The auto show in Shanghai a year ago delivered a shock to German car manufacturers, as they had all failed to notice how far ahead their Chinese competitors had pulled in electric mobility during the three years of the pandemic.
Now, a year later, the auto show is taking place in Beijing as scheduled. The Volkswagen Group is taking a combative stance. It is not ready to admit defeat just yet. However, a tough period of at least two years lies ahead, writes Joern Petring, who will be reporting from the show in the coming days alongside Table editor Julia Fiedler.
Another topic at the show is intelligent cars that drive autonomously. Today, we look at the issues of data security. Digital expert Rebecca Arcesati from Merics expresses her surprise in a conversation with Fabian Peltsch about why the risks are no longer in focus. The car of the future is a moving data collector. It could potentially investigate its surroundings, its occupants and its owners. Essentially, spies on four wheels.
So far, however, espionage is still being conducted in the traditional way through human agents. German politics has just arrested four alleged spies. Markus Weißkopf has investigated for us which universities the suspect companies had contacts with.
Germany and China signed an agreement on cooperation in autonomous driving during Scholz’s visit – was that surprising to you in view of the fact that we are still not having a clear stance on Chinese security risks through companies like TikTok and Huawei?
It was indeed surprising to me, especially considering the timing. On the one hand, you have several actions that the US is taking now, including the executive order of President Biden that empowered the Commerce Department to investigate security risks related to connected vehicles from China. On the other hand, you have the anti-subsidy investigation by the EU Commission into Chinese EV imports. Against this backdrop, choosing to renew the MoU now gives the impression that the German government is not fully in line with the de-risking agenda of the EU.
Does Germany favor its car market at all costs and therefore ignores security concerns?
German and Chinese companies have been collaborating in this field for several years, for instance using Huawei or Baidu software for the development of German EV and smart vehicles. I understand that the declaration builds on a pre-existing agreement which expired last summer. One focus of the agreement seems to be that German carmakers would be able to take their data out of China.
That has indeed been a long-standing concern due to China’s strict localization requirements.
The Cyberspace Administration of China already relaxed its rules in March to let companies take data out of the country more easily. So, I don’t see any big concessions to Germany in this regard, aside from a commitment to further discussing the unresolved issues around car data. I wonder why the German government still felt a need to sign this joint statement and elevate the topic in such a way, at this time. While the European Commission is trying to encourage member states to run risk assessments for critical infrastructure, including transport and considering supplier-level risks, Germany commits to discussing “reciprocal data transfer” with China…
Do you think the Chinese side pushed towards this declaration to send a signal to the United States for example?
I’ve seen in Chinese media that this collaboration with Germany is framed as a response or an alternative to the US approach. Germany is presented as an actor that’s open to collaboration in favor of innovation and industrial development. This is ironic because the Chinese government has been implementing very similar policies to those it fears the United States might pursue. It increasingly treats foreign technology providers as a national security threat due to fears of espionage, while seeking to limit transfers of sensitive China-origin data to foreign hands.
What are the worst-case scenarios? Can cars be paralyzed or used as weapons, or is that science fiction?
I think it’s absolutely right to imagine the worst-case scenarios when it comes to cyber and data security. It is true that a connected vehicle can be hacked. It can be used for spying. These vehicles collect a huge amount of data, not just related to individuals, but also to locations. They can map out the environment around them. This raises a number of questions. For instance, what if a Chinese-branded vehicle could enter a sensitive military facility because a government employee drives it? But again, company bans should really be the option of last resort. What is needed is policy that evaluates all possible risk scenarios and arrives at the optimal solution.
Can the current EU regulations already limit the risks?
The EU’s General Data Protection Regulation (GDPR-deals with privacy, i.e., protecting individual rights with respect to personal information. It doesn’t really address the sort of security and strategic dimensions of increasingly interconnected and networked societies. That leaves loopholes. There are China-origin hardware and software not just at the level of 5G networks, but also in connected vehicles, in public spaces through security cameras, in logistics infrastructure such as ports, in subsea cables, and so on. There are a few regulations which, to some extent, could already come into play. For example, the NIS 2 Directive. The Data Act also has some provisions in that regard because it regulates the sharing of non-personal data for public use and innovation. But ultimately it will be up to the member state to adopt a de-risking logic in vetting technology vendors.
US Secretary of Commerce Gina Raimondo explained that connected cars are “like smartphones on wheels”. Does this comparison make sense? Which is potentially more dangerous: TikTok, Huawei or Chinese cars?
I wouldn’t say that there’s such a thing as a hierarchy of threats. At the same time, I will say that vulnerabilities in the underlying telecommunication infrastructure can be especially consequential. Germany, for instance, has increased rather than decreased its reliance on high-risk vendors, particularly Huawei, for 5G network gear compared to 4G. This causes a problem because once the network is not secure to a sufficient degree, connected devices within the Internet of Things can also be compromised more easily.
