What’s driving the latest Volkswagen power struggle?

Volkswagen CEO Herbert Diess' frail relationship with German labour representatives hit a new low this week with disagreement over how radical the overhaul at Europe's top carmaker must be in its quest for electric vehicle dominance.

While both sides tried to demonstrate unity at a staff meeting on Thursday, the first at Volkswagen's giant Wolfsburg plant in nearly two years, there is no guarantee the dispute can be fixed quickly, if it can be fixed at all.

In fact, Volkswagen's four-member mediation committee is planning to discuss Diess' future soon, sources have said, creating uncertainty around the carmaker's leadership less than four months after the CEO's contract was extended. 

Daniel Schwarz, analyst at Stifel, thinks so.

"His consistent EV (electric vehicle) strategy makes sense. He has a stronger focus on capital markets than his predecessors, which is benefiting the Volkswagen share," he said.

While Volkswagen's preferred shares have gained just 6% since Diess took over as CEO in April 2018, its common stock - more than half of which is owned by top shareholder Porsche SE is up 68%.

Diess, whose contract was extended until 2025 in July, is currently hammering out the company's next investment plan to 2030, a process that usually causes friction among stakeholders each year.

Bernstein analyst Arndt Ellinghorst is more sceptical.

"Diess stands for the radical change the company must go through after the dieselgate emissions scandal. What he does not yet stand for is implementation."

Porsche AG boss Oliver Blume, Audi CEO Markus Duesmann as well as Volkswagen brand CEO Ralf Brandstaetter have all been named as potential successors in the event that Diess gets the boot or decides to leave the multi-brand group.

"You need someone in Wolfsburg who understands the company and who is prepared to engage with the works council. I don't know if Oliver Blume is the right person," Ellinghorst said. "Ralf Brandstaetter could possibly be better at that."

Volkswagen, the world's second largest carmaker after Toyota, is under pressure to adapt to huge industry shifts, most notably the rise of EVs and self-driving cars.