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The conference is now being recorded.

Welcome to the global conference call of Mercedes-Benz. At our customer's request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the investor relations section of the Mercedes-Benz website. The short introduction will be directly followed by a Q&A session. If you have difficulties during the conference, please press zero and rhombus on your telephone keypad for operator assistance. I would like to remind you that this telephone conference is governed by the safe harbor wording that you find in our published results documents. Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. May I now hand over to Stefan Hoffmann, head of Mercedes-Benz Investor Relations and Treasury. Thank you very much.

Good morning, ladies and gentlemen. This is Stefan Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on both the telephone and the Internet to our Q1 results conference call. We are very happy to have with us today Harald Wilhelm, our CFO. In order to give you maximum time for your questions, Harold will begin with an introduction directly followed by the Q&A session. As always, the respective presentation can be found on the IR website. And now, Harold, I'd like to hand over to you.

Thank you, Stefan, and hello, everybody. Welcome to that call. Well, if we look at, I mean, the first quarter, What is our key takeaway from that quarter? It is that we could demonstrate, again, resilience in a challenging market environment. You have seen already in the pre-release strong pricing, significantly outweighed headwinds for material costs. and led to another solid quarter. But today, I mean, with the update, I mean, of the guidance and the outlook, I think you can see confidence built into that guidance. And that is, I think, what we want to demonstrate here, that we keep the pace moving forward. But let's have a look into that a bit more in detail. If you go to the page three, On the group numbers, all of them are up year-on-year. Slightly higher car sales, significantly higher van sales, generate 8% revenues up. Group EBIT, 5% up at $5.5 billion. The cash generation at $2.2 billion free cash flow, leading to a nil of $29 billion. We look a bit closer on the car side in terms of the highlights and the key messages. On the performance side, we can see that the top-end vehicles increased significantly by 18%. I think that underpins our progress towards the top-end luxury strategy and execution. But also on the best side, we could almost double the sales, which means we continue to transform Mercedes at full speed towards an all-electric future. On the profitability side, we see continuing strong net pricing and now six consecutive quarters reporting a double-digit margin, which reflects and demonstrates a resilience and a structurally uplifted business performance. On the products, I mean, last week in Shanghai, we unveiled a new top-end family member, the new Mercedes-Maybach EQS. Fantastic vehicle, great seating comfort, just blows you away. But also this week, an all-new E-Class was unveiled, which will come to the market later this year. I think it was pretty good feedback which we received this week. And also the EQE SUV will start sales this quarter. On the strategy side, we had two capital markets events, the one in Sunnyvale on the MBUS strategy, where we explained our chip-to-cloud architecture and also announced some new partnerships, such as the one with Google, and then the ESG conference, which we did more recently. outlining where we are heading and which progress we are doing on the ESG front with some examples such as a groundbreaking for the battery recycling plant or the power purchase agreement with Iberdrola. On the cars numbers, overall we see a slight increase on the sales side. with a reduction in the core. Some of you might have the question, oops, what's that? This is a technical, I mean, model changeover to our top-selling product, I mean, the GLC. I can confirm, I can witness it. This is a hot car, and once available, you will see the core segment coming back up again and the GLC being an extremely strong pillar in this segment. On the top end, We could grow by 18% in all categories of the top end, in particular, a strong increase of AMG sales by 43%, with a high level of demand for G-Class and Maybach. The XEV sales increased 24%. On the BEF, we can see that it is almost the min doubled or around the doubled min in the quarter. All in all, an XEV share now was around 18%. And on the best sales already commented, I mean, this almost doubled with the now EQS SUV being in the market, but also the EQE sedan next to the entry segments. On the car financials, sales up, revenue increased by 8%. ASP 6% up quarter year over year, which means main quarter one compared to quarter one, 22, but also up compared to fourth quarter, which I think is good news. EBIT adjusted slightly above $4 billion and the CFBIT significantly up at $3 billion. How did we get there? On the page 7, in terms of the EBIT walk, departing from the $4.2 billion adjusted from last year, the bucket volume structure and net pricing increased significantly by $1.3 billion. The majority of that comes from strongly improved net pricing, driven by gross list price increases, including escalation updates and tight discounts management. The slight increased unit sales and the good product mix contributed positively as well. The used business slightly negative year on year. FX also slightly negative. On the industrial performance side, the minus 550, what was behind that one, raw material cost related to very smaller effects. One of that being on the lithium side, obviously with a higher EV volume, You also have a burden there and an elevated spot level. Maybe at this point, just a note, if you see changes in the spot rates, I mean, in the markets, it has a lead time before it hits the P&L. Let's bear that in mind. Other than that, in industrial performance, we see also one-time commodity charges for some semi-related costs and inflation-related costs are also included in here. So what is a key takeaway? I would say net-net. And what we called, I think, in the net-net pricing, we significantly outweighed, I mean, the headwinds from material cost and inflationary increases by pricing power. That makes, I mean, the gross profit to grow by almost 600 million with a stable gross profit ratio of 26%. And some of you know what I mean by emphasizing that. Selling expenses are slightly higher marketing