Critics say that comprehensive protection is impossible because millions of codes would have to be checked after every minor update.
Inevitably, as the cars of the future will integrate increasing levels of autonomy, a lot of data is going to be transmitted in real time back to the manufacturer and third party software providers, to enable near-constant updates. With Chinese-manufactured smart cars circulating in Europe, there will be data flows back to servers in China, a jurisdiction that lacks any meaningful and enforceable protections of personal information and other kinds of sensitive data from state access and misuse. We need to be thinking about workable data-sharing arrangements that guarantee data privacy and security. For example, an arrangement like the one that is being implemented for TikTok in the EU, whereby companies headquartered in high-risk jurisdictions should face higher data localization requirements to protect personal information, and in some cases non-personal data of national security or strategic relevance.
Will the Chinese side comply with that?
Well, like all multinational corporations, Chinese companies will want to try and operate in as many jurisdictions as they possibly can without needing to navigate fragmented and sometimes incompatible regulatory regimes. The GDPR already led to a big pushback from industry, because companies felt that it disproportionately drove up compliance costs. At the same time, if Chinese carmakers want to export more to the EU, which their government very much encourages and supports them to do, then they should find ways to meet high standards when it comes to cyber and data security.
How does China use its and our data meanwhile?
There’s a great amount of business-to-government data sharing going on in China, which also affects German carmakers. EV makers must share location and some electro-mechanical data with government-owned platforms, for example. One could imagine this data being used by Chinese authorities for industrial policy objectives, to favor domestic producers which are already outcompeting their German counterparts. There’s a broader thinking in China around the use of data as a factor of production, to stimulate innovation and upgrading in domestic industries. Foreign companies, meanwhile, are unlikely to gain the same level of access to those data pools for R&D purposes as their local competitors do.
Does this mean that German companies in China are helping to strengthen their competitors with their own data?
We don’t have enough evidence to make that claim, but it is a clear risk for competitiveness and trade secrets and something industry also worries about. Moreover, whether they like it or not, German companies, by storing data in China and having to comply with local regulations around business-to-government sharing of data, could also contribute to China’s massive surveillance state.
What do you mean?
Imagine a scenario where a German carmaker was asked to share location or in-vehicle conversation data with Chinese law enforcement. This is not science fiction, but something the system requires and German carmakers will have to comply if asked. While the GDPR protects the privacy rights of European citizens, there are a lot of ethical questions around sharing Chinese consumer data with the Chinese government, including sensitive data. This is an aspect we tend to forget here because we’re so focused on the privacy rights of European citizens.
Rebecca Arcesati is the Lead Analyst for China’s technology and digital policy at the Mercator Institute for China Studies (Merics). Her work focuses on the global presence of Chinese technology companies, data management and artificial intelligence, technology transfers and research collaboration. She has studied and worked in Beijing, Shanghai and Dalian.
Despite the problems with selling electric cars in the Chinese market, Volkswagen sees light at the end of the tunnel. “We are running at high speed to improve in this segment,” said CEO Oliver Blume on the eve of the Beijing Motor Show, which begins on Thursday.
Volkswagen admits that the situation remains difficult for the time being. The price war with manufacturers like the southern Chinese leader BYD is currently hard to win: “In April, we saw another round of price reductions, so the fierce price competition will continue in the coming years,” said Volkswagen China head Ralf Brandstaetter.
At least the Wolfsburg-based company has a clear idea of how they want to fight back. By 2026, they plan to be on par with local competitors in the electric car sector, although that means at least two more tough years. According to Brandstaetter, gaps in the vehicle portfolio need to be closed, especially missing entry-level models in the compact class. Volkswagen expects this segment to sell the most cars in China in the future.
Once again, Brandstätter and Blume referred to their “in China for China” strategy on Wednesday. VW aims to react more dynamically to changes in the fast-paced Chinese market. Local management now has significant autonomy and can make many decisions independently, which should increase efficiency and reduce costs.
The seriousness of VW’s situation in China was underscored by the first quarter’s figures. According to the company, the Volkswagen group, including brands like Audi and Porsche, sold 693,600 vehicles in China. Only 41,000 of these vehicles were electric, representing just six percent. On the broader market, electric vehicles already have a much larger share.
This year, it is expected that 40 percent of all vehicles sold in China will be electric, according to the state newspaper China Daily. By next year, every second new vehicle sold in China is expected to be electric – a quota far from VW’s current reach.
However, Blume pointed out a silver lining in still offering combustion engines in China, as they continue to generate profit. Volkswagen is in a strong position to invest these profits in transformation, according to Blume.
Volkswagen does not anticipate a complete phase-out of combustion engines in China. While predominantly electric vehicles are expected in Chinese megacities and major cities by 2030, in smaller cities with poor charging infrastructure or particularly cold regions in the north, combustion engines will still have a future at the end of the decade, Volkswagen believes.
