Müller Battles Corporate Traditionalism As He Pulls Volkswagen Into the Modern Age

Volkswagen AG CEO Matthias Müller is fighting against a corporate culture of traditionalism to bring the company into the future of electric vehicles, autonomous driving, digital integration, and ride-hailing partnerships, William Boston of The Wall Street Journal Reports.

“Volkswagen must change,” Müller said in May, “because our industry is going to change more deeply in the coming 10 years than in the 100 years before.”

Despite widespread support of modernization amongst the company’s shareholders, many top Volkswagen managers continue to prefer traditional approaches in many aspects of the business.

Some remain convinced the internal combustion engine is a “proven and superior technology,” Boston writes, and are resisting efforts to dethrone fossil-fuel based propulsion technology as the cornerstone of the auto industry.

Those convictions laid the groundwork for a scandal that Boston says cost the company $25 billion in “fines, penalties, and customer compensation” When the U.S. tightened its emissions regulations in the mid-to-late 2000s, environmental officials advised Volkswagen to shift production efforts toward hybrids and electric cars. Instead, engineers at the German automaker set about to design a diesel engine that could pass the new emissions tests. When those efforts failed, the engineers manipulated the engine software so that vehicles appeared to meet requirements although they did not.

The scandal broke in 2015, and led to the termination of then-CEO Martin Winterkorn and the internal promotion of Müller, who had spent the previous five years as the head of Porsche, which Volkswagen AG owns, to fill the position.

In an effort to pull Volkswagen in a more progressive direction, Müller is emphasizing electric car development and technological advancement. Early in his tenure as CEO, he advanced a plan to “generate at least 25% of sales from electric cars” (Boston’s words). Volkswagen will “triple investments in electric vehicles to $10 billion” by 2025, Boston says. Müller aims to develop 30 electric models across all brands, which include VW, Audi, Bentley, Bugatti, and Lambourghini, over the coming years.

According to Boston, Volkswagen is already capturing an increasing share of the plug-in vehicle market. “VW sold 63,392 plug-in vehicles in 2016,” he writes, “achieving an 8.2% share of global plug-in passenger-car sales of 775,417, according to EV-Volumes, a research group.”

A prominent VW executive, Boston reports, said Müller was “driving the nails into [Volkswagen’s] own coffin” by pursuing electric vehicles.

Five weeks after his promotion, Müller hired Johann Jungwirth, then a top engineer in Apple’s efforts to make inroads into the auto industry, to bring Volkswagen into the digital age. One executive said, per Boston, that Jungwirth was “getting on a lot of people’s nerves.”

Nonetheless, many of the future electric models will feature autonomous driving technology and state-of-the-art digital integration. Sedric, which debuted at the Geneva auto show in March, will be Volkswagen’s first fully autonomous car. It is free of pedals and a steering wheel.

Müller is also propelling his company into partnerships with ride-hailing services. Traditionally, Volkswagen management has shunned partnerships in favor of self-reliance. In May 2016, though, on the advice of his chief strategist, Thomas Sedran, Müller invested $300 million in ride-hailing company Gett on behalf of Volkswagen.

Gett is the centerpiece of Volkswagen’s Moia brand, which is dedicated to “changing mobility in urban environments” through “electric mobility, data and technology, and autonomous cars,” according to a statement by Moia CEO Ole Harms. Though Gett drivers currently use their own cars, Volkswagen has ambitions of building cars for the service.

Automakers are increasingly making inroads in the ride-hailing and car rental sectors, the theory being that new transportation services, which may ultimately drive down sales of personal automobiles, will also provide replacement revenue.

Volkswagen will have work to do to catch up to many of its competitors in the “alternative transportation” market. Damlier AG, which controls the Mercedes-Benz brand, created Cars2Go, which allows users to rent cars immediately via an app, in 2008. Today, more than 2.3 million people worldwide use the service. It is Europe’s biggest ride-sharing company.

GM and others have partnered with Lyft, and plan to use the service to hone autonomous driving technology.

“This shift to electric and digital mobility services is the right thing [for Volkswagen] to do, but it comes five or six years too late,” says Ingo Speich, a fund manager at Union Investment, a VW shareholder. “Volkswagen has lost any first-mover advantage because they kept clinging to the old way of doing things.”

Still, with Müller’s ambition propelling it, the company is poised to roar into the future.

A prominent VW executive, Boston writes, said Müller was “driving the nails into [Volkswagen’s] own coffin.”