China", Brandstaetter said.

The Volkswagen Group China Technology Company in Hefei, East China’s Anhui province, is the group's largest R&D center outside Germany. It now employs more than 3,000 people developing next-generation NEV technologies.

The company has also developed its China Electronic Architecture, or CEA, while using artificial intelligence to accelerate vehicle development.

Its GAIA 2.0 system can generate up to 30 million realistic driving simulations and process 4 terabytes of training data every day, Brandstaetter said.

Volkswagen plans to launch more than 20 new energy vehicles in China this year.

New models will combine locally developed vehicle platforms, electronic architecture and intelligent-driving technologies, with the company aiming to make its latest products more closely aligned with Chinese consumers.

Brandstaetter also said Volkswagen plans to increasingly take technologies and capabilities developed in China to overseas markets.

The group is expanding vehicle exports from China, with the Middle East and Central Asia already among its destinations, while markets in ASEAN and South America are expected to follow.

"China is not only a market for Volkswagen. China is increasingly becoming a source of global competitiveness," Brandstaetter said.

He also called for a healthy and sustainable market environment, saying innovation, quality, safety and economic viability need to reinforce each other.

"Competition is essential. It makes companies faster. It drives innovation. But competition must also remain sustainable," Brandstaetter said.

(Source: China Daily)