Deep Dive: Four reasons why Herbert Diess was ousted from VW Group

‍

I find this move was of high importance in the future of our EV industry.

After taking the place as head of VW Group in 2018, Diess has been a very clear captain in moving Volkswagen towards EVs, despite serious pushback from the old guard.

Per our 2021's BEV sales tracker (link), we saw VW Group came in second only to Tesla by delivering 452,900 fully electric vehicles globally (Tesla did 936k). Although considerable, this counted for only 3.06% of the Group's overall sales.

It is hard to turn this kind of an old ship around... but so far the CEO had pushed forward nevertheless.

Here's my best try to structure the what, how, and why happened - as usual, gathered from different sources that I trust. In most cases, I will specifically let you know the parts that are solely my opinion, which are written in cursive.

The What

Herbert Diess, whose contract was renewed until 2025 just last July, will now be leaving the position on August 31st.

The current CEO of Porsche, Oliver Blume, will take his place, while (at least for now) remaining also the head of soon-to-IPO Porsche. Blume had been mentioned several times as the potential successor over the past years.

Here's VW's press release saying Diess resigns 'by mutual agreement': (link).

VW Group says Diess will continue as a consultant for the VW Group after this, but if I know anything, it is highly unlikely he will be continuing in any significant capacity after this.

Diess was given a 'golden parachute' which includes a €2.2M/year ($2.25M) salary until the end of his contract in 2025 and a pension after that. He could get up to 30M€ over the next three years if the carmaker performs well.

I bet the Group isn't very happy that it renewed this contract now, as it's getting rather expensive.

The How

In a now-historical LinkedIn post, Herbert Diess thanked his colleagues at Volkswagen for the demanding first half of the year and wished happy holidays. "We are in good shape for the second half", he wrote in the end.

Two hours after the post, it became clear that the second half would come without him with the colleagues.

Turns out, that at the same time as the posting (~4 pm), there was a Supervisory Board meeting called together as a video conference, the agenda of which was only known by the 8-member presidium. Everyone else found out at the meeting.

The process had been put to motion by the Piech and Porsche families on the previous weekend before the meeting, and Diess learned of the plans a day before the vote.

The board meeting did not see any of the members opposing the request to oust Diess.

If we go a bit deeper, per the end of 2021, the overarching influence of the board is held by the Porsche–Piëch families. Here's the layout of voting rights as of Dec 31st, 2021:

53.3% Porsche Automobil Holding SE (50% owned by "the families")
20.0% State of Lower Saxony
17.0% Qatar Holding
9.7% Free Float

The Porsche Piëch families have backed Diess several times holding their 'protective hand' over the CEO, most recently in November when Diess said the company needs to cut jobs to keep up with Tesla and thus clashing with the labor representatives.

No more.

The Why

Depends who you ask.

I will offer 4 scenarios, most likely all of which had their own hand in Herbert Diess'... let's say, downfall.

1 - Cariad

Most of the reports I've seen revolve around the Porsche–Piëch families being disappointed because of the delays of the Cariad software. I'd say this might have just been the 'last straw' that removed the protective hand.

I wrote to you in the past weeks, how Bentley, Audi and Porsche dedicated EV platforms are delayed due to the Cariad troubles. Cariad-Chaos, as one German magazine put it. Blume confirmed that the Porsche e-Macan market launch is pushed a year. This is due to Porsche (along with Blume pushing this) developing its own software outside of the Cariad arm.

2 - Sales

Although I report on BEV sales growth here constantly, this time the overall vehicle sales come into play. And the vehicle sales are in a decline since Diess came to office.

Of course, we've got several major factors that have crippled the auto industry - like the pandemic and the more-local-to-VW, wire harness deficit due to Russia starting war in Ukraine.

From 10.9M cars sold in 2019, VW Group sold just 8.9M in 2021 and is also declining this year (-22% in the H12022). The profit per car sold has increased, but the trend is damning. It is hard to prove if Diess managed to avoid a further decrease in sales... or didn't manage to prevent a decrease at all.

3 - Diess was an outsider

This one comes in from one of the journalists that have been covering the German auto industry and its electrification from the inside better than most people I know - Alex Voigt.

With his permission, I'm quoting his deep dive of the Diess <> VW saga, more specifically one of his thoughts on why Diess remained unpopular at the company:

A few hundred Top Managers working with the CEO never truly liked Diess because he was and remained a cultural outsider all these years and never considered a real part of VW because he didn’t grow up in the Group but at BMW.

Alex argues that although his career in BMW made him a good Executive in auto industry, VW as an organization is a lot more complex:

"VW is controlled by politicians, unions and private families. Likeability, respect and consent building are key ingredients at VW, and the CEO has failed at all three."

I also agree with Alex's reasoning that Diess often referencing Tesla as superior to VW capabilities couldn't have been nothing but demotivating to the managers in the company (no matter that the press liked it).

Although, you've got to admit - VW does have a lot to take up from Tesla.

Alex released his 3k+ word deep dive for free (here), but I highly recommend joining his Patreon for weekly German auto industry insights too (I have).

4 - World Champion of Announcements?

To be honest, I have not dwelled too much in, nor have I seen too many outlets reporting publicly that Diess was "blatantly lacking in leadership," "egocentric" and a "world champion of announcements". Yet these are the words that Supervisory Board circles reportedly described Diess with on Friday evening.

I did however surface an article from February 18th that says Herbert Diess' confrontational leadership style is criticized and that Diess had even "regularly bullied Ralf Brandstätter". Ralf is currently the head of VW Group's China operations.

The fact that the CEO didn't always/often follow the ordinary consensus where major decisions are consulted with all stakeholders, must have not helped. The most obvious example comes when Reuters reported Diess said 30,000 employees must be laid off (if the new Trinity project is not successful).

This was likely the reason the Works Council and union representatives did not protest the decision to let go Diess. The same reason goes for Lower Saxony's influential 20% vote - the possibility of losing 30,000 jobs is a failure that would put the state leaders in a rather bad light.

What's next?

Next for VW Group:

we won't see the electrification plans scrapped, but we might see them lose momentum.

We have seen the new CEO Oliver Blume advocate for synthetic fuels (e-fuels) and it's easy to see he is not an Electrohead like Diess.

What we have not seen so far, is a clear leading strategy from Blume (hopefully incoming) and maybe even more importantly, if he identifies the real problems in the Group... or are these all just swept under a rug?

What I am most certain about is that the legacy automakers are being hit by a double-whammy right now. The transition to EVs. And the transition to software-focus alongside it.

Since most of the auto industry is occupied with the EV transition, the software focus goes unnoticed and is executed at its most basic levels... which will lead to a lot of scrambling-to-get-by down the road.

For clarity, I'm not only talking about the software advancements in autonomy. The software is about the UI, the efficiency, and is basically intertwined with the technology piece that is the car. The software starts from the factory.

VW Group's current BEVs like the ID series are already falling behind most software-focused EV startups ramping up, led by Tesla and followed by BYD, NIO, XPeng (mostly in China but incoming to Europe) and others.

We will see soon if VW Group takes a leadership role here... or struggles to turn their ship in yet another (obvious) direction.

Next for Herbert Diess:

Contractually he is tied to VW Group until 2025.

In reality, you won't find him there.

We'll most likely see him opening the luxury villa called Pico Velasco from 1653 in Cantabria, Spain, which he bought in 2012. (link) He then renovated the building and converted the villa into a hotel, scheduled to open in September. I also stumbled upon a rare digital find - DIess' Instagram account for the villa, which I took the latter picture from (link).