Mercedes Benz Group Ag

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 this conference, please press zero and rhombus on your telephone keypad for operator assistance. If you want to ask a question after the presentation, please press 9-star on your telephone keypad. To remove the question, please press again 9-star on your telephone keypad. 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 this call. 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 Steffen Hoffmann, head of Mercedes-Benz Investor Relations and Treasury. Thank you very much.

Thank you, and good morning, ladies and gentlemen. On behalf of Mercedes-Benz, I'd like to welcome you on both the telephone and the Internet to our Q2 conference call. I'm very happy to have with me today Ola Kelenius, our CEO, Harald Wilhelm, our CFO. In order to give you maximum time for your questions, Ola and Harald will begin with an introduction directly followed by the Q&A session. The respective presentations can be found on the Mercedes-Benz IR website. Now, I would like to hand over to Ola.

Thank you, Stefan, and good morning, everyone, and welcome. In Q2, we have delivered, again, solid financial results and results remain on track in executing our strategy in what we consider a dynamic environment. We increased sales across all the main regions in the first half of this year, especially on the top end sales side and dynamic growth of our battery electric vehicles. We, of course, remain vigilant and stand ready to adapt to dynamic macroeconomic and geopolitical events But for all intents and purposes, we're on track. The reason for our confidence is very attractive, complete, and a young portfolio in the market, both for our electrified high-tech ICE products and our BEVs. So let's have a look at the numbers on slide three in the deck. The higher car sales, which were plus 6%, and the significantly higher van sales, plus 90%, drove healthy growth of the revenues. And that's then also in combination with the rest of the strategy execution underpinning a better EBIT than the period last year, and a very strong increase in the free cash flow to $3.4 billion. And the net industrial liquidity remains also on a very healthy level, and considering that we also paid out, of course, a dividend in the second quarter of this year. If we, on the next slide, go into it a little bit in more detail, with regard to the performance here for Mercedes-Benz cars, the key messages are really that the percentage of top-end vehicles and the percentage growth of top-end vehicles, which was 12%, developed favorably in this past quarter. And our BEV sales more than doubled. So we have picked up momentum on that front. We have also demonstrated resilience in a challenging environment. We come off of, of course, COVID supply restriction through semiconductors and so on. And now on the operational side, things are starting to normalize. So I think that we have navigated through this first half year in terms of operational performance in a very reasonable manner. The new products that we're launching, and I was just down at the press test drive of the new E-Class speaking to product and business journalists and driving that, we have received a phenomenal, really a phenomenal feedback from customers around the world that are waiting for this vehicle, our dealers. Here we have the the precursor really of MBOS that we will launch shortly. But the infotainment domain is a precursor of MBOS and the first full digital product as part of that overall operating system. And then we have a couple of dream cars that are about to start production here soon with the CLE Coupe and the CLE Cabriolet. And we also launched the GLC Coupe, the GLC being our bestseller in our portfolio. On the technology side, we're making progress. We now also received level three certification for autonomous drive system in California. So step by step, we're building our position here. And this is, of course, just the first few steps and much more to come in the next few years. But also the launch of what we call automatic lane change on highways is a function that you really must try. Now I think we're also going to be the first ones that get to launch that in Germany as well after speaking to the German authorities. So that's very positive for our customers. Since we have our own cloud infrastructure and a cloud layer where we can quickly, through our backend, add technology to our vehicles, we were the first manufacturer that took the opportunity to do a beta test of chat GPT in our vehicles in the U.S., And what I've heard from customers so far has been very positively received, and the usage of our infotainment system has gone up even more. But we're also working on the customer experience in general. As you know, we're expanding our charging options. We think that charging infrastructure is going to be one of the driving enablers for people to adopt BEVs in this marathon towards zero-emission driving. And we have now struck a deal where we open up to our customers in the U.S., also the Tesla Supercharger Network next year. And as you can see from news this week, together with several other OEMs, we're going to put more money into building a very comprehensive charging infrastructure, complementing the things that we're doing around the world. We're in the process of changing our business model in go-to-market and moving towards direct sales. And in this past quarter, Germany, which is our third biggest market, switched to direct sales. And that went as smooth as you can expect, realizing how big of a market this is. But also in overseas markets, we're pushing ahead. Turkey is a good example. So strategically, on many fronts, we are taking Mercedes into the future. If we jump to the next slide in the deck, you see here the structure of our vehicle sales. And I think I've commented on much of it. Maybe one thing to mention is that on the core side, we're just in switchover mode of the GLC, which is our best seller. So I would say we should pick up some momentum on the core side in the second half of this year and then going forward. On the entry side, we had quite a bit of pent-up demand, especially in Europe. That was also brought to waiting customers in the first half of this year, and I've already mentioned the strong results on top-end vehicles and BEVs. Plug-in hybrids, now I think we have the most comprehensive fleet of plug-in hybrids, and literally every new vehicle that we have launched over the last couple of years and are about to launch. With a WLTP standard, we have around or more than 100 kilometers range. So you really get half of an electric vehicle now, more or less. Monday through Friday, going back and forth to work or wherever you go, you can drive electric, but you also have the high-tech combustion engine on board. So the plug-in hybrid will play a role throughout this decade. And I think we have

