VAG announced the group CEO - Herbert Diess, who is in office for 4 years, will step down immediately and be replaced with Porsche’s CEO Oliver Blume. This unexpected vote of no confidence from the board of VAG demonstrated the choice of different way for the group to this CEO who is open-minded, courageous to serve, devoted to reform for transformation, but doesn’t emphasize team work and internal harmony.
This automotive group that has the biggest scale in the world has always been the development index of German automotive industry; Since the automotive Big Three of USA sought for the emergent bailout from the government in 2008, VAG then replaced them to become the leader of automotive industry in western world gradually, and began the competition for market sales leader with Toyota after 2010; However, the “Dieselgate” happened in USA in 2015 made the group to re-think about the direction of operation in the future. Since then, Herbert Diess was raised from VW’s CEO to the group’s CEO in 2018, then began making efforts and reforms to transform VAG into a “software-defined company” that takes electrification, digitalization as the fundamental direction of development. One year ago, Diess held a group strategy presentation called “New Auto”, which completely demonstrated his ambition and operating strategy. Let me take the contents from this presentation as the reference to review his overall operating strategy and performances in the past 4 years…
- The electrification of the product portfolio. He integrated all the ICE cars and BEVs platforms… to propose the plan of SSP platform, which utilizes the modular design to satisfy demands of car models in various segments from each brand in the group. It strives for the differentiation among each brand on the foundation of design sharing to save the investment of R&D. The sales share of BEVs in the group must reach 20% in 2025, and 50% in 2030. During the period of fully promotion of electrification, Diess reallocated the resources of the company and laid off 30,000 workers, which provoked the huge conflict with the mighty labor union of VW. Furthermore, the more troublesome issue is that the time needed to produce one BEV is 2 times more than Tesla currently, which is a serious challenge for mass production operation like automotive industry. And the completion date of the first BEV manufacturing plant will be delayed to 2026, which is a year later than the original plan.
- The digitalization of operation. In the German automotive industry that is well-reputed for the mechanical craftsmanship, IT is definitely not their expertise. However, this CEO Diess nicknamed “Disrupter-in-Chief” established the software company CARIAD two years ago, and recruited thousands of software engineers from all around the world, and he positioned himself as the general manager of that company concurrently to promote the digitalization of the group. I assumed that this groundbreaking all-new business delivers more cultural impact to the whole group than the development of BEVs… First, when a group’s CEO held a concurrent position as a subsidiary’s CEO, it means this new unit is way more important than the existing units that has years of contribution to the group; secondly, most personnel of CARIAD came from all over the world, which means the CEO doesn’t assume that local personnel have sufficient capability to break new ground, but “alien personnel are better”. This long-established German major carmaker finally begin internationalization unexpectedly. Worriedly, this cash-burning company doesn’t yet have a clear aim and plan of profit model to persuade the board, and even Diess assumed that CARIAD needs to accelerate to establish the profitable business model.
- Intimate interaction with other carmakers. This direction might not be unusual for other carmakers, but out of ordinary for self-conceited VAG. Diess isn’t not just a friend of Elon Musk’s, and Musk had once invited Diess to be the CEO of Tesla in 2015; After this, Diess invited Musk to give an online speech last year to let managerial level in the group to learn experiences from Tesla. In addition, VAG had frequent cooperation and resource sharing in products with Ford in recent years, and had invested in American autonomous driving startup company Argo.ai after the Ford’s investment. The board of VAG didn’t apparently assume these cooperation or interactions with other carmakers have substantial help for the prospect of this company.
- All-new strategy for USA market. VW made efforts to think about the all-new plan for the 2nd largest market in the world after the “Dieselgate”. After the introduction of Scout brand, which focuses on pure electric SUVs and pickups, Diess also foretold that this brand will utilize the all-new “direct sales to customer” business model (alike Tesla). Not surprisingly, this agitated all owners of the existing VW dealerships, which results in another huge obstruction in the process of reform again.
In addition to the situations mentioned above, the stock price of VW has dropped by 24% since this year. These situations are internal revolts and external troubles coming at the same time for Diess. The road to reform is always lonely, especially in the enormous and complicated hierarchy of VAG. As a new CEO, Blume is a team worker with Porsche family supports, and emphasizes team work and collective decision-making process… will the innovative operating strategy and target setting that had been conducted for years take big turn? In general, I assumed that the main direction of electrification won’t have significant change, but in the process of improvement for the efficiency of manufacturing process , the issue of the continuous downsizing of frontline manpower is definitely unavoidable; Furthermore, It might be a serious challenge for the new CEO to face scrutiny from the board and other senior employees that whether CARIAD can propose feasible profitable business model and timetable in the near future, and it will also be the key issue for the real acceleration of transformation toward the new age of cars for this automotive group in the future. As for another revolutionary and cash-burning new technology – autonomous driving, in the culture of “collective decision-making”, this non-urgent issue should be slowed down!
