Volkswagen Ag Unsp/Adr

Good morning, everybody, and a warm welcome to our Q3 conference call. I'm Sebastian Rudolph. I'm heading global group communications, and this time this is a joint call with media and with investors and analysts, and that's why two nice colleagues are with me. Rolf Woller, our head of treasury and IR for the investors and analysts, and Nicole, as you all know, for the media team, our head of With us today are two important persons, our CEO, Oliver Blume, and our CFO, Arno Antlitz. Welcome to you as well. And before we start, I want to make some housekeeping remarks. First, we have already published and you should already receive the press release, the interim report for the first nine months. and all other PR-related materials. If not, you can find them on our media and investor relations website or give us a call and we send them the material directly. Let me give you a brief run-through of the next 90 minutes. First, all of our will talk to you about the highlights of the first nine months and the third quarter. He will also outline the current and upcoming challenges and foremost his strategic approach to tackle them. After that, Arno will take a closer look at the financials and then we will host a Q&A session like described with investors and analysts community and after a short break with the media. And with this, I hand over to Oliver. The floor is yours.

Yeah, thanks, Sebastian. Good morning, ladies and gentlemen. I'm excited to be here with you today for the first time as Volkswagen Group CEO. And thanks to you for joining us and taking the time. Despite numerous global changes, we achieved a lot with solid financial results. Overall, Volkswagen Group's operating results before special items in the first nine months increased to 17.5 billion, reflecting an operating margin of 8.6%. In quarter three, the operating result increased to 4.3 billion, corresponding to a margin of 6%. The performance was burdened by non-recurrent items, totally 1.6 billion euros. The underlying margin came in at around 8%. Our recovery in China continues to accelerate with a 26% increase in deliveries in Q3 and 33% increase in deliveries only in September. The Porsche IPO has demonstrated the continued strength of our brands and the opportunity of realizing their full potential across the Volkswagen Group. Arno will talk in detail about the last quarter shortly, but first I want to talk about my leadership priorities. I want to build on our recent success using the five leadership principles I applied at Porsche and I've been rolling out across the whole group. The Volkswagen brands are among the most important criteria for customers buying our products. We will be positioning and sharpening our brands better. And I've seen the great work from colleagues across the different brands when I visited the sites of Volkswagen, Seat and Cupra, Skoda and Audi within my first weeks. I personally was impressed by the great team spirit, brand strategy, and the individual design language. Our products start with a clear strategy, a design focused on brand identity, product identities, and above all, quality. When I visited the major brands, I asked for status quo reports per brand to define the current gap versus benchmark, particularly in terms of user interface. We will not compromise on quality or user experience ever. I'm very focused on people working together, helping each other, and winning together. Culture plays a big role. To live it every day. being role model, and that starts with me personally. So too does entrepreneurship. Innovation combined with engineering excellence is a bedrock of what Volkswagen does. We intend to drive this even more going forward. And last but not least, sustainability. For me, the biggest challenge of our generation is to leave behind a better planet for future generations. As one of the world's largest automobile companies, we will ensure we take a global approach to help solving the environmental challenges with which confront us. There are several challenges that the automobile industry currently faces. First of all, there are worrying geopolitical developments, particularly the rise of nationalism and protectionism. This includes growing barriers to technology transfer between East and West. Challenges to our supply chains will become the rule, not the exception. In order to set up our supply chains more resiliently, we founded a separate organizational unit. This organization will provide the Volkswagen Group with relevant risk and strategy information and analyzes potential risks in advance to identify threats to the supply security. We want to be in a position to deal with different possible risk scenarios at any time and avoid having long lead times for preparation. At the same time, the speed of technological change is transforming our industry. In markets like China, we are competing with new BEV-only entrants to the industry that are appealing to young people, the country's future drivers. That means when it comes to software, autonomous driving, but also the performance range and charging times of our cars, we must accelerate our transformation. I have no doubt that Volkswagen will successfully meet all of these challenges from a position of strength, and we will work hard to continuously show proof points along the way. This is due to our financial resilience scale, great products that millions of people across the world aspire to buy. We know we have the opportunities and the means to win. I have introduced a 10-point program