the lineup to take advantage of that so with that i'm going to pass over to harold who will give us an update on the financials harold please thank you ola and hello good morning to everybody let's have a look at page six on the car financials sales up revenues increased by five percent asp at 73 EBIT adjusted 3.8, CFB adjusted 3.8, which suggests a cash conversion of 1. Let's have a look a bit on the margin evolution in the quarter compared to quarter 2022. What can we see on the page 7? Obviously, the bucket volume structure net pricing increased significantly by almost a billion. The majority of that comes from improved net pricing, driven by gross list price increases and tight discount management. The increased unit sales and product mix contributed positively as well, whereas the used car business was slightly negative, as we guided for. You further see the effects on the negative side, mainly coming from Turkish Lira and the U.S. dollar on the industrial performance. You see in particular one-time commodity charges for semi-inflation related costs and no tailwind yet from raw material costs. We see very smaller effects, e.g. from lithium due to a higher EV volume and an elevated spot rate. So please also note that spot rate changes have lead time before they hit the P&L. Overall, I think, I mean, what to take away from the cross-profit evolution is that, again, we delivered a net pricing year over year. But what you cannot see on the chart, what I would like to emphasize is you can also see a net pricing quarter over quarter, i.e., quarter two over quarter one, 23, outweighing headwinds from material cost and inflation. Looking at the selling expenses, slightly higher due to marketing expenses, volume-induced selling expenses, and agent remuneration from the new direct sales model. The positive counterpart sits in the price bucket. In line with our full year guidance, we saw higher R&D costs for future platforms and technologies, in particular on MBOS. The other bucket is the 52 inside. You have a negative effect from the adjustment on our participation in here. There is other very smaller effects from previous year, which we don't have this year. So all in all, that's how, I mean, that item turns a positive to 52 million. So with this, I think we can move on to page eight on the cash flow. See you a bit. reported and adjusted at 3.8 with a cash conversion of 1. The negative 500 million working capital came from slightly heavier vehicles inventory structure, which means a good mix sitting in the inventory, with at the same time slightly reduced overall amount of vehicles. 360 million lower trade payables are a function of a lower production volume in Q2. If you look in the deck, you will see that production level was running a bit lower than sales in the second quarter. And that investment in PPE and intangible assets versus depreciation and amortization are flat. I think that, again, demonstrates, I mean, how we want to manage the transformation within existing financial envelopes. On the other side, the other line includes the adjustment of the BBAC at equity result of $335 million, which is slightly lower due to dealer support payment in China, and the dividend from BBAC of $900 million. The adjustments are for legal proceedings. Let's move to page 9 on the VANs. Well, great performance, strong sales, order book, almost 120,000 vans sold in quarter two in favorable market conditions that delivered solid profitability from net pricing, higher unit sales, outweighing cost increases and inflation, and also staying on course on the fixed cost trajectory down. On the product side, we could see the start of the EQT sales and the e-Citan, and therefore, I mean, the full product portfolio is now electrified in each and every segment, small, mid, and large, from private to commercial. We also announced, I mean, today, and you should see it on the beautiful picture here, the new design of our midsize van with more luxury in the private segment and sharpened premium in the commercial segment. In May, you know, we had the van CMD outlining the perspective for van in the future as the leading manufacturer of premium light commercial vehicle and with the ambition to be double digits throughout the decade, even in the electric area. Looking at the numbers of vans on page 10, total sales up 19%, with privately positioned vans up, and the commercial ones even more up. The volume increased in all important markets, chiefly in Europe and in Asia. EV sales are also up by 18%. to 5,000 units with the eSprinter in model changeover, which means that the eSprinter 2.0 is coming later, and that should give some incremental momentum. Page 11 on the financials, I mean, all figures up. I would just say kudos to the team here. Sales on a pretty record level in this quarter. Revenue is up 25%, EBIT adjusted 800%. and cash generation also 800. So do we need to go through the bridge, Stefan, page 12? Well, pretty, I think, straightforward. 15.5% return on sales adjusted. Key driver is the volume structure pricing bucket. Also here, the solid net pricing is a key driver. This list prices up and discounts are spending below last year. The volume obviously helps as well. And also, I think, on the mixer, that's very favorable. On the industrial performance, we have basically the same thing as I commented on, on the car side, as well as on the selling expenses. In the other, we have also the adjustment of, we have the equity result from FBAC. And with that, I move to the cash flow side, to page 13. So the CFPB reported 777, adjusted 819, conversion rate 1, working capital charge of 300 million, with an increase from inventory of about 200, driven by the production ahead of sales here for, I mean, a good second to half of the year. As we guided the investments at a higher level now in PPE and intangibles, compared to the depreciation that is a function of increased spend on the EV transformation, namely the VAN EA platform. In the others, we reverse the adequity result and have the DV from FBAC included. The adjustments are on legal proceedings. If you look on the key messages on mobility, page 14, MBM is facing a challenging market environment, especially in China. Overall penetration rates are under pressure with positive trend for battery electric vehicles in particular in the U.S. due to IRA. Profitability is impacted