Volkswagen Ag Unsp/Adr

Okay, I hope everyone can hear me loud and clear. Warm welcome to all of you to our today's H1 conference call. It's a combined investor, analyst, and media call, which is moderated by Nicole Mommsen, our head of group communications, and myself, Rolf Woller. I'm heading the treasury and our activities at Volkswagen. Together with us here in Wolfsburg is our CFO, Arno Ansitz. And before we start, I have to make some housekeeping remarks. We have already published, and you should have already received, the press release, our interim report for the half year of 2022, and all related IR materials. If you have not received them, you can find them on our website. How will we proceed today? After Arno's presentation, we will host first a Q&A session for the investor and analyst community, followed then by a Q&A session for our media community. The latter is moderated by Nicole. Before I hand over to Arno, let me quickly draw your attention to the disclaimer in the presentation, which is on page three. I will not read it to you and therefore ask you kindly to read it carefully yourself. And with that, I hand it over to Arno, who guides us through the deck. Arno, the floor is yours.

Yeah, thank you, Rolf. Good morning from my side and welcome everyone to our today's first half 2022 combined investor analyst and media call. Within the next 30 minutes, I will take you through the major milestones we've achieved in H1 and achievements in our financial performance and robustness. The war in Ukraine has been going on now for almost half a year, and we always should be aware of this extraordinary situation. It not only continues to challenge our business, but also the human tragedy continues. Before I start, let me make some opening remarks around last week's decision taken by our supervisory board. I sincerely want to thank Herbert Diess for his outstanding commitment and contribution to Volkswagen's transformation over the past six years, with new auto being a clearly defined strategy for the challenges ahead. Herbert and myself worked closely together to drive this process. During his leadership, significant progress across a number of important strategic frontiers were made. With our new group steering model, we systematically have aligned the group focus towards the future profit pools of the mobility industry in the future, including batteries, software, and mobility services. We also formed strong brand groups, strengthening entrepreneurial freedom and responsibilities. I am convinced that thanks to this setup, we can continue to transform the group from a procession of strengths. This is illustrated again by the results of the second quarter, where we performed remarkably well in a demanding environment. If Oliver Blum is assuming CEO position for Volkswagen Group starting from September onwards, I am very much looking forward to continuing the transformation journey we have begun together with him. Driving the transformation forward consequently means that we continue to execute our plan for a potential IPO of Porsche later in this year. The preparation is continuing with a decision expected late summer, now with even more emphasis than before. The potential IPO would give us additional financial flexibility to accelerate our strategy and emerge as one of the leading companies from this fundamental transformation in the auto industry. Oliver Blum in his capacity as CEO of both companies Volkswagen and Porsche stands for an independent Porsche with access to Volkswagen synergies. He has an excellent track record as CEO of Porsche AG. Porsche is strategically, technologically, financially and culturally well positioned to be a leader of the sustainable transformation in the automotive industry. Lastly, I fully understand your interest on the future working mode. How exactly Oliver and I will work together in my capacity as CEO is something we will talk about in more detail in the coming weeks. I know Oliver since many years. and I'm very much looking forward to working even closer together with him in the future. But now let's switch over to the H1 performance. In summary, solid operating results again showed the robustness and resilience of our business model in a challenging environment. The supply chain disruptions related to wire and harness have been taken care of and the improved supply of semiconductors should bode well for our H2 sales ambitious. Positive fair value measurements on hedging instruments outside hedge accounting burdened our result in Q2 by about minus 2.4 billion euro and the positive from Q1 declined to 0.9 billion euro in H1. Including this more positive effect, we reported an operating result of €13.2 billion and an operating margin at 10% for the first half of the year. Thanks to our robust net liquidity position, we are able to consequently continue our transformation including required investments toward electromobility and digitalization. Let's have a brief look at our unit sales in Q2. The demand especially for well-equipped cars, continued and led to a strong product mix. However, sales in the second quarter were heavily impacted by the semi-environment harness shortage as well as COVID-related measures in China. The situation stabilized in May and we saw a clear upward trend in June with more than 800,000 deliveries worldwide. In China... We recorded an increase of deliveries in June. They were up 27% year on year, and we regained market share. We are moving in the right direction here. In Q2, we sold 118,000 BEVs, reflecting a total share of 6%. The shortage of wiring harness hit our electric cars especially hard, but we are all set for higher BEV volumes in the second half of the year. Especially in Western Europe, We continue to sit on a strong order bank. BV order intake is in Western Europe up 40% in H1 versus prior year. Demand for ID.5 is above our expectation and ID.Bus was great customer response. From where we are now, we anticipate a constantly growing BV volume and share in the remaining quarters of 2022. The next chart provides an overview of already retooled MAP plans in major regions. Based on a better supply of parts, we operate now three shifts in Zwickau and ramping up our Empton plant. The ramp-up of our retooled plants Empton, Hannover and Chattanooga will support volumes. The global production footprint will help and new exciting models will be launched. Especially in the US, we see huge opportunities for BEVs and we will intensify our activities in the future with the revival of the Scout brand. PowerCore established our European battery center with the group's first own cell factory at the Salzgitter site, which is expected to begin production in 2025, a further milestone in our electrification roadmap. With the unified cell and the standard factory, we are able to set new industry standards. The plants are highly flexible with regards to cell chemistry. We are convinced that POWERCORE will have one of the most standardized and most cost-efficient cell factory networks globally. Let us move from strategy implementation now to our financial performance. Vehicle sales for Volkswagen Group came in at 4 million euros in H1 2022, around 650,000 units less than in H1 2021, caused by an ongoing limited vehicle availability. Despite lower sales, sales revenues amounted to €132 billion, including around €5 billion of the first consolidation of Navista. The operating result before special items came in at €13.2 billion, the operating margin stands at 10%. This demonstrates impressively the robustness of our group in a challenging environment. The result still contains a cumulative positive effect of around 900 million Euro from positive fair value measurements on hedging instruments outside hedge accounting. But this is significantly less than the 3.2 billion Euro as of the end of the first quarter. Our financial result came in around 1.2 billion Euro in H1. This is up €1.4 billion year-on-year, benefiting mainly from slightly higher equity contributions from our Chinese joint ventures and an improvement of our interest results. QI net cash flow amounted to almost €6 billion and reported net cash flow came in at €2.3 billion. The difference relates to diesel payments of €0.9 billion and M&A of €2.6 billion. They are of €1.7 billion are related to the Europe car settlement in Q2. Despite the strong operating performance, net cash flow of the automotive divisions is somewhat mooted due to the working capital being burdened by higher inventories. We build up goods in transit, especially to our overseas markets, and working process in anticipation of higher sales volume in H2. Net liquidity in the automotive division amounts to 28 billion euros, slightly down versus Q1, but still up year-on-year 2021. So far, only around 500 million euros of Chinese dividends were declared and paid in H1, representing a significant lower amount compared to the prior year period. The remaining declaration and payments of around €2 billion are expected for H2. Coming now to the performance of our divisions. Passenger cars delivered very solid €9.3 billion operating result and a margin of 10.4% before special items. Our commercial vehicles came in at around €600 million and a margin of 3.5%. H1 was impacted. by the production stop at MAN due to the war in the Ukraine and this was partly compensated by Navistar which contributed 155 million Euro in H1. The financial