New Car Era Is About Being Quicker With Everything — Volkswagen CEO Diess
At the end of October, Volkswagen held its quarterly conference calls for investors and for journalists. We combined them into one video that resulted in two hours of insights into Volkswagen Group, mostly via Q&A. I was just listening to the call again and a few lines jumped out at me. The point Diess was making gets talked about a lot in Tesla fan circles, but has largely been untouched and under-discussed elsewhere. So, it was especially interesting to hear him bring it up. Before getting to it, though, here was the pair of questions from Christiaan Hetzner, paraphrased a bit by me, that led to his response (also featured above in a screenshot from our video):
1) Returning to the matter of market cap, is there an investment case you can argue for Volkswagen getting to a market cap of a trillion dollars/euros?
2) Is there a necessity to cut worker headcount in order to get competitive with Grünheide [Tesla Giga Berlin]? If not, what’s the main lever you intend to pull to try to get competitive with Grünheide?
Diess chuckled about the market cap question relative to Tesla and I would say humbly, respectfully, and sensibly danced around it. Clearly, with Tesla’s market cap as it stands today, a large mountain above Volkswagen Group’s (which is #2 in the auto world), there’s a lot going on there and you can’t get into it all on a relatively short answer on a conference call. And it might not be advisable for Diess to do so for various reasons. But then Diess smoothly transitioned to the point I wanted to highlight. He said:
“Preparing for Trinity means preparing for direct competition with Tesla Grünheide. I think the plant is preparing now. It’s getting conscious that this is a new game to be played, this is much higher productivity, this is a much leaner structure. Overall, it’s much more speed — much more speed in decision making, in developing the cars, in updating the cars. And this is basically the challenge Wolfsburg has to face, and has to prepare for. And, basically, I think we are on the way!
“Is that without headcount reduction? No, for sure we need some headcount reduction to be as competitive if we would assume we remain a big player, 500,000 vehicles plus.”
In other words, the point is not just that Volkswagen needs to automate more and cut human labor. The point Diess seems to be making here is that legacy automakers need to get much quicker, more nimble, more adaptive and innovative throughout the corporation. Companies like Volkswagen need to get quicker at designing new cars, quicker at updating cars, quicker at making decisions of various sorts. He is really emphasizing here that these large automakers need to learn to act, live, and dream more like startups. It’s a rather stunning admission, buried in the middle of one of two quarterly conference calls that journalists had many more hard details to write about.
A lot of ink has been spilled on Diess pushing to speed up production in its factories and threat of layoffs. However, the statement above is much broader than that. Even Diess’ various statements on getting more focused on software and trying to lead on autonomous driving don’t capture the message here. Diess is essentially saying that Volkswagen Group needs to change the way it initiates, develops, and manages new models, new projects, and operations across the company. You don’t get “much more speed in decision making, in developing the cars, in updating the cars” without changing how your company is organized and how processes throughout the corporation are structured.
Since this conference call, much has been happening at Volkswagen. There was word that Diess might be booted from Volkswagen Group completely. He was not, but his role and influence in the corporation may be diminishing. It is nothing new in this story, but one has to wonder if many other power players in Volkswagen Group don’t see Diess as too revolutionary, trying to shake things up too much, pushing too hard and too frequently for everyone in the business to reconsider what they are doing and how they can be more like Tesla.
Diess doesn’t seem to be the only one in the industry who recognizes the challenge is not simply a technology swap or even learning to do software and build computer-cars. However, he may be the legacy OEM CEO who is most intent on revolutionary change. Ford CEO Jim Farley is another one who has shifted the narrative from trying to downplay Tesla’s influence to much more openly acknowledging it and congratulation Tesla and Elon Musk on their success.
Elon says: "Our intent with Tesla was always that we would serve as an example to the car industry…”
Mission accomplished. Congrats, @ElonMusk. https://t.co/0r5BrTcR4D— Jim Farley (@jimfarley98) December 13, 2021
To develop and roll out the fully electric Ford Mustang Mach-E, Ford F-150 Lighting, and other smart electric vehicles, Ford set up an almost entirely insulated BEV team — “Team Edison” — and gave them the directive to act like a startup and develop the best electric vehicles they could. There’s little argument that Ford didn’t do a wonderful job on these models and is now reaping the reward in consumer interest. What is not clear, though, is whether Farley is pushing for such deep changes in how quickly they develop new models, how quickly they update them, and how quickly they produce them. Is he seeing the same threats from Tesla that Diess is seeing? Is he seeing the same challenge in front of him? Or is Diess even further out on a limb than Farley and team?
What I think we do know is that there’s still pretty wide variation on how large OEM CEOs view the transition we’re in the middle of. The CEO of Stellantis, Carlos Tavares, recently said that speeding up the transition to electric vehicles is “beyond the limits” of what automakers can sustain. Toyota has created a bunch of basic renderings and is talking about what it will do in the BEV world in 9 years — hardly a claim that it is moving fast.
So, can automakers move much faster, as fast as Tesla? Does Diess have the right plan, and will he be able to implement it? Or does any effort to much more quickly develop, build, and update smart electric vehicles mean certain doom for those automakers?
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