by lower margins due to higher refinancing rates and intensified competition in the financial services sector. The ramp-up of our new charging business is getting traction. As Ola mentioned before, with our own branded high-power charging network. The first sites plan to be open in the second half of the year. And with the announcement on the Tesla charging network, which we joined as well as what we announced yesterday in terms of creating another network together with other OEMs in the U.S. And the... Other line or in the – no, sorry. Furthermore, we completed the sale of the Russian business activities in second quarter. Now to the numbers. Page 15, the new business increased in the second quarter. Portfolio on the other side remained stable. The EBIT adjusted decreased. And let's have a look at that on the page 16. So in the second quarter, EBIT adjusted sits at $450 million, return on equity adjusted to $12.8. How did we get there? Positive effect from normalized cost of credit risk despite a challenging environment, market environment, macroeconomic environment. On the other side, lower interest margin, which is impacted by higher interest rates and increased competition in the financial services sector. Additionally, we see first investments for ramping up our new charging unit. And in the other, a positive effect from hyperinflation in Turkey, which was in there last year. The adjustments are now on the exit of the Russian business at 276, which is now completed. On the group side, the businesses I explained already leaves the recon, which is the equity result of Daimler Trucks. That leaves us with an EBIT adjusted of 5.2. Adjustments are a bit more than 200. Again, that is in connection with the sale of the business activities in Russia. Group booked EBIT is at 5 billion. On the cash flow side, same thing. Businesses as explained already before. Income taxes are at 1.5. As we reflect, I mean, they're going up with the increase in profitability. The improved interest result is obviously thanks to higher interest rates level. In the other recon item, we see mainly the Daimler truck DV. With this, the free cash flow industrial sits at 3.4 billion. And in the adjustments, we see legal proceedings related to diesel. Page 19 on the nil, 26 billion by the end of the quarter, starting from 29 at the beginning of the quarter. Cash flow we commented already before. We paid the divvy of 5.6, and we spent 640 million in the second quarter on the share buyback. So proceeding well, I would say, with the 4 billion share buyback program. The other item is mainly related to FX. Now, I think, I mean, let's turn to the outlook for the second half of the year. Let's get started with the divisional guidance on page 21. First, please read the assumption chart carefully. I'll rush through it. We see with regional differences the overall growth momentum of the world economy likely to remain rather subdued in H2. Despite ongoing declining inflation rates, inflation is expected to remain above average in many places. Continued restrictive monetary policies at central banks likely to weigh on consumers, companies and economic growth. In addition, geopolitical imponderables remain uncertainty factor. By contrast, energy prices in H2 are expected to remain at significantly lower level than previous year. The noticeably improved supply chain situation should continue to benefit the automotive market in H2. Also, market demand is expected to remain subdued in important markets. What does it mean for the car guidance, car division guidance on the sales side? We see the order intake, I mean, is stabilizing with a strong product substance that we have in the market and also considering the product launches yet to come in H2 and in 2024. On that basis, we expect the pace of sales from the first half of 2023 to continue for the remainder of the year. Let me clarify, that means that we see sales of H2 at about the same level as H1. With that, we continue to see full year 2023 sales, I mean, at prior year level. For 2024, maybe it is obviously too early to tell, but based on today's market sentiment and our product substance that are in the market and to come from today's perspective, we think that 2024 sales should not be below 2023 sales. On the cars return sales guidance, what does that mean? With H1 at 14.1, we had a solid first half of the year. The H1, therefore, fits pretty well, I think, with the expectation of upper end of the 12% to 14% return on sales range. For H2, we want to take this momentum in with us. What are the moving blocks? I mean, in H2, we expect some easing on raw mats. On the other side, we see continued one-time commodity charges and maybe some headwinds on the used cars. So on that basis, the full year guidance remains unchanged. On cash conversion rate and on the R&D and PPE, unchanged. Then on the sales side, with the tailwinds from H1 and full order books throughout the year, we lift our sales guidance to significantly above prior year level. On the margin side, with a strong tailwind from H1 of 15.5, we lift our return on sales adjusted guidance by 200 basis points to the range of 13% to 15%. However, not everything from H1 is taken into our run rate for the full year. Compared to H1, we continue to see good sales performance, but also some higher ramp-up related project expenses, namely the NEA ramping up. The CCR has been increased as well to 0.7 to 0.9. PPE, R&D unchanged. On mobility side, the return on equity remains unchanged in the range of 12% to 14%. Coming from 14.2% in H1, we see the following elements for H2. A more competitive environment, especially in China, also related to the PEPF ramp-up. support deteriorating our interest margin. Furthermore, the increasing OPEX for our own branded high-power charging network leads to H2 rather at 12% and folio rather at mid of the range 12 to 14. Midterm, we stay on our target of 14% for MBM. What does it mean for the group guidance, page 22? Obviously, they follow the same premises as the segment guidance. Group revenue confirmed and unchanged on the group EBIT, resulting out of the adjusted VAN guidance. We lift our group EBIT guidance to prior year level with the H-1 cash flow at 5.5 and a continued strong cash conversion. We also lift our full year FCF guidance to slightly above prior year level. And with this, I give back to you, Ola.