services division continued with their strong performance also in Q2 and recorded a profit of 3.1 billion Euro. Now moving to our passenger car Abbott Bridge. The strong results before special items of €9.3 billion for the passenger cars business was driven by a positive mix effect from well-equipped cars and favorable pricing. This more than offset the negative impact from lower volumes. As already mentioned earlier, the bucket exchange rates and derivatives reversed significantly and resulted year-on-year even into a burden of €0.5 billion. Product costs deteriorate further to minus 1.5 billion euro due to an increasing raw material costs. We expect this position to increase even further in the second half. It could total more than 5 billion euro by the end of this year. The position fixed cost and others had a negative effect of minus 300 million from higher R&D, while our fixed cost program contributing to the resilience of our business. After special items, the result came in at €9 billion, including minus €360 million for the diesel-related costs. Let's now have a brief look at our newly established brand group reporting within the passenger car business. A closer look into the volume group represents paint and encouraging pictures. The margin of volume growth improved from 3.6% in Q1 to 6.1% in Q2, resulting in a 5% margin for the full half year. Brandt Volkswagen performed quite well in H1 with a margin of 5.6%. Contributions to this major step towards our 6% margin target came from an excellent performance of the region North and South America, a favorable mix, and fixed cost discipline. Skoda's margin? is with 6.6% on par with Q1, which is a decent performance as they are consolidating our Russian business and they are ramping up the factory and our business in India. Looking at SEAD, a restructuring program has been initiated, leading to an extraordinary burden of minus €244 million in June. Excluding that, the performance is quite solid which is mainly due to the success of the Cupra brand. Our premium brands are well underway. Audi with a very solid margin of 16.6% in H1, benefiting both from strong mix and pricing, as well as positive effects from derivatives. Lamborghini and Bentley performed strongly. Synergies within the premium group are clearly materializing. Premium Brand Group combined achieved almost stable revenues and a solid operating result of almost €5 billion. Q2 margin states well within the strategic corridor. Q2 showed €0.9 billion negative effects from hedging after this position contributed with €1.5 billion in Q1. Porsche is well underway. With 149,000 units sold in H1 2022, showing an impressive return on sales of almost 20% in H1 in its automotive business. Deliveries in Europe increased, while other markets, especially China, were still impacted by the semi and wiry harness shortages. Boasting a 20% operating margin in its automotive business is exceptional and shows what the business and the Porsche team is capable of. Yet the results were supported by price and mix as well as forest effects. Carried sales revenue improved by 36% driven by license revenues with brand groups reflecting the ramp-up of MEB cars. The negative operating result is in the ramp-up phase a consequence of our established business model. Just for a reminder, Carat is developing the group-wide software architectures, financing the upfront investments incurred, and receives license fees from the brands for the use of their software for every car sold. So far the details for our passenger car business, coming now to our commercial vehicle business. Trayton unit sales are up 9%, supported by the Navistar consolidation. We saw a significant impact on operating results from supply shortages and production stops at MAN. Lower capacity utilization and higher costs for raw materials were partially compensated by Navistar consolidation. Net cash flow was impacted mainly by payments related to legal proceedings, 1.4 billion euro, and working capital improvements. For the full year, we are adapting our outlook for trade and operating margin to a range of 4-5%. Our financial services business again came in strong. It continued to benefit especially from growing used car business and demand better residual values and lower risk costs. Operating profit margin of 13.4% in H1 remains on the high level already shown in Q1. For full year 2022, we are raising our forecast for the financial services division from 4.5 billion euro operating profit to 5 billion euro. Looking at China, our joint venture has had a decent start into the year before the COVID-related lockdowns caused distortions in the supply chain, production, logistics and sales, especially at our psych joint venture. In total, 1.47 million vehicles have been delivered to Chinese customers, thereof 36,000 BEVs. Despite the lockdown, the proportionate operative profit in Q2 came in at €578 million. Since June, a strong catch-up has now fully kicked in, and recovery accelerating in June sales outperformed the market, allowing us for a regaining market share. Let's now come to the outlook for 2022. And to make it short, we largely confirm our outlook for March 15, and are in certain aspects even more constructive. We expect our deliveries to customers to stay between 5 and 10% above prior year, but now be more likely at the lower end of this range for the full year. Yet revenue is likely to reach the upper end of the range of 8 to 13% due to continued positive mix effects. We expect our operating margin guidance still between 7% and 8.5%. However, given the strong H1 performance and the encouraging outlook, we are confident to clearly end up at the upper end of this range. We expect mix to slightly normalize as semi-supply eases and raw material costs starting to roll over in the second half. Reported net cash flow is expected to stay at the same level as in 2021, despite the effect of filling up our worldwide pipelines in the second half of the year and the challenges of the transport sector. In 2022, net liquidity in the automotive division is further anticipated to be up to 15% higher than the prior year figure. Our planning is based on the assumption that the global economic output will continue to grow in 2022, albeit at a lower level overall after the recovery observed in the past fiscal year. provided that COVID-19 pandemic does not flare up and that the shortages of intermediates and commodities become less intense. Ladies and gentlemen, we are focused on the financial steering of the transformation. Let me give you a short brief glance on where we stand on some of these topics. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 an overhead cost program. We achieved our 2023 target of 10% cut in overhead costs already in 2021. So far, we showed continued fixed cost discipline and achieved to maintain this level despite an increase in energy costs and despite the rise in inflation. Stringent Capital deployment and synergies across brands stay our top priority. In the first half of 2022, the R&D expenditures within the automotive division increased to €9.3 billion due to significant development activities for future BEV models and technologies. At the same time, the group spent around €4 billion on CapEx. CapEx ratio is at 3.8% only. despite the retooling of MAB in our Ampen plant, Hannover and Chattanooga, showing a sticking discipline on capex spending. For the full year, we are increasing our forecast for R&D as percentage of sales from 7% to 8%, but we lower our capex ratio from 5.5% to 5%. This shows clearly our focus to compensate for higher R&D with greater discipline in capex. Let me finish today's presentation with our steering metrics. In our view, the key of successful managing the transformation. Based on a very convincing product range, our brand groups performed really well in a challenging environment. At the same time, we continue to drive forward our key platforms. Within all value drivers, we achieved good progress in H1 this year. PV sales are significantly up year on year. and are further gaining speed. With the signed partnering agreement, we are all well underway to add an additional partner on our MAB platform. Carriot significantly improved the 1.1 performance, and we initiated localization in China. PowerCore was established, and we had the groundbreaking of Salzgiger, our first-owned cell factory. Siemens entered Electrify America as first external investor, driving the valuation of our asset towards 2.5 billion US dollars. Europcar was successfully settled as one of the building blocks for our mobility platforms. So, we are not standing still. We are moving forward, seizing the opportunities within the operative business as we go along. We have achieved robust operating results in H1 2022 across all brand groups and in our financial services business and can rely on a very solid balance sheet and a robust net liquidity position. We continue to execute our plan for a potential IPO of Porsche later in the year. The preparation is continuing with a decision expected late summer, now with even more emphasis than before. Of course, we are aware of some of the challenges that we might face in H2 and beyond, but confident we stick to our plan and execute on our targets based on integrity and on our values. Thank you for taking time and listening in so far. Now we are very much looking forward to answering your questions.