expenses, volume-induced selling expenses, and agent remuneration from our new direct sales markets with a positive counterpart in the price bucket. The GNA is slightly higher due to inflation. Rest assured, the journey to focus on fixed-cost mean reduction, the minus 20 percent until the middle of the decade, definitely continues. In line with our full year guidance, we saw higher R&D costs for our future platforms and technologies, in particular MBUS. Well, MMA go to market will come closer by the end of 2024. M-beam will follow, I mean, very quickly. So we need to get that ready. We need to mature it. And that's why we put some incremental effort into it. It doesn't change, however, our longer-term perspective in terms of the investment profile, which is also the minus 20 percent by the mid of the decade. The others are mainly coming from effects in connection with the discounting of non-current provision, which was more a quarter one 2022 entry. Therefore, overall, we see the EBIT adjusted at 4.1 with the return on sales at 14.8. On the cash flow side, page 8, $3 billion cash conversion, 0.7%. What was behind that? Negative working capital charge of 0.8 billion, mainly from new vehicle stock. The stock increased due to an elevated overall amount of vehicles, where we had production running ahead of sales to refill the pipeline for the customers, but also a switch in the UK to the direct sales model. which leads to slightly higher inventories in the books. On the other side, we had better receivables and improved payables, offsetting these effects by a large portion. Looking at the net financial investments of $350 million, we have the Formula One Grand Prix restructuring and cash proceeds in here, as well as some further retail outlet sales. Net investments in PP and intangible assets versus depreciation, amortization are negative. All in all, in line, however, with our guidance. The others include the adjustment of the BBC equity result, where obviously dividend is to come later in the year. And the adjustments are the well-known ones, I think, as you can read on the chart. On the page nine, on the VANS performance, 99,000 vans being sold in the first quarter with strong earnings, despite the ongoing challenges also on the logistics side, on the outbound. Profitability strongly improved, net pricing, higher unit sales, definitely outweighed higher material cost and inflation here. On the product side, in February, we had the world premiere of our new eSprinter. That was also very well perceived. And the market launch will be in the second half of this year with an electric range, according to WLTP, of up to 400 kilometers. On the strategy side, please pencil it down. We're preparing for a virtual van strategy and business update on the 16th of May. Page 10, we look at the sales. Sales up by 12%, mainly driven by Europe. Strong contribution coming from the commercial side of things. EV sales up 22%. And in 2023, we'll have the EC-TAN and the EQT also joining the portfolio, which means the entire product offering has an EV for sale. Page 11, the financials, all figures up here. Great quarter by the vans, very well done. The demand side for premium vans is very high, very solid in terms of volume and pricing. Revenues are up 25%. The EBIT adjusted 719. That shows that the vans could further improve, I mean, pricing, leading to such a high level of margin, more than 15%, despite the cost inflation. and also could translate that into cash flow of $450 million. How did we get there to 15.6% return on sales adjusted, page 12? Well, I mean, the bucket volume structure pricing here increased by $600 million. That is also coming from very strong net pricing. Discounts were significantly reduced versus last year, and the list prices were up. On the sales side, I want to emphasize the Sprinter, the Vito, Citan, and the T-Class, which increased on the industrial performance, same comment as on the car side, higher raw material prices, one-time commodity charges, inflation, and outbound supply chain-related costs. And that means that the net price increases could definitely outweigh inflationary increases. So the net-net is definitely very positive, as you can see here on the chart. Direct selling increased, same thing as on the cars with the direct sales. And the adjustments, I think, are well known, as you can read on the chart. Page 13 on the cash side. on the 410 reported for 50 adjusted, the slight working capital charge of 100 million with inventory, I mean, higher than that, driven by production ahead of sales to refill the pipeline, and the pipeline being very well, I mean, underpinned by the order book. This effect is also partially offset by payables and receivables on the receivable also a channel mix with shorter payment terms was helpful on the van side. Net financial investments are also related to the own retail sales divestment. On the investment side, as guided, we have higher investments in PPE and intangible than the amortization side. That is due to the ramp-up of the EV transformation, namely the then EA. On the other side, provision consumption and the FBAC at equity result. Looking at mobility, page 14. Overall, solid profitability despite a challenging market environment, a stable portfolio development, and overall the penetration close to our ambition level of 50%. The net credit losses remain on a low level. Stable cost of credit risk reflect a high portfolio quality. The higher level interest rates are generally passed on to customers but the consequently higher customer rates intensify the competition in the financing sector and put pressure on the interest margins. Mobility actively supports the electric vehicle sales of cars and vans with tailor-made finance and mobility products and services. That's how we recenter the strategy for mobility with good progress in the first quarter. Next to that Mobility is now also in charge to elevate the customer experience by charging, building up a network around the globe in the charging infrastructure. In terms of the financials, page 15 for Vance, the new business in Q1 and the portfolio are roughly stable. The EBIT adjusted decreased, however, compared to an exceptionally high level last year. What is behind that? Page 16. In the Q1, the EBIT and the return on equity have been lower, but we're still on a good level despite the headwinds from the pressure on interest margin from rising interest rates. and slightly increased investments in the transformation towards a digital and seamless integrated