Volkswagen CEO Oliver Blume said in a statement: “This is the local production of an entry-level electric car for the European market. In doing so, we combine a clear commitment to Europe as an industrial base and use European industrial policy to ultimately act for the benefit of our European customers.”

Volkswagen said the project will rely on a high degree of localization in Europe, which will also help shorten the transportation routes of parts and thus reduce emissions.

The move comes as Chinese rivals are making a big push into Europe, taking market share and attacking established local carmakers with costs that are 30 per cent lower than their western counterparts.

Volkswagen had said last week that the European auto industry had two to three years to prepare for competition from China and warned that the survival of the local industry was at risk if costs were not reduced.

To that end, Volkswagen Group’s eponymous brand is implementing a cost-saving and reduction initiative aimed at cutting costs by 10 billion euros by 2026.

Volkswagen brand head Thomas Schaefer said the planned entry-level electric model would set the standard in terms of technology, design and quality, despite the lower price. He added, however, that the goal has become more challenging because of rising energy, raw material and labor costs.

“But one thing is clear: electric vehicles in Europe can only succeed if there is political support and a competitive framework.” Schaefer said.