Very good. Thank you very much, Arno. Before we start with the Q&A session, let me remind you that you register your question by pressing the star key followed by one. So we give it a couple of minutes or a couple of seconds, better said, in order to give people a chance to register. Then We would start with the first question, which comes in from Tim from Deutsche Bank. Tim, please go ahead. Yes, good morning. Thank you very much for doing this. Tim from Deutsche Bank. I have two questions, please. Obviously, pretty impressive Q2 and H1 numbers.

Arguably, the industry mentally benefited from the supply shortage with pricing and mix over the last few years. Now that that eases and production is improving again, There are two obvious questions, and that is, one, regarding the wrap-up, when do you believe we have reached ideal inventory levels, and how can you make sure you realize that you've reached those quickly enough, and how do you keep fixed costs under control during this wrap-up? And secondly, you increase your revenue and margin goals to the upper end of the balance range, which is great to see. How should we think about pricing and mixing the coming quarters? I assume that this indicates that you believe that this remains very possible. Thank you.

Tim, thanks very much for your question. You're quite right. And actually, I communicate that or internally we discussed that since months. We see an extraordinary situation now, which basically we made the best out of it. We have a supply-side shortage. On the other hand, we saw mixed strong pricing and fixed cost discipline. So if we move now into the second half of the year, as you can see on our guidance on sales, we expect specifically the semi-shortage to ease. But with easing semi-shortage in the whole industry, then we expect competition to become tougher. And the second topic you already mentioned as well is raw material pricing. So we are prepared for that in two things. We stay basically disciplined or planning to stay disciplined on pricing and specifically in incentives. And on the other hand, we intensify our cost work. But again, we think there are very good chances. We have a very solid first half of the year. And looking forward, we are confident that we can compensate for raw material increase and higher competition for this measure. So don't worry. We will stay disciplined on both topics, fixed cost and pricing. Yeah, on our guidance, we have a very solid first half of the year, and we guide now for upper end of the margin, and I think that the topics are already set. We expect no positive from valuation. It's rather negative, as you know. Technically, we always take out the valuation effects for the full year guidance, so this is even a slight negative. We expect volume. There will be, I would say, a technically dilution of mix since we have more production. Specifically, we see a small dilution in terms of regional mix. We ramp up then, for example, Brazil and other regions, and also in terms of product mix. But again, we will stay disciplined on pricing. And on the other hand, we will compensate then on the raw materials. So we are confident that we will end on the upper end of our guidance despite these headwinds.

Tim, has this answered your questions?

Yeah, maybe just as a follow-up to the first one. I can hear myself with an echo, so I'm not sure if hopefully you can hear me well. Yeah, that's better now. When do you really believe, Arno, that you have reached ideal inventory levels? Sorry. How do you measure what is an ideal inventory level?

Sorry, I forgot. Look, I come to inventory and then I come to the topic of ideal inventory. Currently, it's a little bit counterintuitive. We have really long lead times. We have a huge order bank and we increased inventory. And this inventory increase is basically due to an Basically, better production in June, and now we send these cars to overseas markets. Like we ship them to U.S., we ship them to China, so it's more a technical effect. And the second effect is we really increased our raw materials. We have a lot of batteries on stock and other raw materials in anticipation of better supply of semi. So first and foremost, we want to go back to an inventory level we saw at the beginning of the year or end of next year. So this is quite a challenge. But this is very important to achieve our free cash flow targets and our working capital targets. In terms of ideal stock, we will end up significantly below ideal stock from today's perspective at the end of 2022. And I always said we see a structural shortage of CME also in 2023. So now I would say economy is cooling down slightly, so demand is, like, coming down, but we still – see for quite some quarters the situation where we have a huge order bank and have not real ideal stock. And that also makes us confident that even if we see a difficult Q1, Q2, our order bank will carry us through this difficult time and hopefully then we will catch up. So this situation makes us also confident for 2023 despite the challenges ahead. Thank you very much.

Very good. The next one in line would be Patrick Hummel from UBS. Patrick, please go ahead.

Yeah, thank you. Good morning, everybody. Let me first ask a question about Carriot. I mean, there was a lot of media coverage about internal disputes and solutions found. I just wanted to hear, Arno, in your own words, how has Carriot's strategy been implemented yeah, modified or changed and how do responsibilities now look like? If you can just give us a quick update here because, yeah, there's been a lot going on and it's not quite clear from the outside what is really the modus operandum, so to say, within Carriot. And my second question, sorry, I have to ask this because this has been really dominating client conversation since last weekend. The potential conflict of interest that Mr. Blume will have in his double role. There are lots of investors that see it as a poor governance, that new structure. And I'm just wondering what your reply is to that pushback, and specifically when it comes to Porsche's envisaged independence post-IPO, and whether you would potentially come to a point to revisit that double role if it starts to threaten the success of the IPO. Thank you.

Patrick, thanks for these two questions. So basically on Carriot, the business model was designed long ago and has not changed. Carriot is developing three software stacks, the 1.1, the 1.2, and the 2.0. And this we early on communicated like basically since two years ago. And so basically what's happening, if you look at the numbers of credit, they will absorb basically in their books the upfront investment, the R&D and capex, and then later on they will get the revenues. So we talk about these three, basically, I would say, architectures. And what you see, the architecture 1.1 now really made good progress. Driving assistance functions were added, automatic lane change, so they are updating over the year. And we are localizing functions for the 1.1 also in China for our MAB cars. Just for the reminder of the community, the 1.1 software architecture is the architecture for all our MAB cars, for ID.3, ID.4, from Audi Q4 e-tron. So this is, I would say, very well underway. And what has slightly changed now, I think, with more focus is that we The Carriot, together with Porsche and together with Audi, is focusing stronger on the ramp-up, on the 1.2, to make sure that the SOPs of E-Macan and also Audi Q6 e-tron are coming. And Carriot is focusing together with Volkswagen... more on the 2.0. So basically that takes into account that management attention is much better aligned and resources are much better aligned. But that doesn't mean that we give up the target of 2.0 being a unified software stack for the whole group. It's just like it's that the one team is concentrating on the 1.1. and the other team is more concentrating on the 2.0 with Volkswagen. Does that answer your question? Yeah, thank you. Okay. Yeah, and in terms of the potential topic of interest or conflict of interest, First and foremost, as I said before, we are still working on the IPO of Porsche. It still absolutely makes sense, and it's still in the interest of both companies. So it's in the interest of Porsche. They will get more entrepreneurial freedom, and Volkswagen would get more flexibility in financing the transformation. So it's absolutely in the interest of both companies. And there are a lot of synergies that we will see. And if it comes to specific questions where there might be a potential interest, we establish really robust processes to avoid conflict of interest and there are external advisors involved. But we think or we believe these equations where it's really we have different interests are very rare. And we will handle that with great care.

Thank you.

Thank you, Patrick. And we are going to the next question. And the next question comes from George from Goldman Sachs. George.

Yes. Thank you for taking my question. I was wondering if you could perhaps help explain the contrasting performance at Volkswagen brand between Q1 and Q2. Obviously, we've seen a very big step up in the profitability there. Could you perhaps articulate what drove that and how we should think about the Volkswagen brand profitability in the second half and in 2023? Thank you.

Yeah, thanks, Paul. Yeah, thanks for asking. This is something we are really proud of, I must say. Look, we talk about improvement of profitability of Volkswagen brands since quite a while, and we stick to our 6% margin target in 2023, and this is still something we clearly have in our sights. from today's perspective, and now specifically in Q2, but also in H1, we made a really good step. And there are several topics. First and foremost, the region performed really well. As you know, in the past, we made losses in South America. We made losses in North America. And we embarked on a strategy where, despite the losses, we set up a completely new product program in both regions, doubling up SUVs. And so with good cost performance, these regions performed. Second, we see also good mix and good pricing in Volkswagen brand. And last but not least, there's really a good fixed-cost discipline in Volkswagen brand. And if you take these two things together and look at the plans for the second half of the year in terms of volume, I'd say there's more to expect from this team. However, there are headwinds, and one of the headwinds we mentioned already is – is raw material prices and other setbacks. So we expect quite a decent performance this year, and we have inside the 6%, which we want to achieve next year.

Great, thank you.

Okay. Thank you, George. And we are coming to the next question, which is from Jose Azamendi from J.P. Morgan. Jose, please go ahead.

Thank you very much, Jose, from J.P. Morgan. A couple of questions are now. Can you talk about the opportunity for the second half of the year with regards to working capital and also your China earnings momentum improving in the second half? That would be the first question. Second? Yes. Can you comment on your, I mean, you obviously have a CFO role for the group, but you're taking also responsibility for COO. So can you comment a little bit around what are your priorities to support the CEO into the second half of the year? What are the key, most important topics for you?

