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Elon Musk’s longtime frenemy Herbert Diess sacked as CEO of Volkswagen

July 22, 2022, 6:47 PM UTC
Volkswagen's Herbert Diess won the respect of Tesla boss Elon Musk for turning the company around and embracing EVs, but now the carmaker's board has sacked its combative chief executive.
Hollie Adams—Bloomberg via Getty Images

In a shock dismissal, Volkswagen Group’s board of directors fired the carmaker’s chief executive best known for steering the supertanker around in favor of a bright new future manufacturing electric vehicles. 

Herbert Diess joined the company in 2015, just weeks before U.S. officials uncovered the company’s long-running diesel emissions fraud. Almost immediately, he reacted with an ambitious plan that would swap internal combustion engines out in favor of lithium-ion batteries, a plan that is culminating initially in the new Volkswagen ID Buzz due to launch next year. 

In the process, he developed a distinctively friendly rivalry with Tesla CEO Elon Musk, inviting him to virtually address his senior management team in Wolfsburg and earning the respect of the visionary centibillionaire, and many Tesla fans to boot. 

When Musk was asked during an interview in May with the Financial Times which EV start-up impressed him most, the naturalized South African native picked a different company altogether: “I think the company making the most progress besides Tesla is actually VW,” he replied.

So why is the head of one of the world’s second-largest carmaker leaving? 

The ambitious Austrian national, who convinced the board in April 2018 to dispatch his predecessor, has clashed repeatedly with the carmaker’s powerful German labor unions. Almost immediately upon arriving at the company, he made enemies with his future pact restructuring plan for the VW brand’s domestic operations. 

Despite his outwardly avuncular nature, internally Diess never shied away from confrontation and infuriated everyone from subordinates to his non-executive directors with his demanding management style and the occasional faux pas, for example on the issue of VW’s potential links to Uighur detention camps at its Urumqi plant in China.

As a result, rumors that his days were numbered frequently popped up in the German media. Scarcely a year went by without reports of his imminent sacking. And while he ultimately always prevailed, at one point he had to cede some power to union favorite and internal rival, Ralph Brandstätter.

In the past two years, though, the company has struggled to keep its German factories running, first because of an acute chip shortage that barely slowed down Tesla, and secondly due to the Ukraine war, after the supply of wire harnesses ran out.

His collegial relationship with Musk, as well as Diess’ repeated comments that Tesla served as the industry benchmark rather than Wolfsburg, also stirred resentment within the ranks of the company’s proud but often provincial workforce, as did his repeated appearances in talk shows at a time when cars weren’t leaving the factories at their normal clip.

When his attempt to compete with Tesla on the development of remotely updateable vehicle operating systems fell flat with multiple problems at its struggling in-house software subsidiary CARIAD, criticism only grew.

Home town kid

This time, the carmaker’s German-style board, which is half controlled by shareholders and half by organized labor, wasn’t giving him the benefit of the doubt. All told, he is the fourth CEO in a row to be forced out: the last boss successfully able to see out his contract was Ferdinand Piëch, grandson of the company’s spiritual founder, in 2002.

Effective September 1, his duties will be assumed by the 54-year-old head of the Porsche brand, Oliver Blume. 

A favorite of the VW Group’s controlling families—the Porsche and Piëch clans—he beat out other chief lieutenants that had been hoping for a shot at the top job when Diess’ contract was set to expire in late 2025. Among them were Audi CEO Markus Duesmann, VW brand boss Thomas Schäfer, and labor union favorite Brandstätter, currently head of group operations in China. 

Importantly, the board believes it can sell Blume to the Wolfsburg unions as one of VW’s own, having grown up and gone to university practically next door to the plant and risen through the ranks of the company before taking over at Porsche in 2015. Being counted as a hometown boy is considered important at VW, since people can then trust where your loyalties lie.

“He’s from Braunschweig and has an integrative management style that can convince people to come around to his way of thinking,” the source said. 

The board didn’t seem totally convinced that Blume could make such a major step entirely alone, however, especially as he will be required to continue run to Porsche on the side, at least initially.

As a result, it appointed former McKinsey restructuring consultant Arno Antlitz as its operations chief in addition to his to usual job as group finance chief, in order to support Blume in the daily running of the company. 

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