VW CEO Herbert Diess
The car manager appeals to its managers to face up to change.
(Photo: AP)
Berlin / Wolfsburg VW-Boss Herbert Diess is considered a man of quiet tones. All the more remarkable is the flaming appeal with which Diess swore his managers in a strategy speech on Thursday. This warned the managers of his group not to rest on the currently good numbers given the massive change in the automotive industry. “All in all: good developments,” said Diess about the current situation Volkswagen, But then the most powerful representative of the German auto industry started to wake up.
“Honesty also means that the storm is only just starting.” It is crucial that everyone is aware of the change from a pure automaker to a provider of connected vehicles. “Are we already well prepared for what’s coming?” Diess asked. “2020 will show how weatherproof, agile and responsive we have become.”
The US electric car maker Tesla now have almost the same stock market value as Volkswagen. “The car will be the most important” mobile device “,” emphasized the VW boss. “When we see that, we understand why Tesla is so valuable from an analyst’s perspective. (…) Are we fast enough? The honest answer is: maybe, but it’s getting more critical. If we continue at our current pace, it will be very tight. “
This drew a parallel to the former Finnish cell phone manufacturer Nokiawho long believed that he could ignore new product and demand trends. The success of the newly founded IT division “Car.Software Org” decides on the future of the group. Because VW must change from a car to a tech group.
“The time of classic car manufacturers is over,” said Diess. “The future of Volkswagen lies in the digital tech group – and only there. And we will need an additional catch-up program to mobilize all of the potential in the group. ”
The complete speech of the VW boss in the wording:
“Ladies and gentlemen,
The world is on the move. We live in an incredibly dynamic time, both politically and technologically. A turning point is ahead – of the dimension of the industrial revolution. And Volkswagen is in the middle of the storm of the two largest transformation processes:
• Climate change and the associated pressure to innovate for emission-free driving.
• And digitization, which fundamentally changes the automotive product.
Our group does not always have the best conditions to react quickly and consistently enough to these developments. Judging by that we have not done badly so far, This is also recognized by market observers. In 2019, analysts have gained new confidence in our strategy.
Kepler Cheuvreux attested to us at the beginning of this year: “We think VW is the best positioned player in the industry to master the CO2 challenge.” And Goldman Sachs says: “We expect VW Group to continue to prosper this year as a result of ongoing positive sales developments at VW brand, a pick-up in sales at Audi, and broadly flat margins. ”
In the litigation area, we are gradually making the risks from the diesel crisis more manageable. We are experiencing tangible and measurable progress in corporate culture. I am pleased that we increased the integrity of the mood barometer by three points.
Our modern MQB-based model range in volume and the new Porsches, Audis, Lamborghinis and Bentleys convince the customers. We improve the quality of our business. Sales and earnings grow faster than sales. In China, we increased our market share by 1.4 percent in a rapidly declining market. A great achievement that hardly anyone would have expected us to do. Congratulations to Stephan Wöllenstein and his team for their outstanding performance!
In South America we are back in the profit zone for the first time, and we have also turned our business in Russia. We significantly improved our earnings in North America and are aiming for breakeven this year. Volkswagen Financial Services has had a record year in 2019, and the component has taken decisive steps in battery development and production.
at Audi e-tron has started successfully, development costs have been reduced and a comprehensive cost reduction program has been launched. Porsche delivered shiny numbers and cars again and set an example with the Taycan. Seat wins new and young customers with Cupra. Skoda is in full swing and will present the new models in India, which is an important future market for us.
VW Commercial Vehicles has the extremely important one ford-Cooperation placed on the track and Traton has completed the IPO. at Bentley, Ducati, Bugatti and Lamborghini we see positive trends, in particular Bentley is back in the profit zone. The core brand Volkswagen has worked hard to further increase returns. All in all: good developments.
“The storm is only just starting”
But honesty also means that the storm is only just beginning. And today is the opportunity to check ourselves and each other: are we already well prepared for what’s to come? 2020 will show how weatherproof, agile and responsive we have become.
Last week I was with investors and analysts in New York and advertised our strategy there. I have explained the steps for 2020 and 2021. In comparison, we are increasingly getting buy recommendations for our share. 88 percent recommend buying the VW share. We gain credibility. It is extremely important for us.
But: The development of Tesla’s share price was recently much more dynamic than the price increase of VW. In terms of market capitalization, Tesla is now almost on a par. Ladies and gentlemen, we are valued like an automobile company, Tesla like a tech company.
In the future, the automobile will be the most complex, valuable, mass-market Internet device. We will spend more time in the automobile of the future than today, maybe two hours instead of one. That is why it is not becoming a gray box, but much more comfortable, cozy and, above all, more networked, multifunctional than today. In the car, we will be continuously online, delivering far more data than smartphones, but also getting more information, services, security and convenience from the Internet.
The connected car will almost double the internet time. The car becomes the most important “mobile device”. When we see that, we understand why Tesla is so valuable from an analyst’s perspective. We as Volkswagen also want to go exactly there. The big question is: are we fast enough? The honest answer is: maybe, but it’s getting more critical. If we continue at our current pace, it will be very tight.
I still remember well a situation in which I think of Nokia Staff – I had taken over a few hundred – had them explain how they were fighting Apple have perished. The logic was: “We have 43 different mobile phones, the right one for everyone, no one wants touch, you have to charge the iPhone at least once a day while our battery lasts for a week.” And: Nokia had record years, but was practically dead.
Steve Jobs, on the other hand, understood that the device’s function had changed fundamentally. Access to the Internet became more important than the telephone itself. And the charging time was no longer so important for customers. A few years later, Nokia was history.
