"To achieve optimal performance in light of the high demands that exist for cars, software and hardware have to come out of one hand," Diess told Handelsblatt.
Volkswagen did not plan to build semiconductors but wanted to own patents if possible, Diess said, adding that the group's software unit Cariad would develop the expertise and expand.
It would not, however, give VW an edge in terms of supply, which has been an ongoing issue for automakers in the face of skyrocketing demand from virtually every manufacturing sector that utilizes electronic components.
Instead, the move is a response to Tesla, which can integrate custom designed chips, allowing the U.S. company to develop new features faster than its competitors.
"Apple and Tesla have higher competence in terms of how semiconductors are defined," Diess said.
Germany's Daimler unveiled a deal with Nvidia last year to develop and equip its Mercedes-Benz cars with a next-generation chip and software platform.