The German automotive giant’s new CEO may have to take a more measured approach to its electric vehicle ambitions and tread lightly in labour relations.
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When Herbert Diess was appointed CEO in 2018, Volkswagen’s reputation was badly in need of repair due to fallout from the emissions scandal. Its progress towards electrification was stalled. Diess headed the Porsche brand and had been working at VW since 2015. He was known for having a bold and forceful leadership style, which appeared to make him the right leader for the job at the time. But in the long run Diess’s disposition, displayed in a series of diplomatic missteps, may have contributed to his downfall. On July 22, VW announced his departure, effective September 1.
Diess will be succeeded by Oliver Blume, the current CEO of Porsche and a veteran VW group executive. Some analysts interpret the somewhat conservative choice as signalling a return to basics and less lofty ambitions regarding technology. Diess earmarked nearly $90 billion for investment in EVs, batteries and software by 2026 and sought to rival Tesla. But while electrification remains a priority for VW, Blume will likely espouse a more gradual approach. “When I see Blume coming in, I see a car guy coming in again”, said Silicon Valley venture capitalist Evangelos Simoudis.
VW’s size makes agility elusive, posing an impediment in the mass-market electric vehicle race. The German automotive group had sought to match Tesla’s goal of making two million EVs a year by 2023, according to The Economist. Financial services firm Jefferies estimates that VW will have spent 40% more than Tesla on this pursuit. One key obstacle is software, which was a pillar of Diess’s vision. VW’s software division, Cariad, has had a rough road of late. Problems with its eponymous EV software platform have significantly delayed the rollout of some models, including new Audi and Porsche EVs.
Companies across the automotive sector must decide whether to develop their own EV software or depend on a third party. While Diess sat squarely in the former camp, Blume could shift to the latter. He faces other challenges as well. The gap between VW and its nearest rival, Toyota, is widening globally. In China, sales dropped by a fifth in the first half of the year. Such losses are especially problematic given the high costs of electric vehicle development, though the upcoming IPO of Porsche is meant to help fund this.
There is also the thorny matter of keeping jobs in Germany, where wages are high by global standards. VW has one of the most well organized workforces in the world. Representatives of the Group Works Council and IG Metall, Germany’s top metalworkers’ union, comprise half of VW’s supervisory board. Diess’s tenure was marked by frequent clashes with labour leaders, mostly over his cost-slashing efforts, which included job cuts. Being the CEO of VW requires exceptional skill in labour relations in any case, and Blume’s will undoubtedly be put to the test.