customer experience. The portfolio at about the same level and a slightly positive effect on EBIT, resulting from the low quarterly cost of credit risk, reflecting the update in the economic outlook. Now, on the group side, the group EBIT, cars, vans, and mobility, I explained already, leaves the recon, which is positive mainly due to the equity contribution from our friends from Daimler Truck, which is a quarter-over-quarter change of $117 million, which means roughly $60 million positive this quarter. The EBIT adjusted at 5.4. Adjustments, I don't think I need to read that out. Page 18 on the cash flow bridge, the sea of bits of cars and vans, I explained before already, leaves the income taxes at roughly minus $1 billion. As we flag them in, they're going up. Higher earnings, obviously, and lower offsettable tax clause carry-forwards. are the reason for that. Free cash flow industrial side, the 2.2, also with net minor adjustments to the reported number. On the nil side, page 19, well, decent progress in the first quarter to close to 29 billion, driven by the free cash flow, which we discussed before. Maybe just a comment on the others, as this includes the first tranches of the share buyback. By the end of March, we bought back shares for approximately €30 million. As we speak, this number is roughly €100 million. So, all in all, I think nil on a strong and very comfortable level. Now, let's turn to the outlook. First, on the division side, page 21, please read the assumption chart carefully. Definitely, I think we see significant regional differences. The overall growth momentum of the world economy still likely to remain rather subdued. High, albeit declining, inflation rates and restrictive monetary policies at central banks in U.S. and Europe weigh on growth. In addition, the recent turbulences in the U.S. and the EU banking sector brought additional new uncertainties and geopolitical imponderabilities may remain. By contrast, energy prices should be less volatile and global supply bottlenecks are expected to ease further. At this juncture, a word on Russia. As of this week, we successfully transferred our Russian business activities to the investor Afterdome. In the first quarter, 2023, there were no significant effects on the profitability and the cash flows. For mobility, we expect a loss in the low three-digit million euro range on the sale becoming effective, which will be adjusted. No significant effects are expected on the liquidity and the capital resources. Let's have a look on the demand side of the markets. For Europe, on the incoming order side, we see that in the first to mid-quarter, still sluggish. The order bank in Europe, however, supports the sales in the coming months. In the U.S., we continue to see U.S. demand on a good, on a healthy level. And in China, we see the momentum coming back post-Chinese New Year with strong demand and order intake at the end of the first quarter, which is, I think, good news. On the division side for cars, the sales guidance is unchanged at the same level. That includes for the full year overall, TEF sales expected to be slightly above for the prior year with definitely tailwinds from the first quarter, the 18% growth. And on the BEV sales, we also expect to approximately double the BEV sales, which has been demonstrated in the first quarter. Return on sales guidance, well, I mean, with quarter one at 14.8, we had a solid start into the year compared to our guidance range of 12% to 14%. This gives us, I mean, a good head start and a strong foundation for the following quarters. We do see in quarter one what we told you already. that our net net pricing is positive in Q1. And yes, it is our target to retain that for the full year. Therefore, it is a good likelihood that the coming quarters will also be on a strong level. You know, maybe we are a bit prudent and it is still early in the year. That's why we confirm the guidance. in the range of 12 to 14 percent uh however let me be very clear we see us being at the upper end of that guidance corridor of 12 to 14 by now that even leaves i would say some further upside potential for the remainder of the year ccr unchanged at 0.8 to 1 r d now significantly above mainly to MBOS and investments in AMGEA and MBEA, as I commented before. On the VANS side, sales guidance with the tailwinds from the first quarter and the full order books throughout the year, we lift the sales guidance to slightly above. On the return on sales side for VANS, here we lift the guidance by 200 basis points to 11% to 13%. with a strong tailwind from the first quarter. Going forward, we see more volume and the net-net pricing being stronger than anticipated before. However, not everything from the first quarter, I mean, can be taken into the run rate for the full year compared to the first quarter we see in particular, I mean, higher R&D. Within that corridor of 11 to 13, however, similar comment. We also see that at the upper end of that corridor. CCR increased to 0.6 to 0.8. On mobility, the return on equity unchanged, 12 to 14. with 15.6 in the first quarter. Also here, we see us at the upper end of the range now. The building blocks, while we see fully a return on equity at the lower than the Q1, however, remain unchanged compared to what we said at the beginning of the year, which means the deterioration of the interest rate margin and an increase in OPEX for the charging network I mentioned before. On the group guidance, page 22, obviously that follows the same premises as the segment guidance. The group revenue EBIT free cash flow are confirmed and are unchanged. On group EBIT resulting out of the adjusted van guidance and the upper end car and MBM guidance, we also see the group EBIT guidance at the upper end of the guidance range. And on the free cash flow side, on the industrial free cash flow, we also see it at the upper end of the guidance range. CO2 also remains unchanged significantly below prior year level. To wrap it up, page 23, beautiful vehicle. Well, we told you in February. that we are executing them in our strategy with a focus on profitable growth, with better pricing and a healthy operating optimum, that we remain focused on resilience with cost discipline, and that we continue to grow our top-end vehicles and our BEV offerings. With these Q1 results, we again delivered and provided good headroom with regard to the full year guidance on which hopefully you could hear a certain level of confidence on this call so far. And with this, happy to take your questions.

