16,000 words interview with Diess CEO of Volkswagen Group.
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Mumi Alice
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Xiao Han
How can the world's largest car company seize the wave of four automobile modernizations? Volkswagen Group CEO Diess gave the answer.
A few days ago, The Verge, a well-known American technology media, held an in-depth dialogue with Diess, focusing on the development ideas and paths of Volkswagen Group in the new era of automobile modernization.
In 31 questions, Dies first spent a great deal of time emphasizing the importance of software.
He pointed out that the Volkswagen Group has achieved economies of scale in the past with the strategy of multi-brand sharing platforms. After entering the era of intelligent electric vehicles, this style of play will continue, but in addition to the shared model platform, there is also a software platform, which will also provide new possibilities for economies of scale.
"90 percent of [automotive] differentiation, competitiveness and customer experience will depend on software. Now I still believe that design, performance, brand image, and marketing will all play a role, but it's software that really dominates in integration. Being able to integrate software in different properties is decisive. Dees said.
Diess' point is clear, that is, 90% of the competitiveness of smart electric vehicles in the future will focus on the software level. There is no doubt that this is a big change that has turned upside down.
But he also stressed that no company can do the best in both software and hardware. Because some of the capabilities are distributed among Tier1 and Tier2 suppliers at all levels. The Volkswagen Group is therefore currently striving to achieve vertical integration in order to achieve the goal of both.
Diess also said that the Volkswagen Group should face customers and communicate directly with customers. In the future, the Volkswagen Group will be both a hardware company, a software company, and a service-oriented company.
At the specific business level, Diess said that Volkswagen Group will continue to pay more attention to the software business, such as automatic driving, operating systems, and even navigation and positioning software must be in its own hands.
When talking about electrification, Dies said that the basis for the development of electric vehicles is to change the energy structure. If a country's energy structure is still dominated by coal, it is obviously not suitable for the development of electric vehicles. And other energy sources, such as ethanol, are not suitable, even if they are not coal – they also need internal combustion engines.
That is to say, the competition in the electric vehicle industry is essentially a competition in the energy structure between countries, rather than the competition between car companies seen on the surface.
"It's hard for an electric car in Europe to compete for such a low diesel price." Dees said.
Diess also talked about the Volkswagen Group's large-scale layout of charging networks and battery cell businesses. The former is both a means of serving its own electric vehicle fleet and an important asset to participate in the future energy revolution. The latter is the key to ensuring the stability and reliability of the electric vehicle supply chain.
In addition, The Verge and Dies discussed issues such as minibus ID.BUZZ, lack of cores in cars, software licensing, driverless cars, and Diess' personal cars. Dis's answers are very sincere and direct, it can be said that it is dry goods, the following is a full compilation of the interview.
In the global automotive industry, Diess is both a wise man with insight and long-term strategic thinking, as well as an uncompromising warrior.
In the face of the sudden changes in the global automotive industry, he risked stepping down and resisted the pressure of the union and the board of supervisors to fully promote the transformation of the Volkswagen Group, fully embracing software and embracing intelligent electric vehicles.
While other established car companies are still wavering, or testing the waters with oil-to-electricity models, the Volkswagen Group has formed a product matrix composed of Volkswagen ID. and Audi e-tron series.
Throughout 2021, in the fiercely competitive Chinese electric vehicle market, independent brands unify Heshan, while the Volkswagen brand is the only overseas brand that can be played - the two ID.4s of the North and South Volkswagen, which can also be sold more than 10,000 per month.
This is exactly what Dies has done in previous years to vigorously promote reforms.
Diess's radical reform plans affected the interests of the traditional tanker business, and he also came into fierce conflict with the unions and the supervisory board. In the past 1 to 2 years, there have been a series of executive changes within the Volkswagen Group (Diess' executives have been replaced), and although Diess himself is still the CEO of the group, he actually has only one software department left.
But he remains indomitable and continues to fight for the reform of the group and the development of the software business, which is a warrior.
Finally, may Diess be able to work with all those who are engaged in smart electric vehicles to accelerate the arrival of a new era!
The world's largest car company, Volkswagen Group, is accelerating its transformation. Share the report "Enlightenment of Volkswagen's Transformation Strategy in the Next 10 Years", and the public account dialog box replied to [Car East-West 0305] download.
01.
The Volkswagen Group takes the route of scaling software will provide new opportunities
Nilay Patel: Herbert Dies, you're the CEO of the Volkswagen Group. Welcome to Decoder.
DEESS: Thank you Nilay, I'm so happy to be here. Thank you for giving me this opportunity. I look forward to your question.
1. Nilay Patel: We have a lot to discuss, and Volkswagen just announced that Microbus will return as an electric car. I saw some photos of Volkswagen posting at CES and the car looked very exciting. The Microbus is clearly a legendary car. I think consumers are also looking forward to this new car.
The Volkswagen Group has just undergone some restructuring. You have just taken over CARIAD Software and are looking forward to your leadership. Actually, I would like to start from the most basic place to ask, the Volkswagen Group is a huge car company, serving many companies and markets, is an established company. I think people may not be familiar with how Volkswagen works, but I would like to ask you what is the structure of the Volkswagen Group?