Thank you. Yeah, José, thanks very much. We have working capital really inside. I told you, We built up basically inventory in anticipation of the higher production in the second half of the year, which we are really confident we can achieve. We see better situation in semi. We don't expect a further lockdown in China from today's perspective. And also the wiring harness situation, which was very critical to the Ukraine war situation. is almost solved with the measures we discussed. First and foremost, the Ukrainian suppliers are delivering, and second, we did retooling and duplication of production. So based on that, we expect higher production, and from a CFO perspective or from a working capital point of view, we must make sure that we get this higher production through the pipeline to our importers, to our dealers, and then to our customers. So we will have a very close eye on ramping, basically, or cleaning then the pipeline until the end of the year to make sure the customers get their cars. In terms of then CapEx, as I said before, we want to keep the CapEx discipline. Yes, there are challenges on CapEx, since we are retooling several plants worldwide to electric vehicles. But as you can see in our figures, we are really proud on our CapEx discipline. Despite all this retooling, we see a very good CapEx discipline so far, and we guide it for a 5% CapEx discipline, which should then also support cash flow. And we don't expect From today's perspective, from change in receivables and other positions, payables, specific situation at the end of the year. So we have the working capital inside to achieve our free cash flow target. In terms of my role as CEO, I must say we haven't really laid out the specificities of that so far. We will talk about that later on this year. potentially after the 1st of September. But what I can tell you, you shouldn't be expected that the focus of the CEO shouldn't be completely different to what my focus so far was as CFO. As CFO, I work basically, or we worked on two topics, financially steering the transformation, building up our brand groups, building up our platforms, ramping up the platforms, financing the transformation first, and then the typical CFO topics, cash flow, working capital, pricing, fixed cost discipline, and we add an additional element to the equation, productivity. So why do I say we add that? Look, in the past, I would say two years, It was really a challenge for our teams in the factory to build the cars. We had shortage of semiconductors. We had shortage of wiring harnesses. And they did really a great job in building the cars under very difficult circumstances. And, of course, they were not like the first focus on productivity. but now with like moving on into a second half and potentially 2023 when production processes are normalized again, we have really a closer look then also on productivity And I'm very much convinced that we can also gain some of the positives from that now better availability in terms of productivity in our plan. So these are the priorities. Transformation, ramping up the strategy, financing transformation, and making sure that our cost position and margin position stays as it is. Thank you very much.

Thank you, Jose. And we are coming to the next question, which is from Daniel Reska from Bernstein. Daniel.

Good morning. Thanks for taking my question. Looks like you have a good second half to look forward to. I'd like to tease out a little bit how you think about potential headwinds in 23. Ano, could you kind of recount in past slowdowns and recessions, kind of what were the early warning signs for the business in past recessions or slowdown scenarios, and what numbers are you looking for kind of right now? I'm sure you've got a dashboard almost on a daily level, so kind of what are the numbers you're looking at to judge the health of demand and the business out there? And then secondly, if the macro situation were to deteriorate, and you already mentioned that you have some confidence given the long order book, but what are the two or three key levers you think you would be able to add to the group next year if you need to mitigate it, if you were to need, if you were to mitigate margin compression for the group kind of next year? What are the key levers you'd be thinking about going into tougher times next year?

Thanks. Of course, I think you understand that it's too early to do an outlook for 2023. That's clear. But of course, we are preparing. And as you rightly said, we are preparing for an environment that becomes more difficult, specifically in the U.S. and Europe. But don't forget, we have a strong China business. And we are ramping up China again. Specifically on the ice situation, we are expecting to come back to old strengths. And we are also ramping up our BV business. So this is an additional stabilization factor, I would say, going into 2023. In terms of early warning signs, yes, I'm in the typical situation. figures we look at, economic outlook, IHS expectations. But, of course, we add our own, basically, set of figures. And as I said before, this is really an important topic for us. We expect to also end up at the end of 2022 with a decent order book. Unfortunately, that means that customers still have to wait. for the cars and we are producing them as fast as possible. But that means that this order book will carry us at least to the first quarters of 2023. Audi has an order book of almost a year and sometimes seven to a year and also Volkswagen and the order book for the BVs is even longer. So that order book will carry us into the year 2023. If it gets really worse, then we will revisit our plans. But look, we think we are well prepared. We showed fixed-cost discipline. We showed capex discipline. From today's perspective, we expect a growing volume in 2023. And you mustn't forget, the whole situation still is in the face of undersupply. So even if demand will slow down, it will take quite a while until that demand and supply will be in balance. And that's even a chance, from my personal point of view, a chance. All the supply chains got out of balance. So if demand and supply would come a little bit closer down, that's also a challenge for global supply chains, getting more in balance, getting more efficient. So as you hear, I'm We realize the challenges for 2023, but we are partially optimistic about our own situation and our own position.

Thanks, Daniel. In summary, I think you're mindful of what's going on in the global economy, sitting on a strong order bank, in particular in Europe. Luckily, in the position that China, that the warning signals actually are only for Europe and for North America, less for the Chinese region. and therefore very mindful also about our fixed cost position. So the next question comes from Horst, Horst Schneider from Bank of America. Horst.

Thank you, Horst. So it's Horst from Bank of America. I have got one larger question, one smaller question. The larger question that relates to your 5% retail sales growth guidance versus the 13% revenue growth guidance. If I just do the math, then The 5% retail sales growth would imply something like 40% sequential volume growth in H2. Whereas the passenger car revenues, if they go by 13%, this would imply 20% sequential revenue growth. So that implies that you expect the revenues per unit to come down more or less significantly. So therefore, I just want to ask if you can maybe explain this discrepancy. And of course, it would be helpful to understand if this strong recovery of what happened already in Q3 of that is more a last minute thing in the fourth quarter. And the second question that's the most simple one I read in a newspaper that maybe this 2.0 software version will not be continued to develop. So therefore, maybe there's a chance that Volkswagen changes from a make approach to a more buy approach when it comes to software. So I don't know, maybe too early this question at this stage. Not sure if you can comment on that already now. Thank you.

Thanks for those two questions, yeah. First, as guided for the sales, for the volume, we are more like at the 5%, so this is more like a risk, and we are a little bit more optimistic on the revenues basically due to the to the better mix we still expect not better than in the first half but still our positive mix we expect despite what I said before we will see some dilution of the mix in terms of regional mix and in terms of product mix But that's true. So when you talk about the 5%, you have to take into consideration that all our Chinese sales by units are not part of our books, but the turnover. So that implies that we are slightly more optimistic in terms of recovery of China, and so that the AAK, we call it the Deliverers to Customers, that are in our books, they are slightly less optimistic there, and only the sales to our customers outside our GVs contribute to the turnover. So this is more like the technical explanation, right?

Can you constrain that, Arno, maybe, that you then give a guidance on retail sales growth ex-China or –

I think when you do run the numbers, actually, you come and exclude China and also take into consideration the slight deterioration of the regional mix. I think then the average price per unit is not that far away, actually, from H1. We think, actually, it's very much in sync. Very happy to guide you through after the call then with the IR team.

That's great. Thank you.

No worries.

Yeah, but on Carriot, this is too early to comment on. As I said before, what we decided on is that the 2.0 will be basically closer developed between Carriot and the Volkswagen team at the very beginning. Not to say that it won't be a group-wide software stack, it will be. And we will constantly revisit our make versus buy. And once we have the new information, we come back to you. But so far, the trends have not changed on the 2.0. They are developed together with Volkswagen. Okay, thank you. As a group-wide platform, to reiterate that.

Thank you, Horst. And we are coming to the next question, which is from Daniel Schwarz. Daniel Schwarz is with Stiefel.