Yeah, thank you very much, Harald. Ladies and gentlemen, you may ask your questions now. I will identify the questioner by name. However, please also introduce yourself with your name and the name of the organization that you are representing before asking your question. As always, a few practical points. Please ask your question in English. And as a matter of fairness, please limit the amount of questions to a maximum of two. So now before we start, the operator will explain the procedure.

Ladies and gentlemen, if you want to ask a question, please press 9 and the star key on your telephone keypad. To remove the question, please press 9 and the star key again. Please note that dialing 9 star a second time during the call will automatically withdraw your question. Please refrain from pressing the key combination multiple times during the call. Again, for a question, please press 9 star on your telephone keypad. If you have difficulties during the conference, please press zero rumbles on your telephone keypad for operator assistance.

Thank you for that. And we start the Q&A now. And the first question goes to Steven Reitman from Societe Generale.

Yes, good morning and thank you. I have two questions. First of all, clearly a very good result from pricing here. Could you comment on what the reaction has been from customers, really? Because you've obviously raised prices quite significantly when you did the refresh on the A-class and obviously the GLC, which you referenced as well. Can we assume that we will see similar pricing moves on the E-class as well that you've just now shown? And secondly, I would like to ask about the agency model. That's now been introduced in the U.K. from the beginning of this year. Are there any preliminary thoughts on how that's been going through and what's happening to transaction prices? Thank you very much.

Thanks a lot, Stephen. On the first question on pricing, pricing positioning, I think, I mean, during the full year, we emphasized that, I mean, as part of – the mid-life update on the entry segment. We also elevate the pricing level over there. These vehicles are being opened, I think, in the days and the weeks to come to market. We do expect positive feedback on that uplift. On the GLC, I can definitely say the level of demand is high. Hot car. We have some constraints in terms of the ramp-up, which we are trying to overcome. That's why you could see the numbers in the first quarter still at the low end. There is significant uplift and upbeat in the substance of the vehicle, which justifies also an elevated pricing level. So far, I have no indication for pushback on that side, therefore. And we definitely expect the same thing on the E-Class. Some of you could see the interior of the E-Class in Sunnyvale. You could see the features which are being offered, not just from a fantastic hardware of the vehicle, but also on the software side of things. And now you know the jewelry also on the outside. And I think, therefore, I mean, it is also fair to position it correctly from a pricing point of view. So we expect a very positive resonance on the E-class when it will hit the market later in the year. The direct sales in the U.K., number one, I think, went very smoothly. Number two, I can confirm that – Basically, each and every move of the markets we've been doing so far into the direct sales model had a supportive element in terms of the net pricing, in terms of the consolidated discount management. I will not outline any particular or individual model. uh impacts by markets is obviously mean they are different and i think i mean we should not confuse ourselves but i can i can witness i mean that is a positive impact we had a a burden on the inventory as i commented i mean before um but definitely we see in the potential um moving forward to consolidate also on the inventory side between the dealer stock, which did exist before, and our own, and seek efficiencies, therefore, as well, on the working capital side. Thank you.

Thanks, Stephen. And we continue with Jose Assumendi from J.P. Morgan.

