Auto industry | The flower comes and dies – the problems at Volkswagen remain

Herbert Diess has to step down as CEO, and Porsche President Oliver Blum succeeds him. There are a number of construction sites waiting for Volkswagen’s new tough guy, which is probably hard to fix.

In fact, he was the right person in the right place. He mercilessly denounced the problems at Volkswagen. Unfortunately, Herbert Diess has often lacked implementation, and he is certainly not the only one responsible for it that raises questions for the entire management team. For one or the other, he was too reckless and too harsh in his manners.

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2022 | original paper | book chapter

Leverages and business areas for digital transformation in the automotive industry using the example of Porsche AG

For decades, Porsche AG has stood around the world building high-quality sports cars that know how to impress with a unique driving experience. However, the entire auto industry faces far-reaching changes in this decade. The major trends of the twenty-first century, digitization, put existing products and organizational structures to the test. That’s why, in this case study, industry-specific insights for managing digital transformation in the automotive industry are derived from a detailed study of the interaction between digital smart subsidiary, Porsche Digital GmbH, and parent company, Porsche AG.

Here Caliph Blume, who is said to have a diplomatic and eloquent style, can already score points with Porsche’s prior praise. But that alone will not solve the tasks at VW. Blume will now inherit all construction sites – and has less time than Diess to successfully close them. At the same time, he can continue to be interested in the Porsche that is about to be released to the public. Volkswagen’s main construction sites can be identified as:

There is no production of fat-free compounds

The VW electric car takes a long time to produce at VW, and therefore is not efficient enough. While ID.3 is claimed to take 20 hours to produce at the Zwickau plant, Tesla in Grünheide will likely need 50% less. The Tesla Advantage: You have mostly new plants built to the latest standards on the drawing board and then built. In addition, Tesla models are easy to assemble. Volkswagen and Bloom have to catch up, reduce vehicle complexity, modernize factories and, above all, rely on new factories to produce electronic cars.

The future-proof car program for the entire vehicle range is missing

As with Tesla, there must be an automotive program at VW. The problem: There are many premium brands (Volkswagen, Porsche, Audi, Bentley) vying for efficiency on the way there. Diess intended to eliminate this problem with Cariad and thus became the largest European software house after SAP. But this project is in a bind: Cariad can’t deliver as planned – so there are significant delays (they say up to two years) for Macan, Artemis and Trinity products. Volkswagen and Bloom need to dismantle this construction site as quickly as possible. This means that personnel requirements must be improved (one thinks of about 400 additional IT employees) and collaborations must be expanded (such as those with Qualcomm for semiconductors and with Mobileye for autonomous driving).

Battery production for the entire vehicle range under construction

Today, VW mainly gets its batteries from four main sources: LG Chem and SKI and Samsung for Europe and CATL for China. Volkswagen also has a 20% stake in Northvolt, which is working with VW to set up battery production in Heide (near Hamburg) and at the Salzgitter site. There is also a Volkswagen battery factory in Braunschweig, which will be expanded further. If battery production is to become an integral part of the group’s business model as quickly as possible, Volkswagen and Bloom must step up their efforts here and reduce their reliance on cooperation partners.

Increase your e-sales numbers

Volkswagen must achieve its goal of becoming the largest supplier of electronic cars in the world (leading from 2025). In fiscal year 2021, 95% of units sold were still equipped with a combustion engine. In the first half of 2022, the share of electronic cars of the Volkswagen brand was 217,100, while Tesla managed to put 564,734 units on the market. Although both providers struggle with special effects (lack of chips, partial shutdowns, etc.), the gap between VW and Tesla is currently growing at a disadvantage for VW. If Blume wants to stop this trend, there is a need to act here as well. This means: developing vehicles that are technically better than the competition, filling physical supply gaps, increasing production and efficiency, increasing availability (eg USA), etc.

Rely on China

Volkswagen is very dependent on China. In 2021, about 40% of sales were made in China. At the same time, it is the largest growth market for Volkswagen with more than four million cars annually. VW Group China has 33 production plants. The Americans began to implement the strategy of separation in the Western world. This means that economic relations with China must be strengthened with a sense of proportion and a tendency to reduce dependencies. If Volkswagen yields to this political pressure, it will be one of the biggest strategic challenges for the group and Blume since the company’s founding.

Improve organization and hierarchy

While other premium manufacturers have developed a framework of consensus-oriented, creative and independent work in recent years and thus have been able to improve their appeal to younger applicants, Volkswagen still stands the opposite and is well known for its hierarchical structure and way of thinking. From the top – new ideas and second opinions have less space. The power struggle between the group’s brands makes it more difficult, as does the (compared to Tesla’s) strict reward system. If Bloom is to succeed here, the shell must be dismantled, and younger CEOs with specialized knowledge and charisma must be responsible to achieve the necessary transfer.

Lack of diplomacy and communication

Dess has repeatedly shown that the company should not be a political process. This has not yet reached Volkswagen. In addition to the powerful trade union (three supervisory boards), two politicians sit on the supervisory board (one from the SPD and one from the CDU) counting on votes. This chokehold is unlikely to change in the foreseeable future. In this regard, VW requires thoughtful diplomacy and internal and external communications to be able to bring about positive changes. The series of accidents and some reckless phrases angered the workforce in many ways. Confidence building measures are needed here, as well as back-to-back successes – not just visionary ads.

Double the share price and market value

Herbert Diess did not succeed in convincing stockbrokers with his story of moving from a manufacturer of classic combustion engines to a giant electronic mobility company, a leader in hardware, software and in-house battery production. The lack of execution and a series of loopholes has moved the share price in the range of €177 to €245 since taking office – today it is only around €137. Even if the share price is supposed to play a secondary role for trade unions and Lower Saxony, VW as a global player will have to live up to its competitors. A stock price is still an expression of investor confidence in the successful or unsuccessful progress of an industrial company. In the fall of 2021, Tesla’s stock market value was eight times that of VW. If Volkswagen, with new boss Oliver Blume at the helm, does not want to become a pawn in future acquisitions, this point should move closer to the center of attention.

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