"The basis of our further development is our conviction that a slim group is needed to steer strong brands", said Herbert Diess, the company's newly-appointed CEO.
He also set a goal to sell 1 million VW-branded electric cars by 2025 and make Volkswagen "the leading manufacturer of electric cars".
The promotion of Diess to the top job was widely expected after he helped reinvent the VW brand as a more profitable enterprise, though Mueller had been expected to serve for a longer period.
Dieselgate has so far cost VW more than 25 billion euros ($31 billion) in buybacks, fines and compensation, and the carmaker remains mired in legal woes at home and overseas.
The appointment of Diess comes as VW investors are demanding for increased profitability.
The supervisory board approved sweeping corporate changes, including the promotion of VW-brand head Diess to the group's top post, at a four-hour meeting Thursday evening.
It thinks Herbert Diess is the right executive for the job.
Sanford Bernstein analyst Max Warburton said Diess' track record of cost-cutting points to a more efficient VW under his leadership.
On his watch, the VW group a year ago held on to its title as the world's largest auto maker and made a net profit of ß11.4- billion (R169-billion).
The recently created volume brand group will also consist VW's commercial-vehicle division, one of the sources informed.
More details are expected to be revealed at a press conference at VW's Wolfsburg headquarters Friday at 10:30 am (0830 GMT).
VW Group's brands, which include Volkswagen, Audi, Porsche, Bentley, Skoda (not in SA), and others will be put into three groups - Volume, Premium, and Super Premium.
Volkswagen Group's new structure will now be composed of six divisions, as well as a specialist China-focused group.
Hans Dieter Pötsch, chairman of the supervisory board, said Diess was the right manager to ensure VW Group secured its position as an worldwide vehicle-maker, as well as being instrumental in shaping the future of personal mobility. Additionally, the carmaker will prepare its truck and bus division for "capital market readiness" by making it a public limited company.
Oliver Blume, chairman of Porsche's board of management.
A former executive with rival BMW, Diess joined VW only two months before the emissions cheating scandal broke in mid-2015 and is thus relatively untainted by the crisis.
The incoming group boss also said that the company's labor council, which represents the interest of the company's workers, was "fully committed" to the structural and operational changes.
VW additionally reported that works board official Gunnar Kilian would supplant Karlheinz Blessing as HR boss.
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