Questions, please. Can you comment a little bit more around maybe the proportion of high-end vehicles and AMG? Where do you see this as a proportion of group sales, short-term or medium-term? Should we think about maybe mid-20s as proportion maybe by the end of the year or 2024? Second question, Vans, Capital Markets Day, I think it's going to be very, very interesting. Maybe it's a question for you also, you know, for Paula. But should we think about this division? Should it sit as it stands right now within the group? Or is there a chance to strategically think that, you know, the van division could be maybe separated from the Mercedes-Benz luxury product? And as such, strategically, you know, we could potentially discuss at the CMD, you know, a different path for this group, for this division going forward. Maybe a spin-off or a different construct versus where it stands right now. Thank you.

Thanks, Jose, for the questions. On the first one, if you remember the presentation at the Economics of Desire a year ago in May, We said that, I mean, by the end of, I think, I mean, 2021, the top end was around 16% in terms of the sales of the portfolio and that we have the ambition to grow that. 2022, I think, overall, we could command, I mean, a high single-digit growth number in the top end. Good news, I think, I mean, quarter one, 18% for the full year. We also want to grow in the top end, definitely with a good head start, I mean, coming from the first quarter. I mean, what is behind, obviously, great products on the AMG side, the SL. a GT to come at a later point and needless to talk about the G-Class and the Maybach which are driving that high level of demand for these products. So overall we want to have a higher level growth rate at that end but I don't think we should speculate about 25% or what the numbers were. I mean, you just quoted before that that doesn't make sense, I think, to push it into hardest. Definitely, this is very important to protect the pricing in this field. Also, probably needless to say that, I mean, we talk about a share of 16% or so in terms of the top end. out of the whole portfolio, the share in terms of revenues is above that. And if we think about the share of the top end in the margin of the company as a whole, it is a totally different number. And that's exactly why we are putting the emphasis on the growth in this segment. On your question on the van side, I don't want to steal the thunder from the May event. The one answer I can give you at this stage is van sits very well in the portfolio of Mercedes-Benz. It's a good place to be for the vans in Mercedes' portfolio, and it is also good to have the vans inside the portfolio for the car side of things. Why? We will tell you on May 16th. Looking forward.

Thank you.

Thanks, José. We stay in London and go to George Gallier from Goldman.

Yeah, good morning and thank you for taking my call. It's George from GS. I had two questions. The first one was just starting with the ASP, obviously very strong again in Q1 and up 6%. When we think about the composition, there are clearly several factors, including price mix and FX. Can you directionally tell us what your expectations are for each of these components in coming quarters, particularly in light of your comments on sluggish demand in Europe? and also giving consideration for the new models that you are introducing, including the E-Class. Then secondly, just on the gross margin, I think 26.2% is a record, but maybe you can confirm that. Obviously, you've achieved this in a period where your bill of material and manufacturing costs are presumably fairly elevated due to inflation. How do you think about the inflationary pressure going forward? Are we within a couple of quarters of seeing a stabilization or even a decrease in those inflationary pressures or not at this point in time? Thank you.

Thanks, George. I think I'm happy that we could further expand the ASP in the first quarter. year over year, compared to the first quarter one in 2022, but also compared to fourth quarter 2022. In terms of where do we see that going, I would not wish to quantify that. Definitely in terms of, I mean, the pricing overall, and, you know, pricing being composed of the base pricing, the inflation adjustment, and the discount management. We want to continue the pricing policy and the strategy, which was quite successful, I think, so far. Probably the growth rates in terms of, I mean, price growth, enhancements. You cannot expect that to continue as we had been commanding that now over the last six quarters. I think that would be a bit too ambitious. On the FX side, at least for 2023, on the main currencies, we're pretty well hedged, I would say. And on the mixed side, well, Head start, I mean, from the first quarter, I would say. If I look at, I mean, the full year for 2023, let's not speculate now, maybe about each and every quarter, I mean, to come. But I don't see, I mean, a structural reason why the mix should... dilute the ASP moving forward. But maybe in terms of the growth rates of ASP overall, again, compared to the last six quarters, we cannot expect the same level of growth moving forward, but definitely we want to hold it. In terms of the gross profit ratio and inflation inside, to your second question, Whereas we see overall on the macro side some decrease in inflation also due to the monetary policy measures. We still expect some impact from the supply chain in terms of higher-level inflation charges on a discretionary basis in the remainder of the year. That is built into the guidance for the full year, and therefore see some headwind from that, but definitely... in terms of the net pricing. As we could see in the first quarter, we also want to keep the net pricing positive for the full year, i.e. for the quarters to come. That is the strategy that is built in the numbers, and that's how we drive it.

Great. Thank you very much. Thank you, George. And we continue with Dorothy Cresswell from XAN.

