Volkswagen faces same fate as Nokia without urgent reforms, says CEO

herbert diess images

Volkswagen needs to accelerate the reformation of its business to prevent itself from becoming another Nokia, which lost its market dominance in the handset to Apple, the German automaker’s CEO Herbert Diess said.

The multi-brand automaker aims to raise its market value to 200 billion euros ($223.10 billion), from around 91 billion currently, by revamping its assets, slashing costs, and increasing its scope into new technologies like connected cars.

Automakers are speeding up research and development spending to keep up with tech competitors who are racing to construct self-driving cars at a time when regulators have made tougher emissions rules, making sure that automakers would clean up combustion engines and develop zero-emission electric vehicles.

“The big questions is: Are we fast enough?,” Herbert Diess said to VW’s senior managers after a global board meeting on Thursday. “If we continue at our current speed, it is going to be very tough.”

Volkswagen is making a transition from being a manufacturer of traditional vehicles to making self-driving and connected cars, a move that requires cost cuts and efficiency gains, he stated.

“The era of the classic carmakers is over,” Diess stated.

Volkswagen needs a more solid stance towards software and electronics as well as producing a range of electric vehicles and batteries so it can adhere to stringent anti-pollution rules.

“In summary, this is probably the most difficult challenge Volkswagen has ever faced,” Diess stated, adding that the automaker prepares to adhere to the stricter emissions targets while at the same time continue to maintain profit margins.

The automaker has to cut down on complexity, hike productivity and slash costs, generally in Germany, Diess stated.

VW will cut resources designated to fuel cells, since they will not be as competitive as battery electric drivertrains for at least one more decade. VW will also cut costs at its MOIA mobility services unit.

“We need to decrease our engagement and stretch it until the prerequisites for better profitability are given,” Diess stated.

VW also needs to concentrate more on profit and less on volumes, he added.

“Take Bentley for example, 10,000 deliveries,” Diess stated. “It would have been even more impressive if we had a margin higher than zero. If I’m totally honest, I would have preferred 5,000 deliveries and a margin of over 20%.”

To manage the shift and other modifications, Volkswagen must concentrate on its strengths, and to leave out or give up everything which stands in the way of raising performance, Diess added.

Listing truck maker Traton was just a first step in reforming its portfolio of assets, Diess said. Discussions about finding a new owner for its Renk and MAN Energy Solutions units were also being discussed, Diess added.

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