When Volkswagen boss Herbert Diess’s strongest competitor, Elon Musk, built a factory 200km from its historic Wolfsburg headquarters and parked his electric cars on the German group’s lawn, the reaction from the Bavarian executive was warmer than many expected.
In public, Dice told anyone who would listen that Tesla was “paving the way” and “good for the industry.” He was effusive in his praise of Musk’s achievements, inviting the world’s richest man to lecture a hall full of VW executives and trying to mimic his social media use. Privately, Dice joked that Musk had moved his plant “100km closer” to VW’s home, so workers could see the American company on the horizon.
Although Dice developed a reputation for gaffes, these provocations were intentional. “If he was going to ruffle feathers, he felt like he was going in the right direction,” says Bernstein analyst Daniel Roska of the manager’s efforts to transform a company tarnished by a diesel emissions scandal into a nimble, electric pioneer. “It was kind of an all-or-nothing strategy.”
Those efforts were halted on Friday when, at the request of the Porsche-Pitch Group, which remains VW’s largest shareholder, the company’s supervisory board held an extraordinary meeting and agreed to defund with almost immediate effect, hours after the executive. Left for summer vacation.
Outside of the auto world, Diess was best known for a series of public missteps. He told the BBC in 2019 that he was “not aware” of a detention camp 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” in a company program, referring to a profit incentive but echoing Nazi slogans.
Earlier this year he sparked outrage in Ukraine when he suggested that Europe should try to negotiate with Russia, a view not uncommon in corporate Germany but rarely voiced on the international stage.
Back home, Diess gained notoriety for more domestic issues – notably a clash with VW’s powerful works council, which represents 60,000 employees in Wolfsburg and a further 230,000 in wider Germany. He angered the organization – which has effective control over the supervisory board through a loose alliance with VW’s second-largest shareholder, the state of Lower Saxony – by suggesting the group had 30,000 additional employees in the country.
Last year he also pointed out that while it takes VW about 30 hours to produce an electric car, Tesla’s employees managed just 10.
As a result of such encounters, Diess endured several setbacks during his four-year tenure, including being relieved of direct responsibility for the group’s biggest brand, the VW marque, in 2020, and his role as head of VW’s China business last year.
“He made decisions without being sensitive to 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 rollout of VW’s first purpose-built electric vehicles as part of a €52bn push into the technology, won him an initial contract extension from the supervisory board just last year.
“It was always a mixed picture,” said one person familiar with the supervisory board’s decisions. Until recently, the person added, Diess’ management skills were “more strengths than weaknesses.”
But on Friday all members of the 20-seat board voted to remove Dice and the 63-year-old was not given a chance to argue his case. According to a person familiar with the matter, he was informed of the impending decision a few days ago.
Neither the company, union or shareholders would publicly confirm why Diess’ position was suddenly deemed disabled. But works council chief Daniela Cavallo complained that VW’s software arm, for which Diess took personal responsibility, had not performed well, forcing VW’s premium brands Audi and Porsche to rely on their own systems while they waited for group-wide technology. hold on
More importantly, Cavallo pointed to VW’s poor performance in China, which has been the company’s engine of growth for decades and by far its biggest and most profitable market. VW’s new electric vehicles, the ID range, haven’t sold as well in Asia as the company had hoped, in part, Cavallo argued, because they failed to meet local consumer preferences, such as the provision of in-car karaoke machines.
In recent weeks, the Porsche-Pich family began to believe Diss’ contract extension was a “mistake,” according to a person close to shareholders.
The car owner struck a more conciliatory tone when he spoke to workers last month, telling employees he believed VW would overtake Tesla in global electric sales by 2025 and Musk pointing to recent difficulties in running plants at full capacity. But “we started to feel that he hadn’t really changed”, the person added.
The board concluded that Dice’s designated successor, Porsche chief executive Oliver Blume, “may be a more complete manager, [able to look] On the operational side of the business”, added a person close to the supervisory board. The 54-year-old has the added advantage of having spent his career at VW Group, unlike Diess, who was born near Wolfsburg and joined from BMW in 2015.
Wolfgang Porsche and Hans Michel Pich, who spoke on behalf of the Porsche-Pich family, said Blum had received their “expressed trust for many years”. He oversaw the rollout of Porsche’s electric Taycan, which is now more popular than the storied 911, they added.
However Blum’s appointment threatens to derail the long-awaited flotation of the Porsche brand – the most profitable in VW’s stable – later this year. Blum, who will retain his role at Porsche in Stuttgart even as he takes the top job at Wolfsburg from September, will be forced to split his time between running the world’s second-biggest carmaker and preparing for what could be Germany’s biggest public listing. Over the decades.
The arrangement flies in the face of VW’s stated intention for a partial flotation to give Porsche more “entrepreneurial freedom,” argued Bernstein’s Roska.
“If you’re trying to give Porsche AG more freedom … this move does exactly the opposite,” Roska said, adding to concerns about VW Group’s labyrinthine corporate governance structure.
Neither will be a completely fresh start in Wolfsburg, where the day-to-day running of VW will be the responsibility of finance chief Arno Entlitz, a former McKinsey consultant who has been promoted to chief operating officer, and aligned with Diess. The need for aggressive cost cutting at the group’s German sites.
Late Friday, Dees tweeted a picture of himself smiling next to an electric VW minivan. Earlier, in a LinkedIn post, he stressed that VW’s current difficulties were partly due to events far beyond Wolfsburg, citing semiconductor shortages, other supply challenges and rising raw material and energy prices.
But even more favorable economic conditions did not protect its predecessors from VW’s disparate power brokers. Dice is the fourth boss in a row not to fulfill his contract.
“There are a lot of different interests in this company,” said a person close to the departing chief executive. “It is a listed company but very much in private hands.”