Volkswagen could look to split into four sections - a mass-market carmaker including its VW, Seat and Skoda brands; a premium business consisting of Bentley and Audi; a sportscar group including Porsche, Bugatti and Lamborghini; and a commercial vehicle and trucks arm, the sources said.
"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", the new CEO added.
Mueller's replacement with VW brand chief Diess follows slow progress in reorganizing the group's auto brands, a key pillar of "Strategy 2025" to transform the Germany's biggest vehicle company into a leader in cleaner cars and to move on from its diesel emissions scandal of 2015.
Board Chairman Hans Dieter Poetsch said Mueller, 64, had done "outstanding work" at a time when the company "faced the greatest challenge in its history".
He led the company through the aftermath of the scandal and turned in record sales and strong profits in 2017.
Its statement said the truck and bus division, the fourth business group, would be made ready for capital markets, a step that could include selling shares in the division.
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For Volkswagen its the biggest overhaul since it became a multi-brand conglomerate under former chief executive Ferdinand Piech, a grandson of VW Beetle designer Ferdinand Porsche.
Diess would not only head the management board, the top executive body at German companies that reports to the supervisory board, or board of directors.
Volkswagen on Tuesday announced it was considering reshuffling its board and replacing Mueller, in a move that sent stocks in the company surging.
Human resources head Karlheinz Blessing is being replaced by Gunnar Kilian, until now an official with the company's works council, or employee representatives.
However Ingo Speich, a fund manager at Union Investment which holds about 0.6 percent of Volkswagen preference shares, anxious that running a group with around 640,000 employees at over 120 plants worldwide could prove tough for Diess, who has a reputation for micro-management.