DIESS: We're kind of like a brand consortium. The Volkswagen Group has global brands such as Skoda, SEAT and Volkswagen in the field of series manufacturing. The high-end brands Audi, Bentley and Lamborghini also belong to the Volkswagen Group. In addition, porsche, the top sports car brand, also belongs to the Volkswagen Group. Then we also have trucks, Scania and MANs in completely different businesses, but all related to transportation. We also have several service companies, and the Volkswagen Group has just acquired a car rental company, Car Sharing.
As you said, the Volkswagen Group is very large and complex, but I think it is also a good setting for the future transformation of the Volkswagen Group. We have a certain scale, technology and brands that are well known to the people. As for the way we run the group in the future, I can say that the Volkswagen Group has a fairly independent brand group. Sales are led by the Volkswagen brand, all high-end brands are led by Audi, and Porsche is essentially independent. On the customer side, the brands are independent, while technically, the brands share hardware and software platforms. We also share mobile services and finance, which is how we take advantage of economies of scale.
2, Nilay Patel: I often hear car CEOs talk about you in the show, you have a brand home, I hope all brands have differentiation, operating in market segments, whether it is a production car, a high-end model or a sports car. You get economies of scale from centralized platforms and software. You've said that the Volkswagen Group will have only a few basic car platforms that will be represented in various ways by Volkswagen's car brands. The idea sounds great, but the execution is obviously very difficult. If the public's demand for the ID.4 platform is different from Audi's, how would you decide?
▲Volkswagen ID. series
Dies: We've been quite successful in terms of platforms right now because they're really widely used. With the exception of Porsche, all product brands, including Audi, are using the MQB platform. MQB is a universal platform that is used by the Volkswagen Group all over the world, from India, Latin America, China to Europe. This brings a benefit because we can offer the best platform technology at the best price. Now we are in the next stage, with the MEB (Electric Vehicle) platform.
The world is transitioning to electrification, and in this era, the engine will not be much different, but there will still be differences in performance, electric vehicles have rear-wheel drive, front-wheel drive and all-wheel drive, and the size of the battery is also different. But when it comes to electric units or converters of this type, electric vehicles are more similar than models with internal combustion engines. That's why we think hardware differentiation is likely to decrease in the future.
That's what we've seen from the competition, we all have a similar baseplate battery that can be applied to a large number of cars. The design of electric vehicles is also very similar, both rear or front-wheel electric drive. The Volkswagen Group's brands currently have a certain difference between 800V and 400V charging technology, Porsche and Audi are using 800V electric platforms, and Volkswagen brands and other volume product brands are using 400V batteries.
That's why we believe that in a fully electric future, only one platform is needed to accommodate all models. I want to emphasize that this platform will be a differentiated platform that can support charging technology from 85 kW to 800 kW, after which the maximum power can reach 1000 kW.
Not only can the platform be used at scale, but so can volkswagen group software platforms. If you're driving an Audi, Porsche or Volkswagen brand car today, you'll probably find that these models have different hardware and software. But it's not necessary... Software offers a huge opportunity for economies of scale, but still allows for brand differentiation.
The Volkswagen Group will offer a wide range of products, but the basic software stack can be very similar. In the automotive sector, software is relatively expensive. We think that if Volkswagen builds common basic software for all brands, it will also become very competitive in terms of software, which is why we set up CARIAD. From the software we buy for embedded systems to our own software stacks, brands have the freedom to use tools to make specific distinctions, such as different use cases for sportiness and comfort. We are ready for this new world, where economies of scale may play a bigger role than in the era of the internal combustion engine. While differentiation of electric vehicles may be more difficult, with software, it will be very possible.
In addition, at present, Audi and Porsche brands share an 800V electrification platform, and Porsche Taycan and Audi GT are very different in concept, group and market segment. I think there will be a lot of differentiation and economies of scale in the electrified world.
3. Nilay Patel: I want to talk a little bit more about this, you're in charge of a huge group and there are a lot of different kinds of decisions to make. How did you make your decision? What is your decision-making framework?
Dies: My life experience has taught me that usually the best knowledge is in the conference room, so I'm always looking for different opinions to get all sorts of insights to discuss and make the right decisions. I've had the same experience of making decisions that tend to be a slap in the head – but often wrong. I believe in good team decision-making, I believe in expressing my opinions, and that really works.
4. Nilay Patel: Another question is that I mainly interviewed U.S. CEOs, and U.S. CEOs, especially founders, are given a lot of executive power, they tend to run companies, and maybe they make a lot of intuitive decisions. The Volkswagen Group is a European company with a large supervisory board in which the union has many seats. Can you explain what's going on? Do unions limit your power as CEO in the midst of change? For our audience, this setup is very different from any American company.
DEESS: Yeah, it's complicated. A great deal of coordination and discussion is required. Unions are not allowed to make decisions at will, and you must defend your decisions for the common good of the future. You have to talk to a financial audience and convince them that you want to run a business, so you can't make a lot of intuitive decisions. Even if you make such a decision, you must then prove that you are right. In any business model, you have to explain your story, you have to explain why you're taking these people with you.