Hi there, it's Dorothy from Exxon. Thanks for taking my question. My first one is around the order intake, the demand dynamics in Europe. You've told us that the order intake is still quite sluggish in Europe. I'm just wondering whether you've seen a worsening of that dynamic or even some order cancellations since we saw those price cuts from Tesla. Have you had to make any adjustments in response to Tesla to your BEV pricing specifically, or maybe just things like the leasing rates or the vehicle options? My second question is around China. It sounds like you're feeling much more optimistic around the outlook there. Could you tell us if you think you could pass through the regional earnings trough in Q1? Could you also tell us how many vehicles you still have in inventory that are of the China 6A emission standard? And then if you could remind us when the EQE SUV goes on sale, that would be great. Thank you so much.

Thanks, Dorothy. The line was a bit bad. I hope I got it right. Order intake momentum in Europe, well, yeah, we commented in February sluggish, still running at a lower level as we speak. The order book supporting the sales in the months ahead of us. We do expect, however, I mean, that some of that, I mean, will improve in terms of order intake momentum moving forward. Also with consumer confidence, I mean, rebuilding. We see a competitive environment. This is absolutely fair. We see a very competitive environment, I mean, in particular in the lower segments to which we respond, but within the overall framework. As we outlined, I mean, that we don't want to push volume. So we are rather ready to sacrifice on volume here to protect, I mean, the pricing. And we can do that as we adjust it on the industrial side. We have the industrial flexibility, I mean, to do so. We lowered, I mean, the break-even point, as you know. And at the same time, maybe to your second question, we see also momentum in other markets, not only in China, but in the U.S. being solid. and therefore we don't feel pressurized to fill up the pipeline and volume in Europe. On China, yeah, there is, I think, I mean, this changeover, where still some, I think, I mean, level of uncertainty left in terms of, I mean, the final date. So a bit of tactical maneuvering, which... probably led to some turbulence, I mean, in the first quarter. I commented that by the end of the first quarter, we could see the momentum, the sales momentum, but also, I mean, showroom traffic and level of demand, I mean, definitely picking up. I would say same applies also for the month of April, so the beginning of the second quarter. But same comment, I mean, here we definitely want to emphasize, I mean, on the top end and not enter, I mean, too much into the very competitive environment in the lower range, which is very much, I think, tense competition on the DEF side. whereas the situation in the top end is still dominated in the ICE world or by the ICE world. And that applies, I think, not only to us, but the top end segment still being overall, I mean, very much an ICE segment, in which we are definitely market leader and will hold that and will transition then into the BEF world as well.

Thank you, Dorothy. And we continue with Horst Schneider from Bank of America.

I think also my question is just a few follow-ups relating to this inventory issue. You said you want to handle that a little bit better going forward. Does it mean that you are planning to reduce a little bit production as of Q2? And if yes, in which regions? Then another follow-up on the cost guidance. Harald, you said that it's going to remain a burden also for the rest of the year. But I mean, the burden should decrease somewhat in H2, of course. Is it possible that we maybe see another burden in Q2 and then maybe a kind of tailwind as of the third quarter? And the last question that I have that relates more to the EV business again, We have now the Inflation Reduction Act in the U.S. in place. So maybe can you provide a little bit of color about the trends by region? Is the order situation in the U.S. on the EV side better than expected? In contrast, maybe a little bit weaker in China. In Europe, I think it's normal business as we speak. Thank you.

Yep. Thanks, Horst. Well, managing sales and production and inventory, that's a day-by-day business, obviously. You can see from the first quarter that production was running ahead of the sales, so that is against an expectation in terms of commercial opportunities for the remainder of the year. if that comes through, obviously that provides an opportunity. If it doesn't, we would then adjust inventory and obviously production as need be. Overall, the guidance you could see is unchanged in terms of sales being same level. But definitely on the other side, we don't want to missed opportunities. I think that's what you should read behind. Overall, yes, I can say that, I mean, inventory level, I mean, is an issue where I'm not completely happy and satisfied, and my colleagues know that, and we work on that. And I do see, I do think, I mean, there's potential. I know that I bore you a bit by repeating that since many quarters. But obviously, the volatilities which we could see from COVID and then semi and the market volatilities were not necessarily the good boundaries to drive structural changes at the inventory at this juncture. But rest assured, that remains on the to-do list. On the cost side, cost overall, Well, inflation headwinds should overall decrease over the year. Raw mets should improve from here on towards the end of 2023. From what we can see today in terms of spot markets and this translating then via our contracts into the P&L, However, as I said before, probably some discretionary adjustments and supply chain charges we have to expect or we do expect for the remainder of the year, which will not level out. That is at least the perspective we have as of today. And as I said before, is built into the guidance statements. On the BEF momentum, I confirm, I think, your judgment in terms of the level of momentum. Good momentum on the BEF. I mean, in the U.S., IRA definitely supports it. We're also making use of it in the field of leasing, as you know. So the demand here for the EQS sedan, but now in particular EQS SUV, is at a good, at a healthy level. We're happy about that. York to come thereafter, and China, the momentum being slower for the reasons I commented before, namely, again, top-end vehicle segment clearly being dominated, not only at our end, globally, by the combustion world where the transition to the BAF is only going to happen. But I think with the products, I mean, such as EQS SUV and then also the EQE SUV to come, we have the right, the good tools into place also to be present in this market.