Thank you, Harold. On page 23, let's take a look at the – List of priorities that we set out at the beginning of this year Within our six pillar strategy that we have been executing over the last years We talk about safeguarding our operating optimum so the balanced go-to-market approach To focus on value over volume and as you can see from q2 or the first half of the year we have stayed on that course and Within that, we want to continue to scale the BEVs. We're doing this double BEV sales also in the second quarter, in the first half of the year. And we will continue working on our BEV rollout. Over the last few years, we've talked a lot about supply chain management and how we are going to stabilize that. And I think some of the things that are now Starting to pay off is our deep sourcing on chips, so multi-year contracts directly with the chip suppliers, but we're also making moves in terms of battery raw materials and locking up that supply chain to set ourselves up for future growth in that area. On the customer side, there are a whole host of things going on. I mentioned that we are building and accelerating the charging infrastructure as an enabler for electric mobility. We're introducing the direct sales models in more and more markets. So we then enter into a one-to-one relationship with the customers, and we're building our complete digital infrastructure and customer relationship management around that, which is working well, getting to know our customers better, being able to serve them better. And in that context, the launch of the next-gen infotainment in the E-class, as I said, a precursor to MBOS, which is around the corner, is one piece of that puzzle. So everything fits together, and we can serve the customer even better in the future than we have done in the past. In this inflationary environment that we're in, it's extremely important to maintain cost discipline and make sure that we that we keep the growth of the revenue side in a good relation to what's happening on the cost side, keep on working on the fixed cost, and that has also worked well for us in this first half year, underpinning the results as Harold just mentioned. If we switch to the next slide, even more important, though, is setting ourselves up for the future. What is the company going to look like in the second half of this decade? And here we are in a massive transition of our whole product portfolio. And working across the Mercedes-Benz Group on no less than four architectures with MMA for our entry vehicles, MBEA, which will be the base for core vehicles. We're going to take our performance brand, AMG, also into a dedicated electric future. And as you know from the recent Capital Markets Day for the van division, They are also working on an electric architecture which will cover all of our midsize and large vans in an intelligent way. Behind that, though, are two major technology platform projects that feed these architectures. One is the next-gen eDrive train, and the other one is the Mercedes-Benz operating system. I invite everybody to join us at the IAA in Munich. In only a couple of months' time, we will give you a glimpse of the future, what this is going to look like. And although we're very competitive today, we're looking at taking a very big technological step in the next couple or three years. So there will be some exciting news. And and previews of what we have in mind in terms of these technologies. So the whole company is focused on executing to put ourselves in a position in the second half of the decade, towards the end of the decade, to be as strong as we are today. And with that, I hand back over to you, Stefan.