The Volkswagen Group is more complex, where ownership is quite special. Because there are several brands that are quite heterogeneous. Porsche is completely different from the Skoda brand. Scania's commercial vehicle brand is completely different from passenger cars. This is a complex task, but there is progress. We believe volkswagen has been transforming quite quickly, and five years ago Volkswagen decided to adopt a pure electric platform. Some of my peers have now come to this conclusion. We have strong cash flow from our existing business and are continuing to invest. We have now invested billions (euros) in software and have also acquired a car rental company.
We've made a lot of investments in transformation, more than many of our competitors. But we have to admit that companies with founders in charge will be faster.
This is a new challenge for us, and we have to rethink processes, organizations. We have to make a lot of improvements to stay competitive.
5. Nilay Patel: One specific founder car company I can think of is Tesla. Obviously, the close integration of hardware and software is Tesla's huge advantage. Even in the face of a chip shortage, Tesla can replace chips or rewrite software based on existing chips, which is almost impossible for other car companies to do.
DEES: No, it's not. We're also constantly adjusting our moves, but you have to imagine that we're going to be a lot more complicated. The mass of the Volkswagen Group's supply chain makes us – even our platform strategy – more vulnerable. But we've also re-designed some of the designs, and we're a little too slow, which I agree with.
02.
The future of the car in software 2030 to remove the steering wheel
Nilay Patel: You recently took over cariad, the software division. I believe what you are talking about about the future of the car, after Volkswagen there will be skateboard platforms, batteries and motors and various configurations that will be constantly adjusted in size and performance. On top of that, you can layer industrial design and layer the user experience. User experience is not a hardware issue, but a software issue, and this problem is very challenging. Now software is really an automotive engineering problem. How do we have all the components so that they match each other? How do we integrate them? How do we build a compelling user experience? How do we provide software updates? When you turn a car into a computer, you face the problem of computers. If software is the future, why is CARIAD a division of the Volkswagen Group and not the Volkswagen Group itself?
DIES: It depends on how you call it, I would say it's the Volkswagen Group. I think your judgment is completely correct. 90% of the differentiation, competitiveness and customer experience (of the car) will depend on the software. Now I still believe that design, performance, brand image, and marketing will all play a role, but it's software that really dominates in integration. Being able to integrate software in different properties is decisive.
It's a very difficult task because it's complicated, so it's also something that's not easy to copy. Today's cars are already 10 times more complex than smartphones, they have 10 times the number of lines of code than smartphones, and the standards are extremely different. If you're thinking about braking or steering, you have to establish redundancy and then make the parts connected to each other. Updatable means that part of your software runs in the cloud, so that you can achieve continuous updates... But the question is: Who will succeed? Who can do that?
Your hypothesis is that we are in a dilemma, and you are partly right. But I would say that no big company today can build a car that is absolutely good in both hardware and software, because these two capabilities are not so easy to obtain. The problem we face today is that these capabilities are between suppliers and sub-suppliers. For example, Bosch, Continental and us. Volkswagen needs stronger vertical integration to improve competitiveness. That's one of our American competitors may be a little ahead of us, but at the same time this American competitor still needs to learn some lessons —and that's how to deliver on all the promises.
In order to have this capability, we must restructure and acquire new skills. I am confident that Volkswagen will succeed and that any other potential competitor will have the same problem. Even for a software company, understanding the necessity and complexity of the car is a daunting task. So far, I haven't seen a single software company succeed. Large supplier companies have opportunities, such as Bosch, Continental, because when it comes to braking and steering, they have part of the software stack. But integration, customer interfaces, the cloud, and the backend remain huge challenges for them.
Volkswagen is in a process that will continue for years. When this phase is over, the Volkswagen Group will have the ability to do the entire stack, run a fleet, continuously renew and meet the needs of all customers worldwide.
7) Nilay Patel: The same goes for your point about reliability — you don't see a lot of youTube videos of you uploading about gaps in car panels. It's actually very difficult to build cars, which is a must for other companies.
DEESS: You can learn everything now. Tesla's example shows that if you're really invested, then you can do amazing things. I'd say don't expect you to finish this game in a year, two, or five years. Tesla is one example, it took 15 years and a lot of resources — I don't know if it was $15 billion (about 95.3 billion yuan) or $20 billion (about 127.1 billion yuan) to become profitable. Not every startup that showcases cars at auto shows succeeds, but some of them are taken seriously. But I'm pretty sure that not all players will have enough money and persistence to win the competition.
Nilay Patel: I agree with you. Next I want to ask you a question about software, Volkswagen is very good at making cars, and it's manufacturing on a large scale and making sure that its vehicles are reliable. But after the sale of the traditional model, Volkswagen's long-term maintenance costs for the car are zero. If a customer has a problem with an internal combustion engine model, they are responsible for repairs – buying new tires or replacing parts, and so on. This could actually bring some profit to Volkswagen and its dealer network.
My expectation as a customer for a software car is that the car company will constantly provide me with new software updates, provide new back-office functions or map support by running cloud services, and so on. In order for me to drive the car I had already purchased, Volkswagen had to run a radio network and work with a mobile phone operator, which were the costs that the Volkswagen Group had to bear. So where is the revenue that supports these costs? I don't think people want to charge a subscription fee just to operate their cars, at least I haven't seen this market evolve yet.