outlining our key priorities for the next few months. This is about executing our new auto strategy, which we strongly believe is the right framework to accelerate our ambitions. To do so, I will be critical to speed up the implementation of my 10-point program. And that's the advantage when I started at Volkswagen, that I was involved during the last years very deeply in the situation of Volkswagen, and I was able to start from the beginning. And now I would like to lead you a bit through the top 10 program that you understand what is behind. First of all, it starts with our planning round to focus on increasing our financial resilience to give a very clear KPI framework for the brands, and focusing on our product range. Then it comes overall to our products, starting with a clear product strategy. Then it comes to design, having a clear profile for brand identity, for product identity. Then the technology strategy, having a long jump when it comes to a new product, comparing to the competition. Then we already started a speed quality initiative. And at the end, what is very important are the product returns on the financial level. Talking about the regions, China plays a big role. And there it's up to us to have the right China product strategy when it comes to production. profit pools, customer profiles of our brands, because everything is about the customer perspective. And then having the right product, talking about technologies and the content we are offering to our customers. North America plays a big role being flexible in our global footprint, and therefore also the product portfolio and cycle plans plays a big role. It is about localization of our issues in the U.S., planning to continue with our Chattanooga plant, where we are ramping up currently the ID4. And what we already published is a new approach with the brand Scout, where we will tackle the pickup business. Coming to the software issue, and this one was discussed a lot during the last session, And I think what is very important to look ahead and making a redesign of Carriot, focusing on the core competencies for the future, having clear where we have the interfaces with the brands and what partnering do we want to have. And I think when there are existing solutions in the market, it's not necessary to design and develop them by our own, to working together with strong partners. And then it's up to us to optimize our processes, tools, and the organization of the carrier. And we already kicked up this process, and this afternoon we will come to the first decisions. Then it comes to technology, our platforms for the future, and the profiles we do have with the technological footprint. It will be about the platform allocations and the product mapping in between the brands with a big opportunity we do have with the scale effects in between the Volkswagen Group. Important for the ramp-up of our strong battery and electrification strategy is the deployment planning of our battery plants and supported with our charging strategy and a clear implementation plan. And beside of this, more important than ever, is a clear energy strategy. Mobility services play a big role for us as a global company, and we announced that we bought Europcar as a new partner for our mobility services for Volkswagen, and there we kicked off a restructuring program. This top 10 point is about development of our mobility platform and at the end of consolidation of mobility activities. And as we announced, also when it comes to autonomous driving, we ordained our roadmap. We announced a partnership with Horizon Robotics in China. We will continue to develop level 4 driving with Bosch for the other regions of the world And we are in good decisions and talks with another partner approaching with level 2++ and level C driving all over the world. And on the other side, we decided not to invest ever more in Argo. And that's like in a transformation. Years ago, we started with different approaches, and now it's up to us to order our roadmap. Sustainability plays a big role for us and in our strategy, and I personally stand for sustainability as you know it with the sustainability footprint of Porsche. For us, it's important to have clear KPIs for all our brands and regions and then establish an AESG program for all the brands and brand groups of our group and having the right footprint and being measured in our progress of our sustainability approaches. And last but not least, and this is what my experience of the last month, is being focused on the capital markets, having clear analysis of the levers to increase the value of the group. And when you see the big success of the Porsche IPO for us, this is a role model and looking only to the last four weeks, the shares increased over 20%. And that shows the potential we do have in our brands. And therefore, I established and kicked off a virtual equity story for all brands to unleash the full potential. And this will lead to a complete equity story for the Volkswagen Group, where we will plan a capital markets day in the next year. presenting you how we want to lift up the value for the whole group. All this shows that we are ready to accelerate our group transformation with a relentless focus on product quality and shareholder value. I will continue to update you on the progress we have made and provide further details about my specific priority in due course. With this, I will hand over to my colleague Arno to run you through our quarter three results in greater detail. Thanks for listening.