Blume also emphasized on Wednesday that a key to success lies in relying more on partnerships than before. “We cannot and do not want to do everything ourselves, especially with rapidly developing transformation technologies,” said Blume. He referred to collaborations such as with Horizon Robotics on developing autonomous vehicles and an investment in the Chinese electric car startup Xpeng.
Long-term, specifically by 2030, the Volkswagen group aims to sell around four million vehicles a year in China. According to VW, this would correspond to a market share of 15 percent, with half of all sold cars then being electrically powered. The group sold about 3.2 million cars in China in 2023.
At least a glance at the stock market shows that investors have recently had more confidence in Volkswagen than in some Chinese providers. Compared to last year, VW’s stock price has remained nearly unchanged. BYD, on the other hand, lost about ten percent of its market value, while the younger Chinese electric car startups Xpeng and Nio lost 20 and 49 percent, respectively. The intense competition in the Chinese market challenges not only German manufacturers but also domestic ones.
On Monday, the Federal Prosecutor’s Office informed about the arrest of three suspects accused of working for the Chinese intelligence service. Thomas R. is said to have acquired information on technologies that could be used militarily, through the efforts of Herwig F. and Ina F. and their company.
There are now indications that the company in question is Innovative Dragon Ltd., based in Duesseldorf and London. According to the Federal Prosecutor’s Office, Innovative Dragon Ltd. initiated contacts and collaborations with “persons from German science and research“. There was also a cooperation agreement with a German university.
The initial phase of this cooperation likely involved creating a study for a Chinese contractual partner on the state of technology for machine parts that are also crucial for operating powerful ship engines, such as those used in warships. Behind the Chinese contractual partner stood a member of the Chinese MSS intelligence service, from whom Thomas R. received his orders. The project was funded by state Chinese entities.
The homepage of Innovative Dragon Ltd. is currently inaccessible. Archived internet pages of the company include a reference list mentioning several German universities. Table.Briefings contacted these universities to inquire about their relationships with Innovative Dragons.
TU Chemnitz confirms a collaboration with Innovative Dragon Ltd. from July 2022 to March 2023. They performed a task for Innovative Dragon involving the processing of existing and publicly accessible state-of-the-art technology of sliding bearings.
This was “classified as unobjectionable under foreign trade law after mandatory administrative review”. The task was carried out by a professor at TU Chemnitz and was compensated by Innovative Dragon with 16,000 euros. The name of the professor is not disclosed by the rectorate.
Following this, TU Chemnitz had exploratory talks directly with Chinese prospects about possible collaboration. These were also vetted for foreign trade law compliance beforehand. However, the rectorate stated that this collaboration did not proceed.
There was no contract, but contacts with Innovative Dragon at the University of Duisburg-Essen did occur. The website mentioned the Chair of Mechatronics. Herwig F., Technical Director at Innovative Dragon, had appeared as a speaker at the University of Duisburg-Essen’s Science Forum “Mobility”, as confirmed by the university upon inquiry by Table.Briefings. Furthermore, Innovative Dragon Limited supported the Mobility Forum with 1,000 euros. Herwig F. was “in scientific exchange on questions of autonomous driving“.
However, no jointly agreed project materialized. This was mainly about the autonomous test vehicle Flait from Innovative Dragon Ltd. Several thesis projects at the university were also based on this. The university emphasizes that the exchange was exclusively for civilian projects in the area of autonomous driving.
There is another connection: As the university reports, since this spring, one of the chair holders has been a silent partner with a five percent stake in a newly founded company. This company was registered together with individuals from the circle of Innovative Dragon Limited. The company’s business is exclusively civilian applications of autonomous driving.
According to research by Table.Briefings, this likely refers to Flait GmbH, founded this year, whose CEO is probably a former employee of Innovative Dragon Ltd.
At RWTH Aachen, which had five institutes listed as references on the website of Innovative Dragon, no concrete connections to the company of the suspects could be confirmed. Only one institute had received a cooperation inquiry in 2009, but it was not pursued further.
TU Dresden informed Table.Briefings that both a “central inquiry and an inquiry at the Faculty of Electrical Engineering and Information Technology yielded no indication of a research cooperation with the mentioned company”. Ruhr University Bochum is also not aware of “any contract with the company”. The chair mentioned on the homepage was renamed back in 2012, and the then-holder has passed away.
The University of Stuttgart has declined to comment so far due to ongoing clarifications of the facts.
The current case illustrates that clarifying security-relevant connections can be challenging for universities. Companies like Innovative Dragon Ltd. often act as intermediaries between their Chinese clients and German universities, insiders report. On the Chinese side, intermediary firms are sometimes used to conceal the actual client.
On the German side, professors sometimes manage these cooperations through their own, outsourced, smaller GmbHs. Contracts with universities are then only made if resources of the institution are used. Whether such cooperation through a personal GmbH as a side activity must be declared is unclear. Apparently, it is not legally regulated.