DIESS: It's probably a bit premature to say that pay-as-you-go situations don't happen, because this kind of subscription framework does take up a lot of space in other businesses. We can also see that the sharing economy is developing rapidly. This is basically why we buy car rental companies, and Volkswagen believes that this business model of shared use will grow rapidly. Sharing won't replace ownership, at least not for the next 10 years, but it will grow a lot, which can lead to additional revenue streams. I completely agree with what you said about the need for car companies to provide services, but at the same time car companies also need to have additional revenue streams.
Imagine this: for a long time, as a company we didn't reach customers. Basically, we can only reach our customers through our retail network. But now the situation is that customers are gradually not going to our retail outlets, going to third parties to buy some spare parts or tires. Now we have a new opportunity to be in direct contact with our customers, which is a whole new experience for Volkswagen. Now we're starting to get to know our customers, their preferences and anger and their love for cars. We talk directly to our customers to provide them with better service over the long term.
This engagement, for example, allows us to understand a very key element in the business model: surplus value. A large portion of our cars are financed, about 60 to 70 percent in some markets and 90 percent in the U.S. Residual value provides us with more important information than the retail price. As you can imagine, by updating and upgrading to understand the car and its battery status, you can greatly increase the car's residual value. You can know what extra things are needed, and there are features for consumers to keep their car fresh. My point is that in these changes, there are far more opportunities than risks. The risk is that you have to acquire new skills, you have to learn to talk to customers, and that's a big challenge for us. You have to learn to provide good software updates that make customers happy and pleasantly surprised. This kind of learning is a very healthy process, and if we seize the opportunity, there is more room to rise than room to fall.
Nilay Patel: The opportunity you're talking about in front of your customers — is it a business opportunity? Does Volkswagen want to sell more of the interior of the cockpit?
Dies: Just before Christmas, I had the opportunity to experience the next generation of software that Volkswagen would deploy into some ID models. These software have a huge improvement in driver assistance features – it's really powerful. Even in Europe, this driver assistance function performs better than some of our U.S. competitors. This experience of continuously improving the user experience is still new to us. Usually, we work until a car is on the market, then prepare an annual update of that model, and then renew it in three years, and finally forget about the car and think about the next model.
Now the idea of making the car better at the customer's hands is exciting. This is not only an additional business opportunity, but also leads to additional satisfaction, proximity to customers, and a better understanding of them. This will change our business model.
10. Nilay Patel: This is a big change, with software engineers working on the ID.4 driver assistance stack. I think you paid them a lot, and that's a cost. These engineers have to provide the stack over the network, and you have to configure and provide the wireless network that the car uses, and those are the costs. I agree with you that this is good for the client. But at some point, you have to link revenue to cost, and that's at the heart of the change in business models. Instead of assuming a two- or three-year upgrade cycle, you weigh the cost of supporting the car for longer and compare those costs to the revenue associated with the platform. Have you already earned this income? Are these plans already in place?
DIES: We're definitely going to think about that revenue as well. Months or years after a car purchase, customers are ready to buy some features that weren't originally purchased, and they'll buy them through a monthly subscription or a one-time payment. We estimate that the biggest difference is that we keep the residual value of the car higher, keep the car fresh, and get a better customer experience. For example, when Apple first started its smartphone business, revenue from their services and apps was very low. Now it's...
Nilay Patel: Very high.
DEESS: Reasonable. Yes, this income is reasonable. But Apple still makes a lot of profits on hardware because people are ready to pay for it and consumers get the service. I think this logic will also apply to the automotive industry. People will no longer buy cars that quickly fall behind and quickly lose their surplus value. The decisive factor in customer standards is advanced technology. Finally, there's the competition part, and if we can deliver better service, better cars, and a better customer experience, then customers will be ready to pay for mobility. We see that the mobility business is valuable. Customers may even be prepared to spend more on mobile business.
11 Nilay Patel: I would like to ask a very brief question, do you think the future of the Volkswagen Group will be a hardware company, a software company, or a service company?
DIESS: Volkswagen is a comprehensive company with all three of these attributes. We are a hardware company because we need excellent manufacturing technology and high quality in future designs; software will be a decisive factor in differentiation and economies of scale, so Volkswagen will also become a software company; talking to customers and providing services day after day, we will also become a service company, because the mobility business will change. Pay-per-use shared fleets, mobility services, and self-driving cars will dramatically change mobility. People may no longer own cars, they may just use cars, and Volkswagen will be part of this game. We're definitely going to be these three companies, but the shift will still be a bit complicated, and the most important thing to do is vertical integration.
12 Nilay Patel: I've talked to a lot of CEOs of companies that make parts for self-driving cars. Both the CEO of Luminar and the CEO of Argo AI have been on our show. You've worked with Argo before, and they're building very advanced autonomous driving systems. There's even an ID Buzz prototype driving itself in various cities, and Argo is a software vendor that offers packages to sell to car companies. Do you think autonomous driving is something that must be vertically integrated? Or can you still have a supplier of autonomous driving solutions?
Diess: Actually, we don't see Argo as a supplier, Volkswagen is the major shareholder in Argo, and we have a very close and trusting relationship with their management team. We provide Information to Argo and help it integrate cars. At the same time, we also operate fleets. Finally, I would like to say that autonomous driving is not really about software, but about the correct sensor settings and good integration of computer hardware. With the right integration, the car can do all the perception, planning, and ultimately make the right decision to drive safely. We have two areas: one is pushing robotaxi technology with Argo, which involves shuttle services that run at relatively slow speeds in limited areas, which is usually self-driving ODDs. After that, the operating area will gradually expand.
