‘Furry’: How VW fell out of love with Herbert Diess

When Volkswagen boss Herbert Diess’s biggest competitor, Elon Musk, left his electric car on the German conglomerate’s lawn by building a factory just 200 kilometers from the historic Wolfsburg headquarters, the reaction of Bavarian executives were more enthusiastic than many expected.

Publicly, Diess told anyone listening that Tesla was “paving the way” and “good for the industry.” He has been full of praise for Musk’s accomplishments, even inviting the richest man in the world to lecture a hall full of VW executives and try to imitate his social media usage. . Privately, Diess joked that he wished Musk moved his factory “closer than 100 kilometers” to VW’s home, so workers could see the American company on the horizon.

Although Diess was known for her pranks, these provocations were intentional. Bernstein analyst Daniel Röska said: “He feels that if he ruffles he’s on the right track” of the manager’s attempt to turn a company already tainted by the gas scandal. diesel waste into an agile, electric pioneer. “It’s kind of an all-or-nothing strategy.”

Those efforts were halted on Friday when, at the request of the Porsche-Piëch clan, who are still VW’s largest shareholders, the company’s supervisory board held an extraordinary meeting and agreed intends to fire Diess with almost immediate effect, hours after the CEO. remaining for a summer vacation.

Outside of the automotive world, Diess has been best known for a series of public missteps. He told the BBC in 2019 he “didn’t know” about 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 repeating Nazi slogans.

Earlier this year, he caused outrage in Ukraine after suggesting that Europe should seek to negotiate with Russia, a position not uncommon among German corporations but rarely voiced on the international stage.

At home, Diess is known for more domestic issues – notably his skirmishes with VW’s powerful working board, which represents 60,000 employees at Wolfsburg and most of the 230,000 additional employees. in Germany more broadly. He angered the organization – which has effective control of the supervisory board through a loose alliance with the state of Lower Saxony, VW’s second-largest shareholder – by suggesting the group has 30,000 redundant employees in the country. .

A selfie with Tesla's Elon Musk was posted by Diess on Twitter

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

Last year, he also pointed out that while VW takes about 30 hours to produce an electric car, Tesla employees have done the same in just 10 hours.

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

A person close to the CEO said: “He makes decisions without relying on the emotions of his colleagues. But Diess believes a combat approach is “the only way to advance VW” and secure the future of the group, the person added.

Diess’ achievements, including launching VW’s first purpose-built electric cars as part of a €52 billion push into technology, have earned him an early contract extension with supervisory board only last year.

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

But on Friday, all members of the 20-seat panel voted to oust Diess and the 63-year-old was given no chance to defend his case. He was informed of the impending decision just days ago, according to a person familiar with the events.

Neither the company, the union nor the shareholders have publicly confirmed why Diess’s position was suddenly deemed unacceptable. But board boss Daniela Cavallo complained that VW’s software division, personally responsible for Diess, was not performing well, forcing VW’s premium brands Audi and Porsche to rely on the system. their own system while they wait for corporation-wide technology. catch up.

More importantly, Cavallo pointed to VW’s lackluster performance in China, which for decades has been the driving force behind the company’s growth and is by far its largest and most profitable market. best. Cavallo argues that VW’s new electric vehicles have not sold as well in Asia as the company had hoped, in part because it failed to meet local consumer preferences, such as offering karaoke machines in the country. car.

Porsche’s Oliver Blume will take over as VW chief executive from Diess © REUTERS

In recent weeks, the Porsche-Piëch family believes that the extension of Diess’ contract was a “mistake”, according to a person close to the shareholders.

The carmaker’s boss took a more conciliatory tone when speaking to workers last month, telling employees he believes VW will overtake Tesla in global electric sales by 2025 and only points out Musk’s recent difficulties in bringing factories to full capacity. But “we started to realize he didn’t really change,” the person added.

The board of directors has come to the conclusion that Diess’s nominated successor, Porsche CEO Oliver Blume, is “probably a more accomplished manager, [able to look] into the operational aspect of the business,” added a person close to the supervisory board. The 54-year-old has the added advantage of being born near Wolfsburg and has had a stint with the VW Group, unlike Diess, who joined BMW in 2015.

Wolfgang Porsche and Hans Michel Piëch, who represent the Porsche-Piëch family, say Blume has enjoyed “the confidence shown over the years”. He added that he oversaw the launch of Porsche’s electric Taycan, which is now more popular than the old 911.

Blume’s appointment, however, risks derailing the long-awaited popularity of the Porsche brand – the most profitable business in VW’s stable – by the end of the year. Blume, who will keep his role at Porsche in Stuttgart even if he takes the top job at Wolfsburg from September, will be forced to split his time between running the second-biggest automaker. two worlds and prepare for what is likely to become Germany’s largest public listing in decades.

Bernstein’s Röska argues that the arrangement aligns with VW’s stated goal of partial emancipation, to give Porsche more “freedom of business”.

“If you are trying to give Porsche AG more independence. . . Röska said the move is the exact opposite “while raising concerns about the labyrinthine corporate governance structure of the VW team.

Nor will there be a brand new start in Wolfsburg, where the day-to-day running of VW will be led by chief financial officer Arno Antlitz, a former McKinsey consultant who has been promoted to chief executive officer, and is partnered with Diess. aggressive cost-cutting needs at the group’s locations in Germany.

Late on Friday, Diess tweeted a picture of himself smiling contentedly next to an electric VW pickup truck. Earlier, in a LinkedIn post, he emphasized that VW’s recent difficulties were partly due to events far beyond Wolfsburg, citing semiconductor shortages, other supply challenges and pricing. raw materials and energy increase.

But more favorable economic circumstances also did not shield his predecessors from VW’s various power brokers. Diess is the fourth boss in a row not to service their contract.

“There are so many different interests in this company,” said a person close to the outgoing executive. “It’s a listed company but it’s in private hands.”

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