Apparently, reports of secondary activities at many universities do not converge with other relevant information, such as from export control. This highlights the need for further professionalization of processes at universities, as well as overarching support.
In response to Table.Briefings’ inquiry about whether there is a specific need for action, the BMBF calls for more China expertise. “Sound and independent China competence is essential to perceive and assert German interests,” writes the ministry. They will soon publish another funding guideline. The aim is to “further enhance the information and sensitization of universities and research institutions together with the responsible authorities“.
However, business ethicist and China expert Alicia Hennig doubted last year whether this would be sufficient. She called for “binding rules and central facilities for support, otherwise we risk that the transfer of knowledge and technology simply continues unregulated.” with Tim Gabel
ByteDance has announced that it will suspend the reward system in the TikTok Lite app, which was introduced in Spain and France and flagged by the EU Commission as potentially unlawful. “TikTok always tries to find a constructive approach with the EU Commission and other regulators. Therefore, we are voluntarily suspending the reward features in TikTok Lite while we address the concerns raised,” the company stated on Wednesday afternoon. The decision came just one and a half hours before a deadline for a response to the EU Commission was due to expire, so the company temporarily conceded.
However, the Commission does not intend to let the controversial social media provider, owned by China, off the hook. “Our children are not guinea pigs for social media,” fumed Thierry Breton on X (formerly Twitter). He acknowledged that TikTok had disabled the reward system, but added, “The proceedings against TikTok regarding the addiction risk on the platform will continue.”
Thus, ByteDance has narrowly avoided an imminent order under the Digital Services Act, which could have come as soon as Thursday. Under the DSA, regulatory authorities can impose enforcement actions up to blocking a service if they suspect violations. fst
Since early March, Frank Han has been the head of Volkswagen’s software division, Cariad. It’s a crucial role that requires perseverance and tact. The success of Cariad is also tied to the success of Europe’s largest car manufacturer. After all, the cars of the future are smart, connected, and are essentially infotainment systems on four wheels. Chinese automakers have recognized this need and are in the process of overtaking the Germans in the world’s largest automotive market.
Cariad was founded in 2019 by then VW CEO Herbert Diess. The VW subsidiary was intended to become Europe’s second-largest software company behind SAP. Instead, Cariad has become a problematic child. To this day, IT delays the launch and development of key Audi, Porsche, and VW models, including the automated Trinity project. In particular, in China, VW faces “tremendous problems” integrating new, specially developed features into the Cariad software architecture, explained Thomas Ulbrich, board member for e-mobility in February.
In June 2023, Peter Bosch took over the management of the software company to turn things around. The company is still in a restructuring and downsizing process until 2025. To become more efficient, 2,000 positions will be cut. Cariad has become too expensive too quickly, it is said. According to McKinsey, the planned software architecture will cost about 3.5 billion euros more than originally estimated by 2026.
One main reason Cariad has not met expectations is the lack of industry-trained professionals. In China, for example, managers and developers still do not understand that the car must be adapted to the software and not the software to the car, as Chinese corporations have long been doing.
And this is where Frank Han comes in. Before his call to Cariad, he worked for Huawei and the electric car conglomerate Changan, where he also managed the development of software-defined vehicle platforms as Chief Technical Officer. With his help, development times for China-specific software solutions are expected to be reduced by 30 percent. Innovations in the car are intended to reach customers faster. Digital equipment, including novelty gadgets, is often the most important purchasing reason for consumers in China. Han is aware of this.
He studied mechanical engineering and computer science at Southwest Jiaotong University and the University of Texas in Dallas. At Changan, he led a technology team of over 2,000 engineers and 1,500 engineers at partner companies. He was responsible for the comprehensive development of an SDV platform. At VW, Han is expected not just to make improvements. He is to lead the company back to its former successes in China. Volkswagen’s China executive Ralf Brandstaetter plans to launch 30 new e-models by 2023. Cariad is setting the stage.
Last year, Cariad formed a joint venture with the Chinese technology group Thundersoft. The action-movie-like named “Carthunder” will offer tailored software solutions for China. Moreover, Cariad has partnered with the smartphone company Vivo, a major player in China’s mobile market. Their joint “Mobile & Mobility Fusion Joint Innovative Lab” is designed to ensure the seamless integration of mobile devices and electric vehicles.
In his role as CEO, the 53-year-old Han has also advanced to the China board of Volkswagen. There are evidently high hopes for him to successfully complete the work of his predecessor Chang Qing. “Due to the very specific requirements of our Chinese customers, the localization of software development is a key pillar of our ‘in China, for China’ strategy,” commented Ralf Brandstaetter on the new addition. “With his technical expertise and knowledge of regional customer needs, Frank Han will implement the integration of innovative digital technologies into our products.” Fabian Peltsch
Snowscape also in Yushu, a region inhabited by Tibetans in Qinghai Province. However, while snow in Germany in April has become quite rare, here it is still a normal part of this season. For now.