▲ Volkswagen's autonomous vehicle in cooperation with Argo
The second area is private transportation, which the Audi team and the CARIAD team are working on, and we believe that autonomous driving will not only cover the area of Robotaxi, but also private cars. This part is a step-by-step process, first we have to solve the L3 and L4 level of autonomous driving on the open highways in Germany, and then move into more complex areas. These are two different technologies, and some of our approaches involve sharing computing technology, sensor sharing. At some stage, you consider a fully autonomous car that is capable of driving itself from the start. On the other hand, you consider driving a car at a higher speed in a less complex area, while it is also able to take over the driver's job for a certain amount of time.
This leads to different approaches, different sensor settings, different algorithms, and different AI learning tasks. That is why we are moving forward with work on both fronts. In both areas, sooner or later, our goal is clearly to be able to drive cars on their own. Robotaxi has several different business layers, one is the platform – the customer interface, you have to book and pay, that's the platform level. The second layer is that someone has to run a fleet, someone has to build a car, and someone has to do autonomous driving. Right now Argo AI is at that level, and that's why we're investing in it, and we want to share ownership in this space.
From another point of view, yes. We also have suppliers in the field of autonomous driving, and we are working with Bosch, but we still want to be able to really drive a car, because we think the biggest difference is that the biggest change in this industry is whether we can take on the responsibility of driving a car.
13. Nilay Patel: When do you think Volkswagen will sell cars without steering wheels?
DEESS: It's hard to say. We are now first operating a fleet with Argo AI. We may start officially opening to the public in 2025 or 2026. But now these cars also have a steering wheel to use to get the car back from a specific location. But by 2030, we should be selling cars without steering wheels for transportation services. Now, most cars for private use are likely to still have steering wheels in case of bad weather conditions. For example, when you're driving to a very remote location, you might need a steering wheel to handle the situation.
03.
Will open the technology to third parties Charging stations and batteries must be built by themselves
14 Nilay Patel: You've talked a lot about software. We know that if you can develop software, it will actually be more profitable to sell software or license it to other manufacturers. But that could be a fundamental conflicting issue in the traditional computer industry — Microsoft has been very successful in the software licensing business, and Apple has been very successful, but they'll never license it to anyone who wants Apple to sell integrated products. Android is a very successful licensing business. So what does Volkswagen intend? If Volkswagen succeeds in developing its own software, will it license it to other companies?
DIES: It's also hard to predict. Of course, now we are very open. We share this platform with Ford because we think that the economies of scale that we can generate are good for both companies. Ford in Europe is using our MEB platform, which works on both hardware and software. We predict that there won't be too many truly self-sufficient software stacks in the world, as they will be very expensive to maintain and update globally. We are currently considering sharing and will be open to collaboration as long as this does not slow us down. It can be said that we are ready. If you're going to compare us to Apple or Google, I think we're running like Google right now — because we're open to third parties to use our technology.
Nilay Patel: You mentioned Google and Ford. In fact, Ford CEO Jim Farley has also been on our show before. As far as I know, Ford and Google have signed a big contract to do user interfaces and provide mapping services. Jim said to me, "Look, Ford isn't at all good at that. But when I can buy these things from Google, we don't throw money at it anymore, we have to do what we're good at. "Have you considered a similar approach, handing over the navigation business to Google Maps or other specialized manufacturers?"
Dies: I can't compare us to Ford, but we don't think Volkswagen is too bad at that. And if we compare our path planning capabilities, in fact, our current path planning capabilities on the car are based on map data and our own routes, so in some cases our path planning will be better, more accurate, and even able to guide passengers to the destination faster than Google.
Second, if we were to compare the data on the charging infrastructure, we would be more confident. And we think it's necessary to control this area of user interaction, because now users talk to Google, with Audi or Porsche, all have different results.
We can provide specific services through CARIAD, and the Volkswagen Group will have tens of millions of cars each year that can bundle all these synergies. This gives us the opportunity to gain a certain economy of scale. Of course, we're also open to third-party delivery — because we're also working on some of Google's-enabled car production lines. We have a great relationship with Google, but Google knows that we will work very, very hard to remain independent.
16. Nilay Patel: I confirm that we are talking about Microbus and electric cars, right? You just mentioned the electric vehicle charging network, and you also unveiled a new Microbus, and it seems that it will be on the market soon. From the car design, the skateboard platform, is Microbus the kind of product you can launch faster now? We see that it has a more nostalgic design, so you will launch a pure electric version of it?
▲ID.BUZZ Microbus
DEESS: Yes, of course. It was electrification that gave us the opportunity to relaunch this car. Microbus is very unique within the framework of its past history – it offers huge spaces on a very small platform.
It's a relatively small car, but a lot of space inside. As automotive technology evolves, cars do become more complex. In addition to the more complex engine technology, it is also larger, resulting in a larger volume of the whole vehicle. So up to now, many cars have lost the spatial efficiency that cars should have.
Space efficiency means that you also have a lot of space on a shrunken platform for people to move, and you can also let passengers work, rest or even go out camping. Only electrification and MEB platforms can bring back this opportunity.