Good morning and welcome everyone to today's nine-month combined investor analyst and media call. Thank you, Oliver, for the introduction and brief overview. Now let's change to the financials and the operative business. Before getting into details of our finances, we should not forget to mention that the war in Ukraine is lasting now for 246 days and that our thoughts and wishes are with the people in the Ukraine. Within the next 20 minutes, I will take you through the major milestones we have achieved in Q3. In summary, Our supply of semiconductors has somewhat improved and COVID impacts have at least temporarily reduced. We see, as expected, a significant higher impact from material costs, including energy costs. At the same time, disruptions in supply chains prevail, but are carefully managed. We delivered solid nine-month results with an operating profit before special items of 17.5 billion euros, corresponding to an operating margin of 8.6%, slightly ahead of our full-year target, and showing the robustness of our business model. The premium and sport brand groups continued on their strong path. Volume brand group was a little weaker, reflecting the regular seasonal pattern and impact of semiconductor shortages. Non-recurring costs related to the Porsche IPO and impacts from the revaluation of certain parts of our activities in Russia, burdened the result in the third quarter by around €1.6 billion. Before these effects, the underlying margin in Q3 was above 8% for the Volkswagen Group. At the end of September, we ended a new era by successfully listing Porsche HG on the stock market. This was the largest IPO in Europe in terms of market capitalization, an achievement we are very proud of, specifically in the current environment. PowerCore and Umicore established a joint venture for European battery materials production at the end of September, and we are in the process of realigning our mobility as a service and transport as a service activities. Going forward, Volkswagen Commercial Vehicles has decided to cooperate with a different partner to develop a self-driving system. Therefore, Volkswagen will not continue to invest in Argo, and is withdrawing as a shareholder. This decision led to a non-cash impairment of €1.9 billion in Q3, shown in our financial result. I'm aware that the gas issue is on top of your minds, so let's spend a few moments right away on this topic. We are effectively managing the gas supply situation and have put a group-wide task force in place. Effective countermeasures have been implemented in our German and Eastern Europe plants, like switching fuel to coal and oil, reducing energy consumption by reducing heating. We have also stocked up on selected critical parts to buffer production, and we see a low risk of any production stops in the winter period of 2022-2023, assuming average temperatures. Let's have a brief look at our unit sales in Q3. Our deliveries included favorable pricing and low incentives. July and August were weaker due to the typical summer holiday seasonality, with September improving to a run rate of around 750,000 units a month. We recorded a significant increase in deliveries in China as the COVID shutdowns were gradually lifted and the government stimulus kicked in. Order Bank in Western Europe remains on a high level, that will stretch well into the first half of next year. Vehicle sales for Volkswagen Group came in at over 6 million units in the nine-month period, around 220,000 units less than the prior year, caused by ongoing limited vehicle availability. Despite lower sales, sales revenues amounted to €203 billion, including €7.6 billion from the consolidation of Navistar and up 9% from the comparable period. The operating result before special items came in at 17.5 billion euro, the operating margin stands at 8.6%. Operating result for Q3 came in at 4.3 billion euro, corresponding to an operating margin of 6%. This clearly looks underwhelming at the first glance. However, as mentioned earlier, the underlying margin without the cumulated non-recurring items of €1.7 billion for Russian impact and the Porsche IPO costs was about 8.3%. This solid result demonstrates the continued robustness of our group in a challenging environment. In Q3, we had a negative effect of €0.1 billion from fair value measurements on hedging instruments outside hedge accounting. Our financial result came in at minus 0.1 billion euro in the nine-month period. Our interest results improved significantly year on year due to the positive effects from discounting of long-term provisions based on higher interest rates. As mentioned earlier, we made a non-cash impairment of 1.9 billion euro in Q3, reflecting our withdrawal from Argo. Reported net cash flow came in at €5.6 billion. Clean net cash flow amounted to €9.2 billion. The difference relates to diesel payouts of €950 million and M&A outflows of €2.6 billion, thereof €1.7 billion related to the Europe car settlement in Q2. Working capital is burdened by higher inventories due mainly to the ongoing supply disruptions with a significant increase in unfinished goods, especially in Q3. Currently, about 150,000 unfinished vehicles are waiting to be completed and finally delivered to our customers soon. The Volkswagen Automotive Net Liquidity stood at a robust €31.6 billion, an increase compared with €26.7 billion at the end of 2021 and at the end of Q2. It's not including the proceeds from the Porsche IPO, which will be booked in Q4 2022. Now, coming to the performance of our divisions, passenger cars delivered a solid 12.1 billion euro operating result and a margin of 8.8% before special items. Our commercial vehicles came in at 1 billion euro and a margin of 3.4%. The financial services division continued with their strong performance also in Q3 and recorded a cumulative profit of 4.2 billion euro. Moving to our passenger car Abbott Bridge, the strong result before special items of €12.1 billion for the passenger car business was mainly driven by a positive mix effect from well-equipped cars and favorable pricing. The bucket exchange rates and derivatives turned year-on-year into a small burden of €0.3 billion. Product costs deteriorated further to €-3.7 billion due to increasing raw material costs. The position fixed cost and others had a negative effect of minus 1.8 million euro from higher R&D, non-recurring Russian impairments, Porsche IPO costs and other effects, while our fixed cost program continuously contributed to the resilience of our business. After special items, the result came in at around 11.7 billion euro, including a minus 0.4 billion euro for diesel related Looking briefly at the brand group reporting within the passenger car business, the volume group came in with an operating result of 3.7 billion euro. The cumulative margin for the nine-month period amounted to 4.6%. The margin of volume group decreased in Q3 to 3.8%, mainly as a result of summer seasonality and planned shutdowns during the holiday season. Brand Volkswagen reported came in at a cumulative margin of 4.7%, positive mix in pricing, and good performance of the regions North and South America had a positive impact, while increased raw material costs burdened the result. Skoda's margin at 5.6% year-to-date, which is a decent performance as they are continuing to consolidate our Russian business. Our premium group came in with a very solid operating result of €6.3 billion and a margin of 14% for the first nine months, benefiting both from strong mix and pricing, positive forest effects, as well as positive effects from derivatives. The demand for well-equipped vehicles remains strong, and the order bank is well-filled. Lamborghini and Bentley performed extremely strong. Synergies within the premium group are clearly materializing. Porsche is well underway with 221,000 units sold in the first nine months, showing an impressive return on sales of 19.4% in its automotive business. The