VW CEO's Berlin IPO summit leaves attendees guessing on strategy

Volkswagen Group CEO Oliver Blume summoned top managers to a hip Berlin hangout in late January to strategize on how Lamborghini, Bentley, Skoda and Seat would pitch an initial public offering to investors.

The exercises were ordered by Blume after Porsche's successful listing last year. The meeting had advisers from McKinsey & Co. and Wall Street banks including Goldman Sachs Group salivating over a potential role in VW Group's next blockbuster IPO.

But some attendees walked away from the 25 Hours Hotel Bikini with little new insight on 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.

Blume, who took over as VW Group CEO in September, is under growing pressure to reveal more about his strategy for Europe's biggest carmaker when VW reports earnings on Tuesday, March 14, 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 has not said much on how he plans to ramp up VW's electric-vehicle output to catch up with Tesla.

"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."

Cleaning house

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 VW'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.

VW 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 automaker 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."

Audi concerns

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 — 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.

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 VW Group'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.

Tesla speeds ahead

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.

VW 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'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. VW shares soared last week after the company said it expects revenue to jump as much as 15 percent 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 SUV be valued at between 16 billion and 21 billion euros 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."