Yes, thank you for taking my question. The first one is on fixed costs. So obviously you made good progress in the first half. Now the IG Metall goes into collective bargain negotiation with 8% demand. I assume from Volkswagen maybe even more. Foxconn is on track for record high earnings, which I'm assuming unions are looking at as well. Do you expect an increase in wage costs around the 8% for 2023? And could you say how many employees would be covered by that? The second question would be a follow-up on the corporate governance. So Oliver Blume showed a slide at the CMD that said that his long-term incentives will be based on the Porsche AG share price. which I think is an important part of the IPO story. Now, in the new setup, will he be paid based on the Volkswagen compensation scheme or Porsche, or will it be a mix? And a very short question. On China, can you say how much incentives do consumers get on average per Volkswagen ICE car and Volkswagen battery electric car in China?

Thank you. So... I'm not 100% sure whether I completely get the first question.

In light of our strong first half year results and their request to increase the wages by 8%, how would we react to that?

Yeah, I think I can comment now on the negotiation between Arthur and IG Metall. I would leave that to my colleague Gunnar Kilian and the team who is taking care of that. What you have to take into mind, we have also a scheme where all the workers, not only in Brandvolkswagen, but throughout Germany, like at Audi and Porsche, and also financial services, they benefit also from the good operational result in terms of a bonus. And all I can say, you have to take these two factors into account when we talk about wage increase. Also, the The question is how temporary is inflation. There's a lot, from our perspective, there's a lot of temporary inflation in terms of energy, in terms of gas. And so it also has to be taken into account what's basically the underlying inflation. But again, I don't want to comment too much on these discussions. In terms of remuneration of the contract of of Oliver Blume. It's 50-50.

50-50, 50% on Volkswagen and 50% on Porsche and the elements are as described in the Capital Markets Day. Daniel.

Okay.

In terms of China, for competitive reasons, we don't really want to comment on individual incentives, on individual brands in regions. But what I can say, and I'm really confident now, that China, now after the lockdowns and with a little bit better supply of semi, really increased their BEV sales significantly. We are on a monthly run rate, not at, but almost at 20,000. And we are quite confident that we can achieve our original target of 160,000 to 200,000 in China from today's perspective.

All right. Thank you. Thank you, Daniel. And we are moving on to the next question, which is from Harald Hendrickse from Morgan Stanley. Harald.

Yeah, thank you, Rolf. Can you hear me?

Loud and clear.

Perfect. Look, as usual, a little bit more conceptual questions from me. Firstly, congratulations. I haven't seen this sort of margin at both sides of the brand for a really, really long time, so it's unusual that we didn't congratulate you, but this is really a really big result. The question, obviously, is the sustainability of that result, and that's exactly what investors are asking. You've already mentioned the mixed situation, and I think we understand that pretty well. What's much more difficult for me to understand is just how strong pricing is and remains, right? The comps in the second half get much tougher. Pricing started to rise last year, obviously, with the lack of inventory. But we have a situation with rising prices that are really, we've never seen this before, you know, ever, right? At least not in my 25 years in the sector. And we've got poorer and poorer consumers. So something has to break. And so what I wanted to see was if you could maybe just talk about how you see that fitting right now, how you see the pricing across the different brands or the brand groups, at least I can understand maybe rich people are more willing to pay up than poor people, but it has to impact on the demand at some stage, doesn't it? So can you just talk about price in much more detail for me and maybe how you see that going into 2023, please?

Thanks for your question. And yeah, pricing. You're right, pricing is strong currently. And pricing has basically two elements. It's really the real price, but also the incentives. And so what really we should achieve, at least at Volkswagen, that we don't go back to the old level of incentives, because incentives is not something a great product or a great brand should apply. We have a great product substance, and what I really... makes me confident that the whole organization learned that we can work very profitably with much less incentives. And we rather more invest in product substance, both of ICE cars and PVs than in incentives again. So we really will stay disciplined on incentives. And on the other hand, don't forget, we have to compensate for significantly higher raw material. It's also something we have to be aware of If you look at our first half of the year, which still benefited from material in our books that was like bought on lower prices since we have the first in, first out element. So there was significant more burden in the second half of the year. We also looked at our overall footprint and you see we don't add really capacity. So we rework capacity from IS to BVs. So that should also help us to have a good a good balance between basically demand and capacity.

Okay, and sorry, just as a quick follow-up, but can you make any comments about regional or brand by brand? I know you're not going to want to say to me exactly what each brand is doing in terms of pricing, but maybe conceptually or how it's trending, because I suspect there are differences between the different parts of the business.

I mean, you see this trend, you see throughout the regions and throughout all the brands. Per brand, basically, the pricing discipline is equally distributed by brands, some even slightly more than others, but it's really a good development throughout all the brands. And in regions, you see specifically, we see specifically low incentives in the U.S., where we see also the huge used car demand and used car prices, but also the intensive discipline is something we see throughout all the regions, North America, South America, Europe, and also China.

Great. Thank you very much.

And, Harald, this should not sound cynical, but luckily, actually, the region where you could be most worried about is where we have the smallest market share at the moment, because we want, obviously, to strengthen our position in the U.S.

I would like, before we go on, I just got a small hint of my colleagues. I think it was with Horst when we discussed the topic of Carriot. And I said, when we talk about make or buy, I don't want you to get my answer wrong. When I talk about make or buy, or when I said we will revisit that, perhaps we have our plan to do at least 50 to 60, even more, percent of our software development in-house at the 2.0. And to do the software 2.0 in-house, that won't change. What we might revisit is 50% or 60% or 70% the right percentage. This is something we will basically have a look at over time, but there's no principal difference. plans for changing make or buy in terms of do we the 2.0 by ourselves. It's actually the other way around. Look at our Pace Corporation. Look at our Qualcomm Corporation. So there won't be a change in terms of really make or buy, but rather perhaps a slight revisiting of what is the right percentage of value add we do in-house by our own people. Just for clarification of that.

Thanks for that clarification, Arno. And we move on now in the queue with Charles. Charles Collicott from Redburn. Charles, please.

Hi. Good morning. Thanks for taking my questions. I've got a couple on EVs, please. So firstly, Arno, I think you said during the Q1 call that the BEV order book in Western Europe was 300,000 units. So I just want to know if that figure has risen in absolute units or fallen. Basically, have you managed to deliver more vehicles than the orders you're receiving now that some of those production bottlenecks have eased? And secondly, you mentioned, and I think you said an additional partner for the MEB platform. So were you referring to someone other than Ford there? And if so, how material might this additional partner be in terms of units for the MEB platform? And secondly, I want to ask about the Scout brand. Can you talk a little bit about your plans for this new brand? I think the first model is due in 2026. How many models would be in the lineup? How much do you expect to invest in that brand? Which of the group's EV architectures will be built on it? Thank you.

Thanks very much for these three questions. I would say It depends on the perspective. When I look from the customer, I must say, unfortunately, our order book of EVs have even increased. This is good news for us because then it takes us even more confidence. But the order intake was higher than we were able to build electric cars, specifically in Europe and also U.S. But we reacted to that, as I said before. We're ramping up now our Empton plant, our third MEB plant. We're ramping up Hannover for the ID bus, and we're ramping up Chattanooga. And so these three capacities will materialize or will come into operation in the third and fourth quarter. So with the ramp-up of these three additional factories – we will be able to basically deliver more EVs and then decrease our order book. Currently, it's much more than like six, eight, nine months. Audi, it's even for an Audi Q4, you have to wait even a year or longer. So this is really a long order book, but we look forward to deliver these cars to our customers because we know they're waiting for them. The Second question was about addition to the MEP platform. I think we can name the partner, the potential partner. It's not finalized yet. It's Mahindra. And we are in very good talks. And that would be a great strategic sign for us. Because what we can imagine, India is, in terms of cost, is a very cost-sensitive market. and we could achieve an agreement there that would be also a good sign for the competitiveness of our MAB platform, both in terms of cost and performance. And Scout Brand, we are in very early discussions on Scout Brand. Yes, it will, we see a ramp up from today's perspective in 2026. There are two models planned. The key model, of course, is a C pickup electric. We now currently look into working modes, how to develop these cars, where to produce these cars. But this is much earlier to say I'm really delighted that Scott took over. He's very experienced and a great guy. I worked closely together with him over years in my role as chairman of Volkswagen Group of America. And, yeah, I'm very happy. very happy about that decision we took on the board. I really look forward to the next steps, but it's too early to communicate. Thank you.