result was mainly driven by improved pricing, better product mix, and positive forex. Net cash flow continued to be solid and totaled to 3.3 billion euro in the first nine-month period. The average price per vehicle remains at 110,000 euros per car, up 10% versus prior year. Carrier sales revenue improved driven by license revenues with brand groups reflecting the ramp-up of our MAB cars. The negative operating result and cash flow reflect the ongoing ramp-up of our business. Volkswagen will significantly strengthen its regional development expertise for autonomous driving in China through the joint venture between Carriot and Horizon Robotics recently announced. Coming now to our commercial vehicle business, trade and unit sales are up 11% supported by Navistar consolidation. The operating result came in at nearly €1 billion for the first nine-month period with an operating margin of 3.4%. We saw a significant impact on operating results from supply shortages, higher costs for raw materials and production stops at MAN, as well as impairments related to the disposal of sales business of Russia of a communicated €0.2 billion. Net cash flow was impacted mainly by payments related to legal proceedings, 1.4 billion euro, and working capital movements. Our financial services contributed to deliver strong results and reported an operating result of 4.2 billion euro. The Q3 operating result was burdened by impairments related to financial services business in Russia of around 0.5 billion euro. Contracts remained stable while used car business positively contributed. Looking at our JV business in China, Q3 improved significantly, driven by improved chip availability and boosted by the governance stimulus. However, the quarter still was impacted by heatwave and regional COVID resurgences. The proportionate operating profit of our JV business in Q3 came in at 1.2 billion euros, driven by pent-up sales. We continue to thrive in 2022 for a higher Chinese proportionate operating profit than in 2021. depending on the further development of the pandemic and semiconductor supply. Let's come to the outlook for 2022. And to make it short, we confirm outlook from H1 in major material aspect. However, we now expect our deliveries to customer to come in on similar level as prior year. This is mainly due to limitations in our production driven by the supply chain constraints. Revenues are expected to reach the upper end of the range, between 8 and 13%, due to the continued positive mix effect and pricing. We remain confident to end up at the upper end of our margin guidance, between 7% and 8.5%. Reported net cash flow is expected to stay at the same level as in 2021. However, this depends on the ability to transport and deliver the Q4 production to customers and also on the timely completion of processing and settling of the corresponding invoices. We are determined to reduce stocks as much as possible by year-end. However, this will be challenging since we are holding a buffer of critical parts and expect a certain amount of nearly completed vehicles awaiting specific semiconductors also at the end of the year. Ladies and gentlemen, We are focused on the financial steering of the transformation. Let me give you a brief glance on where we stand on some of these topics at the end of nine months. In Q3, we sold 149,000 BEVs, reflecting a total share of 6.8%. Our year-to-date share is now 6%. Especially in Western Europe, we continue to hold a strong order bank above 350,000 vehicles. Fave Group continues to hold the number one position in Europe, Demand for ID.5 is above our expectations, and ID.Bus shows great customer response for both cargo and people variants. In China, the Q3 e-tron was also well-received. In China, we are currently at 113,000 BEV units and still see our year-over-year target of up to 180,000 units in reach. Reflecting the continuous increase in BEV deliveries in Q3, we have our 7% to 8% full-year targets firmly in sight. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 our overhead cost program. We achieved our 2023 target of minus 10% cut in overhead costs already in 2021. So far, we are able to largely compensate inflation on the fixed cost side. However, there are first evidence that fixed costs are surpassing prior years level, driven by higher energy prices. To compensate for that, we will intensify our efforts. Synergy and capital deployment and synergies across brands stay on our top priority. In the first nine months, the R&D expenditures within the automotive division increased to €13.8 billion due to significant development activities for future BEV models and software technologies within Carriot. At the same time, the group spent around €7.2 billion on CapEx. CapEx ratio is at 4.3%. with the retooling of the MAB in our Empton plant, Hannover, and Chattanooga being one of the major drivers, increasing worldwide MAB capacity to close to 1.5 million cars in 2023. Further CapEx expenditure in Q4 can be expected relating to our new Audi plant in China and for a new electric platform PPE at Audi at Porsche. Our forecast for R&D as percentage of sales is at 8%, while we now expect our CapEx ratio to be around This shows clearly our focus to compensate for higher R&D for BEVs and our software stacks with CapEx discipline. With the Porsche IPO, we pursued a successful and at the same time one of the largest IPOs in Europe in a challenging environment. Looking at the proceeds from the Porsche IPO according to the exemplary deal value in total, we will receive a gross proceeds of €19.5 billion Our shareholders will participate via a special dividend of €9.6 billion. It is planned to be paid out at the start of January 2023 based on the resolution of the Extraordinary General Meeting, which will be held on coming December 16th. Funds of more than €9 billion that will stay with us will play a vital role in financing the acceleration of the transformation, in particular in supporting the development of our own battery business within PowerCore. We expect a safe and sufficient supply and efficient supply of batteries to be a key differentiator in our industry. PowerCo will be a key decisive competitive advantage in the future and will make a significant positive contribution to our business. Ladies and gentlemen, 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 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 so far. BEV sales are significantly up year on year, and we are inside of our share overall sales target for the full year. The joint venture between Carrot and Horizon Robotics to develop ARAS demonstrates a further step in software strategy. China for China, the partnership between PowerCore and Bumicor further enables our BEV strategy and our realignment of mass tasks will allow us to optimize our development of solutions for autonomous driving. We have achieved strong operating results across all brand groups and our financial services business despite tough conditions. Based on a very sound balance sheet and a robust net liquidity position, we continue to transform Volkswagen So it's electrification and digitalization. Keep focusing on integrity and ESG and continue our path of decarbonization for a planet worth living on. Ladies and gentlemen, I'm aware that you're anticipating an event in Q4 as part of our regular reporting that would usually cover five-year planning round. After careful consideration, we have decided not to hold this event in November. we are facing a different economic reality than in the time when we set up the framework and assumptions for the planning round. This has to be reflected in our plans, which takes a little bit more time. We will for sure give you an update by March 2023 during the annual press conference and in detail in our capital markets day in Q2 next year at the latest. Thank you for taking the time and listening so far, and now we are very much looking forward to answering your questions.