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

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We start the Q&A now. And the first question goes to George Gaillet from Goldman Sachs.

Hi. Thank you for taking my question.

Yeah, George, we can hear you.

Great. The first question I had was just with respect to mix. Obviously, you mentioned that you've seen your supply chain constraint ease substantially. Would it be fair to say that you are now producing mix on an unconstrained basis, and therefore you aren't prioritizing the top-end and more accretive vehicles And therefore, as we think about the mix going forward, this kind of run rate should be what investors should expect both for the second half of the year and also as we look to 2024. The second question I had was more around the brand and the luxury positioning. Obviously, when we look at some of your concept cars like the Vision 1, 11... These are highly desirable products, which would create a huge halo for Mercedes and demonstrate Mercedes' luxury credentials and pricing. Does the company have any intention of bringing these types of products to production? And if yes, over what kind of timeframe? Thank you.

Yeah, thank you, George. Let me remind you that with regard to the mix management, even before there were supply restrictions, as part of the pillar two of our strategy, we had pivoted towards a value over volume approach. Value, obviously, for our customers, but also value for our shareholders. So nothing has really changed in terms of our policy. One thing also to remember with regard to mix is that some of it is also product launch driven. And I mentioned that on the core, yeah, if you have a switchover of a big product like the GLC, you can have from quarter to quarter, from half year to half year, some movement there. But we are absolutely focusing on... growth of the top-end. This is our strategic goal. And on the core and on the entry, we're managing this according to our profitable growth paradigm. With regard to brand luxury vehicles, the Vision 111, I think it's a fantastic vehicle. We really use that to launch the technology message for what's going to underpin AMG EA. We will have an incredible, dedicated electric performance drivetrain for AMG EA. And from time to time, we will also have limited edition vehicles that are really desirable dream cars. We don't have a production goal for the Vision 111 per se, but rest assured, there's a lot of exciting products in the pipeline for Mercedes.

Just shortly, I mean, George, I mean, maybe on the second quarter, I would say, I mean... whereas the supply chain globally was less constrained. I mean, in the core segment, it was constrained on the ramp-up of the GLC, and therefore, at the same time, a good run on the entry segment. However, that has an impact on the mix in the second quarter. On a normalized basis, I think we should see a stronger core moving forward. So, therefore, I think some more potential.

Thank you. Thanks, George. And we continue with Daniel Oesker from Bernstein.

Good morning. It's Daniel from Bernstein. Good morning, Jen. I'm too familiar on kind of the BEV topic. First of all, as you ramp up your BEV sales, we talked about kind of the upstream supply chain before. May I ask you, is there any way to quantify kind of how much of the raw materials you've kind of secured until when? And then I think you mentioned on a previous call you were going through every single link in the chain. Could I ask where you are on refining, kind of given the capacity, maybe also the geographic limitations on refining at this point in time, just any updates to your investigations into the upstream supply chain for the BV part? And then secondly, could you talk briefly about China more in the medium term? You had some comments in the press over the past few weeks, And it seems like there's a growing divergence in consumer preferences and demand. How are you reacting to this? You know, what does this do to your platform strategy? And, you know, if vehicle designs will become, you know, more specific to individual regions, does that drive incremental costs down the road in your mind?

