Volkswagen Spent $7.5 Billion Building a Software Division. It Nearly Broke the Company.

In 2020, Volkswagen made a bet that would cost them $7.5 billion.

They created Cariad, an internal software division designed to build the unified operating system for every VW Group vehicle. Audi. Porsche. Bentley. Lamborghini. One platform to rule them all.

The vision was bold. The execution was a disaster. By 2024, Cariad had accumulated over $7.5 billion in cumulative operating losses. The CEO who championed the project, Herbert Diess, was fired. And VW signed a $5.8 billion emergency partnership with Rivian to license the very software they had spent years trying to build themselves.

For agency owners, the Cariad collapse is not a tech story. It is a systems story. And the lesson applies directly to how you scale your business.

What Actually Went Wrong at Cariad

The popular narrative is that Cariad failed because software is hard. That is true, but it misses the real story. Cariad failed because VW tried to scale by throwing people at a systems problem.

Here is what actually happened, according to insider accounts from former Cariad employees.

They Hired 6,000 People With No Structure

Cariad ballooned to roughly 6,000 employees in a matter of months. The hiring bar was almost non-existent. One insider described it bluntly: "We hired anyone who could carry a laptop. Sometimes the hiring process took just 24 hours."

Many hires had zero automotive software experience. Students became project managers. The headcount looked impressive on paper. The output did not.

Teams Had Managers But No Coders

Despite 6,000 staff, teams were paradoxically short on the people who actually build software. One manager reported: "I had test managers, error managers, project managers. But not a single coder on my team."

Cariad functioned as what insiders called an "expensive pass-through heater." They took software from Tier-1 suppliers and passed it through internally, adding layers of management overhead at every step without adding value.

Brand Rivalry Sabotaged Everything

Instead of building one unified platform, teams from Audi, Porsche, and VW built competing systems. "We developed the same feature six times because each brand wanted a different version."

There was no unified architecture. No single decision-making chain. Each brand protected its territory. The result was duplicated effort, conflicting codebases, and a product that could never integrate properly.

No Budget Autonomy

Cariad was supposed to operate as an independent software company. In reality, it had no independent budget. Money came from Audi, Porsche, and VW, and those brands kept all decision-making power. "We were allowed to develop software, but not make real decisions."

17 Status Meetings Per Week

Traditional automotive executives ran the software company. They relied on PowerPoint presentations and status meetings instead of agile development. One employee reported 17 status meetings per week. Another noted that by Friday at 11am, the weekend had already started.

The culture was built for hardware manufacturing oversight, not software iteration. And it showed in the output.

The $5.8 Billion Admission of Failure

By June 2024, VW had seen enough. They announced a $5.8 billion partnership with Rivian to develop the next-generation software platform. The deal was struck without Cariad's involvement, a clear signal of how little confidence VW had in its own unit.

In March 2025, VW cut 1,600 jobs at Cariad. Nearly 30 percent of the workforce. By October 2025, Cariad was formally reassigned from building software to coordinating externally developed software from Rivian and Xpeng.

The original vision of Cariad as "the largest European software company after SAP" was dead. Billions spent. CEO fired. Thousands of jobs cut. And the company ended up licensing the exact thing it tried to build.

What This Means for Your Agency

You are not Volkswagen. You do not have $7.5 billion to burn. But you might be making the exact same mistake at a smaller scale.

Hiring Without Systems is Expensive Chaos

When agencies grow, the default move is to hire. More account managers. More recruiters. More coordinators. But if you do not have the systems to onboard, align, and direct those people, you are building your own Cariad. Headcount goes up. Output stays flat. Costs compound.

VW hired 6,000 people and still could not ship working software. Your agency does not have a people problem. It has a systems problem.

Internal Rivalry Kills Scaling

If your teams are building separate processes for the same tasks, if every department uses different tools and different workflows, you are duplicating effort just like Audi and Porsche did inside Cariad. Unified systems are not a luxury. They are the difference between scaling and spiralling.

Management Overhead is Not Progress

If your senior staff spend their days in status meetings instead of doing the work that generates revenue, your agency has the same disease Cariad had. Seventeen meetings a week is not management. It is a symptom of having no system to replace the meetings.

The Real Lesson

Cariad did not fail because software is hard. It failed because VW tried to solve a systems problem by throwing people and money at it. No unified architecture. No clear decision rights. No operational infrastructure to match the ambition.

The agencies pulling ahead right now are not the ones hiring the fastest. They are the ones building operational systems that let their existing team do more. Systems that automate the administrative layer. Systems that create one unified workflow instead of six competing ones. Systems that replace the 17 status meetings with a dashboard that updates itself.

VW proved that you cannot scale by adding headcount alone. Not at $7.5 billion. Not at your agency's size either.

Are you scaling by adding people, or are you scaling by building systems that actually compound?