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VW CEO’s Berlin IPO Summit leaves attendees guessing on strategy: Report

Participants struggled to craft meaningful IPO narratives for certain units because they lacked up-to-date details on financial figures, spending prio
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File phot - A Volkswagen logo is used for representational purpose only. (REUTERS)

Volkswagen AG’s Oliver Blume summoned top managers to a hip Berlin hangout in late January to strategise on how Lamborghini, Bentley, Skoda and Seat would pitch an initial public offering to investors. The exercises the chief executive officer ordered after Porsche AG’s successful listing last year had advisers from McKinsey & Co. and Wall Street banks including Goldman Sachs Group Inc. salivating over a potential role in VW’s next blockbuster IPO.

But some attendees walked away from the 25 Hours Hotel Bikini with little new insight into Blume’s concrete strategy for the brands, according to people present at the event. Participants struggled to craft meaningful IPO narratives for certain units because they lacked up-to-date details on financial figures, spending priorities and new models, said the people, who asked not to be named discussing private talks.

Also Read : Volkswagen aims EVs to contribute 80% to total sales by 2030 in this continent

Blume, who took over in September, is under growing pressure to reveal more about his strategy for Europe’s biggest carmaker when Volkswagen reports earnings next week as well as at its yet-to-be-scheduled capital markets day. The CEO is focused on fixing a chaotic software push and scrutinizing costly projects started by his predecessor Herbert Diess, but hasn’t said much on how he plans to ramp up Volkswagen’s electric-vehicle output to catch up with Tesla Inc.

“There’s a big question mark hanging over the company," said Daniel Röska, an analyst at Bernstein. “Blume has dismantled the whole Diess strategy but hasn’t told investors what he’ll do to replace it."

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Blume has focused on cleaning house in his first months. He put the brakes on the Trinity electric-car project — which included plans for a new EV factory in Germany — over software and cost concerns. He pulled the plug on backing autonomous-driving startup Argo AI after determining an actual product was too far off, and walked back Diess’s all-or-nothing focus on batteries with a pledge to also pursue e-fuels.

Blume shelved a yearly investment update that outlines Volkswagen’s five-year rolling spending in the region of €160 billion ($171 billion). Early during his tenure, the CEO identified ten priority issues to focus on, including software, the carmaker’s biggest market China, and North America.

Volkswagen is making “swift progress" implementing that 10-point plan and will release more details during the March 14 earnings and at an investor event in the second quarter, the manufacturer said in a statement.

“Volkswagen is forging ahead with its long-term strategy," the company said. “This includes a clearer focus on products and quality, a more customer-centric software road map, higher investments in future technologies and clear margin commitments from the brands."

Blume was eager to implement the IPO exercise to help standardize reporting and get each unit thinking about cost and profitability targets, the people said. But without a clear strategy and investment outlook, the Berlin event — also attended by advisers from Morgan Stanley, Bank of America Corp. and Citigroup Inc. — turned into a very hypothetical affair, the people said. The presentations reaffirmed concerns that Audi, a key profit driver, lacks a robust pipeline of new models, and that the main VW brand is lagging behind others on profitability, one of the people said. Spokespeople for the advisers declined to comment.

Part of the hold-up is due to a change in management style. Diess captivated investors by taking after Elon Musk in using social media to promote his company’s electrification efforts, a strategy that briefly made Volkswagen Germany’s most valuable public company. But he eventually stumbled over issues including his confrontational communications style and a hands-off management approach that led to project oversights and missteps, people familiar with the matter said.

Blume, an engineer who joined Volkswagen’s Audi as a trainee in 1994, is somewhat of an anti-Diess. Absent from Twitter and LinkedIn, he wants to focus on teamwork, quality and credibility rather than lofty pledges that need to be walked back later, the people said.

As the CEO attempts to shift the company his way, the competition is speeding ahead. Tesla this month updated investors on its future plans, including building a new EV factory in Mexico and reiterating a pledge to cut production costs.

Volkswagen is preparing to introduce several new battery-powered models in the coming months and shipped 572,100 EVs last year. That’s almost double European rival Stellantis NV’s 288,000 all-electric sales, but well behind Tesla’s 1.31 million deliveries.

“If you need to double back and change your strategy, you’re losing valuable time," Röska said. “It’s difficult to see how they’re going to close the gap to their competitors at any point in the next decade."

Blume has made some progress. Volkswagen shares soared last week after the company said it expects revenue to jump as much as 15% this year on full order books and better access to auto parts. Bankers are also tantalized by the prospect of additional spinoffs, with Lamborghini among the most attractive candidates. The maker of the Urus sport utility vehicle may be valued at between €16 billion and €21 billion in an IPO, depending on the listing’s free float, according to Bloomberg Intelligence.

Blume isn’t the first CEO to struggle with shifting Volkswagen, a carmaker notorious for its convoluted shareholder structure. Major decisions require winning over labor leaders, the billionaire Porsche-Piech clan and political representatives from the German state of Lower Saxony.

“Volkswagen is like an oil tanker that takes forever to turn around," said Matthias Schmidt, a Berlin-based automotive analyst. “Blume may well have the most difficult job in the auto industry — I’d say let’s give him a bit more time."

First Published Date: 11 Mar 2023, 16:28 PM IST
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