Oliver Blume, the boss who must reinvent Volkswagen without copying and pasting Tesla

The task is not easy for Oliver Blume… Succeeding Herbert Diess at the head of the Volkswagen group, an automobile giant which manufactures 10 million cars in 130 factories is already not easy in normal times. But in the current context of crisis and sectoral transformation, taking office resembles the Twelve Labors of Hercules.

Herbert Diess’ balance sheet raises questions

Because for the time being, we do not yet know very well why Herbert Diess was landed so brutally. The market is buzzing with rumors shared between, on the one hand, its authoritarian method which would have displeased both the unions, the shareholders and the executives. On the other hand, it was his strategic arbitrations that would have convinced the supervisory board to fire him. As soon as he took office in 2018, Herbert Diess effectively decided to reverse the table of the industrial model of Volkswagen to model it on that of Tesla: switch to 100% electric, vertical integration of the value chain by integrating networks of charging stations, battery production, or the creation ex-nihilo of a software branch with more than 11,000 engineers… This plan amounts to tens of billions of euros of investment. Internally, the pill never passed: this strategy aims to permanently bury the thermal car, the German group’s strong point. And the switch would cost nearly 30,000 jobs in Germany alone. In addition, investors are increasingly questioning the sustainability of the electric car as a business model. In addition to the fact that this technology is still largely subsidized, it must now resolve the issue of the explosion in the price of energy.

“Herbert Diess pays for his choice of all batteries (…) he was wrong to put all his eggs in one basket”, criticizes an industrialist who does not believe in the era of all-electric battery cars.

No turning back on the electric car

Oliver Blume was obviously not chosen to put an end to electric cars. On the contrary, Porsche, the brand he has been running since 2015, owes him its first 100% electric car: the Taycan, launched in 2019 and whose sales now exceed those of the famous 911. He has also promised that Porsche will sell 80 % of electric cars in 2030.

But if the 100% electric strategy is important, it responds above all to an extremely European problem. It is the only market to have programmed the exit of thermal engines (in 2035) and which will continue to tighten environmental standards with Euro7 (in 2027). But everywhere else, the thermal engine will probably remain the norm, at least for generalist brands like Seat, Skoda and even Volkswagen.

Oliver Blume will therefore have to readjust the “radical” strategic choices of Herbert Diess. He will also have to find another internal communication. The powerful IG Metall union has the ear of the Land of Lower Saxony, a major shareholder with its 20% stake in Volkswagen, which takes a dim view of the group’s retraining program which could put tens of of thousands of unqualified operators.

A breathless industrial model

But the group’s new boss must also resolve much more immediate industrial issues such as supply chain issues. Volkswagen has encountered significant points of failure in recent years due to an industrial model where the supply chain is tight… The semiconductor crisis or the war in Ukraine which deprived the main factory of the group, that of Wolfsburg, of cables for several weeks, were very expensive.

Oliver Blume’s great challenge is to find the right formula that will allow the mammoth Volkswagen to gain organizational flexibility. A pious wish pronounced from Dieselgate by Matthias Müller, who replaced Martin Winterkorn at short notice during the scandal, but whom Herbert Diess immediately returned to the attic upon his arrival in 2018. The former BMW wanted to lead the transformation of the group by the top. Oliver Blume will probably question the investments made by his predecessor to possibly consider partnerships rather than pure and simple integration. Charging networks, for example, or Cariad, the new software entity that should allow Volkswagen to take control of this essential dimension of tomorrow’s connected automobile. This flexibility will also be necessary in a world where all market hypotheses are now possible. Not to mention the inflationary hydra which will not only impact the cost of purchasing raw materials and energy, but also wages, all in a context of rising interest rates. Ultimately, Oliver Blume will have to reinvent an economic and industrial model, which is not a copy-and-paste of the Tesla model, which turned out to be far too complex to implement for a company the size of Volkswagen. Herculean you are told…