VW's Diess was ousted after key Porsche, Audi EVs were postponed by software problems

It says a lot about the state of the auto industry and where it's going that software problems have cost the CEO of an automaker his job.

Volkswagen Group ousted Herbert Diess as CEO on Friday after severe software development delays set back the scheduled launch of key new Porsche, Audi and Bentley electric cars.

This was untenable considering software problems have postponed the debut of VW’s initial rollout of ID models, and customers are still having to drop off their cars at the dealer for updates the company has struggled to make over the air.

Diess also did not do enough to make allies and became increasingly isolated due to his hard-nosed leadership style.

In his push to transform Volkswagen into an electric-vehicle leader, he repeatedly clashed with labor leaders by warning VW was losing out to Tesla and needed to cut thousands of jobs.

But failures at the automaker’s software unit Cariad ultimately eroded Diess’s support from the powerful Porsche and Piech family that calls the shots.

In December, VW overhauled its management board, stripping Diess of some responsibilities while tasking him to turn around Cariad. While there has been a lot of re-arranging since then, Diess did not manage to make the issues go away.

Discord at Cariad has pushed back the rollout of important new models including the all-electric Macan, a high-volume SUV for Porsche, which plans an initial public offering in the fourth quarter. The brand also plans to launch a flagship electric SUV, codenamed K1, that will sit above the Macan and Cayenne.

Additionally, Audi’s new line of Artemis EVs has been delayed by around two years to 2027. And VW’s ultraluxury brand Bentley may not be able to go all-electric by the end of this decade as planned because of the software issues, Automotive News Europe’s sibling publication Automobilwoche reported earlier this month.

“Taking over the ship at Cariad seems to have been Diess’s downfall,” said Matthias Schmidt, an independent auto analyst based in Berlin.

VW’s solutions to challenges tend to reflect its status as an industrial behemoth: it’s able to throw lots of money and people at its problems.

But modernizing the company for the digital age is going to take bringing in talent and building skillsets outside its traditional zones of expertise.

Drivers increasingly demand intuitive user interfaces and services that could create new revenue streams, if done correctly.

“Software is the key to the future,” Tesla’s Elon Musk tweeted when one of his followers asked about VW switching CEOs.

Diess certainly did not lack ambition. His last spending plan called for investing 89 billion euros ($91 billion) in software and EVs over the next half decade.

VW said last year it would eventually employ 10,000 people just within its software operation, which would make it one of Europe’s biggest companies in the space.

Just three weeks ago, Diess teased major investments in China to employ several thousand software engineers in the biggest auto market.

The stakes also have been clear. Diess regularly referred to Nokia’s failure to respond to the emergence of Apple’s iPhone as a cautionary tale and his belief that self-driving functionality would bring about an even more fundamental transformation of the industry than the shift to battery power.

VW is now turning to Porsche boss Oliver Blume, banking on him being more of a team player and shrewd navigator of the group’s various factions.

Unlike Diess, Blume is not a big presence on LinkedIn or Twitter, but he has proven he can recognize automotive trends.

The former Audi trainee who has headed Porsche since 2015 championed the Taycan, the sports-car brand’s first all-electric model, which now outsells the 911.

Leading VW out of its software morass will not be an easy one. Schmidt said Blume needs to bring about a deeper cultural change at Cariad to make things work, and doubts that German automotive managers will be able to fix the business on their own.

“They should have head-hunted the best people from Silicon Valley,” Schmidt said. “You cannot lead on software with automotive people.”