FRANKFURT -- Volkswagen Group CEO Herbert Diess' frail relationship with German labor representatives hit a new low this week with disagreement over how radical the overhaul at the automaker must be in its quest for electric-vehicle dominance.
While both sides tried to demonstrate unity at a staff meeting on Thursday, the first at VW's giant Wolfsburg plant in nearly two years, there is no guarantee the dispute can be fixed quickly if it can be fixed at all.
In fact, VW's four-member mediation committee is planning to discuss Diess' future soon, sources have said, creating uncertainty around the automaker's leadership less than four months after the CEO's contract was extended.
Is Diess still the man for the job?
Daniel Schwarz, analyst at Stifel, thinks so. "His consistent EV strategy makes sense. He has a stronger focus on capital markets than his predecessors, which is benefiting the Volkswagen share," he said.
While VW's preferred shares have gained just 6 percent since Diess took over as CEO in April 2018, its common stock - more than half of which is owned by top shareholder Porsche SE - is up 68 percent.
Diess, whose contract was extended until 2025 in July, is currently hammering out the company's next investment plan to 2030, a process that usually causes friction among stakeholders each year.
Bernstein analyst Arndt Ellinghorst is more skeptical. "Diess stands for the radical change the company must go through after the dieselgate emissions scandal. What he does not yet stand for is implementation."
Porsche boss Oliver Blume, Audi CEO Markus Duesmann as well as Volkswagen brand CEO Ralf Brandstaetter have all been named as potential successors in the event that Diess is fired or decides to leave the multi-brand group.
"You need someone in Wolfsburg who understands the company and who is prepared to engage with the works council. I do not know if Oliver Blume is the right person," Ellinghorst said. "Ralf Brandstaetter could possibly be better at that."
Why all the fuss?
VW, the world's second largest automaker after Toyota, is under pressure to adapt to huge industry shifts, most notably the rise of EVs and self-driving cars.
Both areas are outside the comfort zone of German automakers, including VW, who have long dominated the age of internal combustion engines.
Enter new rivals, particularly Tesla, which have started with a clean sheet of paper and revolutionized production and supply chains.
"In the world of combustion engines we are leading. We are good at that, maybe better than everyone else," Diess told workers on Thursday. "But in the new world ... we are facing competition Volkswagen has never seen before."
Why is Diess bothering the works council?
The 63-year-old executive has been repeatedly criticized for his communication style that labor representatives say displays a lack of interest in the concerns of 675,000 employees around the world.
Diess, in particular, drew the ire of workers when he told VW's supervisory board in September that roughly 30,000 jobs were at risk if the company was too slow in its EV transition, sources have said.
The same goes for some of Diess' social media activities, including a video of him thanking staff for record first-half results while surfing on the canal next to the Wolfsburg headquarters.
"The way you have presented yourself in recent months I do wonder whether you are actually aware of the situation at our site here and how this is being perceived by the workforce," works council head Daniela Cavallo said on Thursday.
Why is Tesla bothering Diess?
The U.S.-based automaker has shown it is not just the number of cars you make, but technology and software that determine success in the new auto world.
Tesla, which sold 627,350 vehicles in the first nine months of 2021, is worth $1.2 trillion, more than eight times Volkswagen's 124 billion euros ($143 billion) market valuation, even though the German group sold 11 times as many cars in the period.
Tesla is also producing more quickly and efficiently, with Diess expecting the U.S. company will require just 10 hours to assemble each vehicle at its planned Gruenheide plant near Berlin, expected to open later this year.
"In (our plant in) Zwickau we are at more than 30 hours, we hope to achieve 20 hours next year -- our original project target was 16 hours," Diess said.
Who holds the power?
At 31.4 percent, Porsche SE, which is 50 percent-owned by the Porsche and Piech families, is VW's largest shareholder, while Qatar and the state of Lower Saxony, where Volkswagen is based, own 14.6 percent and 11.8 percent, respectively.
Between them they hold more than 90 percent of the voting rights, but on VW's supervisory board - which approves key strategic decisions - labor representatives hold half of the 20 seats as part of Germany's co-determination principle.
In the rare event of a stalemate on the board, the chairman - in this case Porsche SE CEO Hans Dieter Poetsch - holds sway.