The auto show in Shanghai a year ago delivered a shock to German car manufacturers, as they had all failed to notice how far ahead their Chinese competitors had pulled in electric mobility during the three years of the pandemic.
Now, a year later, the auto show is taking place in Beijing as scheduled. The Volkswagen Group is taking a combative stance. It is not ready to admit defeat just yet. However, a tough period of at least two years lies ahead, writes Joern Petring, who will be reporting from the show in the coming days alongside Table editor Julia Fiedler.
Another topic at the show is intelligent cars that drive autonomously. Today, we look at the issues of data security. Digital expert Rebecca Arcesati from Merics expresses her surprise in a conversation with Fabian Peltsch about why the risks are no longer in focus. The car of the future is a moving data collector. It could potentially investigate its surroundings, its occupants and its owners. Essentially, spies on four wheels.
So far, however, espionage is still being conducted in the traditional way through human agents. German politics has just arrested four alleged spies. Markus Weißkopf has investigated for us which universities the suspect companies had contacts with.
Germany and China signed an agreement on cooperation in autonomous driving during Scholz’s visit – was that surprising to you in view of the fact that we are still not having a clear stance on Chinese security risks through companies like TikTok and Huawei?
It was indeed surprising to me, especially considering the timing. On the one hand, you have several actions that the US is taking now, including the executive order of President Biden that empowered the Commerce Department to investigate security risks related to connected vehicles from China. On the other hand, you have the anti-subsidy investigation by the EU Commission into Chinese EV imports. Against this backdrop, choosing to renew the MoU now gives the impression that the German government is not fully in line with the de-risking agenda of the EU.
Does Germany favor its car market at all costs and therefore ignores security concerns?
German and Chinese companies have been collaborating in this field for several years, for instance using Huawei or Baidu software for the development of German EV and smart vehicles. I understand that the declaration builds on a pre-existing agreement which expired last summer. One focus of the agreement seems to be that German carmakers would be able to take their data out of China.
That has indeed been a long-standing concern due to China’s strict localization requirements.
The Cyberspace Administration of China already relaxed its rules in March to let companies take data out of the country more easily. So, I don’t see any big concessions to Germany in this regard, aside from a commitment to further discussing the unresolved issues around car data. I wonder why the German government still felt a need to sign this joint statement and elevate the topic in such a way, at this time. While the European Commission is trying to encourage member states to run risk assessments for critical infrastructure, including transport and considering supplier-level risks, Germany commits to discussing “reciprocal data transfer” with China…
Do you think the Chinese side pushed towards this declaration to send a signal to the United States for example?
I’ve seen in Chinese media that this collaboration with Germany is framed as a response or an alternative to the US approach. Germany is presented as an actor that’s open to collaboration in favor of innovation and industrial development. This is ironic because the Chinese government has been implementing very similar policies to those it fears the United States might pursue. It increasingly treats foreign technology providers as a national security threat due to fears of espionage, while seeking to limit transfers of sensitive China-origin data to foreign hands.
What are the worst-case scenarios? Can cars be paralyzed or used as weapons, or is that science fiction?
I think it’s absolutely right to imagine the worst-case scenarios when it comes to cyber and data security. It is true that a connected vehicle can be hacked. It can be used for spying. These vehicles collect a huge amount of data, not just related to individuals, but also to locations. They can map out the environment around them. This raises a number of questions. For instance, what if a Chinese-branded vehicle could enter a sensitive military facility because a government employee drives it? But again, company bans should really be the option of last resort. What is needed is policy that evaluates all possible risk scenarios and arrives at the optimal solution.
Can the current EU regulations already limit the risks?
The EU’s General Data Protection Regulation (GDPR-deals with privacy, i.e., protecting individual rights with respect to personal information. It doesn’t really address the sort of security and strategic dimensions of increasingly interconnected and networked societies. That leaves loopholes. There are China-origin hardware and software not just at the level of 5G networks, but also in connected vehicles, in public spaces through security cameras, in logistics infrastructure such as ports, in subsea cables, and so on. There are a few regulations which, to some extent, could already come into play. For example, the NIS 2 Directive. The Data Act also has some provisions in that regard because it regulates the sharing of non-personal data for public use and innovation. But ultimately it will be up to the member state to adopt a de-risking logic in vetting technology vendors.
US Secretary of Commerce Gina Raimondo explained that connected cars are “like smartphones on wheels”. Does this comparison make sense? Which is potentially more dangerous: TikTok, Huawei or Chinese cars?
I wouldn’t say that there’s such a thing as a hierarchy of threats. At the same time, I will say that vulnerabilities in the underlying telecommunication infrastructure can be especially consequential. Germany, for instance, has increased rather than decreased its reliance on high-risk vendors, particularly Huawei, for 5G network gear compared to 4G. This causes a problem because once the network is not secure to a sufficient degree, connected devices within the Internet of Things can also be compromised more easily.
