FRANKFURT -- Volkswagen Group CEO Herbert Diess is sending a message to Elon Musk: We are coming for Tesla.
While Tesla is paving the way in electric cars, VW is buying software companies and ramping up investments in sustainable vehicles and battery cells, Diess said Friday at the World Economic Forum in Davos, Switzerland.
"It's an open race," Diess said in an interview with Bloomberg TV. "We are quite optimistic that we still can keep the pace with Tesla and also at some stage probably overtake," he said.
Tesla's market value surpassed VW's for the first time this week, even as the U.S. company sells a fraction of the cars VW produces and has yet to record an annual profit.
Still, Tesla has a competitive edge in electric cars and software, technologies that are underpinning a shift toward cleaner mobility.
The threat is underscored by Musk's plan to establish a factory near Berlin, in the heart of Germany's automotive industry.
Diess last week called on his top managers to speed up overhaul efforts to make the company more agile or risk being pushed aside.
"The company which adopts fastest and is most innovative but also which has enough scale in the new world will make the race," Diess said on Friday.
Volkswagen has started building its first mass-market EV, the ID3, in Germany. The compact hatchback will be a rival to Tesla's Model 3, which has helped lift the U.S. automaker's sales in Europe.
Tesla is not Diess's only concern. The CEO was among executives who attended a dinner with U.S. president Donald Trump in Davos on Tuesday. While the meeting was "positive," the threat of U.S. tariffs on European automakers has not been averted, Diess said.
"It's very difficult to read President Trump but he stated that he's still not happy with Europe," Diess said. "We're doing what we can to avoid tariffs."
Volkswagen has been relatively resilient so far to industry headwinds exacerbated by trade friction, higher tariffs and a slowdown in China, the German automaker's largest market. But, the company will have to comply with Europe's new fleet emission targets, Diess said, meaning VW will have to sell more sustainable cars or face penalties.
"2020 for the auto industry will be a very difficult year, " Diess said. "But we're doing the right things to be competitive."