Volkswagen gets reality check after Tesla’s milestone week

FRANKFURT: It was a sobering week for Herbert Diess’ ambitions for electric cars.
While Tesla joined the trillion dollar club, received a groundbreaking contract from Hertz and set a new sales record in Europe, the Volkswagen boss presented a cut in sales and delivery prospects as well as a decline in quarterly profit that drove one point home: the Dethroning Elon Musk as the King of Electric Vehicles (EV) has a much harder time.
“Tesla’s latest achievements send a clear message,” said Diess analysts during a call on Thursday’s third quarter results, which mainly focused on Tesla.
“We have to prepare for a new phase of the competition.”
Diess, a longtime admirer of Musk, stepped up the pressure earlier this year and outlined plans – including building six major battery factories in Europe – aimed at overtaking U.S. rival VW as the world’s leading electric car seller by 2025.
But a chronic semiconductor shortage has slowed Volkswagen’s progress, exposing the disadvantage that volume automakers have compared to luxury competitors who sell fewer vehicles.
And since Tesla is worth almost eight times as much as VW while it only sells 5% of the cars, and its Model 3 is the first ever EV to top monthly sales in Europe, this stage is more about keeping up not to catch up.
“They’re gaping in their gross margins. They seem to have structurally better access to chips. They seem to have structurally better access to batteries,” Patrick Hummel, Head of European and US Auto & Mobility Research at UBS, said during the call with Diess.
To make matters worse, Musk will soon start producing cars in Tesla’s ultra-modern plant in Grünheide near Berlin and will lead the battle for global auto dominance in Germany, where some of the first automobiles were invented.
Diess, 63, who led the automaker out of its Dieselgate emissions fraud scandal, said this will force local heavyweights to step up their game significantly in order not to fall further behind.
“Tesla Grünheide is definitely a new reference for us that sets new standards in terms of speed, productivity, but also lean management, and we have to be prepared for that,” he said in a conversation with reporters.
KEEP YOUR FRIENDS CLOSE, BUT YOUR ENEMIES CLOSE
Diess, who received an offer to lead Tesla years ago, has repeatedly highlighted Musk’s success with the EV pioneer, who disrupted the auto industry’s established paths and whose $ 1 trillion valuation dwarfs Volkswagen’s.
Though Volkswagen stock is up 28% so far this year, its current valuation of around 121 billion euros ($ 141 billion) is a far cry from the 200 billion Diess believes the company the luxury brands become Belonging to Porsche and Audi is worth it.
Diess, who became CEO of Volkswagen in 2018, even invited Musk to a meeting with his managers this month to put pressure on management to catch up with the US automaker more quickly.
A central component of this advance will be Volkswagen’s Trinity project, in which the carmaker wants to build a flagship electric sedan at the Wolfsburg plant from 2025/26 and make the plant a challenger for Tesla’s Grünheide site.
This plan aims to cut the time it takes to assemble electric vehicles to around 10 hours, Volkswagen CFO Arno Antlitz told Reuters for about as long as it takes Tesla to build its Model 3.
It is also clear that this will mean fewer jobs, which carries the risk of protracted and painful battles with employee representatives, who traditionally hold significant power at the world’s second largest automobile manufacturer.
âWe have to prepare production for significantly less work in some lines. We have to adjust to less complexity, more speed, line speed, âsaid Diess.
Earlier this week, Volkswagen’s new head of labor held Diess responsible for investing too much and not investing enough in the workforce, fearing that the move to electric cars will cost tens of thousands of jobs.
CFO Antlitz said that while both management and workers agree on the need to overhaul Wolfsburg, he admitted that finding common ground could be difficult.
“Of course, as always, the question is ‘how do we get there’, but I am convinced that we share the same vision with the works council.”
A spokesman for Diess referred to the request for comment on his statements on Thursday. Tesla spokespersons in Germany were not immediately available for comment.
While Tesla joined the trillion dollar club, received a groundbreaking contract from Hertz and set a new sales record in Europe, the Volkswagen boss presented a cut in sales and delivery prospects as well as a decline in quarterly profit that drove one point home: the Dethroning Elon Musk as the King of Electric Vehicles (EV) has a much harder time.
“Tesla’s latest achievements send a clear message,” said Diess analysts during a call on Thursday’s third quarter results, which mainly focused on Tesla.
“We have to prepare for a new phase of the competition.”
Diess, a longtime admirer of Musk, stepped up the pressure earlier this year and outlined plans – including building six major battery factories in Europe – aimed at overtaking U.S. rival VW as the world’s leading electric car seller by 2025.
But a chronic semiconductor shortage has slowed Volkswagen’s progress, exposing the disadvantage that volume automakers have compared to luxury competitors who sell fewer vehicles.
And since Tesla is worth almost eight times as much as VW while it only sells 5% of the cars, and its Model 3 is the first ever EV to top monthly sales in Europe, this stage is more about keeping up not to catch up.
“They’re gaping in their gross margins. They seem to have structurally better access to chips. They seem to have structurally better access to batteries,” Patrick Hummel, Head of European and US Auto & Mobility Research at UBS, said during the call with Diess.
To make matters worse, Musk will soon start producing cars in Tesla’s ultra-modern plant in Grünheide near Berlin and will lead the battle for global auto dominance in Germany, where some of the first automobiles were invented.
Diess, 63, who led the automaker out of its Dieselgate emissions fraud scandal, said this will force local heavyweights to step up their game significantly in order not to fall further behind.
“Tesla Grünheide is definitely a new reference for us that sets new standards in terms of speed, productivity, but also lean management, and we have to be prepared for that,” he said in a conversation with reporters.
KEEP YOUR FRIENDS CLOSE, BUT YOUR ENEMIES CLOSE
Diess, who received an offer to lead Tesla years ago, has repeatedly highlighted Musk’s success with the EV pioneer, who disrupted the auto industry’s established paths and whose $ 1 trillion valuation dwarfs Volkswagen’s.
Though Volkswagen stock is up 28% so far this year, its current valuation of around 121 billion euros ($ 141 billion) is a far cry from the 200 billion Diess believes the company the luxury brands become Belonging to Porsche and Audi is worth it.
Diess, who became CEO of Volkswagen in 2018, even invited Musk to a meeting with his managers this month to put pressure on management to catch up with the US automaker more quickly.
A central component of this advance will be Volkswagen’s Trinity project, in which the carmaker wants to build a flagship electric sedan at the Wolfsburg plant from 2025/26 and make the plant a challenger for Tesla’s Grünheide site.
This plan aims to cut the time it takes to assemble electric vehicles to around 10 hours, Volkswagen CFO Arno Antlitz told Reuters for about as long as it takes Tesla to build its Model 3.
It is also clear that this will mean fewer jobs, which carries the risk of protracted and painful battles with employee representatives, who traditionally hold significant power at the world’s second largest automobile manufacturer.
âWe have to prepare production for significantly less work in some lines. We have to adjust to less complexity, more speed, line speed, âsaid Diess.
Earlier this week, Volkswagen’s new head of labor held Diess responsible for investing too much and not investing enough in the workforce, fearing that the move to electric cars will cost tens of thousands of jobs.
CFO Antlitz said that while both management and workers agree on the need to overhaul Wolfsburg, he admitted that finding common ground could be difficult.
“Of course, as always, the question is ‘how do we get there’, but I am convinced that we share the same vision with the works council.”
A spokesman for Diess referred to the request for comment on his statements on Thursday. Tesla spokespersons in Germany were not immediately available for comment.