Critics say that comprehensive protection is impossible because millions of codes would have to be checked after every minor update.
Inevitably, as the cars of the future will integrate increasing levels of autonomy, a lot of data is going to be transmitted in real time back to the manufacturer and third party software providers, to enable near-constant updates. With Chinese-manufactured smart cars circulating in Europe, there will be data flows back to servers in China, a jurisdiction that lacks any meaningful and enforceable protections of personal information and other kinds of sensitive data from state access and misuse. We need to be thinking about workable data-sharing arrangements that guarantee data privacy and security. For example, an arrangement like the one that is being implemented for TikTok in the EU, whereby companies headquartered in high-risk jurisdictions should face higher data localization requirements to protect personal information, and in some cases non-personal data of national security or strategic relevance.
Will the Chinese side comply with that?
Well, like all multinational corporations, Chinese companies will want to try and operate in as many jurisdictions as they possibly can without needing to navigate fragmented and sometimes incompatible regulatory regimes. The GDPR already led to a big pushback from industry, because companies felt that it disproportionately drove up compliance costs. At the same time, if Chinese carmakers want to export more to the EU, which their government very much encourages and supports them to do, then they should find ways to meet high standards when it comes to cyber and data security.
How does China use its and our data meanwhile?
There’s a great amount of business-to-government data sharing going on in China, which also affects German carmakers. EV makers must share location and some electro-mechanical data with government-owned platforms, for example. One could imagine this data being used by Chinese authorities for industrial policy objectives, to favor domestic producers which are already outcompeting their German counterparts. There’s a broader thinking in China around the use of data as a factor of production, to stimulate innovation and upgrading in domestic industries. Foreign companies, meanwhile, are unlikely to gain the same level of access to those data pools for R&D purposes as their local competitors do.
Does this mean that German companies in China are helping to strengthen their competitors with their own data?
We don’t have enough evidence to make that claim, but it is a clear risk for competitiveness and trade secrets and something industry also worries about. Moreover, whether they like it or not, German companies, by storing data in China and having to comply with local regulations around business-to-government sharing of data, could also contribute to China’s massive surveillance state.
What do you mean?
Imagine a scenario where a German carmaker was asked to share location or in-vehicle conversation data with Chinese law enforcement. This is not science fiction, but something the system requires and German carmakers will have to comply if asked. While the GDPR protects the privacy rights of European citizens, there are a lot of ethical questions around sharing Chinese consumer data with the Chinese government, including sensitive data. This is an aspect we tend to forget here because we’re so focused on the privacy rights of European citizens.
Rebecca Arcesati is the Lead Analyst for China’s technology and digital policy at the Mercator Institute for China Studies (Merics). Her work focuses on the global presence of Chinese technology companies, data management and artificial intelligence, technology transfers and research collaboration. She has studied and worked in Beijing, Shanghai and Dalian.
Despite the problems with selling electric cars in the Chinese market, Volkswagen sees light at the end of the tunnel. “We are running at high speed to improve in this segment,” said CEO Oliver Blume on the eve of the Beijing Motor Show, which begins on Thursday.
Volkswagen admits that the situation remains difficult for the time being. The price war with manufacturers like the southern Chinese leader BYD is currently hard to win: “In April, we saw another round of price reductions, so the fierce price competition will continue in the coming years,” said Volkswagen China head Ralf Brandstaetter.
At least the Wolfsburg-based company has a clear idea of how they want to fight back. By 2026, they plan to be on par with local competitors in the electric car sector, although that means at least two more tough years. According to Brandstaetter, gaps in the vehicle portfolio need to be closed, especially missing entry-level models in the compact class. Volkswagen expects this segment to sell the most cars in China in the future.
Once again, Brandstätter and Blume referred to their “in China for China” strategy on Wednesday. VW aims to react more dynamically to changes in the fast-paced Chinese market. Local management now has significant autonomy and can make many decisions independently, which should increase efficiency and reduce costs.
The seriousness of VW’s situation in China was underscored by the first quarter’s figures. According to the company, the Volkswagen group, including brands like Audi and Porsche, sold 693,600 vehicles in China. Only 41,000 of these vehicles were electric, representing just six percent. On the broader market, electric vehicles already have a much larger share.
This year, it is expected that 40 percent of all vehicles sold in China will be electric, according to the state newspaper China Daily. By next year, every second new vehicle sold in China is expected to be electric – a quota far from VW’s current reach.
However, Blume pointed out a silver lining in still offering combustion engines in China, as they continue to generate profit. Volkswagen is in a strong position to invest these profits in transformation, according to Blume.
Volkswagen does not anticipate a complete phase-out of combustion engines in China. While predominantly electric vehicles are expected in Chinese megacities and major cities by 2030, in smaller cities with poor charging infrastructure or particularly cold regions in the north, combustion engines will still have a future at the end of the decade, Volkswagen believes.
