Porsche Boss Takes Over VW After Combative CEO Is Driven Out

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Volkswagen AG ousted Herbert Diess, the architect of the auto industry’s biggest electrification effort, after clashes with labor unions and execution issues left the chief executive without support of key stakeholders.

Porsche boss Oliver Blume will take over within weeks, ending a four-year tenure in which Diess’s hard-nosed leadership repeatedly caused friction and undermined his effectiveness. Missteps on key projects including delays at VW’s software unit also spurred the shake-up, people familiar with the matter said.

VW’s board is betting Blume will be a more collaborative and stable leader, said the people, who asked not to be identified discussing private deliberations. He’ll remain the head of Porsche, which VW is trying to list late this year in what could be one of Europe’s biggest-ever initial public offerings.

Diess, 63, becomes the latest in a long line of leaders undone by VW’s complex hodgepodge of power centers. Skirmishes between the manufacturer’s controlling shareholder family, trade unions and the German state of Lower Saxony that holds a significant stake have undermined performance and ended careers. Blume will be the company’s fourth CEO since 2015.

“The timing is unfortunate and another illustration of dysfunction at VW,” Philippe Houchois, a Jefferies analyst with the equivalent of a sell rating on the shares, wrote in a report. “We have been here before, with new management or a crisis bringing hopes of change.”

Read more: Diess’s Reign at VW Was Fractious and Never Dull

Diess was hired away from BMW AG in 2015, shortly before VW admitted to rigging millions of diesel vehicles to cheat on emissions tests. Weeks after rising to the top job in 2018, he wrote a check for electric-vehicle batteries that almost matched Tesla Inc.’s market value at the time. His last spending plan called for investing 89 billion euros ($90.9 billion) in software and EVs over a half decade.

“Herbert Diess has strategically geared Volkswagen group toward electromobility,” Wolfgang Porsche and Hans-Michel Piech, leaders of the family with majority voting rights at VW, said in a joint statement. “It is to his particular credit that the Volkswagen group today is in a strong position for further transformation.”

Blume, 54, has been viewed as a potential successor to Diess for some time, though any changeover was seen as years away. VW’s board extended Diess’s contract around this time last year to 2025.

VW will flank Blume with Arno Antlitz, who will become VW’s chief operating officer in addition to chief financial officer. Their first orders of business will include resolving dysfunction at the company’s software unit Cariad, which has delayed important projects including a line of next-generation Audi EVs and an updated Porsche Macan SUV.

“The hope of the supervisory board must be for new group CEO Blume to have more success in guiding the software strategy of the group,” said Daniel Roeska, a Bernstein analyst who rates VW the equivalent of a sell. “However, it will take months to come up with a new plan, and creating unrest as the group is heading into a challenging 2023 is the wrong time, in our view.”

Earlier: VW’s CEO on Batteries, Making Porsche 911 Buyers Happy

Keeping Porsche’s potential IPO on track also will be critical. VW has hired more than a dozen banks to list its most prized asset at a valuation of as much as 80 billion euros to 90 billion euros, people familiar with the matter have said.

Blume started at VW as a trainee at Audi, then rose through the ranks at Seat and the company’s namesake brand before joining Porsche in 2013 as head of production. He managed to largely contain Porsche’s involvement in the diesel-emissions scandal that cost the manufacturer more than 30 billion euros ($30.7 billion).

See: Porsche Believes It Can Make More Profit Selling Electric Cars

Blume takes over from a CEO who enjoyed support among analysts and investors, although VW’s stock price has languished in recent months. Its preferred shares have declined 24% this year, dropping the company’s market value below 84 billion euros, a far cry from a target of 200 billion euros mapped out in 2019.

“We had initially been impressed by Dr. Diess’s strategic vision and the aggressive repositioning of the group on EVs, and we saw operational progress during his tenure,” Houchois wrote. “However, we feel he did not transform his grasp of the challenges and his ability to engage with investors to effect internal change at VW, and he alienated key VW constituents.”

Diess’s falling out was abrupt. Less than two hours before VW announced his departure from the management board, he tweeted out a LinkedIn post wishing employees a happy summer holiday and wrote that the company was in good shape for the second half of the year.

Blume also will be left with the unfinished task of reviving VW’s relevance in the US. Diess had set a target to double market share in the country and planned to spend $1 billion reviving the Scout brand as a maker of electric SUV and pickup models to take on the likes of Ford Motor Co., General Motors Co. and Rivian Automotive Inc.

Read more: VW’s Answer to Rivian Is a Slow, Costly Brand Revival

The VW brand, which swung to profitability in the US last year, has long struggled due to the lack of popular SUV models. In March, VW pledged $7.1 billion over the next five years toward improving its US offerings and boosting battery research and manufacturing capabilities.

VW’s board convened this week in Chattanooga, Tennessee, where the automaker produces Atlas SUVs and the electric ID.4. Scott Keogh, who returned the VW brand to profitability for the first time in years, was tapped to head the Scout brand, while Pablo Di Si, an Argentine in charge of VW South America, was named Keogh’s successor as head of the Americas.

“This comes at a time when volume manufacturers will need to set their focus on a weakening consumer environment,” Bernstein’s Roeska wrote in a report. “Continuing the management carousel will not help to increase organizational effectiveness in the near term.”