Volkswagen Group CEO Herbert Diess told top managers that the world’s largest automaker needs to undergo a “radical overhaul” in the face of industry change or risk being pushed aside.
“The time of traditional car manufacturers is over,” Diess said in prepared remarks at an internal meeting Thursday. The company must adopt digital technology, he said, citing a recent surge in electric-car rival Tesla Inc.’s share price as evidence of a changing competitive landscape.
While VW proved relatively resilient last year, Diess said additional measures are needed because the industry change has only just begun.
He said the German automaker needs to accelerate its transformation to avoid becoming another Nokia , which lost its dominance in the mobile phone market to Apple.
"The big question is: Are we fast enough?," Diess told VW's senior managers. "If we continue at our current speed, it is going to be very tough."
Volkswagen needs to get a grip on software and vehicle electronics as well as producing a raft of electric vehicles and batteries so it can comply with stringent anti-pollution rules.
"In summary this is probably the most difficult challenge Volkswagen has ever faced," Diess said, adding that in 2020 the automaker should seek to maintain profit margins.
Volkswagen will seek to cut down on complexity, hike productivity and slash costs, particularly in Germany, Diess said.
VW will cut resources devoted to fuel cells, since they will not be as competitive as electric vehicles for at least another decade. VW will also cut the resources devoted to its MOIA mobility services unit.
"We need to reduce our engagement and stretch it, until the prerequisites for better profitability are given," Diess said.
Carmakers are accelerating research and development spending to keep up with tech rivals who are racing to build a self-driving car at a time when regulators have tightened emissions rules, forcing manufacturers to clean up combustion engines and develop zero-emission electric vehicles.
VW Group, whose brands include Audi, Porsche, Bentley, Skoda and Lamborghini, wants to raise its market value to 200 billion euros ($223 billion), from around 91 billion at present, by revamping its assets, slashing costs, and expanding into new technologies such as connected cars.
VW needs to focus more on profit and less on volumes, Diess said.
"Take Bentley for example, 10,000 deliveries," he said. "It would have been even more impressive if we had a margin higher than zero. If I'm totally honest, I would have preferred 5,000 deliveries and a margin of over 20 percent."
To manage the transformation, Volkswagen must focus on its strengths, and to leave out or give up everything which stands in the way of raising performance, Diess said.
Listing truck maker Traton was just a first step in overhauling its portfolio of assets, Diess said. Talks about finding a new owner for its Renk and MAN Energy Solutions units were also underway, he said.
Bloomberg and Reuters contributed to this report.