Blume also emphasized on Wednesday that a key to success lies in relying more on partnerships than before. “We cannot and do not want to do everything ourselves, especially with rapidly developing transformation technologies,” said Blume. He referred to collaborations such as with Horizon Robotics on developing autonomous vehicles and an investment in the Chinese electric car startup Xpeng.
Long-term, specifically by 2030, the Volkswagen group aims to sell around four million vehicles a year in China. According to VW, this would correspond to a market share of 15 percent, with half of all sold cars then being electrically powered. The group sold about 3.2 million cars in China in 2023.
At least a glance at the stock market shows that investors have recently had more confidence in Volkswagen than in some Chinese providers. Compared to last year, VW’s stock price has remained nearly unchanged. BYD, on the other hand, lost about ten percent of its market value, while the younger Chinese electric car startups Xpeng and Nio lost 20 and 49 percent, respectively. The intense competition in the Chinese market challenges not only German manufacturers but also domestic ones.
On Monday, the Federal Prosecutor’s Office informed about the arrest of three suspects accused of working for the Chinese intelligence service. Thomas R. is said to have acquired information on technologies that could be used militarily, through the efforts of Herwig F. and Ina F. and their company.
There are now indications that the company in question is Innovative Dragon Ltd., based in Duesseldorf and London. According to the Federal Prosecutor’s Office, Innovative Dragon Ltd. initiated contacts and collaborations with “persons from German science and research“. There was also a cooperation agreement with a German university.
The initial phase of this cooperation likely involved creating a study for a Chinese contractual partner on the state of technology for machine parts that are also crucial for operating powerful ship engines, such as those used in warships. Behind the Chinese contractual partner stood a member of the Chinese MSS intelligence service, from whom Thomas R. received his orders. The project was funded by state Chinese entities.
The homepage of Innovative Dragon Ltd. is currently inaccessible. Archived internet pages of the company include a reference list mentioning several German universities. Table.Briefings contacted these universities to inquire about their relationships with Innovative Dragons.
TU Chemnitz confirms a collaboration with Innovative Dragon Ltd. from July 2022 to March 2023. They performed a task for Innovative Dragon involving the processing of existing and publicly accessible state-of-the-art technology of sliding bearings.
This was “classified as unobjectionable under foreign trade law after mandatory administrative review”. The task was carried out by a professor at TU Chemnitz and was compensated by Innovative Dragon with 16,000 euros. The name of the professor is not disclosed by the rectorate.
Following this, TU Chemnitz had exploratory talks directly with Chinese prospects about possible collaboration. These were also vetted for foreign trade law compliance beforehand. However, the rectorate stated that this collaboration did not proceed.
There was no contract, but contacts with Innovative Dragon at the University of Duisburg-Essen did occur. The website mentioned the Chair of Mechatronics. Herwig F., Technical Director at Innovative Dragon, had appeared as a speaker at the University of Duisburg-Essen’s Science Forum “Mobility”, as confirmed by the university upon inquiry by Table.Briefings. Furthermore, Innovative Dragon Limited supported the Mobility Forum with 1,000 euros. Herwig F. was “in scientific exchange on questions of autonomous driving“.
However, no jointly agreed project materialized. This was mainly about the autonomous test vehicle Flait from Innovative Dragon Ltd. Several thesis projects at the university were also based on this. The university emphasizes that the exchange was exclusively for civilian projects in the area of autonomous driving.
There is another connection: As the university reports, since this spring, one of the chair holders has been a silent partner with a five percent stake in a newly founded company. This company was registered together with individuals from the circle of Innovative Dragon Limited. The company’s business is exclusively civilian applications of autonomous driving.
According to research by Table.Briefings, this likely refers to Flait GmbH, founded this year, whose CEO is probably a former employee of Innovative Dragon Ltd.
At RWTH Aachen, which had five institutes listed as references on the website of Innovative Dragon, no concrete connections to the company of the suspects could be confirmed. Only one institute had received a cooperation inquiry in 2009, but it was not pursued further.
TU Dresden informed Table.Briefings that both a “central inquiry and an inquiry at the Faculty of Electrical Engineering and Information Technology yielded no indication of a research cooperation with the mentioned company”. Ruhr University Bochum is also not aware of “any contract with the company”. The chair mentioned on the homepage was renamed back in 2012, and the then-holder has passed away.
The University of Stuttgart has declined to comment so far due to ongoing clarifications of the facts.
The current case illustrates that clarifying security-relevant connections can be challenging for universities. Companies like Innovative Dragon Ltd. often act as intermediaries between their Chinese clients and German universities, insiders report. On the Chinese side, intermediary firms are sometimes used to conceal the actual client.
On the German side, professors sometimes manage these cooperations through their own, outsourced, smaller GmbHs. Contracts with universities are then only made if resources of the institution are used. Whether such cooperation through a personal GmbH as a side activity must be declared is unclear. Apparently, it is not legally regulated.