Thank you, Arno. And now we are opening up the question and answer session to our investors and analysts. In order to raise a question, you must press star followed by one. And I think I see the first question coming in here from Tim from Deutsche Bank. Tim, please go ahead.

Yeah, good morning. It's Tim from Deutsche Bank. Thank you, Rolf. Thank you, Oliver. Thank you, Arno. I would have two questions, please. The first one is, Oliver, we're generally hearing a lot from you about independence of the brands, potential equity stories, IPO drills, all of them. At the same time, obviously, group holding like yours only really makes sense when you can read synergies out of those products that customers will directly see. How do you intend to balance the independency versus the synergies? Where do you see the biggest synergies? And in particular, on the software side, you were actually heading for a lot of independency in your previous role as Porsche CEO. Is that still the case? And then secondly, when we think about the BEVs, arguably, in particular on the mass market side, they are not very impressive versus the competitive offering. Hyundai has the 800-volt charging infrastructure. The Chinese peers put a lot more tech into these vehicles. Do you believe you need to step up your game there substantially? Can you do that in the current cost structure, or does Arno need to find money elsewhere? Thank you.

Okay, may I start? Tim, thanks for your questions. First of all, to explain a bit what is my idea to steer the group. At the end, our customers are focused very much on brands, and our brands have got the biggest priority. And there's in between brand autonomy and synergies in between the group. Our group has got the responsibility to manage the synergies in between the brands and giving a KPI framework. What is our expectation as an investor for the brands? And therefore, organizing synergies, it's all about platforms. We have scale effects more than any other automotive company in the world with a scale effect in between our brands. And therefore, we have a very special platform program I mentioned before in my speech. And when it comes to software, we have the unique opportunity to share software platforms. Once they are being ready, it's easy to copy from one product to the other, and that's the responsibility of the group to manage it. When it comes to our brands, it is important to have a clear footprint in terms of design when it comes to brand identity, product identities, but also the financial footprint. And therefore, that was my experience of the last month with the Porsche IPO. is building a virtual equity story for all brands, focusing on the right things, having a clear strategy, which is also attractive for the capital market. And so I think we have exactly the right balance in between the steering model from the group and empowering our brands with entrepreneurship. And at the end, exciting our customers, what is the most important issue. Coming to your second question about our BEV footprint and therefore I established with my top ten program also a technology initiative which is focused on our platforms but also on the technology footprint and therefore we have a clear analysis where is our competition today where will be our competition in five years, and then to leverage what we have to do in our different platforms to have the right positioning for the future. And I'm very confident having started this process and with the experience we do have in our brands, we will be able to do so. And the expectations of the customers in the different regions of the world And therefore, we need to offer the different ecosystems for our customers in the Western and the Eastern world. And when you look at China, the expectation, especially from the younger customers, is totally different. They are very technology-focused. And so we will have there also the right approach together with my colleague, Raph Branstetter, in China. We know what we have to do. We are very confident that we will be able to do so and counting on our experience in the whole group.

And do you believe you can achieve these improvements with the budget you have set yourself so far, or do you feel there is a need to spend more money?

Yeah, that's about us, and that's a big advantage. We do have other scale effects. And with an intelligent platform strategy where we share our technologies in between the brands, we will come to a positive cost structure. And we have already shown it in the last years, in the crisis years. When you look at the corona year, at the semiconductor year, and this year we are faced with several crises, still corona issues, supply chain issues, and geopolitical crisis. We are coming of a position of strength, and we will be able to do so, and benefiting from our very positive scale position.

Thank you.

Thank you, Tim.

Tim, I would like to do One more aspect, or add one more aspect to that topic. If you look at the BV sales, we mustn't forget that we are heavily supply constrained. We sit on the order bank in Europe only of 350,000 BVs. That shows the huge success of the MAB cars in Europe and also the great customer response and the product substance. And if you look at, for example, the response to the ID bus or other cars, so they are very well received in the market.

Thank you, Tim. Looking at the list, the next one is Patrick Hummel from UBS. Patrick, please go ahead.

Yes, thank you. It's Patrick from UBS. First question for Oliver, please, regarding your comment about the virtual equity stories that your brands will be elaborating. Looking at the Porsche IPO, it's been hugely successful for Porsche AG, and congratulations, by the way. but looking at VW share price, it hasn't really helped. On the contrary, you now have an even larger sum of the parts discount in the Volkswagen shares. So I wonder when it comes to elaborating these virtual equity stories, do you also think about different ways of crystallizing the value, for example, via spin-offs rather than minority IPOs? Any thoughts on that would be appreciated. And the second question, I'm not sure if that's for Oliver or for Arno, I'm a bit confused by the order of We hear also from your organization order intake has been slowing in Europe. We hear from dealers that the situation in Europe looks pretty difficult these days, including cancellations. So could you maybe just comment on the development of the order bank? Where do we stand at the end of the third quarter versus the end of the second quarter? Thank you.

Yeah, Patrick, thanks for your questions. I would like to start with your first question, and then I hand over to Arno, coming to the virtual equity stories. And that was my learning effect from the last month preparing the Porsche IPO. Coming from the investor's perspective, with all these questions from an external, it brings you to a situation to focus more, to unleash the potential of your brand. and that was a big part of the success story of the Porsche IPO. And then I came to the idea, why not start a process with virtual equity stories to sharpen the profile of each of our brands? And coming to your comment that the value of the whole Volkswagen group hasn't yet benefited from the Porsche valuation. But I think the Porsche IPO shows the potential we do have. In Volkswagen Group, we still have a conglomeration discount. And I think when we will be able, with the virtual equity stories, to crystallize more the value of the whole brand and then decide where is potential for the future, maybe to bring other units to capital market. It isn't decided yet, but we are coming to a preparing process where the capital market will also benefit. And I think On the one hand side, it is a good exercise to improve the profitability of each brand. And on the other side, to crystallize the real value of Volkswagen Group. And so I think the Porsche IPO was a perfect role model and the effect in the market we can see right now. that the development during the last four weeks only was over 20% of the shares of the Porsche in difficult market conditions. And so I'm very confident that we will go this path with all the other brands and at the end to improve the value of the whole group. And it is a positive signal for the capital markets.