The interior dimensions of this new Microbus are much larger than the existing T7 buses, and the T7 buses we offer are even smaller than the current internal combustion engine models. What we're really bringing back is the initial space efficiency, not a larger space.
When I joined Volkswagen, I was going to launch this Microbus again because it's probably the most sensual car I've ever seen in the world. In the hippie era of the 60s, Microbus was a culture. It once set off a trend that left a very deep cultural imprint not only in the United States, but also around the world.
It is closely linked to Volkswagen's positive memory and has even become the essence of the Volkswagen brand. From the first day I entered Volkswagen, my desire was to bring the car back to life, and only electrification gave us that opportunity.
Volkswagen has tried six or seven times before to bring this original idol back, but the real opportunity comes from electrification. This time we succeeded and I'm really excited.
The US market is waiting for this product, and many people in Europe are looking forward to it. As a modern car, the car performs very well and still evokes all the memories of the liberal era of the 1960s.
17 Nilay Patel: At that time, the Microbus and the Beetle were relatively closely positioned cars, not very expensive. So how much is this new Microbus priced?
DEESS: That can't be revealed yet. After all, it's still too early, because the car won't make it to the U.S. market until next year. But because the car will have the latest features and longer range, it won't be as cheap as the original Microbus.
18 Nilay Patel: You mentioned earlier that Microbus will be announced in March this year, but it will not be officially available until 2023. Will the time change? Will it still be listed in the U.S.?
Dies: Yeah, it's going to be available in the U.S. But we announced it in advance because it was popular in Europe.
Let me give you some background. I have to say I really fought for this project because it was very important to me. When we made our decision in 2015, there were still many doubts about whether electric cars were a good investment or a loss-making business.
During the Trump administration, our American colleagues were very conservative about EV sales, so we came a little late to make the decision to launch EVs in the U.S. market.
And we needed to make some changes to the local specifications of the U.S., so that's why the car came to market in the U.S. much later. I'm sorry this car is going to be a little later to meet American consumers.
19 Nilay Patel: I can see you love this car. So when will it be available in Europe?
Dies: We'll announce it in the first quarter, and then it should be ready to deliver to customers in the middle of the year.
20 Nilay Patel: By the way, I want this car too. So hopefully it can be listed as soon as possible.
But I want to talk about charging infrastructure. U.S. Secretary of Transportation Pete Buttigieg was on our show before. He expressed hope to expand the charging infrastructure. And plans to allocate funds to build charging piles to places that are not necessarily profitable now.
Electrify America, which you lead, is a Volkswagen project that stems from a "dieselgate" agreement with California. But do you really want to do this project? If this had to be done because of a settlement in connection with the scandal, I would suspect it was reluctant.
Dies: On the other hand, I think it's a huge opportunity to have the main charging network in the United States. From the beginning, of all the penalties received in the United States, I appreciated this charging network the most, because this is actually paving the way for our electric cars and will eventually be an asset for us.
But it's still a big investment, and there's no way to make a profit quickly. But I think charging will become a business model in the future.
At present, there is not much investment in charging in the industry. Of all the petrol companies, Shell has laid out the largest charging network today. I think charging has a lot of commercial potential.
In addition to the United States, we have now established charging networks in joint ventures in Italy and Spain. We invested in IONITY, a fast charging network across Europe. In addition, we have invested in a fast charging network in China because we believe this is necessary to drive electrification.
▲Volkswagen's charging station in the United States
By the way, our American competitors have proven that this can be done. What we're seeing is that this is a huge opportunity to recharge. Just a few days before Christmas, we opened a charging center for Audi, a premium charging center close to Nuremberg. In the charging center you can use the Audi app to charge your car. Then you can enjoy a casual atmosphere where you can wash your hands, drink drinks, reply to emails, etc. Charging will be part of the mobile experience and will slowly cover some of the more advanced experiences.
That's why we think charging will play an important role. Supplying and processing energy becomes more complicated because the price of electricity fluctuates.
You have to have buffering capability, and the car is going to provide a huge opportunity to contribute to the net stability of the grid, because basically when there's excess, you can also load the car with electricity.
In the future, we will even experience free refueling, because there will be a lot of renewable energy in the whole energy network, so there will be a lot of energy surplus.
This is a new business model and we want to be able to get involved. I admit that this project in the U.S. wasn't completely voluntary at first, but in the end I think it was the basis for us to get into the electric vehicle business.
21. Nilay Patel: How do you see the speed of investment in the construction of China's charging network? You've said that partnering with a utility could change the way you bill or pay.
But if you're going to drive the electric vehicle business, these are necessary. I looked at a set of data and expect that by the end of 2025, the United States will have 1,800 fast charging stations and 10,000 charging piles. And there are now 10,000 Tesla Supercharger stations. Is this construction fast enough?
Diess: Actually, in some countries, we're already ahead of Tesla. This is already fast enough because it has to match the growth of the fleet size.
But we can't invest all our cash flow in this business. So we're thinking about working together to build a charging network, and we're also thinking about developing batteries.
In fact, we invest more in batteries than in charging networks, and we will even consider ipos in the battery business unit, or allow the financial participation of local governments.
