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Volkswagen Feud Threatens a $38 Billion Bet

(Bloomberg Opinion) — In parts of Germany, Bavarians were once known as “needleheads.” One day, God, angered at the solipsism in the country’s beautiful southernmost state, is supposed to have picked a local up by the head, thus elongating it like a needle, and rotated it. “See,” God said, “there’s more to the world than just Bavaria.”

The tale might offer a useful lesson to Volkswagen AG’s Bavarian chief executive officer, Herbert Diess, and the company’s board. Internecine conflict at the top of the world’s biggest carmaker risks derailing its 33 billion-euro ($38 billion) bet on electric vehicles at the worst possible moment, with car sales at their lowest in decades and Tesla Inc. becoming a genuine threat. Volkswagen needs to be looking outward beyond its domestic concerns, not inward.

The parent company of Audi, Porsche, Lamborghini and Bentley has been buffeted these past two weeks as tension between Diess and some members of the firm’s supervisory board broke into the open. At an internal event for more than 3,000 managers last week, the former BMW AG executive accused directors of committing crimes by leaking confidential discussions, Bloomberg News reported. On Monday, the board responded by stripping him of direct control of the Volkswagen brand — he’d been CEO of both Volkswagen AG and its dominant, namesake division. Diess apologized, and the board issued a lukewarm statement, saying they would “continue to support him in his work.” 

The contretemps is another ugly distraction from Diess’s otherwise largely successful leadership of the German giant. Since taking the reins in 2018, he has helped the company move on from the 2015 dieselgate scandal by accelerating a pivot toward electric vehicles, and integrating more closely the company’s disparate fiefdoms of 12 brands spanning motorbikes to 16-ton trucks. The stock has outperformed German rivals BMW and Daimler AG under his leadership. While Mercedes owner Daimler has issued five profit warnings in the same period, VW has issued one, prompted by the coronavirus pandemic.

Managing the conflicting interests at Volkswagen is an unenviable task. Its dual-class share structure — a rarity in corporate Germany — means the 75 billion-euro company is essentially family owned, with descendants of automotive engineer Ferdinand Porsche controlling 53% of the voting shares. The State of Lower Saxony, where Volkswagen is based, controls 20% of the votes, and powerful labor representatives have slightly less than half the board seats.

It’s a stark contrast with Tesla, which suffers from the inverse problem: a lack of oversight for its brilliant but flawed CEO. While Elon Musk can unilaterally decide to build a tent to accelerate assembly of Tesla’s Model 3 sedan, Diess has to satisfy a panoply of interested parties as he tries to transform his company.

But Diess, who has a history of poorly judged comments, needs to get out of his own way too. His recent accusation of boardroom criminality followed a staggeringly distasteful assertion to managers last year that “Ebit macht frei.” That translates roughly as “profit sets you free,” echoing the “Arbeit macht frei” (“work sets you free”) sign above the gates of Nazi concentration camps.

Volkswagen has changed CEO twice already since 2015. It doesn’t need another upheaval. At stake is more than just the interests of the Porsche family and Lower Saxony. The carmaker employs about 670,000 people, and it’s among the biggest employers in countries such as Hungary, the Czech Republic and Portugal. Its actions have significant implications for European stability. The company’s leadership needs to get the transition to electric cars right. There’s more to the world than its corporate headquarters.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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