Thank you, Charles. And now we have three on the list to go ahead. So the next one would be Tom. Tom Narayan from RBC, Royal Bank of Canada. Tom.

Yes, thanks. Thanks, Ralph. Tom Ryan, RBC. Quick follow-up to Patrick's question. Just to confirm, Mr. Bloom's dual CEO role is not temporary. It's permanent, correct? And then on gas rationing, I understand you guys have the ability to produce some of your own power supplies. locally, but the issue seems to be more to do with the supply chain. We also heard from another German OEM yesterday some optimism that the German government is working hard to protect industry. Could you just update us on the situation there as it relates to VW? And then lastly, we've been hearing a lot about LFP battery chemistry gaining interest from some large OEMs in the U.S. recently. In light of sourcing issues with nickel and cobalt, could you comment on your ability to switch to LFP and maybe how important you think this chemistry will be for VW? Thank you.

Yeah, thanks, Tom. I can confirm that the position, the both positions Mr. Blumen takes are not temporary. Gas rationing, yeah. You're quite right. We have to decide or distinguish between our own position and supplier. And as you're quite right, supplier is a critical topic. For ourselves, we are in the position that we just were in the process of converting our power unit. How do you say it? power plants to gas. And of course, in the light of the current development, we stopped that and we basically retooled it to parallel the two power units. And we basically are now producing our energy at least for this winter and potentially also for the next winter with this coal again. And you mentioned optimism. Yes, we think there are good plans underway to handle the situation overall for Germany, but there is a risk. And, of course, we take every risk serious, even if it's a small likelihood. Don't forget, we have some experience, unfortunately, gained over the last years in terms of managing situations that are critical in terms of supply. It started with WLTP. We had the COVID situation. We have semiconductor shortage, wiring harness. And so our task force is working on transparency. We talked to thousands of suppliers. We categorized them in terms of What are the regions they are working in? What are the product categories? Is it steel? Is it aluminum? Is it more plastics? But this is more an effort of transparency. From today's perspective, we are also optimistic that we can get through the current situation, the situation of gas. Sorry, LFP chemistry. Yeah, we are very well aware of LFP chemistry. We are aware of the advantages and disadvantages in terms of cost, in terms of capacity, in terms of capacity density, energy density, and then also in terms of range, there are plus and minus. And we think that both chemistries, NMC and iron ore, chemistries will play a significant role in the future and so we prepare for that. Our standard factory Salzgitter already and other factories are prepared for both chemistries and not only the factories but also the package of our cars and the packages of our batteries are designed that we can use both chemistries in the cars and even in the same car. So this gives us flexibility in the dimension you mentioned in terms of cost, in terms of pricing then in front of the customer, in terms of range, but also a very important topic you mentioned in terms of availability of resources since, of course, we are all aware that for an iron-based battery you need different chemistry, specifically cobalt and others you don't need. So we are aware and we prepare for flexibility both in terms of using it in the cars and producing it in the factory.

And I think even with small adaptions, if I'm not completely wrong, we could also adapt to solid state in the future, so giving us even greater flexibility in our power core standard plant. Thanks, Tom, actually, for these excellent questions. The next one comes from Stephen Reitman from Societe Generale. Stephen.

Yes, good morning. I'm looking at your slide number seven about the global rollout of the BEV production, and I was wondering if you could put some numbers on this. Where do you think your installed capacity is going to be at the end of the year in these three regions to give us an idea about potentially what you could be producing in 2023 if, as we hope, your semiconductor shortage situation is significantly eased and other critical components are not so much of an issue? Where do you think it might be in terms of total capacity of the Volkswagen Group? Thank you.

Yes, Stephen, thanks for this question. So on that exhibit, we are looking on this, only the MEP. This is basically the toolkit that was developed for the MEB. On top comes other platforms, the Taycan, for example, and others. So the total capacity we will have installed at the end of the year is about 1.2 million cars. Even if you look at flexibility on shift, it would be even slightly more. And on top of that comes then the capacity of Audi e-tron, of Porsche, and other electric cars we have in China. And basically this capacity ramp-up will then go on so that we are able to achieve our targets of 2023 and then eventually 2025 of at least 20%. So this is our capacity plan now. We are ramping that up.

And can you talk about how quickly the U.S. will ramp up?

I mean, the U.S. is ramping up yet now in the next month. I think they have the first pilot cars up there already. Actually, I've been last week. I've been at the Chattanooga factory, and we had a look at the first cars, and they look really great. So they are ramping up. Actually, I think they start this week. So, but yeah, this will be basically 100,000 plus capacity in Chattanooga for the first step. Then additional to that, there will be imported cars that comes from Europe, cars that are not localized. And as I said before, we look onto additional potentials to localize even more electric cars in the region. We talked about Scout, which will be clearly a great next step. in 2026, huge segment. But as I said before, we look into a different opportunities, but that is too early to tell on concrete projects. We will come back to you as soon as we decide it on.

Thank you. If I could just ask an additional question, please. Clearly, you've made it very clear how Carrier is going forward with its software development. I'm just wondering, are there any ways you think that Carrier can improve maybe its communication externally because at the moment obviously what we read is more what is leaked in the German press and how can you think the Volkswagen Group and Carrier sort of get better control of the narrative about how things are developing within the business?

We take your comment and believe us we have that in mind. We have to improve on both sides. I think the decisions taken are a step forward and now we We take your comment. Perhaps I will hand over.

Nicole, do you want to comment on that? Head of group communications, I guess it's also true for investor relations. I think, yes, this is part of the leadership changes now as well. I think communications will improve also when it comes to uncontrolled leakages. So, yes, it's a step in the right direction and more to come. Thank you.

Thank you, Stephen. Very reassuring message, I would say. So coming to the last one in the investor and analyst queue, Richard Carson from Credit Suisse, last but not least, right?

Thank you very much, guys, for squeezing me in. I just want to know if you could talk a little bit about the strength of Finco. That was a very strong number you put up in 2Q. I know your guidance implies a softer back half. I just wonder what you guys are seeing there. I know that you are seeing a lot of confidence or having confidence because of your backlog. But are you seeing anything different from your Finco customers that might be a little bit more worrisome?

Yeah, you're quite right. I think the Finco business is quite strong, and I would distinguish two factors. The one is there are extraordinary effects which you're aware of. As long as the new cars are scared, we see better residual values on the cars. We see higher used car prices, and, of course, our Finco benefits from that. But as you were, basically, we also lifted our midterm guidance for Finco significantly because they are also very well underway. They do a great job in consolidating business worldwide. They invest heavily in IT architecture. have their fixed costs also inside. Basically, they grow contracts without growing the amount of workforce, so there are also efficiencies in that. And also the advantages of refinancing is also something that helps us on our Finco versus competition. So it's basically, I would say, a combination of very good and competent work done by the team and an extraordinary effect that will basically normalize once supply is higher in the industry, once residual values will more normalize. And this is how I see our Finco business.

Richard, I hope this has answered your question.

Yes, thank you.

Thank you. So we are now at the end of the investor and analyst session. Let me briefly summarize actually what we have outlined from big picture again. So underlying operating profit improved sequentially in the second quarter with margins being greater than 10% if we back out the hedging effects. The performance was broad-based, means that all of our brand groups contributed. Cash flow development reassuring. We can rely on a strong balance sheet and high net liquidity. We are confident on the second half. We see revenues increasing, but would also be confident with regards to our operating profit guiding for the upper end of our margin range. And we are mindful of 2023 in light of the slowing global economic activity. With that, I conclude the investor and analyst call. We are doing now a small break, and then we continue with the media Q&A. Thank you very much.