22 Nilay Patel: One way to reduce investment is to standardize: either standardize batteries across the industry — but that doesn't seem to be happening yet — or standardize charging interfaces and charging infrastructure, but progress on these areas is still very slow.
Tesla CEO Elon Musk talks from time to time about opening up supercharger stations. But Polestar's CEO also said: "They're thinking about opening up, but that's never really going to happen." "So do you think the industry will really promote charging standardization, especially fast charging?"
Dies: With the exception of Tesla, a proprietary charging network that has been established around the world, other charging networks are available throughout the industry. When it comes to billing or charging, there are different standards and different prices.
In Europe, with the exception of Tesla, you can use any charging pile. This is the positive significance of Tesla's consideration of open networks. So Tesla has to make a decision.
My opinion is that charging networks are actually growing very, very fast. In Europe, at least, I've been driving an electric car for basically all year round in 2021 and driving 15,000 kilometers. I was in Italy yesterday and I drove back via Austria. Only once, I had to wait at the charging station.
In the U.S., you can also drive an electric car from the West Coast to the East Coast. In fact, the entire charging network is developing very fast. Utilities, gasoline companies are also changing rapidly.
For example, we currently have an agreement with BP. They operate the largest refueling network in Germany. We will convert all gas stations to charging stations within two years.
There's a lot of investment coming in the charging network space right now, and I think it's going to be consistent with the growth of electric vehicles. So the bigger limit to the growth of electric vehicles may be the battery.
Nilay Patel: You just switched battery suppliers, right? From LG Chem to China's Ningde era, right?
DEES: No, we didn't change. We have to use all the vendors because our business is growing.
Just recently, we decided to build our own battery team. A colleague of mine, Thomas Schmall, was in charge of the project.
But we're going to invest in batteries because it's necessary to deal with such a big growth in electric vehicles, and we can't find enough suppliers to keep our supply chain stable.
24 Nilay Patel: I've found that for every area we talk about, your answer is "we have to do it ourselves." What is the reason for this?
DEES: A good question. I'm here to tell a story.
In 2012 or 2013, I worked for another company when I first visited a small company in China called CATL. At that time, I thought that the turnover of the CATL era would reach 200 million yuan (about 1.272 billion yuan) to 300 million US dollars (about 1.908 billion yuan).
They were preparing to produce bagged batteries for smartphones for a major customer in the United States. I visited them and said we need car batteries, first plug-in hybrids, then pure electric vehicles.
They said to me, can't do it, the car battery is too big, and they don't have the equipment.
They were really unprepared, but I convinced them. Now their market capitalization is about $200 billion (about 1,272.18 billion yuan).
I did the same with first-line suppliers in Germany. They were ready. Bosch, mainland China, you can say that the manufacturers, I have used the same method to talk about cooperation.
I know we need a lot of batteries. From the perspective of the turnover of the battery business, by 2030, when the proportion of electric vehicles reaches 50%, it will only meet the domestic demand of 20 billion yuan equivalent to half of Bosch's scale.
Although this is a large-scale undertaking, I have to say that except for the Ningde era, our domestic first-line companies have not been able to persuade us to invest in their battery business, which I regret.
Now we've got to do it ourselves. We invested in Northvolt, a European startup. We are working with front-line suppliers in the entire battery industry, LG, Samsung, CATL, because we need the quantity and quality of batteries to be guaranteed.
▲Northvolt factory
04.
Engaging in electric vehicles should change the way of power generation Chips balance supply and demand in 2023
25. Nilay Patel: Will Volkswagen stop selling gasoline vehicles in Europe by 2035, will this data be determined by the availability of batteries and infrastructure? When do you think Volkswagen will have enough battery supply? When will the charging facilities be built?
DEESS: Not necessarily. I think there are certain limitations to the transition to electric vehicles. I think the plan to achieve 50% of the sales of electric vehicles by 2030 is more challenging.
If we have about 20 percent of the market share in Europe, and to achieve 50 percent of the sales of electric vehicles, we need six gigafactories.
These plants must be completed and operational in 2027 and 2028 to achieve our 2030 targets. This is almost impossible.
I have a lot of respect for our team, who are facing challenges because they have to buy machines, build workshops, find the right site, train employees, and make sure that the supply of raw materials is safe and reliable, which is a huge workload.
We only have a 20% market share, so we have to build 6 factories. And 30 such factories are needed across Europe. The need to transport a large number of raw materials between factories is already a challenge, and if it is increased from 50% to 100%, it will be an even greater challenge.
The second thing is that electric vehicles make sense only if the energy is renewable, only if the energy is truly green, coming from wind, solar or nuclear.
In countries based on coal power generation, there is no point in selling electric vehicles.
Poland, for example, I believe it is still 100% coal power generation.
Before we can sell electric vehicles, we must shift the primary sector to 100% renewable energy.
This is already good in some regions such as France, Norway, Austria, the United States and Canada, but this must be done in tandem with the conversion of primary energy production.
This takes time, which is why electrification can even backfire, because it's worse to rely on coal-fired power generation to support electric cars than pure gasoline cars.
26 Nilay Patel: You have not announced a date to stop selling fuel vehicles in North America. When do you think that will be?
DEESS: It's hard to say. Some of our peers are making statements, and I don't know if they should do that because in the end it's not a decision that an automaker can make alone.
