WSJ: How Volkswagen’s $50 Billion Plan to Beat Tesla Short-Circuited

Oh boy. With a headline like that, you know the story’s gotta be good:

ZWICKAU, Germany—Five years and nearly $50 billion into the auto industry’s biggest bet on electric vehicles, Volkswagen VOW 2.05% CEO Herbert Diess and his guest, Chancellor Angela Merkel, stood in anticipation as the first ID.3, Germany’s long-awaited answer to Tesla, rolled off the assembly line.

The event at the company’s flagship EV plant just over a year ago marked a “systemic shift from the combustion engine to the electric vehicle,” said Thomas Ulbrich, leader of the ID.3 effort.

The car, however, didn’t work as advertised. 


The competition is coming!!! Wait, weird… turns out these symbolic events don’t actually mean anything.

After years of development, Volkswagen decided in June last year to delay the launch and sell the first batch of cars without a full array of software, pending a future update, which is now scheduled for mid-February. Tens of thousands of ID.3 owners will have to bring their cars in for service to have the new software installed.


Is there a better visual for the ineptitude of legacy auto than tens of thousands of ID.3 owners bringing their car into the dealership… for a software update?

“After that the software will be regularly updated over the air,” Mr. Ulbrich said in an interview. 


That’s scary. With a first release this good, just imagine what kind of updates they’re going to put out over the air… Mark my words, it’s a disaster waiting to happen. You can’t teach an old dog new tricks –– at least not without transforming it into a whole other animal.

Volkswagen, the world’s largest car maker, has outspent all rivals in a global bid by auto incumbents to beat Tesla. For years, industry leaders and analysts pointed to the German company as evidence that, once unleashed, the old guard’s raw financial power paired with decades of engineering excellence would make short work of Elon Musk’s scrappy startup.


Tesla? Why would the world’s largest car makers be worried about beating Tesla? TSLA-Qanon told me that Tesla was just a fraud, nothing to worry about guys! If Volkswagen is already the world’s largest carmaker, what exactly is it about Tesla that they’re trying so hard to beat?

What they didn’t consider: Electric vehicles are more about software than hardware. And producing exquisitely engineered gas-powered cars doesn’t translate into coding savvy.


Oohhhhhh right software. Is that what electric cars are made of? Well, the company that’s the best at selling combustion engines (that cheat emissions tests) should naturally be the best at software too, right? I mean, how different could they be? Don’t count VW out just yet guys!

This is the Innovator’s Dilemma in a nutshell. Volkswagen is fully aware of the situation they’re in, they have a CEO who is keenly and publicly cognizant of it, and yet they’re still struggling to fight the natural competitive forces that will inevitably lead to their demise.

The ID.3 debacle is raising the temperature at Volkswagen. Mr. Diess nearly lost his job last year amid a revolt of Germany’s powerful IG Metall labor union and shareholder anger over the botched launch of the Golf-8, the VW brand’s breadwinner, and the bungled launch of the ID.3. He was stripped of his leadership of the VW brand, VW’s biggest business, but kept on as CEO of the entire company without day-to-day operational responsibility.


“You can still be CEO, just don’t do anything anymore”

The ID.3 is gaining traction, outselling Tesla’s Model 3 in Europe in December, according to Jato Dynamics, with sales fueled by a price tag that is about $12,000 less than Tesla’s model, and by Germany’s decision last year to increase incentives for EV purchases. The ID.3 has also garnered negative trade-press reviews and is still missing key features.


Gigafactory Berlin will eat this car alive.

Ever since Tesla launched its first car in 2008 “there was this feeling that the really serious players are going to come,” said Peter Rawlinson, CEO of electric car startup Lucid Technologies and the former chief engineer of Tesla’s Model S. Now, he says, “the Germans have finally come, and they’re not as good as Tesla.”


Rawlison’s take is a bit self-serving, as he’s trying to market the Lucid Air as a better alternative to EVs from the traditional luxury giants. But still, he’s right. Volkswagen certainly can’t compete with Tesla or even Lucid on specs –– at least not yet.

Mr. Diess is drawing lessons from the mistakes on the ID.3 project as he overhauls the company’s software effort to prepare for a successor model, dubbed ID.4, which goes on sale in the U.S. later this year and will be produced at first in Europe and China and next year in Chattanooga, Tenn., as well. VW says the ID.4, its first all-electric car to be sold world-wide, will deliver on its predecessor’s promises.


“We promise our next car will deliver on the promises we made about the previous car, that it failed to live up to. Trust us!”

When Mr. Diess, then head of the VW brand, launched his first EV effort five years ago, he asked Fredmund Malik, an Austrian economist, to hold a “syntegration workshop” for senior brand executives. The goal, Prof. Malik said, was to persuade managers lulled into complacency by their company’s high profitability that Tesla represented an existential threat.


Why would a total fraud and fake company that pays people to tweet about it represent an existential threat to Volkswagen? Someone needs to remind VW to fire Diess for being a Tesla cultist!

Just to spell out what Diess is implying here, he believes that if the threat of Tesla is not properly addressed it could be the end of Volkswagen. If you’ve been seeing the writing on the wall, you’re not crazy –– the CEO of Volkswagen sees it too.

A second workshop was held a month later, after VW was exposed for cheating on diesel emissions. Mr. Diess wanted to use the jolt of the crisis to overcome internal opposition to electric vehicles, Prof. Malik said. It was at this meeting that VW decided to build what would become the ID.3, complete with custom software to run the vehicle and in-car apps.


That’s the recipe for a quality product right there: Forcing the company to make a car against internal opposition because you just got caught poisoning your customers with toxic emissions that deliberately exceeded what was legally allowed. What a great origin story for this ugly little EV. (The ID.4, at least, looks significantly better)

Volkswagen’s ID.3

The biggest challenge, said Mr. Hilgenberg, isn’t the technology, it is the mind-set of the people—their reluctance to embrace radical change until circumstances force them to.


Make sure to check out the full article at the Wall Street Journal if you’re interested in Volkswagen’s EV efforts. As goes Volkswagen’s software, so goes their electric car efforts, and the future of their business.

Read the full story in the Wall Street Journal

Leave a Reply