Patrick, I come back to your question on the auto bank and on the situation. Look, as I said before, in a huge auto bank, it's about six months in Europe, and the six months equals to 1.9 million cars. And if you ask for the development, it's really difficult to judge because from today's perspective, we don't have really a significant change in auto entry. There are some slight decreases in auto entry, but look, some of the cars are really sold out not only for 2022, but, for example, the Q4 e-tron has basically a pipeline of 18 months. So, of course, if you basically have so long lead times, they are like first customers who say, look, this is rather long. On the other hand, not even all the channels are fully open because, I mean, it's pretty clear and you would support that. in a time where we don't have enough savings and enough capacity, we would concentrate on the more like profitable channels. So for the time being, we are not worried about order bank or order entry so far.

Thank you both. Thank you, Patrick. And moving to the next question, Jose from JP Morgan. Please go ahead.

Thank you very much. Good morning, everyone. It's Jose from JV Morgan. A couple of questions, please. Oliver, how do you think about Carriot strategically for this year and for the coming years? On one hand, we've got a substantial negative earnings contribution in the P&L to the extent of setting the profitability generated across some of the brands. On the other hand, it is vital and strategic for the group. So can you just help us understand a bit better whether you're planning to reduce the losses maybe in the coming quarters? What was your thinking here, especially also in the light of the other announcements we've seen on software and autonomous cars across your competitors? And second, Arnold, can you speak a little bit around the pluses and minuses when we think about the fourth quarter versus the third quarter? What are the positives and key negatives we should think about in the light of your confidence to hit the upper end of your margin range guidance for 2022? Thank you.

Jose, may I start with your first question about Carriot? First of all, it was the completely right decision to go for a own operating system for the Volkswagen group, only thinking about the scale effects we do have in between our group. to ramp up a company like this cost efforts. That's very clear all over the world, also in other industries. And we are tackling the problems, and it's not a secret. It was discussed a lot in the media about the issues we do have in Carriot, and now we are looking ahead what we have to do. And therefore, I started an initiative from my first day on in Volkswagen Group to focus on the core competencies of Carriot on the one hand side to define very clearly the interfaces we do have in between Carriot and the brands to optimize them and then to build a clear partnering profile for the different generations of software in Carriot. Beside of this, We are close to finish a clear picture. What content do we want to connect with which generation of software? What will be the starting time for which generation? And then we build and rebuild our cycle plans with this approach. And beside of this, we already started optimizing processes in between carriers, optimizing tools, and organization. And now we are in the middle of this optimization process. We continue to invest heavily in software, and we will have the scale effect once we are able to make the application to the product. And we will be in the market in 2024 with the first product with the software generation 1.2 and developing this generation even further for a lot of other products coming in this decade and a further step. will be the 2.0 generation, especially prepared well for the autonomous driving issue when it comes to level 4 driving. Both generations are perfectly prepared for the market. I personally have driven the cars from Audi and from Porsche with the software generation 1.2, and I'm very confident that we are hitting in the middle of the market and our customer needs. And so we will improve step-by-step by Carriot and having the right footprint for Carriot for the future. And then I hand over to Arno to your second question.

Jose, talking about the fourth quarter, and let's start with what you've said already. We are quite confident that we can end at the upper end of our margin guidance. I think it's best to describe the fourth quarter in terms of our EBIT bridge. Look, the first bucket, volume price mix, it clearly will be a positive from the volume side. And we plan to keep on our current path in terms of mix and pricing. We have a great track record there so far. And we want to keep that path. There might be a slight deterioration in terms of country mix. Once we have more cars available throughout the world, we also want to sell some more cars than in, for example, Brazil or other countries. But in general, pricing discipline and mixed discipline will stay volume positive. We don't expect major changes on the currency side and derivatives. We expect from today's perspective a significant higher burden on the material cost and the product cost side. You're aware we communicated a minus $3.7 billion product cost so far. You shouldn't be surprised if that goes up to $6 billion for the full year. And there is also a slightly higher burden on the fixed cost side, specifically due to energy and other topics. But, again, there will be a significant positive effect on the volume side. You can see that on the run rate already in the end of Q3 and also in We see the run rate already in October, and we will make our, like, we will continue our path on the fixed cost side and cost discipline. So overall, despite the headwind on product cost, we are quite confident. Not in the Abbott Bridge, of course, is our FinCo, but there we see also clearly positive signs that I think they guided so far the result of $5 billion in We shouldn't be expected. It shouldn't be a surprise if that goes more like to five and a half and beyond.

Thank you.

Thank you, Jose. And we move on to Horst Schneider from Bank of America. Horst, please go ahead.

Yeah, thank you for taking the question from Bank of America. Maybe first of all, a question for Oliver. when you talk about your future strategy in an interview, you've said that you want to stress strength of product and by strength of product, you want to gain back market share. That sounds to me a little bit like a volume strategy that you want to run with less focus on cost. Gaining back market share, that takes, of course, time because model developments take time. So what you intend to do in an environment where distribution is getting maybe more recessionary would you be prepared to step up the cost cutting? And in that context, again, I know that you have got your CMB only in 2023, but can you at least confirm all targets that have been set for your predecessors before? For Arno, a question on full-year guidance again, and I want to hook up to the question that Jose has asked. When I do the calculations, then basically your revenues should go up by something like, I don't know, at least 5 billion quarter-on-quarter, 15% year-on-year. You made last year into four a 9% clean operating margin. You guys now implied for just eight despite your revenues are strongly up year-on-year. I understand the calculation about the product cost, But don't you think that your Q4, implied Q4 guidance is still rather conservative? If it's not conservative, doesn't that mean as well that you have got a cost problem because the cost at the moment increased much more than you originally planned? Thank you.