Okay. That's great. Thank you. Thanks, Horst. And we go over to Daniel Reska from Bernstein.

Good morning, everybody. Thanks for taking my questions. I'd like to talk a little about direct-to-consumer. Could you update us on the progress and the plans for this year, kind of how's the transition progressing? What's the impact possibly we can expect by the end of the year? In terms of numbers, where do you want to be? And then more strategically, I think recent price actions have captivated the financial market's attention a bit, but it also shows one of the limitations, right? It's difficult to do individual consumer price discrimination in a direct-to-consumer model. How do you think about this more broadly in the context of your own direct-to-consumer move and how you think about your pricing toolbox going forward?

Thanks, Daniel. Well, in terms of what is the roadmap in terms of the progress on direct sales, commented on UK being accomplished at the beginning of the year. We're now preparing for the migration of the German market, which is obviously the largest in Europe and a very important market. That should happen in the second half of the year, all in all, next to the ones we did already. The roadmap, I think, from the top of my head is that by 2025, around 80% of the European markets will be migrated, which I think is a pretty massive undertaking. and progressive we will do it then in all of the markets which are eligible for it, which means, as you know, not feasible from our perspective to do it, I mean, in the U.S. In terms of what does it mean in terms of customer relationship and pricing toolbox, as you call it, Well, obviously, you have much more visibility, more transparency at both ends. I think that is favorable. As I mean, today, it's not only about, I mean, competition inter-brand, but intra-brand. So the customer trying to get, in brackets, I mean, the best deal is So once having made up, I mean, on the individual vehicle and then watching out, where can you get that best deal from which dealer? And so the customer definitely, therefore, has in the future, I think, a benefit in terms of being assured that, I mean, the deal, I mean, she or he gets is the best fair deal, which will not be a function of the individual dealer. So I think that is beneficial to the customer overall. You know that we have the intention and the strategy to be also a reliable partner when it comes, I think, to the product, but also then to the pricing, which means not to do erratic main pricing adjustments up or down. but rather having stable pricing reflecting the intrinsic value of the products. And that's, I think, how we will take it forward. In the markets where we switched over so far, be it Sweden, India, Australia and others, we could see overall that it was really beneficial. And if I may say, even, I think, from all stakeholder perspectives, from the customer side, as I just commented before, from our side in terms of the impact on the pricing, on the net pricing, the discount management, but even from the dealer side. So... I think all I could witness that, I mean, during some of the recent visits in some of these countries, that even the dealers who might have been a bit skeptical in the first place, at the end, were pretty happy. Obviously, as you know, they keep the after-sales business, which is, I mean, the margin business, and still are, obviously, as an agent, very much involved into the new vehicles. But probably, I mean, also a bit of a the risk-reward transfer being beneficial for all stakeholders.

Great. Thanks for that answer. Thank you, Daniel. We tried to sneak in two more questioners. Next one is Tom Narayan from RBC. Afterwards, Henning Kosman from Barclays.

Hi. Thanks, Tom Narayan, RBC. I was wondering if we could just get a little more commentary on what you were saying on MIX for the remainder of the year. The GM earlier this weeks that they expected a downshift in mix. They prioritized chips on higher margin cars. And now with Semi's availability improving, they were saying they were going to see a downshift. I know you guys are different, but just curious if you could just shed some light on why you're so confident that mix should be resilient. You have some product launches. And secondly, this might be a question more for Ola, but Tesla made some comments at their call about how they were willing to sacrifice profitability in order to grow scale and sell autonomy. You know, judging from what we learned at Sunnyvale, I'm guessing you don't maybe agree with that, or at least not for Mercedes. But curious on your thoughts at a high level on this strategy. You know, in other words, selling software subscriptions at higher margins to enable you to effectively cut pricing on the car business. Thanks.