So, Daniel, let me start with the first one. I think one lesson learned from these past years, especially on the chip side, is for some commodities or some technical verticals, you cannot just rely on a contract with a tier one and not have transparency what happens below that. That is why we started deep sourcing on the chip side and also have started deep sourcing on the battery electric raw material side. So what we have done, it's a two-pronged approach. We have literally gone through with every one of our partners for battery cells, the supply chain, all the way down to the mine, and making sure that on a contractual basis, we lock up the demand that we need with some flexibility, obviously. for the future. But on top of that, we have also taken initiatives, some of which we have already communicated, like an initiative between Canada and Germany to both look at the mining side and the refining side. So what we want to do is we want to be able to control our destiny in terms of supply chain for battery electric vehicles and for those raw materials. So many of the pieces of the puzzle are already in place, but it's also work in progress as we, of course, grow the BEV side and then put more architectures into the market. And you're, of course, also aware of our investment into ACC, where we as a shareholder are now part of the battery cell manufacturing industry. space as well. So good progress on that. With regard to China, if you look at the market as such, now just in the short term, many had expected, let's say, a more dynamic Chinese economy coming out of the COVID restrictions that have not yet happened. We're also watching on the policymaking, what's happening there. Is the Chinese government going to take measures to So maybe in terms of how the Chinese economy develops, this very quick recovery that many industry watchers had expected has not yet happened. But the actions over the last many years of the government shows that they tried to manage their economy for growth. So for the long term, we remain with the view that China is absolutely a growth market. In the split between the different types of products, yes, it is true that for the BEVs, most of the dynamism has been in the entry slash volume segment, much of which, by the way, price-driven. So very, very fierce price competition in that segment. And this level of adoption has not yet happened in the premium or in the luxury segment. As we talk to customers, many customers view the S-Class with an electrified high-tech V8 still as the ultimate buy, and we don't want to persuade them not to do that, obviously. But at the same time, we are carefully, organically building our BEV position in China and Here we have decided not to, let's say, rush that with price action like you see it in the entry segment because we think that long term that would probably not be the best play. So if we need to apply some strategic patience to this, we will apply some strategic patience to this going forward for all the architectures that I described in my presentation. With regard to China, absolutely we take into account what we think that the Chinese customer wants. And as we have done over many years with regard to the space in the vehicles, but also the look and feel, the technology, et cetera, et cetera. So this is built into our plan. It's not like we now have to say, oh, we have to do something completely different. This is part of the plan when we launch the architectures that come mid-decade and forward. Right.

Maybe a brief follow-up. When you say strategic patience when it comes to China, would that be kind of saying, look, if the BV penetration in the premium, your market, the premium market kind of remains low, you're not worried, or even if penetration picks up, but your penetration doesn't pick up, you would still be willing to wait, kind of, and then with newer products on MBEA, kind of regain that market share later. Is that more common on the market overall or in your position within the premium market?

We think strategically the Chinese market is going towards zero emissions, so let's not have any confusion about what the strategic goal is here. That's where we're going. If it's not a straight-line journey, what we don't think that we should do is to temporarily, let's call it, buy market share by irrational actions on the pricing side. If other market participants decide to do that, something to watch, but it's not our general policy. But during this decade, we are investing massively into building our position in BEPS in China, and then we will see how things unfold. Thank you.

Thanks, Ola. Thanks, Daniel. And we continue with Tim Rokossoff from Deutsche Bank.

Good morning, gentlemen. It's Tim from Deutsche Bank. Ola, I'd like to follow up on your response just to Daniel. We had VW announcing the SAIC and specifically the X-Pen Corporation yesterday. We know that for local is real, especially in China. Denso seems to run better after you guys gave up some control. Smart is running pretty well now as well. EQS obviously not running so well in China for all the reasons that you just outlined, but also simply because product design is not exactly what customers were looking for. You had some corporations with Renault in Europe in the past. Would it make sense to perhaps for you deeper cooperate with a partner where that partner has more control of costs and the localized product in China as well for the lower end of your BEV portfolio? Or would you rule that out? And secondly, Harold, perhaps to you, when you say 2024 sales, not below 2023 sales, pretty powerful statement to hear that at this point in time, particularly with the track record you guys built. Can you help us to contextualize with the value of a volume focus that you have? Why would you say that already by the end of July? Is demand so strong that you see in your auto intake? Do you still feel you have quite a few tricks up your sleeves for next year? Should things get more sour? How should we contextualize this? Thank you.