Yeah, Horst, I would like to start with your product question. And products are the focus of our company. And therefore, very clearly, Products are one part of my top ten program. This starts with the right product strategy, then the design approach to sharpen the profile of each brand with brand identity and product identities, then having the right level of technology. and the quality profile, which we already kicked off, and that at the end coming to the financial profit margin of our products, and they're having the right footprint for each of our brands. That's the content, how we are driving this process. And it's not about only focusing on volume and think very clearly my priorities. First priority is profit margin. The second one is operating profit. Then the third one is sales revenue. And on the fourth level is coming volume. And that shows you how we are focused. And talking about the cost situation of our product, we are in good conditions because of our scale effects, benefiting from our platform strategy. And so we think with the right shape of our platform strategy and product strategy at the end, focused on profit margins, we will prepare the group for future success. And then handing over to Arno.

Oliver, you confirmed all targets for 2023 and 2025. Sorry for that.

What targets are you talking about? The profit margin for the group or operating?

I'm talking about all targets, but specifically, of course, for the profit margin targets, the 7% to 9% in 2023 and 8% to 9% in 2025.

Yeah, we will... comment you about the profit margins in our annual press conference. What we can say for this year, that would be in the upper part of the range, and would be 7.8% of profit margin. And what is very clear, listening to my strategy, very focused on profit margins, that I will go for more potential for the future. but it's too early to predict. We will do so in the annual press conference, how we will build our path, and therefore, Arno said, with all the activities we are doing right now and with all the situation we have faced all around Volkswagen, we will present all the details of our planning rounds in the spring of next year.

Okay, thank you.

I was coming back to the question. Really, all I can say is we are rather confident to achieve the margin guidance between 7% and 8.5% at the upper end. And I also gave you basically an indication already on the headwind on material costs. But I also must say, look, given the difficult environment so far, we really showed robust results. We work on the fixed cost side, and we will continue on that path. So let's leave it like that, but rest assured that we do everything to run our business also in the fourth quarter, and we are confident to end at the upper end of the guidance. Whether it's conservative or not, I don't want to comment on that right now.

Okay, thank you.

Thank you, Horst. And we are moving on to the next question from Philippe from Jefferies. Philippe, please go ahead.

Yes, good morning. Thank you, Rolf. Philippe Boucher at Jefferies. I have two questions, maybe the first one for Oliver and then for Arno. Oliver, on this decision to exit the Argo AI, I mean, unlike Ford, which is exiting this four, level four, level five ambitions, you are committed to it. and you seem to be choosing two different partners, which I fully understand, Horizon for China and Bosch for the rest of the world. I'm just trying to understand how much duplication of technology is required to address different market requirements, or how much synergy there is going to be between what you're doing with Bosch and what you're doing with Horizon. Still trying to and understand are we kind of doubling down on spending, or are we getting an attractive level of synergy between the two approaches, considering two different partners. And my second question for Arnaud is, as you know, Volvo Cars has started to disclose the gross margin of their BEVs versus ICE, and there was quite a deterioration in the third quarter, which they explained with a significant increase in costs, particularly related to EVs and batteries. And I'm just wondering if you can comment on any change in cost trends for you on your bad activities that might positively or negatively impact your margins. Thank you.

Philipp, to your first question about ARGO or the whole roadmap for autonomous driving, we kicked off several initiatives years ago, and that's normal in a period of transformation. when the technology isn't clear to go for different approaches. And now it's up to me to order our roadmap and to focus. And focus also means speed. And therefore, now we decided a very clear footprint on the one hand side to build a joint venture together with Horizon Robotics in China to continue with Bosch and to have quick approaches for level 2++ and level 3 driving with another partner. And so I think we are very focused to the different approaches, and therefore we decided not to invest more into Argo. Talking about why different approaches in between the regions, that has a lot to do with regulations for the future we are expecting. especially when it comes to higher automotive driving levels like level 3 and level 4. From the technology perspective, it's everything the same. But how to use maps when it comes to legal regulations depends. we need different approaches. And so we think we are well-ordered in between a Western approach together with Bosch, an Eastern approach together with Horizon Technologies, and the third partner, we are already in a concept phase to add to this concept. And what we have learned during the last years, we are now very confident that having taken the right decisions for our autonomous driving activities. And then coming back to Arno.

Yeah, in terms of margin PVs versus ICE, of course there's always like the concept of margin parity, when will we achieve it, and what are the specific circumstances right now. And, of course, we are all aware that basically specifically raw material prices for batteries went up, On the other hand, nickel was stabilized, and we see the lithium price. So, yes, they are like post pressures for the BEVs currently. But the question is more for us, how would the material price evolve in the future, and what is the strategy on BEVs in the long term? And there you know that we embark on a strategy to ramp up our own battery business. not only in terms of production capacity, but also in terms of engagement along the value chain upstream, in terms of materials, in terms of cashless materials, in terms of mining. And we see this is absolutely the right approach. On the other hand, there's a second effect we mustn't underestimate. BEVs are just ramping up. As said before, we have now a capacity in place for about 1.5 million euros MEBs next year alone. On top come the other cars from PPE and Audi and Porsche. So there will be a significant positive scale effect in the BEVs as well. Customer demand is very high. specifically for our current BEVs. Customers ask for well-equipped cars for the bigger batteries. So these are basically the effects. And we still work on, of course, on the concept of margin parity, which depends on raw material prices, of course. But I would say the specificities of the Q3, Q4, or Q2, Q3 we just mentioned in terms of Volvo, had very much to do with like the terrible war and the current supply chain topics as well.

