The company said Tuesday that it "considers a further development of the management structure of the group" and that "this could include a change in the position of the chairman of the board of management", the German term for CEO.
Despite facing billions in fines, vehicle refits and lawsuits relating to its "dieselgate" scandal, Volkswagen's operating results have been robust under Mr Mueller's watch, with sales and profit hitting record highs previous year. "In a phase of profound upheaval in the automotive industry, it is vital for Volkswagen to pick up speed and make an unmistakable mark in e-mobility, the digitalization of the automobile and transportation as well as new mobility services", Diess said.
Mr Diess replaces Matthias Mueller, who was appointed in 2015 at the height of the diesel emissions scandal.
64-year-old Mr Mueller, always a reluctant CEO who had grown tired of the regular grillings by board members, responded during the talks by signalling he was prepared to step aside, they said. The move is part of an effort to reorganize the company to do business more efficiently, the company said.
"It is unclear how soon Diess, a former BMW executive who joined VW in July 2015 and has clashed with the company's labor leaders, might replace Mueller". That project became much more urgent as the diesel scandal generated massive costs, and meant taking on established interest groups.
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Since then, Diess has worked to overcome the reputational damage from the emissions cheating scandal, as well as to cut costs and increase profits at the core Volkswagen brand.
A separately listed trucks and bus business could have a market value of up to 30 billion euros ($37 billion), Evercore ISI analysts have said. "Instead of being squeezed out, he has been pushed upward, and has been made CEO". It's a sign of real change at VW.
Kilian, who works directly under labour boss Bernd Osterloh, will replace personnel chief Karlheinz Blessing, the sources said, giving workers representatives a direct say on strategy and cost-cutting.
Including Mr Mueller, VW's management board totals nine people, with responsibilities ranging from purchasing to legal affairs to financing and human resources.