Thank you, Tim. Let me then expand a little bit here so that you understand what our strategy is. For transformation in China but around the world, as you know, there are two technological trends that OEMs need to master. It's the e-drive train, and it's the digital side of the vehicle. I would like to remind everybody, though, that next to those technological trends, what makes a Mercedes-Benz a Mercedes-Benz is much more than that. It's all the other qualities that especially Chinese customers also value. It is the quality. It is the longevity. It is the ride and the drive. It is that comfortable special cocoon that you get when you're inside a Mercedes. So all of those things need to be taken forward also. It's not just about those two technical verticals. And I think no company in the world knows better how to make a Mercedes-Benz than a Mercedes-Benz. And that is why we take control over the engineering of our future products. But now let me dig deeper into eDriveTrain and the digital side and also our partnering strategy. If you read recent product comparisons by prominent product magazines between our eDrive train and eDrive train of competitors, including Chinese new competitors, you will see that our current eDrive train is very competitive, objectively measured in all dimensions. Is that then a cause to sit back and relax and say, yes, we have solved the equation and need drivetrain, tick in the box, we don't have to do anything? No. We are doing no less in the next two to three years than completely from A to Z overhauling that electric drivetrain. The inspiration is the EQXX. And when we meet each other in Munich, we will lift the veil on some of the things that we're doing there. But Very much improved efficiency, improved cost position as well, of course. Across the board, new chemistry, new everything, new inverters, new, new, new. So whereas we are today technologically competitive on the eDrive train, we are taking a massive step in the middle of this decade. In the sourcing and cost structure of that for China, we do that locally. So we are sourcing with competent partners in China and taking advantage of the industrial automotive cluster in China in doing so. If we switch to the digital side, and of course I know that you're intimately familiar with our MBOS strategy, we said that we want to be the architect of our digital house. And we need to be the ones that are the interface to the customer. For the Chinese market specifically, though, we are partnering in the different application fields. And every relevant tech partner, many of the, of course, known big tech companies are our partners in China. So we will have a China fit dedicated digital environment that will delight customers. And this is not something that we're waiting to do. This is happening already in our products today. So the cars that are on the market are in current dynamic development, adding more and more features, even down to maybe a few things that we hadn't considered in the past that you can then sing karaoke in the new E-Class and stuff like that. It might sound like a peripheral thing, but if some of our customers appreciate that, why shouldn't we do that? And we're able to do that. So we are partnering, but we're not handing over the task of creating the Mercedes of the future to another OEM. That task stays with us.

And Demir, why are we saying that 2024 should not be below 2023 with regard to sales? As you can read and see from the macroeconomic assumption chart, we stay cautious on the macro side, rest assured. If we look into order intake momentum in Q2, we see some stabilization here. But probably from that, it is too early to conclude on the full year or to say that an order book has been built. year to date for 2024. But we see the perspectives of that momentum continuing, I mean, for the remainder of the year. But really, I think what drives, I mean, the statement, we are departing from a pretty low base, I would say, right? I mean, around 2 million units, I mean, this year, if we say about the same level as 2022, I think that is a low departure point. And we are at the juncture where we have, I mean, great products, I mean, hitting the market in the second half of the year and full run rate then in 2024. What comes to mind, full run rate, the GLC, but then in particular, I mean, E-class in 2024. And I think, I mean, we can track that historically, that obviously the demand level for these great products, I mean, yield also then sales step up. Not limited to that, you can see in 2023, in a difficult macro context, that top-end growth does exist. You can see also there will be a ramping on the BEF. And yes, we talk quite a lot about the EQS and EQE, but one thing is for sure, that is an incremental platform creating additional demand. And so, all in all, we want to further increase, obviously, the BEF offering in 2024. Finally, however, rest assured, the strategy, the policy for pricing and margin to prevail over volume will continue to exist, as you can see, again, in the second quarter. And allow me to repeat, the second quarter pricing, net pricing was favorable over quarter one, 2023-2021.

uh so definitely i think that demonstrates so that we want to take that also for the remainder of the year as well as into 2024. thank you thanks tim and uh we continue with jose azumendi from jp morgan thank you jose to be more and good morning uh just a couple of questions harold can you comment on the bucket of volume structure and pricing can you give us a bit more color behind those those two buckets And second, can you comment a bit on ethics and romance? How should we expect that going through in the remainder of the year? And then for Ola, please, can you comment a little bit more with regards to your overall competitiveness in China and the opportunity to improve your momentum thanks to the ramp-up of the new facility, including the EQE and EQE SUV, which you're ramping up in the second facility in Beijing? Thank you. Thank you.

Yeah, Jose. On the second quarter, I assume you referred to cars, second quarter. Well, I mean, volume was positive, as you can see from the sales number. Pricing was by far the biggest lever within the $900 million bucket. Mix was favorable compared to Second quarter 2022, slightly negative compared to Q1 2023. On the raw mat side, no relief in the second quarter. We do expect that for the second half of the year, but continued spend on the supplier one-time payment related to inflation and SEMI. So, how should we think about the second half of the year in terms of volume, structure, pricing, and mix? I would say, I mean, all in all, sales, we said, we take the same momentum from H1 into H2. So, sales mean volume roughly same level. no fundamental change. I mean, on the mixed side, I would say pricing, I mean, we need to stay, I think, cautious, but all in all, net pricing should not deteriorate, I mean, in the second half of the year. And on the raw mats for the remainder of the year, I mean, tailwind, but as I said, from the semi and inflation, some headwind and a bit of the used down. With this, I mean, we want to take, I think I said, we want to take the momentum of H1 also into H2. That applies for the sales, but I think that applies as well to the margin side of things. As we demonstrated in H1, namely at the upper end, if you look into the group guidance statement and you consider the Venn update, I think if you do the maths, you will find out that, I mean, the CARS guidance embedded in there is probably rather sitting at 13% to 14% rather than 12% to 13%. So I think that gives you some confidence how we think. Anything beyond that, I think, is getting to probably a bit of a ridiculous level of granularity.