Ladies and gentlemen, as a reminder to ask a question, please press star 1 on your telephone keypad.

So good morning from my side as well. I already made a brief comment during the analyst call, but good morning. Nicole Momsen, head of global communications. And we are starting now, as Rolf mentioned in the early call, with the media Q&A. And the first question comes from Monica from Bloomberg. Good morning, Monica.

Good morning, Nicole. Thanks for taking my question. I have sort of two questions. One, I would like to start off by focusing on battery cells. I'm wondering if Volkswagen can detail what the company has done to secure battery cells in the short term for its EV transformation before its battery facilities are up and running. And then maybe to reiterate, I know we heard a bit from Herr Antlitz this morning about the guidance from Volkswagen Brands

obviously Trayton and Volkswagen brand are raising their guidance on operating return on sales for the year and I'm wondering why the group is keeping its guidance the same if you could sort of give a quick response on that thank you yeah thanks very much for these two questions Monica first you're quite right our own capacity if you allow me this comment kicks in basically 2025 and beyond with the first cell factory up and running then in then the next will be in Spain, and then more to come in Eastern Europe and potentially other regions. Until then, the battery supply we need for our ramp-up of our 2025 target of 20%, is secured by partners we acquired already, we have contacts with already, both in Europe and in US and in China. So our own battery capacity kicks in then. And also to mention that, also beyond 2025, we will keep these additional, these current partners, so it's more like a dual sourcing strategy than planned from today's perspective, because battery capacity and the secure and efficient supply of battery capacity will be key to the transformation of the whole industry. And also the ability to ramp up our business, uh, will depend on, on the ability to, to ramp up battery. This is why we think we have such a huge competitive advantage with, with, with our power. Um, and, and yeah, the guidance, we, we, we had smaller guidance, guidance changes, um, Volkswagen group, then, then also, um, on the FinCo, we increased our guidance slightly. On the other hand, we turned the guidance down on Trayton. I think overall, we see the situation, as I said before. We're now at the upper end from our total group guidance, 7% to 8.5%. So giving you confidence that we end at the upper end is then also a small increase in guidance, basically, on group level, and that's reflecting both the good first half of the year and the confidence that some of our units, specifically also Brandt Volkswagen, will perform better than planned.

Thanks. And just one more follow-up question. I'm wondering if you could provide some color or details on supply chain comments so far and things sort of improving, maybe why you see things improving or how.

Supply chains are improving. We had three major issues in the supply chain. One, of course, this terrible war in the Ukraine with the effects on supply of wiring harness. The second, a more underlying structural undersupply of semi, which started basically already last year, which we see still at least until like summer. And then the third one, obviously, COVID measures in China. And I don't want to talk too long, but perhaps quickly, if I go through these three topics, the war in the Ukraine, unfortunately, is still going on with the human tragedy. But the supply of wiring harness still goes on. So this is really great achievement of our local suppliers there. They produce, I would say, at least in two shifts. And the additional capacity we need, we secured by relocating and doubling up of capacity and installing that capacity in other regions, for example, North Africa or Eastern Europe. So, basically, from today's perspective, the wire and harness topics is under control. Supply chain. of chips. We discussed that already. We see easing of the shortage in the second half of the year, although the undersupply, from our perspective, will at least stay until 2023, perhaps even beyond, but from today's perspective, until 2023. We improved there several measures. First and We have to take into account that a lot of these chips are not from our direct suppliers, but from parts that are Tier 3, Tier 4. So we started with transparency. We negotiated long-term contracts with foundries. And we also reworked some of the semiconductors that are scarce. So we basically take other semiconductors for the same part. That takes quite a while in our industry because we have to make sure that the parts work well. But all these measures kick in now, and together with the increase of capacity, will help us from the second year onwards. And COVID China, you're very well aware of the huge improvements there. And from today's perspective, we don't think that we see a major lockdown, but this is obviously something we can control. So basically, these were the three factors. And I mentioned the measures on the three factors, and they make us confident that we can really ramp up our production and also our sales in the second half of the year to achieve our plus 5% target on sales versus last year.

Thanks so much.

Thank you, Monica. And then the next question comes from Joe Miller at the FT. Good morning, Joe.

Good morning. Can you hear me?

Very well.

Oh, marvelous. Thanks very much for taking my question. It's quite a straightforward one recently. It's quite a straightforward one. I wonder if you could help me explain to our readers what strategy changes, if any, will be implemented by the new leadership, and if there aren't any strategy changes, why there is new leadership. I heard you talk, Arno, about Cariad in the analyst call, and I thought I detected a change in strategy there, but you appeared to row back on that, so I wonder if you could clarify. Thank you.

Joe, look, the whole team has the same view of the developments of our industry in the future. Look, today, we earn basically our money with combustion engine cars. The total market is $2 trillion, and that will change significantly. In 2020-30, there will be three profit pools. One is still basically The combustion engine, 50%, but then 50%, the revenues will come from BEVs, and the third revenue period will emerge based on software-based business. And so you see that Porsche is well underway in that direction. Electrification of Porsche works very well. Volkswagen is underway. The whole group is underway. So the total picture where the industry is heading and what we need to do, is pretty clear. There will be continuity. We will strengthen robustness of our business. And also in terms of what we talked later on, what won't change is our view on the importance of having the software in our own hands. In 2030, there will be a significant revenue pool comes from software-based business. And it's important for us that we have that business in our hand, that we have the data in our hand, and that we can participate on that software-based business, which will be a key pillar in 2020-2030, both in terms of autonomous driving, mobility and transport as a service, and also in terms of, like, Level 3, Level 4. So basically we share the same picture. The whole team shares the same picture. So you could expect great continuity there.

And just to clarify, I hinted at earlier, is communication strategy going to change? Is that one of the things we can expect?

I hand this question over to Nicole.

Joe, no, I don't think. The question earlier was on leaks around Carriot and the media coverage we saw, and I think what we can say is that we are all and the entire board and all the other stakeholders are looking for sort of a calmer communications environment and we'll all contribute to that. But that's sort of – there's not going to be a fundamental change in our communication strategy.

Thank you very much.

And then the next question comes from Jan at IFP. Good morning, Jan.

Hi, good morning. I hope I can be heard well. I had two questions. The first one would be on gas. Looking forward, if the supply becomes a problem, what type of reduction can you live with? We've heard from other industries, they can live with 50% of supply. What type of production supply can you live with to continue operating as normal as possible? And are you already implementing some gas consumption reductions in the paint shops, et cetera? And my second question is on software and the MEP platform. You said you were looking at adding another partner to the MEP platform. And I was wondering what part the software plays in that, because the MEP platform is obviously a fully-fledged product. It's working. It can be sold online. and the software is perhaps lagging a bit behind that. So how is the software in the discussion where you're looking for partners for MEB?

Yeah, Jan, thanks for the two questions. I think, as we discussed already, it's... We also look in our operation into potential reductions, and there is really a mid-double-digit percentage we can do ourselves, both in terms of reducing the consumption of natural gas, and also, as I said before, reducing or resubstituting our gas plant back to coal. So these are the measures there, and the It's too early to tell you percentage-wise when it comes to a shortage, what were the effects by percentage. Of course, we do that math internally, and we also look at the supplier pace. But as you're aware, we need, of course, we need the supplier, we need the parts. So this is more a task that has to be done throughout the whole supplier network. We look at our situation. We hope we are quite robust. It depends a little bit on the difference plant by plant and region by region. But this is the things I can tell you. I said before we have a task force in place that look into that topic very, very carefully and well prepared. Yeah, software, this is really a great and detailed question. You are quite right. If you talk about our first partner, Ford, for this using our platform and that platform is then comes with also the software so also carry it basically together with that the platform is providing the at least the back end and part parts of the software and basically the stack in terms of a potential different partner like Mahindra there are two directions either Mahindra takes the whole platform including the software stack all parts of the platform. This is in negotiation and in discussion yet. But, yes, you're right. We are open for sharing our MAB as a platform to third party, including the key software stack within the MAB, which is the 1.1, which then would be external revenue for carriers as well.

