In March, Herbert Diess enthralled investors with his vision for turning Volkswagen AG into the global leader in electric cars. VW would deliver 1 million battery-powered and plug-in hybrid vehicles this year, and soon build half a dozen factories in Europe alone, the chief executive officer proclaimed. The stock shot up by 29% on a single day.
These days, the mood is decidedly less celebratory in Wolfsburg, where Germany’s largest carmaker is based. The group is trailing in targeted deliveries for the year and VW is losing market share in China, its biggest sales region. Diess has caused outrage among workers and stakeholders by suggesting that massive job cuts might be needed to compete with much nimbler rivals like Tesla Inc., which is putting the final touches on a new factory near Berlin.
The backlash, coupled with a chip shortage that’s hurt the entire car industry, has put Diess on the defensive. Worker representatives have publicly chastised the CEO, turning what should have been a routine board meeting Thursday to approve VW’s spending plans into a de-facto referendum on his leadership. While Diess looks safe to hold on for now, the conflict has laid bare the tensions at one of Germany’s prime manufacturers as it struggles to chart a path into a battery-powered future.
VW’s execution of its much-hyped electric vehicle ramp-up needs to materially step up in order for investors to buy into a credible transition story,” said Bernstein analyst Arndt Ellinghorst.
The meeting was already delayed by a month at the request of stakeholders including worker representatives, who make up half of the supervisory boards in Germany’s consensus-oriented corporate governance model. That’s after Diess said in a Sept. 24 board meeting that as many as 30,000 positions in core VW brand might be at risk as part of a restructuring, according to a recent report in Handelsblatt.
Diess sought to defuse tensions this week by promoting an 800-million-euro ($902 million) planned technology campus near the headquarters. Several German newspapers have reported that Diess’s future may be in doubt, and that he may lose some sway over strategy as the company promotes additional executives to the management board. Despite Diess’s frequent clashes with labor leaders, his contract was extended just recently until 2025.
Running Volkswagen, with its multiple brands and byzantine stakeholder structure, has always been a complex task. The federal state of Lower Saxony owns 20% of the carmaker and generally sides with workers’ interests because many of the local employees are voters. Stephan Weil, the prime minister in the state, has opposed Diess’s scenarios for large-scale cutbacks back at home.
Diess’s predecessor, Matthias Mueller, quit before his contract expired, opening a channel for Diess to run the entire company after previously overseeing just the main Volkswagen brand. When he took over in 2018, VW was still reeling from the diesel-engine fixing scandal that forced the company to shell out tens of billions of euros in fines and expenses.
The pressure is on Diess to respond to Tesla, which is soon slated to start local production just a two-hour drive away from VW’s main factory. The CEO has publicly lamented that Tesla is set to make EVs at a fraction of the time that it takes Europe’s biggest carmaker, giving the U.S. company another competitive edge just as Germans warm to trading in their combustion-engine cars.
Last year, VW boosted funds earmarked for electric cars and software to 73 billion euros under its rolling 5-year spending plan. Apart from updating the investment program, investors will look for clues on strategic projects. VW’s Traton SE trucks division is beset by more management turmoil.
VW shares got a boost after Handelsblatt reported on Tuesday that the Porsche and Piech family is exploring a sale of part of their stake in the automaker to support a separate listing of the Porsche sports-car subsidiary. Several banks and advisers are already actively working on the deal structure, Handelsblatt said, but no decision has been made.
A spokesman for the family’s investment vehicle, Porsche Automobil Holding SE, declined to comment on the report.
Since its wild ride in March that briefly boosted Volkswagen’s market value close to 150 billion euros, the stock has come sliding back again. VW shares have returned 24% this year, less than Daimler’s 53% increase in the same period, and Tesla’s 43% advance, giving the U.S. electric-car pioneer a value of more than $1 trillion.
–By Christoph Rauwald (Bloomberg)