Volkswagen Chief Executive Herbert Diess said the German carmaker needs to accelerate its transformation to avoid becoming another Nokia, which lost its dominance in the handset market to Apple.
"The big questions is: Are we fast enough?," Diess told VW's senior managers following a global board meeting on Thursday. "If we continue at our current speed, it is going to be very tough."
Volkswagen needs to shift from being a manufacturer of vehicles toward a maker of mobile devices, he said.
"The era of the classic carmakers is over," Diess added.
Volkswagen needs to get a grip on software and vehicle electronics as well as producing a raft of electric vehicles and batteries so it can comply with stringent anti-pollution rules.
"In summary this is probably the most difficult challenge Volkswagen has ever faced," Diess said, adding that in 2020 the carmaker should seek to maintain profit margins.
Volkswagen will seek to cut down on complexity, hike productivity and slash costs, particularly in Germany, Diess said.
VW will cut resources devoted to fuel cells, since they will not be as competitive as electric vehicles for at least another decade. VW will also cut the resources devoted to its MOIA mobility services unit.
"We need to reduce our engagement and stretch it, until the prerequisites for better profitability are given," Diess said.