BMW demonstrated a similar system last year, and the idea itself isn't new; automotive applications are, however. The Volkswagen system scavenges waste heat from the exhaust system to generate up to 600W of electricity, offloading some of the generation duties from the engine's alternator.
Taking the load off the engine itself means less power is diverted to auxiliary functions, which thereby directly improves efficiency. Volkswagen says its thermoelectric system can reduce fuel use by up to 5%, reports the International Thermoelectric Society. The 600W generated constitutes about 30% of the typical electrical load of a passenger car.
At the present stage the system is merely a proof-of-concept, with no solid plans for commercial introduction. Nevertheless, as more and more carmakers research the technology it will become cheaper and easier to produce. Being based on a fuel-independent method, it's likely to end up in more and more cars as time goes on.