The fallout from Volkswagen ousting of its CEO Herbert Diess on Friday not only brings repercussions to its product cadence, but it’s also raising questions about the quality of its corporate governance by outside investors.
Diess’s tenure ends Sept. 1, when he will be replaced by Oliver Blume, currently the CEO of Porsche. Blume will become CEO of both Volkswagen Group and Porsche.
The move comes as Volkswagen as starts U.S. assembly of all-electric ID.4 crossover at its plant in Chattanooga, Tennessee today. Ultimately, it’s the ID.4 and its buggy software that led to Diess’s dismissal after a tumultuous turn at the helm. But it’s one that has come with unexpected ramifications.
What led to his removal
Diess started his tenure at Volkswagen as the head of the VW brand in 2015, having come from BMW. Joining just after the diesel emission scandal broke, Diess pushed the Volkswagen Group’s $91 billion transition to battery-electric vehicles to counter fallout from the diesel crisis, initiating the all-electric ID sub-brand in 2019. Transforming the massive automaker into the digital age meant move would cost the jobs, something Diess freely admitted. This didn’t sit well with labor union representatives, who hold half the seats on VW’s board, the Porsche and Piech families holding the majority of shares.
But in his intervening years at the helm, Diess had put himself in a bad position, as his management style left him with few allies in the company, according to news reports. Despite this, he was named CEO of the Volkswagen Group in 2018.
Diess was forced to relinquish his position as brand CEO in 2020, but he held on as chief executive, largely due to the support of the Porsche and Piech families — heirs to Volkswagen founder Ferdinand Piech. Then in November, he was stripped of responsibility for the VW, Skoda and Seat brands, responsibilities now handed to VW brand boss Ralf Brandstaetter. But the Porsche and Piech families continues to support Diess and his EV plans.
Still, as was not well.
But more recently, on July 16, according to Automotive News, discussions arose as to whether Diess should be sacked. Four days later, board members decided that Diess would be replaced by Porsche CEO Oliver Blume with the expectation that he will be more of a team player. The following day, Diess learned of the board’s decision.
But it was more than union issues that led to his dismissal. It was something more essential to automakers in the 21st century: software.
Bad coding, worse results
Diess was nothing if not ambitious.
He predicted last year that VW’s software division would someday employ 10,000 employees. He promised significant expenditures just three weeks ago, promising to hire thousands of software experts in China. Diess was haunted by Nokia’s failure to adapt to the release of Apple’s iPhone. For Diess, the advent of self-driving technology was even more profound than the automotive industry’s switch to battery power.
So he was given responsibility for turning around Cariad, the company’s troubled in-house software division. Software gremlins have plagued VW’s new ID line, as well as other Volkswagen Group models, including the Golf Mk 8, whose debut was delayed due to software issues.
In fact, it’s so widespread, the company has delayed the launch of the battery electric Porsche Macan and the Audi Q6 e-tron, as well Audi’s new Artemis EVs, capable of Level 4 autonomous driving. They are now set to launch in 2027, about two years later than scheduled. And Bentley, which has made pronouncements about being an all-electric brand by the end of this decade may not be. This raises questions about Blume’s ability to deliver on a corporate EV program that was expected to bring as many as 50 all-electric models to market by 2025 through the Volkswagen Group’s many brands.
Questions arise, issues remain
But Blume’s dual role as CEO of both Volkswagen Group and Porsche is doing little to help its planned Porsche IPO, according to a Bernstein Research poll released Tuesday. The company’s research throws shade on the planned offering, with 71% viewing the dual role as a clear negative for the IPO, with 42% of those polled in favor of it and 41% against.
Investor dissatisfaction with the IPO stems from Volkswagen Group’s alleged reason for doing a Porsche IPO: greater independence, something that seems doubtful if the same person is running both companies.
And VW intends to set a 12.5% cap on Porsche’s publicly listed shares, with a dual-class share structure that does not allow for increased managerial autonomy. Such questions could diminish the Porsche IPO’s success, whose proceeds are needed to fund further VW electric vehicle development.
Still, Blume could prove to be the perfect choice to lead Volkswagen. Having run Porsche since 2015, Blume was key in advocating production of the Taycan, the brand’s first battery-electric vehicle, which now outsells the 911 worldwide. And he is looking for half of Porsche sales to be all-electric by 2025.
An American challenger in Europe
But there’s another concern: Tesla. The American automaker officially began making Model Ys in Europe earlier this year at the company’s new plant near Berlin, built almost entirely during the pandemic.
Capable of making 500,000 EVs annually, the $7 billion plant was built in less than two years. Dubbed Gigafactory Berlin-Brandenburg, the plant is a reminder of Volkswagen’s plodding pace, and the need to speed up EV development.
VW has good reason to worry. EV sales accounted for 9.9% of new vehicle sales in Europe during the second quarter of 2022, up from 7.5% year-over-year, and accounting for nearly 650,000 units — or 2/5 of Europe’s new vehicle sales. And for the first six months of 2022, the bestselling EV in Europe is the Tesla Model 3, an issue that sees no prospect of resolving itself quickly — at least for VW.