“We will need an additional catch-up program”
Dear colleagues, that is exactly the situation that is repeated in the automotive industry. The car is no longer just a means of transport. And that also means: The time of classic automobile manufacturers is over. The future of Volkswagen lies in the digital tech group – and only there. And we will need an additional catch-up program to mobilize all of the Group’s potential for this.
We have what we need. There is a great deal of technical know-how in our group of companies. We have a top management team, as the Future Executive Development Program has shown us. And we can manage the transformation with the proceeds of today’s technology from cash flow.
What we lack is above all speed and the courage to take powerful, if necessary, radical changes. Dear colleagues, that is what it is basically about: powerful change of direction. Otherwise it could quickly be too late. 2020 is now ahead of us. Three points are crucial:
First: Comply with the new CO2 limits by making our e-strategy a success and putting the ID.3 on the road. 2020 is the year of truth for CO2 compliance. With a difference of 30 grams to the limit, which we will have to close in two years and which can only be closed with e-vehicles and plug-ins.
The analysts of UBS Relentlessly got to the point at the beginning of January: “We reiterate our view that the ID3 is VW’s” must-get-right ”vehicle in 2020, as it spearheads VW’s second-to-none EV offensive. So, the ID3 is key to CO2 compliance for VW in the EU. ”The ID.3 has to hit the road. To do this, we have to face the challenges of start-up. The challenge is software and electronics complexity.
In addition, in order to comply with the limit values, we also have to supply, build and sell Seat Mii, VW Up !, e-Golf, e-tron and Taycan with batteries. All in all, this is perhaps the most difficult task that Volkswagen has ever had in mind.
Second: implement the e-strategy without losing profitability. The margins in 2020 must at least hold. We have the potential if we really take the seriousness of the situation as an opportunity to fully exploit the potential of this group and, where necessary, also slaughter holy cows.
We will use the synergies in the group much more consistently and have to reduce the complexity even more. For this we form the synergy families. The idea of using the greatest possible synergies in the model development between the brands is not new.
Utilizing the strengths of the group also means: We need maximum profit pool utilization across all segments. We have agreed the brand territories for this.
It is perfectly understandable that some brands would adopt a different strategy if they were alone. But we operate as a group. Each brand is judged by the fact that it makes full use of its own territory. The group goal is above the brand goals. Just as important: With the 6 percent for research and development expenditure and for investments, it must be clear: this is the maximum limit. Toyota – not to be compared with us in all consistency – runs at 3 to 4 percent in these disciplines – and is considered innovative and environmentally friendly.
We need to move forward in productivity. Cost reduction programs are running in all brands. There is particular potential here in the German locations. And with them there is also a great leverage. Complexity reduction also means that we regularly review our activities and ask ourselves: what can be eliminated, what do we need new?
To name a few examples: We drive the fuel cell and liquid fuels at basic level. For a foreseeable time horizon of at least a decade, they are not an alternative for car engines. We need full concentration on the breakthrough of electromobility.
We will also significantly reduce the effort at Moia. We want to keep our foot in the business. However, we have to delay our engagement until the conditions for profitability are better. This applies not least to the expensive vehicles.
“Away from volume and towards quality”
Added to this is the portfolio restructuring with a clear focus on the core business. Traton’s IPO was an important step. A first step. For industrial solutions for Renk and MAN We are actively engaged in discussions about energy solutions, and in order to achieve and permanently increase our target margins, we also need a fundamental rethink. Away from volume orientation towards quality of results.
Example Bentley: 10,000 deliveries: This is a strong performance by the team that we did not consider possible recently. Congratulations and thank you to the team. But the news would, of course, be even more impressive if we also achieved a return greater than zero. To be perfectly honest, I would prefer 5,000 deliveries and a return of over 20 percent.
Reverse example: Mexico. Here, the market share fell slightly in 2019 – caused by the pricing and shutdown of low-yield vehicles. However, the company’s result has improved from a significantly negative contribution to just below the break-even point. This is expressly an excellent development! We have to succeed in changing the paradigm away from volume and towards business quality. In the future, we will focus even more on sales, yield and cash than the core report sizes.
Third: Lead the Car.Software Org to success and create an impact. The Car.Software Org has started. Now she has to get operational. This also means that we must not wait until all organizational questions have been resolved to the last detail, but we have to get started. The clear call goes out to everyone: The success of the Car.Software Org determines our future!
These are the building blocks to get the 200 billion euros in company value. The program for this is the Together 2025+ strategy, which we agreed on in Fleesensee last year. with the five modules Best Governance, Best Performance, Best Brand Equity, Software Enabled Company and Excellent Leadership. These five modules describe the right direction for the conversion towards the tech group.
Turning Volkswagen from a car company into a digital tech company is a gigantic challenge. It sounds unlikely that you can handle them. Still, I think we can master it. For this we need a radical restructuring of the group. A use of our strengths, but also a omission and abandonment of everything superfluous that does not help us.
That is the job of all of us. This challenging time is about new thinking and pooling of strength. And, of course, it is still about turning Volkswagen into a sustainable, integral company. We have it in our own hands. 2020 is the year of opportunities for faster, more consistent conversions.
Before Christmas, I congratulated the best trainees from across the group in Wolfsburg. I said to them: This company is your company. And if this company is not to become an industrial monument, then they have to put aside the monuments of everyday life. I said that to our trainees. And I also say that to you.
We need a common understanding of the radical nature of change. The size of our task. And in the short time. It gives us exactly one single attempt to secure Volkswagen for the future. Let’s use it. ”