By Christoph Steitz

FRANKFURT / Reuters – This week has been a hard one for Herbert Diess, who is pursuing electric vehicles.

Tesla (NASDAQ:), which joined the trillion dollar club, was awarded a Hertz landmark order and established a new European sales record, had his quarterly profit drop and sales outlook reduced by Volkswagen (DE:). This proved one thing: Elon Musk has become the undisputed king and queen of electric vehicles (EV).

“The latest achievements of Tesla send a clear signal,” Diess said to analysts on Thursday during a conference call about third quarter results that was largely focused on Tesla.

“We must be ready for a new phase in competition.”

Diess is a long-time Musk admirer. Diess set out plans this year to increase the pressure on the U.S. counterpart and establish six battery factories in Europe. These were aimed at taking over the top spot for EV sales by 2025.

Volkswagen has been hampered by a persistent shortage of semiconductors, which shows the difference between luxury car manufacturers and those that sell more vehicles.

Tesla is worth nearly eight times that of VW and only 5% of its cars are sold, making it more important to keep up than catch up.

They are slipping in terms of growth margins. They have better structural access to chips. They seem to have a structurally better access to batteries,” Patrick Hummel, head of European and U.S. Auto & Mobility Research at UBS, said during the call with Diess.

Musk is set to soon begin producing automobiles at Tesla’s new state-of the-art Gruenheide plant near Berlin. This will make Germany the global leader in car production.

Diess, aged 63, has helped the carmaker to get out of Dieselgate’s emissions cheating scandal. He said this would force other local heavyweights into a significantly higher level to prevent them from falling behind.

He stated that Tesla Gruenheide was for them a reference and set new standards when it comes speed, productivity, as well as lean management.

KEEP YOUR FRIENDS NEAR, BUT YOUR ENEMIES CLOSE.

Years ago, Diess was offered a job at Tesla. He has often cited Musk’s successes as an EV innovator, which have disrupted traditional ways of the industry and whose valuation of $1 trillion is greater than that of Volkswagen.

Although Volkswagen shares have risen 28% this year so far, the current value of the company at 121 billion Euros ($141 billion), is still considerably less than the 200 billion Diess thinks the company is worth.

Diess became Volkswagen’s CEO and President in 2018 and invited Musk to address his management this month. It was seen as a way to press senior management to do more to catch up with American carmaker.

Volkswagen’s Trinity Project will play a central role in that effort. The carmaker plans to construct a flagship EV sedan from its Wolfsburg factory starting 2025/26, and make the factory a contender to Tesla’s Gruenheide.

Arno Antlitz, chief financial officer at Volkswagen, said that the plan will reduce the amount of time required to assemble EVs from about 10 to 11. This is roughly the same time as it takes Tesla for its Model 3.

This will also mean less jobs. There is a risk that labour representatives who have historically held significant power at the second largest carmaker in the world, the United States, may lose their position.

We need to make sure that manufacturing is ready for reduced labor in certain lines. Diess stated that we need to be prepared for less complexity and for greater line speed.

Volkswagen’s new labor boss, Diess, took Diess to task this week. He accused Diess of being too focused in investors and not investing enough into the workforce. Diess fears that the EV conversion will lead to the loss of tens of thousand of jobs.

Antlitz, CFO, stated that while both workers and management may be in agreement about the necessity to rebuild Wolfsburg but that it could prove difficult for them to find common ground.

Although there are many questions about ‘how to get there,’ I believe that the vision we have with the workers council is shared.

Responding to a question, Diess’ spokesperson said that Diess had remarked on his Thursday remarks. Tesla spokespersons in Germany weren’t immediately available to comment.

($1 = 0.8579 euros)