Herbert Diess, Volkswagen's main disruptor, runs out of gas

Herbert Diess, a former BMW executive, took over Volkswagen (ETR:VOWG p) AG four years ago, when the German automaker was in crisis and under pressure to make substantial changes to its strategy and corporate culture. Diess contributed a new perspective.

Diess left Volkswagen on September 1, three years before his contract was supposed to expire, with many of the goals he established as chief disruptor of the German auto giant still unmet and uncertain.

Diess's intention to build CARIAD, a software business based in Germany, within Volkswagen and Porsche's projected public market offering to help fund VW's electrification expenses are among the most prominent.

Diess was different from past Volkswagen CEOs in both company strategy and personality. He appeared to be the right leader in 2018 to move Volkswagen away from the Dieselgate scandal.

Diess was more interested in pleasing Volkswagen's investors than its labor unions. He thought that large future investments should be made in electric automobiles. He built a hilarious social media presence, and he positioned Tesla Inc (NASDAQ:TSLA) as Volkswagen's benchmark, as opposed to conventional competitors like Toyota Motor Corp or General Motors Co. (NYSE:GM).

Diess's risky product and technology approach, as well as his penchant for expressing his opinions, alienated VW constituencies.

He also occasionally missed the mark.

Diess appeared to invoke a Nazi-era phrase in 2019 when he stated "EBIT makes you free" to emphasize the automaker's earnings potential. Later, he apologized for the comments and stressed that he had no intention of equating them to the Nazi-era slogan "Arbeit Macht Frei," which was displayed on the gates of Auschwitz during the Holocaust.

Diess may be known in the United States as the CEO who reintroduced the famous Volkswagen microbus as an electric car and rejuvenated the Scout truck brand. Volkswagen dealers in the United States were enraged by Diess' remarks about selling Scouts directly to consumers.

Diess openly admired Tesla and its CEO, Elon Musk, who offered Diess the role of CEO at Tesla prior to his decision to join Volkswagen in 2015.

TOOK ON TOUGH TASKS

Diess, who is 63 years old, has held a variety of tough positions throughout his tenure at Volkswagen, including reducing expenses at the company's high-volume Volkswagen brand. Diess was charged by former CEO Martin Winterkorn with lowering the brand's yearly expenditures by €5 billion ($6 billion) within two years, a job that would certainly provoke tension with German labor unions. Diess joined VW in 2015 as head of the Volkswagen brand.

Diess negotiated an agreement to cut 30,000 employees through natural attrition, putting Volkswagen's profitability behind that of its rivals.

Diess appears to have moved too rapidly for some board members and not swiftly enough for others.

Volkswagen's labor leaders, who control fifty percent of the automaker's supervisory board votes, repeatedly fought with him.

However, key stockholders from the Porsche and Piech dynasties were concerned that Diess' multibillion-euro investments in electric vehicles and software development were not generating results rapidly enough.

In May, Volkswagen's board of directors demanded that management present a more robust strategy for the software subsidiary CARIAD. The team's leader told the German newspaper Frankfurter Allgemeine Zeitung earlier this month that the procedure must be streamlined in order to move more rapidly.

Volkswagen's share price implies that investors shared similar concerns. Since Diess assumed leadership in 2018, Volkswagen shares have remained steady and are down 24 percent for the year.

In the past four years, Tesla's market worth has increased from its 2018 level to $844 billion, which is comparable to 10 Volkswagens.

Volkswagen's board of directors has chosen Porsche CEO Oliver Blume, a seasoned VW executive, to succeed Diess. According to some observers, this decision represents a return to the basics and less ambitious intentions to transform the vehicle industry into a technology company.

"His perspective extended well beyond the automobile. Clearly, this resulted in some friction." Silicon Valley venture capitalist Evangelos Simoudis said of Diess:

"When I see Blume enter, I see a car guy once more."