When Volkswagen boss Herbert Diess’s strongest competitor Elon Musk parked his electric cars on the German group’s turf by building a factory just 200km from its historic Wolfsburg headquarters, the Bavarian executive’s response it was warmer than many expected.
In public, Diess told anyone who would listen that Tesla was “leading the way” and “good for the industry.” He was effusive in his praise of Musk’s achievements, even inviting the world’s richest man to keynote a roomful of VW executives and trying to mimic his use of social media. Privately, Diess joked that he wished Musk had moved his plant “100km closer” to VW’s home, so workers could see the American company on the horizon.
Although Diess had developed a reputation for gaffes, these provocations were deliberate. “He felt that if he was ruffling feathers he was going in the right direction,” Bernstein analyst Daniel Röska says of the manager’s attempt to transform a company that had been tainted by the diesel emissions scandal into an agile electrical pioneer. “It was kind of an all-or-nothing strategy.”
Those efforts stalled on Friday when, at the request of the Porsche-Piëch clan, which remains VW’s largest shareholder, the company’s supervisory board held an extraordinary meeting and agreed to oust Diess with almost immediate effect, hours after the executive had left for a summer vacation.
Beyond the automotive world, Diess had become best known for a series of public blunders. He told the BBC in 2019 that he was “not aware” 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 company event, referring to profit incentives but echoing a Nazi slogan.
Earlier this year, he sparked outrage in Ukraine after suggesting that Europe should try to negotiate with Russia, a view not uncommon in German companies but rarely expressed on the international stage.
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 an additional 230,000 employees in Germany. He angered the organisation, which has effective control over the supervisory board through a loose alliance with the state of Lower Saxony, VW’s second largest shareholder, by suggesting the group had 30,000 redundant workers in the country.
A selfie of Diess posted on Twitter, posing with Tesla’s Elon Musk and VW’s iD3 electric vehicle © Herbert Diess/Twitter
He also noted last year that while VW took roughly 30 hours to produce an electric car, Tesla employees managed the same in just 10. That metric was contested by unions.
As a result of these clashes, Diess suffered several bruises during his four-year tenure, including being stripped of direct responsibility for the group’s biggest brand, the VW brand, in 2020 and his role as head of VW’s China business last year.
“He made decisions without being sentimental about the feelings of his colleagues,” said a person close to the executive. But Diess believed a combative approach was the “only way to move VW” and secure the group’s future, the person added.
Diess’ achievements, which included the launch of VW’s first purpose-built electric vehicles as part of a €52 billion push into the technology, earned him an early contract extension from the supervisory board last year .
“It was always a mixed picture,” said a person familiar with the supervisory board’s decisions. 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 not given a chance to plead his case. He was told of the impending decision just a couple of days in advance, according to a person familiar with the matter.
Neither the company, unions nor shareholders would publicly confirm why Diess’s position was suddenly deemed untenable. But works council chief Daniela Cavallo had complained that VW’s software group, for which Diess had taken personal responsibility, had not performed well, forcing VW’s premium brands Audi and Porsche to rely on their own systems while they waited for the technology of the whole group to catch up.
More importantly, Cavallo had pointed to VW’s lackluster performance in China, which for decades has been the company’s growth driver and by far its biggest 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 argued, due to a failure to cater to local consumer preferences, such as the provision of karaoke machines in the car.
Porsche’s Oliver Blume to replace Diess as VW CEO © REUTERS
In recent weeks, the Porsche-Piëch family came to believe that extending Diess’ contract had been a “mistake”, according to a person close to the shareholders.
The auto chief struck a more conciliatory tone when he spoke to workers last month, telling employees he believed VW would surpass Tesla in global electric sales by 2025 and pointing to Musk’s recent struggles to get the plants working at full capacity. But “we started to realize that it really hadn’t changed,” the person added.
The board concluded that Diess’ nominated successor, Porsche CEO Oliver Blume, was “perhaps the most complete manager, [able to look] on 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 at the VW Group, unlike Diess, who joined from BMW in 2015.
Wolfgang Porsche and Hans Michel Piëch, who speak on behalf of the Porsche-Piëch family, said Blume had enjoyed their “express trust for many years”. He oversaw the launch of Porsche’s electric Taycan, which is now more popular than the famous 911, they added.
However, Blume’s appointment threatens to derail the long-awaited flotation of the Porsche brand, the most profitable in the VW stable, later this year. Blume, who will retain his role at Porsche in Stuttgart despite taking the top spot at Wolfsburg from September, will be forced to split his time between running the world’s second-largest carmaker and preparing for to what will probably be Germany’s largest public list. in decades.
recommended
That deal runs counter to VW’s stated goal for the partial float, to give Porsche more “business freedom,” Bernstein’s Röska argued.
“If you’re trying to give Porsche AG more independence … this move does exactly the opposite,” Röska said.
Nor will there be a completely fresh start in Wolfsburg, where the day-to-day running of VW will be the responsibility of finance chief Arno Antlitz, a former McKinsey consultant who has been promoted to chief operating officer and aligned with Diess on the need to ‘aggressive cost reduction at the group’s German facilities.
Late Friday, Diess tweeted a photo of himself smiling happily next to an electric VW van. Earlier, in a LinkedIn post, he had stressed that VW’s recent difficulties were partly due to events far beyond Wolfsburg, citing semiconductor shortages, other supply challenges and rising raw material prices and the energy
But even more favorable economic circumstances did not protect their predecessors from VW’s various powerbrokers. Diess is the fourth boss in a row not to fulfill his contract.
“There are too many different interests in this company,” said the person close to the outgoing CEO. “It’s a publicly traded company, but it’s very much in private hands.”