In the race to develop autonomous driving technology, German automotive giant Volkswagen is taking a significant step by developing its own artificial intelligence (AI) chips in China.

“By designing and developing the System-on-Chip here in China, we are taking control of a key technology that will define the future of intelligent driving,” chief executive Oliver Blume said on Wednesday at the opening of China’s International Import Expo (CIIE) in the Chinese city of Shanghai.

Carizon, a joint venture between Volkswagen’s software subsidiary Cariad and Chinese autonomous driving computing specialist Horizon Robotics, is tasked with developing the chip that processes data from cameras and sensors for driving.

Volkswagen expects delivery within the next three to five years.

For the first time, Carizon is not only developing software for automated driving but also an AI chip, said Cariad board member Peter Bosch.

Blume explained that the Volkswagen Group’s strategy is encapsulated in a five-year plan. The mission is to become a leader in automotive technology, according to Blume.

Announcement comes amid chip concerns

The announcement from the carmker based in the northern German city of Wolfsburg comes amid a chip crisis triggered by the dispute over the company Nexperia.

The Dutch company primarily produces standard chips used in large quantities in the automotive industry. However, China’s export stoppages of Nexperia chips and concerns over potential supply disruptions are affecting European manufacturers, highlighting their dependence on these high-tech products.

Why Volkswagen is developing chips now

With its in-house China chip, Volkswagen aims to compete with Chinese rivals in autonomous driving.

The company is investing more than €200 million ($230 milion) in the new project, according to company sources.

In the world’s largest automotive market, where the business of German brands is increasingly shrinking, local manufacturers are advancing against their foreign competitors in driver assistance systems.

Well-known tech companies are assisting major brands in development or are already involved in the automotive business themselves, like Chinese smartphone manufacturer Xiaomi.

Fatal accidents related to driver assistance systems have raised safety concerns. Chinese regulators have cautioned manufacturers against making excessive promises about the technology.

Driver assistance systems are classified into five levels: from cruise control (level one) to fully autonomous driving (level five).

In China, brands are currently advancing to level three, the level Volkswagen is targeting with its chip. In this stage, the driver may temporarily and in certain situations allow the car to take over driving, potentially allowing them to read a newspaper, for example.