And just to follow up, would you be open to sharing the MEB kind of hardware and someone to add like Android Auto on top of it, or is that something that you exclude?

Can you repeat the question?

I was wondering if there is a way you see if someone wants the MEB platform with just the basic minimum software and wants to put its own software or Android on it, if that's an option that you exclude or not.

No, it depends. So what we can say is you could either take basically models of the MAP, which are really powerful, electric engines, battery, and so that basically then goes forward. Basically, these are pure models, hardware models. Basically, we've come with the key software. Of course, you have to have battery software that's steering the battery or the whole platform. But then, basically, if you take the whole platform, then it's basically a software stack is coming with that. So the third option you just mentioned, I don't think that it's a viable option.

Thank you.

Thanks, Jan. And then the next question comes from Frank at Automobilwoche.

Good morning, Frank. Volkswagen wants to invest additional money and get new additional experts on board to speed up the development of the software 1.2 and 2.0. We heard about 3 billion euros additional money for carrier, 2,700 additional IT experts. Can you confirm that? And how will this affect your results? Because 3 billion euros extra is quite... a huge figure, I think. Another question, on the ID4 in production in the US, you told that the capacity will be 100,000 per year of the ID4 in Chattanooga. When will you reach this target? I think not this year, obviously, probably not next year because it was told that it will be 7,000 per month by the end of the year, which will not end up with 100,000 annually in 2023? And will you go on export cars from Germany to the US? ID4 cars, of course. And how many will still come from Europe? And perhaps the last short question, if you can comment on that, on the plans of the German government to reduce... incentives for electric cars by next year and for especially plug-in hybrids are you worried about that that the demand will slow down because of that thank you thanks very much a lot of questions um yeah carried the the basic

path I laid out already. I want to reiterate that software is an important pillar of our strategy. It's one of our platforms and we are constantly adding capacity and also talent and know-how, both in terms of organic growth And also in terms of we acquire smaller companies in order to enlarge our competency. So this will go on. I don't want to really comment on the figures you just said, the additional investments per year. But what I can say, our longer-term target, which we set out in summer last year, that doesn't change based on the latest discussions. ID4 in the U.S., yeah, they are ramping up now. So if you talk about 7,000 a month, that's basically not 100,000, but that's close to 100,000. And that means that we will achieve 100,000 sometime. I'm not 100% sure, but the 7,000, I think this is a market figure for U.S., And Chattanooga will also produce cars for Canada. So if you combine US and Canada, that's basically the 100,000. And we should achieve the 100,000 capacity peak next year. They are only produced for US and Canada because already from today's perspective, we see that we are limited on capacity rather than have overcapacity to export it to other regions. And in addition to that, there will be export from Europe, other brands, Taycan, great success, e-tron, e-tron Sportback, Q4 e-tron for Audi will be introduced in the US, but will come from Zwickau. And there are potentially other cars also from brand Volkswagen, from Empton, which will be exported to Europe. to the US so we are really committed to ramp up our BEV operation there actually we think to make a little more general statement today we have not such a high market share in the US but we think it's a unique opportunity for Volkswagen because in the BEV segments everybody starts from scratch and that is the opportunity for us to grow our share to grow our our business there because we have a great toolkit. We have a lot of competence in electric cars. We were only on. And we want to use that moment, that one-of-a-kind moment for us in the U.S. to significantly increase our footprint there. And at the end of the day, until 2030, up to 10%. And we really will make sure that we use that opportunity for us. Last but not least, yes, we are aware of the latest announcement, but what I can say is, yes, it's a political compromise. It may not fulfill all wishes, but it satisfies us, and we don't change our plans, or our plans doesn't change based on the latest announcements on the subsidies on electric cars and plug-in hybrids.

Does that answer your questions, Frank? Seems like it. Then the next question comes from Neil and Mac from Reuters.

Hello. Can you hear me?

Very well. Thank you.

Yeah, great, great. Thank you very much. So two questions. One, you were asked by one of the analysts earlier about how Mr. Blumer will manage sort of hypothetical conflicts being both CEOs of Volkswagen and Porsche. I mean, clearly this issue has raised a lot of concerns with investors and there was even a survey earlier this week suggesting that something like 41% of investors were not particularly keen on the idea of actually going ahead with the current structure. But my question then, can you give any more sort of color or details on how those potential conflicts will be handled or addressed because nobody is accusing you of deliberately having such conflicts but can you just give any more detail on how that will be addressed and then the second question is just again regarding gas and I'm sorry if I have to make you repeat yourself a bit because you talked earlier before about switching to coal and reducing usage but can you give any color on how you would expect a Russian gas shutoff to affect your volume, revenue, and profitability. Is it just a European problem? Does it become a global problem? What kind of downside scenarios are you thinking about?

Thanks. Yeah. You're right, we discussed it earlier on, and We are very aware of the topic, but I want to start with that the double role is also a chance. In fact, as I said before, there are a lot of decisions that are absolutely aligned. For example, the Porsche IPO is in the best interest of both companies. It will give Porsche more internal freedom, and it will help us to finance and give us flexibility to finance our ambitious transformation. So we have also a track record in brand group combination, synchronizing expertise and the strategic dimensions of that role. And we will consistently drive the transformation forward in terms of specifically how we manage it if there might avoid a potential conflict in a certain situation. As I said before, we will handle that. And then Mr. Blumen will then basically only decide to be on the Porsche AG side. But we expect very few of these situations. And we will handle that with great care. And we are very well convinced that there are much more chances in the current situation. And then the double role is much more an advantage in going forward.

So, sorry, so when you said he will only be on the Porsche AG side, you mean if there was a situation that required, that would have different impacts on both Porsche and AG, he would only vote on the Porsche AG side of it, he would abstain from the VW vote? Is that what that means, or...?

and backed on a very established and very precise process with excellent legal advisors, so we will make 100% sure that in very few occasions where this might occur, that they are really handled properly. The guest? Sorry, there was the Russian guest. Also, as I said before, from today's perspective we are still optimistic that our government together with all authorities and also with our help and all the help of all the, I would say all the people in Germany and Europe will get through the situation. We all do our best to reduce our gas consumption and so we think from today's perspective we can get through the situation but As always, as a good company with a good risk management, we manage this risk, we look at the risk, we run different scenarios, and we prepare for that scenario. Not only ourselves, we basically send letters out to thousands of our suppliers, categorize them, and try to find out what their position is. In very critical circumstances, we even think of duplicating processes On the other hand, we are a global company. Look, don't forget we are strong in China, we are strong in the U.S., so there are also possibilities in reshuffling if something would really happen. But from today's perspective, we are optimistic then that we can get through the situation, the critical situation later this year from today's perspective.

Neil, does that answer your question?

Yes, thank you.

Thank you. Then I don't see any other questions journalists asking in the line right now. I'm going to give you another 30 seconds if you still have a question. Otherwise, we are also available, both the IR team and the comms team, all day, obviously, for questions and answers. No, so there don't seem to be any more questions at this point. I hope those of you who are still going on vacation will enjoy their summer vacation, and I'm looking forward and we are looking forward to working with you after the summer break again. Thank you. Bye-bye.

Thanks very much. Bye-bye. Also from my side. And from my side as well.