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VW Cariad staff called it ‘bad bank’ says head of software division

"It's clear some unresolved issues were thrown into Cariad..."

The head of Volkswagen’s troubled Cariad software unit said staff referred to it as a “bad bank”, says the unit is being “trimmed to speed” and rejects using platforms from “tech giants”.

Speaking to German paper Frankfurter Allgemeine Zeitung in an interview published today, VW Cariad CEO Dirk Hilgenberg acknowledged there were major issues to resolve at the car maker’s tech division. Hilgenberg joined Cariad in 2020 from BMW, and is now in charge of efforts to get VW’s software development back on track after years of problems.

“When I came here, some people greeted me with the words: Welcome to the Bad Bank. I wouldn't put it that way, but it's clear that some unresolved issues were thrown into Cariad and should be cleaned up. That's OK, because that's exactly our job. We did. Now we are on the right track,” Hilgenberg told FAZ (translation via Google).

(A “bad bank” is a bank specifically created or used to hold poor quality, high-risk or underperforming assets, allowing them to be separated from a “good bank”. Several bad banks were set up in the UK in the wake of the 2008 financial crisis, including UK Asset Resolution, which took the loan books of Northern Rock and Bradford & Bingley.)

Automotive software development is a critical area, given the move towards autonomous driving, and the centrality of technology to car platforms. Tesla is widely regarded as the market leader in terms of software development – except by software developers, who have found multiple flaws in the car maker’s products.

While some car makers such as BMW are turning to Google or Apple, others such as VW Cariad are determined to develop their own from scratch. Others such as GM are working with platforms such as Linux, via IBM-owned Red Hat.

See: Red Hat Linux to drive GM’s Ultifi vehicle operating system

The VW Group’s many different business units – including Audi, Porsche, Skoda, Seat and more – have made cohesive development of a software platform challenging. In the FAZ interview, Hilgenberg said Cariad would develop software in parallel with Audi for several more years, and acknowledged that Porsche, with production of 300,000 vehicles a year, had different priorities than VW as a whole, with production of millions.

But he said VW Cariad would be taking a firmer line on development from now on: “The time for unanimous decisions is over, because that's not how we get the horsepower on the road. We have now established processes in which the roles are clearly distributed and Cariad is trimmed for speed.”

The Stack has approached VW for details of this “trimming”.

The interview comes in the wake of an audit into Cariad, which VW Group chairman Herbert Diess commissioned in early 2022 from McKinsey. The subsequent report was apparently scathing, saying the costs of creating Cariad as a centralised unit would amount to around €3.5 billion by 2026, and up to €9 billion by 2039 – with losses for Porsche estimated at €2.5 billion because of delays to new model launches, according to reporting of the McKinsey study by multiple sources.

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In May 2022 Der Spiegel (via Automotive News) reported VW’s supervisory board had told the company’s management to come up with better plans for its software division. The results of that may take time to become apparent.

Hilgenberg and VW Cariad remain determined to continue in-house development of a software platform, however. In the FAZ interview, he firmly rejected the idea of using platforms from Google or Apple, saying VW “must not make ourselves dependent on tech giants from Silicon Valley who are pushing their software into the automotive industry”.

“The deeper the cooperation goes, the more you lose control over the data and the opportunities for new business models that will be decisive for the future. The ability of our systems to be updated would also be impaired if we were only guests in foreign ecosystems,” he added.

Last year VW announced it would grow its software development team to 10,000 by 2025. During the 2021 company earnings call in March, Diess said Cariad had added 1,000 developers, bringing its total to 6,000.

See: VW to boost ownership of software production, expand team to 10,000 developers

“We will continue to shape our transformation with focus on technology, ramping up BEVs and developing and deploying a leading automotive software stack,” Diess told analysts.

Compared to the 2021 earnings announcements, though, talk of Cariad and software development was relatively sparse. Clearly VW Cariad has a long road ahead of it.