Volkswagen dropped a bombshell announcement late last week: Herbert Diess was out as CEO.
As a manager, Diess was controversial, with a style that chafed both executives and labor leaders alike. But as a strategist, he was on firmer ground, deftly steering Volkswagen out of the Dieselgate scandal and setting it on a path toward full electrification.
With Diess leaving at the end of August, Porsche CEO Oliver Blume will step into Volkswagen’s corner office. There are plenty of reasons to think that Blume will continue the company’s EV push. After all, he oversaw the development and rollout of the sports car maker’s first electric model, the Taycan, which is already outselling the flagship 911.
But Blume is also an advocate for e-fuels, which are fossil-fuel replacements made from hydrogen and carbon dioxide. Last year, he reportedly went so far as to personally lobby for them with the German finance minister, who subsequently pushed back against EU plans to phase out fossil fuel vehicles entirely. (The whole business, known as Porschegate in the German press, has roiled national politics.)
Under Diess, Volkswagen’s path toward an electric future appeared to be set. Now, under Blume, it seems less certain. His push for e-fuels could bring the company some much-needed stability. But it also risks becoming a strategically perilous distraction at a time of great turmoil in the automotive industry.
E-fuel problems
At first blush, e-fuels seem like a sensible solution. They suck up carbon dioxide and don’t require automakers or consumers to change much of anything. But dig deeper and problems start to emerge.
For one, e-fuels are still hydrocarbons, and they’re still burned inside an engine that produces hazardous particulate matter and noxious gases. Pollution from vehicles, especially fine particulate matter (PM2.5 and PM10) is linked to a number of respiratory diseases, including asthma, bronchitis and chronic obstructive pulmonary disease. Recent studies have also linked it with a range of other medical problems, from chronic kidney disease to Alzheimer’s and Parkinson’s diseases. Some, like NOx, can also create fine particulates when they enter the atmosphere.
EVs produce fine particulate pollution, too, though it’s mostly from tire wear. Compared with fossil fuel vehicles, they produce non-exhaust pollution at lower amounts, and when you factor in combustion, EVs are significantly cleaner on the road.
E-fuels are also less efficient. They are so named because they use renewable power to generate hydrocarbons from hydrogen and carbon dioxide. It’s a complex process that loses efficiency at each step. In the end, only about 40% of the energy from the original electricity is converted into e-fuels. By the time it’s burned in a car, only about 10% of the original energy is put to use. Compared with EVs, which are about 50% efficient at converting sunlight or wind to forward motion — and better when you factor in regenerative braking — that’s pretty bad.
Because e-fuel production is so inefficient, it’s also expensive. Even industry estimates, which I think tend to be rosy, estimate it’ll cost $7.60 to produce a gallon of the stuff in 2026 when a Porsche-backed plant is running at scale. That doesn’t include taxes, transportation or markup. Given that EVs will be at or close to cost parity with fossil fuel-powered vehicles, owning and operating an e-fuel car or truck would be significantly more expensive.
So why is Blume an e-fuel proponent? Two possible reasons; both of them related to legacy interests.
Appeasing stakeholders
The most obvious is that many Porsche customers are enamored with internal combustion. The 911’s flat-six engine produces a distinct exhaust note; one that has become closely entwined with the character of the car itself. Plus, there are lots of old 911s either on the road or sitting in collectors’ garages, and Porsche no doubt would like those owners to believe their cars have many valuable years ahead of them.
Porsche may sell more electric Taycans than 911s, but the company draws a lot of brand equity from the legacy model. It wants to keep 911 customers happy. So while e-fuels may not end up being a mass-market solution, 911 owners aren’t mass-market customers. Blume knows this. Many would probably rather stomach exorbitant gas costs than give up their loud 911s. Dropping a relatively small amount of money into e-fuel R&D could help Porsche string along the holdouts while the rest of the company and the industry race toward EVs.
Blume’s e-fuel advocacy has another audience; one that sits on the supply side of the equation. Building fossil fuel vehicles is much more labor-intensive than making EVs. The powertrain in a Volkswagen Golf, for example, has 149 moving parts, according to a UBS analysis. The Chevy Bolt’s has just 24. Fewer parts require fewer assembly steps and offer greater potential for automation, all of which could potentially slash labor requirements.
Volkswagen’s powerful labor organizations, which have seats on the supervisory board, recognize this.
“There is not one person too many on board here,” Daniela Cavallo, head of the company’s Group Works Council, reportedly told Diess.
Teasing e-fuels, then, could be a way for Blume to show that he’s not forgotten about the employees who work on internal combustion engines. Many of them will no doubt have other roles in the coming decade, and those who remain will find their roles diminished in importance. They probably know this, but with Blume, they also don’t feel like they’re being written off.
Clouding the future
Blume is reportedly a consensus-builder, and advocating for both batteries and e-fuels sounds like a consensus solution. Ultimately, though, Volkswagen under Blume is unlikely to significantly change course. The company has already invested too much in EVs, and the board is clearly pushing in that direction, too. Dieselgate more or less settled the matter.
But Volkswagen also has vocal stakeholders who feel that the company shouldn’t ignore other options, even if those options don’t significantly change the equation.
Blume seems to think that playing both sides is the right approach. The risk, though, is Volkswagen’s lobbying will keep fossil fuel vehicles alive for far longer than necessary. That may help Blume keep the peace internally, but it also opens the company up to fast-moving competitors who aren’t beholden to legacy interests.
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