Apparently, reports of secondary activities at many universities do not converge with other relevant information, such as from export control. This highlights the need for further professionalization of processes at universities, as well as overarching support.
In response to Table.Briefings’ inquiry about whether there is a specific need for action, the BMBF calls for more China expertise. “Sound and independent China competence is essential to perceive and assert German interests,” writes the ministry. They will soon publish another funding guideline. The aim is to “further enhance the information and sensitization of universities and research institutions together with the responsible authorities“.
However, business ethicist and China expert Alicia Hennig doubted last year whether this would be sufficient. She called for “binding rules and central facilities for support, otherwise we risk that the transfer of knowledge and technology simply continues unregulated.” with Tim Gabel
ByteDance has announced that it will suspend the reward system in the TikTok Lite app, which was introduced in Spain and France and flagged by the EU Commission as potentially unlawful. “TikTok always tries to find a constructive approach with the EU Commission and other regulators. Therefore, we are voluntarily suspending the reward features in TikTok Lite while we address the concerns raised,” the company stated on Wednesday afternoon. The decision came just one and a half hours before a deadline for a response to the EU Commission was due to expire, so the company temporarily conceded.
However, the Commission does not intend to let the controversial social media provider, owned by China, off the hook. “Our children are not guinea pigs for social media,” fumed Thierry Breton on X (formerly Twitter). He acknowledged that TikTok had disabled the reward system, but added, “The proceedings against TikTok regarding the addiction risk on the platform will continue.”
Thus, ByteDance has narrowly avoided an imminent order under the Digital Services Act, which could have come as soon as Thursday. Under the DSA, regulatory authorities can impose enforcement actions up to blocking a service if they suspect violations. fst
Since early March, Frank Han has been the head of Volkswagen’s software division, Cariad. It’s a crucial role that requires perseverance and tact. The success of Cariad is also tied to the success of Europe’s largest car manufacturer. After all, the cars of the future are smart, connected, and are essentially infotainment systems on four wheels. Chinese automakers have recognized this need and are in the process of overtaking the Germans in the world’s largest automotive market.
Cariad was founded in 2019 by then VW CEO Herbert Diess. The VW subsidiary was intended to become Europe’s second-largest software company behind SAP. Instead, Cariad has become a problematic child. To this day, IT delays the launch and development of key Audi, Porsche, and VW models, including the automated Trinity project. In particular, in China, VW faces “tremendous problems” integrating new, specially developed features into the Cariad software architecture, explained Thomas Ulbrich, board member for e-mobility in February.
In June 2023, Peter Bosch took over the management of the software company to turn things around. The company is still in a restructuring and downsizing process until 2025. To become more efficient, 2,000 positions will be cut. Cariad has become too expensive too quickly, it is said. According to McKinsey, the planned software architecture will cost about 3.5 billion euros more than originally estimated by 2026.
One main reason Cariad has not met expectations is the lack of industry-trained professionals. In China, for example, managers and developers still do not understand that the car must be adapted to the software and not the software to the car, as Chinese corporations have long been doing.
And this is where Frank Han comes in. Before his call to Cariad, he worked for Huawei and the electric car conglomerate Changan, where he also managed the development of software-defined vehicle platforms as Chief Technical Officer. With his help, development times for China-specific software solutions are expected to be reduced by 30 percent. Innovations in the car are intended to reach customers faster. Digital equipment, including novelty gadgets, is often the most important purchasing reason for consumers in China. Han is aware of this.
He studied mechanical engineering and computer science at Southwest Jiaotong University and the University of Texas in Dallas. At Changan, he led a technology team of over 2,000 engineers and 1,500 engineers at partner companies. He was responsible for the comprehensive development of an SDV platform. At VW, Han is expected not just to make improvements. He is to lead the company back to its former successes in China. Volkswagen’s China executive Ralf Brandstaetter plans to launch 30 new e-models by 2023. Cariad is setting the stage.
Last year, Cariad formed a joint venture with the Chinese technology group Thundersoft. The action-movie-like named “Carthunder” will offer tailored software solutions for China. Moreover, Cariad has partnered with the smartphone company Vivo, a major player in China’s mobile market. Their joint “Mobile & Mobility Fusion Joint Innovative Lab” is designed to ensure the seamless integration of mobile devices and electric vehicles.
In his role as CEO, the 53-year-old Han has also advanced to the China board of Volkswagen. There are evidently high hopes for him to successfully complete the work of his predecessor Chang Qing. “Due to the very specific requirements of our Chinese customers, the localization of software development is a key pillar of our ‘in China, for China’ strategy,” commented Ralf Brandstaetter on the new addition. “With his technical expertise and knowledge of regional customer needs, Frank Han will implement the integration of innovative digital technologies into our products.” Fabian Peltsch
Snowscape also in Yushu, a region inhabited by Tibetans in Qinghai Province. However, while snow in Germany in April has become quite rare, here it is still a normal part of this season. For now.