So, Jose, if you look at the composition of the Chinese market and also the Chinese BEV market, as I commented before, most of the action has been on the entry and on the volume side. So anything and everything below 300,000 remain B. And even some of the premium offerings have dropped into that category below 300,000. If you look at kind of 400,000 and above, actually our position is quite reasonable. I know that the numbers are in absolute terms for that market, still small. And here is where we said, let's be cautious about the adoption rate and see how this happens and develops organically. But in that segment, we are growing. And in fact, significant growth, albeit from a low base in the second quarter of this year. And the EQE SUV that we have now also launched plays a role in that. So we will continue with the approach that I mentioned before, but to then drop products below the 300,000 threshold to punch a number I don't think is maybe the wisest choice in our situation. If you look at our overall BEV rate at 11 or so percent, of total sales, and you compare it to all manufacturers across the world, all established manufacturers across the world, you will see that we're actually one of the leading companies in terms of adoption, percentage-wise, also compared to some of the prominent volume players that are also attempting to go BEV. So I don't think that we should... let's say, discard what has happened so far, but the investments that are coming into the future that I mentioned before around the middle of the decade to set us up for the second half of the decade, we think that there is much more action to come.

Thanks, Ola. Thanks, Harald. We have time for one more question. Respecting that at 9, there's another OEM presenting their figures. Last question goes to Horst Schneider from Bank of America.

Yes, good morning and thanks for taking also my questions. I try to keep it short. First of all, regarding best sales in Europe, respectively Germany, we hear some negative comments. Press reports here recently not necessarily related to Mercedes, more related generally to the market. Can you maybe give us an update what you see in terms of order intake on BEVs in Europe, in Germany? And do you think that Germany needs to increase maybe again the subsidies? We know that the leasing subsidies face out. basically in September. And then the other question that I had relates to the agency sales model. We talked a lot about that in Q1 still. Now, basically, the model has been implemented. Can you maybe tell us what worked well and where you think there's need for improvement? Thank you.

So BEV sales and BEV market in Europe, also due to the varying incentives that the different countries do, it's a very heterogeneous picture. But part of that doubling our BEV sales here in Q2 or really in the first half year's course, a lot of that has been carried by Europe as well. So the first half of this year has been quite successful for us in BEV sales. if incentives change in different markets, you can see that it does have an effect on those markets. So I think we have to expect a little bit of a dynamic environment and not only a straight line. And then there's another thing we also have to do, and I think this is the task really of the next three, four, five years, that the early adopter phase is over in the BEV business. So every early adopter probably has a BEV now. Now we need to get that majority, that let's say silent majority, waiting, thinking about it, looking at it. And there are other factors play a role. Is the charging infrastructure going to be there? So some of those concerns. That is why we're putting now more and more money into enabling as well, not just the products and the new architectures that are coming with MMA and NBA and so on, which will of course be very important for the European market. And also in our discussions with both Brussels and Berlin, what we are saying is try to be consistent on incentivization. No sudden moves, but put money into infrastructure. The more money we put into infrastructure and build infrastructure, a system around the electric vehicle during this decade, that is what's going to underpin success. So heterogeneous picture, don't expect a straight line, but judging by the first six months, quite solid, actually. Agency sales, you said that. Well, we went live here now a little over a month ago. What surprised me most, especially now going with our third biggest market in the world, is how smooth that change went. It was almost like pushing a button. I don't do service to the work of the team here over several years. I mean, it was a Herculean effort to get that going. Now what you need to do is, and we have built a foundation for it, is As a manufacturer, you also have to act and think like a retailer. So I think there's going to be a learning curve there, but we will gain massive, massive knowledge about our customers and build that. So going forward, I'm more convinced than ever that direct sales is the right path for us.

All right. Thank you. So with that, we close the call. We want to thank you very much for attending. Thanks a lot, Ola and Harald, for answering the questions. As always, IR is at your disposal afterwards, and we are looking forward to seeing you soon, hopefully at the IAA in Munich. Thank you very much and goodbye.