It’s fair to say that no one at Volkswagen paid attention when tech billionaire He Xiaopeng founded Chinese automaker Xpeng in 2014. Volkswagen was back then an automaker at the top of its game, with an acclaimed product portfolio that ran from mainstream VWs and premium Audis to ultra-luxury Bentleys and ultra-performance Lamborghinis. It also sold more cars in China than any other western automaker.

Well, they’re paying attention in Wolfsburg now, because Xpeng is today helping Volkswagen develop EVs for the Chinese market. “We are the first Chinese automaker to empower a legacy manufacturer,” says Xpeng vice-chairman and president Brian Gu. “And it will set the trend.”

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Imagine a 10-year-old Hyundai stepping in to help GM develop a new car for Korea in 1977. The Volkswagen-Xpeng deal shows just how fast Chinese automakers are developing skills and expertise that once took decades to master. And Brian Gu makes it clear China's speed is about to transform the auto industry in ways that only just a few years ago seemed unimaginable.

Xpeng’s goal, Gu says, is to become a global company focused on AI-defined mobility, producing electric vehicles, robots, even flying cars. And soon: Approximately 40 percent of Xpeng’s employees work in the company’s R&D department, and more than half of them are working purely on software and AI. Among other things, they have developed their own computer chip in-house, the Turing AI. With a 40-core processor, Xpeng claims the Turing AI chip supports models with up to 30 billion parameters and delivers the power of three high-performance chips in one. It has been specifically designed to power the company’s coming generation of AI-defined products, including EVs with Level 4 autonomous driving capability.

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Automakers don’t make computer chips. They’re embedded in computing and control systems sourced from third-party suppliers. But Brian Gu believes designing chips in-house will give Xpeng a competitive advantage. “Vehicles are becoming more a technology product than a machinery product,” he says, “so the iteration, the evolution [of the vehicle] will be much faster than before. If you are not able to control the development cycle and timing, you'll be left behind.”

Gu believes that within a few years the ability to develop technologies such as software and chips and large learning models for AI in-house will be as important for automakers as being able to style sheet metal and engineer powertrains themselves. And he’s convinced not every automaker will survive the coming automotive AI revolution. “Going forward, what it takes to be successful in the smart EV industry is going to be a lot more complex than the traditional automotive capabilities,” he says. “You have to really think about what is the future [of the automobile] and not many legacy automakers may be able to acquire the necessary new capabilities.”

Bottom line: Truly smart, AI-defined cars are coming, and they’ll be here quicker than you think. And the need to embrace AI as a core competency will drive further consolidation of the auto industry, both among the established manufacturers and the bustling bunch of Chinese newcomers. The current Volkswagen-Xpeng collaboration is just the beginning.