Thanks, Tom. First, on the mix, we guided in February for the full year that we would increase the top-end vehicle share slightly. And by the guidance brackets and corridors, you know what that means. Now, having achieved in the first quarter... 18% growth in Q1 2023 over Q1 2022. I think that is a good head start. I think what are the tools behind to enable that? Definitely, I think we have EQS, I mean, SUV full year. We have... continued high-level demand on the AMG side, on G-Class, on Maybach. And the GLC should also have, I think, a favorable impact once we're coming out of the ramp-up. And in the top end, let's not forget about the SL, where we should have this year the first full year of SL. and then at a later point to come also, I mean, GT. So I think there are a lot of products and product substance, I mean, behind to drive the mix in line with the full-year guidance. And again, quarter one gives us a good head start into that. In terms of driving profits from software subscription, You know, during the Sunnyvale presentation, we outlined our approach to that. We definitely consider that to be an intrinsic part of the vehicle offering in the future with the various packages, the connect package, the drive package, i.e. infotainment, navigation, then the ADAS functionalities, level 2, level 2+, level 3. And last but not least, also, I mean, the charging. The numbers which we outlined, I think, in Sunnyvale allude to some incremental potential in terms of revenues and margins. However, I mean, we do consider that this will not be This will not replace or change the profile of the company in terms of being a subscription margin company and the margin on the new vehicle sale, therefore, being less important. No. Here, we are an auto company. We stay an auto company with very solid margins on the new vehicle side, supported by the features on subscription, i.e. these packages, connect and drive and charge. And the size of the margin we're having today on the new vehicles, I think you would – You need to be, I think, very creative to imagine that that would be ever replaced by a subscription margin, and therefore we stay rather humble on that.

Thank you. Thanks, Tom. And last one, Henning Kosman from Barclays. A quick one, perhaps.

Yeah, thanks, Stefan, for squeezing in. Good morning, everybody. The first question, just how we appreciate the color on the guidance and achieving more of the top end of the range. I'm wondering if it's just another way of saying or commenting towards this one-and-a-half percentage point buffer that you had built into your full-year guidance, a percent for macro, half a percent for residuals. Has anything changed how you think about either of these two components as compared to the start of the year? Of course, as we go and you're not using the buffer is another way, I guess, of saying that there's more upside risk to the guidance if you could just maybe pick up on these two components. And within that, or related to that, I think came up a couple of times now, this discretionary supplier or supply chain compensations. Just maybe another word on that is, could that be meaningful? I think in the press, some suppliers are being quoted as saying they expect 80% to 90% compensation. Other European OEMs have dismissed that level. If you could just give us an idea of who should be wary of that, could that be very meaningful at the end of the year? And second short question, just mobility, that 540 million EBIT that you've shown in Q1, do you think that's a good run right now or is that the ceiling on a quarterly basis? Could it only go down from here in the course of the year? A little bit of color on that would be great. Thanks very much.

Thanks, Henning. If I counted right, it was three questions. But, I mean, let's do it quickly. Yes, I think you can read from the guidance today, namely confirming the guidance, however, saying that we see it at the upper end, namely 14%, I mean, for cars, that we have more confidence, I mean, around, supported by the performance in the first... In the first quarter, some of the key building blocks, the ones we outlined, I think are still the same. The used car, we could see the used car coming down a bit in the first quarter already. That commends, I think, I mean, holds for the remainder of the year. We'll see some further growth on the BEF with a dilution impact. I mean, that's why, I mean, you see here, I mean, the 14 and anything else I think is to come, I mean, for later years. and we'll watch the situation. But I think, yeah, you can read the confidence, but also I think a management determination that we want to hold the performance in the remainder of the year and that we stick to what we're saying, that we see Mercedes at a double-digit margin moving forward and not going over the cliff. and the best being over. That is the message we want to give here. Supplier claims and payments, please understand, I will not comment too much further on this. We want to ensure a good, a uh that's why we're looking in case by case into it um uh there might be uh one or the other i mean uh adjustment uh if that would be the case however i mean that uh that would definitely be a one-timer without polluting baseline moving forward namely mean for the for the years ahead um but one has to reckon i think that there were made some some uh significant movements here and there. I mean, on commodities, but again, that is a discretionary judgment at our end. We'll keep you posted on it. On mobility, well, I think we need to anticipate a bit of further softening on the interest rate margin. That's why I think the Q1 run rate might be a bit lower for the remainder of the year. And then obviously we need to watch out on the cost of credit risk, which, as you know, is a function of the macro environment, which is a bit difficult to predict. In the guidance, there is a bit of a step up. anticipated in the cost of the credit risk compared to what we had in the first quarter, given the continued macro uncertainties and volatilities. That is why you see the 12 to 14 guidance confirmation on mobility. However, same comment here, rather at the upper end, namely the 14. Thank you so much.

So with that, ladies and gentlemen, thanks a lot for your questions, for being with us today. Harold, thanks a lot for answering all those questions. IR is at your disposal afterwards, as always. Last thing to mention from my side, you've heard it, we'll have a virtual strategy update on the van business, May 16. Please pencil it in your calendar. And now to all of you, have a great morning, great afternoon, great evening. Look forward to talking to you soon, and thanks and goodbye.