Volkswagen software division, Cariad, has reached a significant agreement to reduce its internal development costs by 20% annually until 2028, in an effort to avert compulsory layoffs. This decision comes as part of a major restructuring initiative led by CEO Oliver Blume. The plan includes offering voluntary buyouts if the cost reduction targets are not met, though a specific timeline for these buyouts has not yet been announced.
The need for restructuring at Cariad arose due to internal conflicts and an overload of projects, leading to delays in crucial electric vehicle models from Audi and Porsche. This has hindered Volkswagen's competitiveness against rivals like Tesla Inc. and China's BYD Addressing the issues at Cariad is a vital element of Blume's broader strategy to revitalize Europe's largest automaker. Cariad, which holds stakes in around 40 companies, employs approximately 6,500 people, primarily in Europe.
Market Overview:
-VW's embattled software unit Cariad agrees to slash costs by 20% annually until 2028.
-Voluntary buyouts offered if target isn't met, fueling worker anxiety about job cuts.
-Deal marks a critical step in CEO Blume's effort to overhaul Cariad and boost EV competitiveness.
Key Points:
-Cariad's internal issues and project overload have hampered Audi and Porsche electric models, hindering VW's EV race.
-Blume's restructuring plan includes cost-cutting, governance changes, and new leadership under Sanjay Lal.
-The agreement aims to avoid forced layoffs but raises concerns about potential buyouts in the future.
Looking Ahead:
-Cariad's success in meeting the cost-cutting target and delivering on its software promises will be crucial for VW's EV ambitions.
-Worker morale and potential buyouts remain a key concern as Cariad undergoes a significant transformation.
-The company faces fierce competition from Tesla (TSLA), BYD, and other established and emerging EV players.
Speculation about potential job cuts at Cariad has been ongoing since Blume dismissed the unit's CEO earlier this year and hinted at substantial modifications to Volkswagen's software approach. Reports suggested that Volkswagen intended to eliminate about 2,000 positions at Cariad as part of a restructuring plan set to begin in 2024. Blume, who leads both VW and Porsche, has emphasized the importance of expediting the development of Cariad's long-overdue premium software platform, known as 1.2. This platform is expected to support new electric vehicles like Porsche's Macan and Audi's Q6 e-tron, scheduled for release in 2024.
Under the new agreement, Cariad will assume greater responsibility for software governance and partnerships, in addition to its current software development duties. This will include managing AI-driven features in vehicles. Starting January, Sanjay Lal, currently heading Cariad’s new development center for software-defined vehicles, will join the management board as chief software officer, reflecting the strategic shifts within the company.
