Volkswagen’s board closes ranks around embattled CEO in bid to unseat Tesla

December 9, 2021, 6:27 PM UTC

Volkswagen’s fractious board came together at the last moment to back its controversial chief executive on Thursday, in exchange for an ironclad commitment to its crisis-stricken Wolfsburg plant in Germany—the symbolic heart of the company’s auto-plant empire—as it faces down a transformation from engines to EVs.

The board meeting was a test of whether CEO Herbert Diess could survive yet another assault from the company’s powerful unions, already enraged by threats to slash headcount in Wolfsburg to better compete against Tesla’s upcoming new German factory. At the heart of that assault was a bitter struggle raging between shareholders, trade unions, and the local government over the automaker’s rolling five-year investment plan, which can spell life or death for Volkswagen factories and their workforces.

All sides agreed to set aside their differences after striking a compromise that would see the battery-powered ID.3 hatchback, which is not sold in the U.S., brought to Wolfsburg in little over two years, at the behest of VW’s new labor leader. 

Previously, the plant had not been promised any EV models to produce before 2026, for fear volumes would not yet be high enough to sustain the enormous plant. Further investments were also pledged that should comprehensively overhaul the factory by the end of the decade.

“So far our original plant, our largest, had been largely left out of the transformation,” Diess told reporters following this afternoon’s meeting. “Wolfsburg will get a whole new identity that will ensure the site is internationally competitive.”

Tesla moves in next door

Despite operating nearly 120 vehicle and part assembly plants worldwide, politically, every major decision at Volkswagen ultimately revolves around the Wolfsburg plant.

Built on a field in Lower Saxony, the plant formed the genesis of the regional state’s modern economy. Yet now, the site that once gave its name to the city that grew up around it finds itself under unprecedented pressure. 

Roughly two hours’ drive east, construction workers are putting the finishing touches on Tesla’s first European assembly site near Berlin, and the timing couldn’t possibly get any worse. 

Diess has repeatedly clashed with the German unions that sit above him on the board of directors since he jointed the company in 2015—but has repeatedly come out on top, surviving multiple attempts to remove him and recently winning a contract extension.

The VW CEO wants to wrestle leadership of the electric vehicle market away from Tesla by 2025. To do so, the board has signed off on €89 billion ($100 billion) in investments in electric vehicles and digital services through the end of 2026, by which time every fourth vehicle VW sells should be powered by a battery rather than an engine.

During the press briefing, Diess admitted he may have inadvertently contributed to internal tensions within VW by constantly citing Elon Musk’s carmaker as the shining example Volkswagen needed to follow to ensure its survival, but was unapologetic.

“Yes, I cited our American competitor often because the industry tends to underestimate them,” he said. “I don’t believe we need to fear the competition, but we do need to take them seriously in order to stand a chance.”

As part of the deal, Diess was also able to exile a potential rival for the CEO spot. Ralf Brandstätter, who started out as a local shop floor employee from the area before working his way up to run the VW brand with the help of labor’s backing, will be dispatched to China in August.

Prior to Thursday, media reports suggested Brandstätter was jockeying for the top job. While he was appointed to the group’s management board, alongside Diess, his task will soon be to rebuild the group’s flagging dominance over a market that accounts for nearly four out of every 10 cars the group sells. And he won’t be able to rest on his ties to German unions.

Chip crunch bites

Not only did Wolfsburg’s unions dither too long before finally campaigning for an EV model in September of last year, the plant finds itself in the midst of another crisis, as the semiconductor shortage hurt it more than others.

Just as series production of the ID.3 began in late 2019 at a rival factory in eastern Germany, volumes in Wolfsburg began to plunge anyway owing to the pandemic. 

Meanwhile, patience among labor leaders snapped after the group’s higher margin brands like Audi and Porsche were prioritized allocation of semiconductors this year. EV models like the ID.3 that are strategically crucial for the future of the group also continued to be built at the expense of combustion engine cars like Wolfsburg’s bread-and-butter VW Golf.

“The coming months will be hard. We are still facing a real drought with reduced hours, shifts canceled, and complete production days lost,” works council boss Daniela Cavallo told reporters on Thursday as she stood next to Diess.

“In all likelihood, our home plant won’t even manage to build 400,000 vehicles this year. Such a dramatically low level hasn’t been seen since the end of the 1950s.”

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