Because we all have to ask ourselves, is the charging network built? Are people ready to switch to electric cars? If you look at Europe, diesel prices have been 90 cents (about 5.7 yuan) or 1 euro (about 7.1 yuan) for months. At this lower price, electric vehicles have no advantage. So we have to unite to change the big picture.
The rollout of electric vehicles will depend on legislation and the increase in renewable energy, and it will also depend on national policies and other laws and regulations, not on automakers' own decisions.
We are in second or third place in Latin American markets, such as Brazil and Argentina.
Their car is fueled by ethanol, which is essentially carbon dioxide-free, a form of bioethanol. For them, so far, switching to electric cars has made no sense. They still need internal combustion engine technology.
Many buses in India are now electric, but 90% of energy is produced by coal.
So we have to change. In Wolfsburg, we also have a coal-fired power plant at our headquarters. About three years ago, we decided to dismantle it and replace it with a gasoline engine, which is equivalent to saving 870,000 cars a year in carbon dioxide emissions, which is a very large amount.
I probably get calls every week from countries like India — they want to buy this coal-fired power plant and build it somewhere else.
If you think about it, there is no point in electrifying the automotive industry without first achieving carbon dioxide neutralization in the primary industry.
The world is different, in France for every 1 kWh of electricity consumed, 7 grams of carbon dioxide is emitted, because it is all nuclear energy. In Poland, because coal is used as raw material, there are 1,000 grams, and the same is true in South Africa.
So the whole process of development must be staggered. It must first solve the primary energy, then the car, and then the charging network.
27 Nilay Patel: Chip shortages are a problem for the entire automotive industry. We've seen a variety of ways to cope. Some automakers are slowing down the pace of their car production. Some companies, such as BMW, are even delivering cars that don't have any new features, compensated by $500 (about 3,179 yuan) in points because the cars don't have touch screens.
My father-in-law just bought a pickup truck and the heated seat broke, but he had to get it back when chips were available. There are multiple solutions to chip shortages. How is the public responding? When do you think the chip shortage will end?
DEES: Good question. This time of year, as we say, from the end of the year to the beginning of the year, is a time to rethink. With what we accomplished in 2021, I'm really happy and I think we've made a lot of progress.
We have also gained market share in some areas. I'm very, very optimistic about the outlook for 2022, in addition to chip supply.
Last year, we suffered a lot because of the shortage of chips. Due to chip supply problems, we have lost a lot of market share in China. This is a rather difficult situation, and we must see that this is a structural problem that will continue to exist. We will still be limited. But we will do better than last year.
We've had a good start in the first two weeks of this year, but there are also some limitations. These constraints are structural because demand for chips is growing so fast and we are very dependent on secondary and tertiary supply from chipmakers.
Now we are doing our best to classify, to help, to improve, to achieve higher profits for the chip industry. Because whether the same chip ends up in a refrigerator or in a car will make a big difference.
In cars, it contributes a lot more, so we're going to try to grab those chips. Right now we have a special team operating these things.
I'm optimistic that we can do better than last year.
But you ask me, can we deliver all the cars? My answer was: No. Because the demand we have now is very strong, but we will still have some capacity constraints.
28 Nilay Patel: When do you think the balance will be reached?
Dies: I think we're going to keep improving over time because capacity is going to shift to higher margins, like cars. But it's a structural problem, and we've invested heavily in chip manufacturing, probably for three years.
As for the chip shortage, I think it should be possible to restore the balance between supply and demand in 2023. At present, we are digging deeper into chip design and chip supply, in addition to direct procurement, we also directly layout chip production.
29 Nilay Patel: You just explained the structure and direction of the company. You say that Volkswagen is not very strong in the United States at the moment, but you want Volkswagen to become stronger. You also talked about a product portfolio and the market share target will go from 4% to 8% to 10%. Will this growth occur in the field of electric vehicles, or both?
Dies: It will come mainly from electric cars. We are trying to increase market share with electric vehicles. I think we now have a great opportunity for products like Microbus and the ID. series to sell very well. In the future, we will also launch some models suitable for the American market. For example, we are considering launching more Audi models for the US market, but we haven't decided yet.
30. Nilay Patel: Are they all electric cars?
DEES: Yes. While not yet decided, I think electrification can redefine our market position and brand perception. But I'm 100 percent sure that this gives us a new opportunity to get back where we should be: a mass-produced car manufacturer in the U.S., and an American company again. We are now too Chinese, too European.
31 Nilay Patel: Finally, a simple question, what kind of car do you drive every day? If I were you, I would only drive a Lamborghini.
DIES: Yes, I'll drive a Lamborghini too. I occasionally drive a Lamborghini Urus, but it's also eye-catching. Actually, this year I'm mostly driving electric cars, usually ID.3. I have two ID.3s, one in Wolfsburg and one in Munich.
▲ Lamborghini Urus
By driving an electric car, I can also share some ride experiences with our customers, including charging experiences and so on.
I still like to drive electric cars, and I also drive Audi's electric models. I can change cars at will, which is really good.
In another six months, I may change to Golf R, and I am looking forward to it.
Nilay Patel: Okay, if it were me, I would definitely drive a Lamborghini. Thank you for taking the time to join us.
DEESS: You're welcome.
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