‘Ruffling feathers’: How VW fell in love with Herbert Diess

When Volkswagen boss Herbert Diess’ most serious competitor, Elon Musk, parked his electric cars on the lawn of the German group building a factory just 200 km from its historic headquarters in Wolfsburg, the Bavarian executive’s response was warmer than expected.

Publicly, Diess told anyone who would listen that Tesla was “leading the way” and “good for the industry.” He praised Musk’s achievements effusively, even inviting the world’s richest man to lecture to a room full of VW managers and attempting to emulate his use of social media. Privately, Diess joked that he wished Musk had brought his factory “100 miles” closer to VW’s home, so workers could see the American company on the horizon.

Although Diess developed a reputation for goofing off, these provocations were deliberate. “He felt that if he was ruffling some feathers, he was going in the right direction,” Bernstein analyst Daniel Röska says of the director’s attempt to turn a company that had been marred by the diesel emissions scandal into a an agile and electric pioneer. “It was kind of an all-or-nothing strategy.”

These efforts were brought to an abrupt halt on Friday when, at the request of the Porsche-Piëch clan, which remains VW’s main shareholder, the company’s supervisory board held an extraordinary meeting and agreed to defenestrate Diess with almost immediate effect, a few hours after the executive left for summer vacation.

Beyond the automotive world, Diess had become best known for a series of public gaffes. He told the BBC in 2019 he was “unaware” of the detention camps in China’s Xinjiang region and continued to defend VW’s presence there. He was forced to apologize for using the phrase “EBIT macht frei” at a corporate event, referring to profit incentives but echoing a Nazi slogan.

Earlier this year he sparked outrage in Ukraine after suggesting that Europe should seek to negotiate with Russia, a view not uncommon in German business but rarely voiced internationally.

Back home, Diess gained notoriety for more domestic issues – particularly his skirmishes with VW’s powerful works council, which represents 60,000 employees in Wolfsburg and most of the additional 230,000 employees in greater Germany. . He angered the organization – which exercises effective control over the supervisory board via a loose alliance with the state of Lower Saxony, VW’s second largest shareholder – by suggesting the group had 30,000 surplus employees. in the country.

A Diess selfie posted on Twitter, posing with Tesla’s Elon Musk and VW’s iD3 electric vehicle © Herbert Diess/Twitter

Last year, he also pointed out that while it took VW about 30 hours to produce an electric car, Tesla employees achieved the same thing in just 10 hours. This metric has been challenged by unions.

As a result of such confrontations, Diess suffered several bruises during his four-year tenure, including being relieved of direct responsibility for the group’s largest brand, the VW brand, in 2020, and his role at the head of VW’s China business last year.

“He made decisions without being sentimental about the feelings of his colleagues,” said a source close to the executive. But Diess believed a combative approach was the “only way to get VW moving” and secure the group’s future, the person added.

Diess’ achievements, which included rolling out VW’s first purpose-built electric vehicles as part of a 52 billion euro push in technology, won him an early contract extension from the supervisory board last year. .

“It was always a mixed picture,” said a person familiar with the decisions of the supervisory board. Until very recently, the person added, Diess’ management skills had “more strengths than weaknesses.”

But on Friday, all members of the 20-seat board voted to oust Diess and the 63-year-old was denied a chance to plead his case. He was informed of the impending decision a few days in advance, according to a person familiar with the events.

Neither the company, nor the unions, nor the shareholders have publicly confirmed why Diess’ position was suddenly deemed untenable. But works council boss Daniela Cavallo had complained that VW’s software arm, for which Diess had taken personal responsibility, had not performed well, forcing premium brands from VW, Audi and Porsche , to rely on their own systems while waiting for group-wide technology to catch up.

More importantly, Cavallo had pointed to VW’s lackluster performance in China, which for decades has been the company’s growth engine and by far its largest and most profitable market. VW’s new electric vehicles, the ID range, have not sold as well in Asia as the company had hoped, in part, Cavallo explained, due to a failure to meet local consumer preferences, like providing karaoke machines in the car.

Porsche’s Oliver Blume will succeed Diess as VW chief executive © REUTERS

In recent weeks, the Porsche-Piëch family has come to believe that extending Diess’ contract was a “mistake”, according to a shareholder insider.

The car boss adopted a more conciliatory tone when addressing workers last month, telling employees he believed VW would overtake Tesla in global electric sales by 2025 and pointing to recent Musk’s struggles to operate factories at full capacity. But “we started to realize that he hadn’t really changed,” added the person concerned.

The board came to the conclusion that Diess’ designated successor, Porsche chief executive Oliver Blume, was “perhaps the most complete manager, [able to look] in the operational side of the business,” added the person close to the supervisory board. The 54-year-old has the added advantage of being born near Wolfsburg and having spent his career with the VW Group, unlike Diess, who joined BMW in 2015.

Wolfgang Porsche and Hans Michel Piëch, who speak on behalf of the Porsche-Piëch family, said Blume had benefited from their “express trust for many years”. He oversaw the rollout of Porsche’s electric Taycan, which is now more popular than the famed 911, they added.

However, Blume’s appointment threatens to derail the long-awaited flotation of the Porsche brand – the most profitable of the VW stable – later this year. Blume, who will keep his job at Porsche in Stuttgart even though he takes up the top job at Wolfsburg from September, will be forced to divide his time between leading the world’s second-largest automaker and preparing for what is likely to be the largest public listing in Germany. in decades.

The arrangement goes against VW’s stated goal for the partial IPO, to give Porsche more “entrepreneurial freedom”, Bernstein’s Röska argued.

“If you’re trying to give Porsche AG more independence…this move does the exact opposite,” while adding to concerns about the VW Group’s labyrinthine corporate governance structure, Röska said.

There will also be no fresh start in Wolfsburg, where day-to-day running of VW will be under CFO Arno Antlitz, a former McKinsey consultant who was promoted to chief operating officer and aligned with Diess. on the need for aggressive cost reduction at the group’s German sites.

Late Friday, Diess tweeted a photo of himself smiling with satisfaction next to a VW electric van. Earlier, in a LinkedIn post, he pointed out that VW’s recent struggles were partly due to events far beyond Wolfsburg, citing semiconductor shortages, other supply issues and the rise raw material and energy prices.

But even more favorable economic circumstances did not protect its predecessors from VW’s disparate power brokers. Diess is the fourth boss in a row not to have fulfilled his contract.

“There are too many different interests in this business,” the person close to the outgoing chief executive said. “It’s a publicly traded company but it’s largely in private hands.”

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