Thank you both.

Thank you. Thank you, Philippe. And looking here a little bit at the time, the next question would come from Daniel. And if we could stick to the two questions, principal would be greatly appreciated. Daniel, please go ahead.

Yes. Thank you. Thank you very much. Daniel Schwarz from Stiefel. I had a follow-up question on the Porsche IPO. In case the valuation gap remains between Porsche and Volkswagen, so that Porsche is worth more than Volkswagen Group as a whole, will you consider selling more Porsche shares in the long term and pay off the proceeds as dividends after the lock-up? And the second one is a follow-up on the planning round. Just to understand, is that postponed due to the macro uncertainties or because you still work on the long-term strategy and priorities? I understand you will update the long-term targets only next year. However, the 15 billion free cash flow target, can that still be valid when you say you will spend the 10 billion proceeds from the Porsche IPO on top of the spending that you had in mind for the Porsche IPO? Thank you.

Yeah, first of all, coming to your comment about the Porsche IPO and thanks that also the market response was so positive on the Porsche IPO. And that shows the potential we do have with our brands in Volkswagen Group. There isn't planned right now to bring more shares to the market. The only thing is that we want to use Porsche as a role model, also going into the business cases of the other brands and to unleash the full potential of our brands. And then handing over to Arno with the planning round issue.

In terms of the planning round, first and foremost, let me really There's nothing to worry about that we postpone this event. It's just like, look, we have a rather long planning cycle. And when we started the planning with our assumptions, that was even before the terrible war in the Ukraine broke out. In the meantime, we see basically economic situation versus inflation situation. and all these effects have to be taken into account. It takes a little bit of time, but rest assured, we work on our resilience, and we showed great resilience over the last years, much more resilience than we had in the past, and we will continue on that resilience. And we take that time to reflect what are the current macroeconomic outlooks, what are the cost topics, and how to compensate for that and how to deal with that. And, again, nothing to worry about. And we, of course, stick at least to our strategic targets we gave out a year ago for 2025 and 2026. Thank you.

Thank you, Daniel. Moving on, the next one is Stephen Reitman from Societe Generale. Stephen, please go ahead.

Yes, good morning. I have two questions, first of all. On the decision to exit Argo AI, some of us were at a presentation with Volkswagen, gave on the eve of the Munich, also showed the IA back in September last year, where Argo was presenting with Herbert Diess, your predecessor. The decision to exit Argo AI, does this represent now a more faster decision-making process, I think, under your leadership? Under your leadership, let's say you're looking at now more closely at the returns on some of these businesses and making sort of like faster decisions about things like this and what these gains from the Argo AI and the cooperation in terms of what will still go on and will be kept in terms of IP. Second question, you mentioned about having different products or different markets for the different customer tastes. But it seems that, for example, the Apple iPhone is liked all around the world. And a lot of the new cars, whether it be Tesla or whether it's some of the Chinese BEVs coming out, are often described as iPhones on wheels. Do you think looking at the present products you have on the BEV range, particularly I'm talking about the ID family, do you think more has to be done and can be done at the maybe mid-year facelift stage or does it have to wait for the next generation products before we see a more tech-visible, tech-heavy approach on these kind of products, maybe in terms of screens and obviously we discussed carryout as well? Thank you.

Yes, Stephen, thanks for your questions. First of all, decision process. And as you know me from Porsche, I'm about to take decisions. And we have a clear plan behind of our 10-point program when we want to take what decisions. And up to the end of the year, for all these 10 points, I have a clear schedule. This afternoon, we will take the first decisions when it comes to platforms and to software. And the same for all the other topics. And then what we are building right now is a plan for the next year already. with milestones, clear goals for all these initiatives, and to take decisions. Because in the period of transformation, it's all about speed. And that is what you can expect from me. Talking about the product footprint, we have standards for our products, like Apple does, as you mentioned. It starts with brand identities. It comes over to product identities to make the differentiations between the different products. And then what you need, especially when it comes to software, to fulfill the expectations of the regional customers. Also developing regional solutions with regional partners, for regional customers and that is what we are doing in the eastern and in the western world while at the same time keeping on our product standards, qualities and technology issues. Coming to the ID family, that was a very first approach to come with the ID family very early into the market because we decided very early to switch our strategy from combustion engines to electrification. And We know what we have to do from the technology aspect, especially when it comes to the product updates for the ID, talking about charging times, talking about range, talking about the software offers. And so we will invest also for the upcoming updates for the ID family as we invest for the other products. Also, I'm looking to Porsche, for example, that we will bring – at the end of next year being in the market in 2020 for updates for the Taycan, which was one of the first competitive electric cars in the market. And that's the transformation we are driving right now.

Thank you. Thank you, Stephen. And given the time, we have to come to the last questioner, Charles from Redburn. Please go ahead. Hi.

Thanks for taking my questions. Actually, I've just got one on China. So obviously you had a very strong Q3 result, but there has been a noticeable slowdown for the overall industry in October. Some of your major competitors have obviously cut prices. Could you comment on how Q4 has started for VW and how you see the outlook going into next year?

As all competitors, as around the world, we were so far heavily supply constrained in China, not only by semiconductors, but also by the COVID measures from China. Now the stimulus program kicked in, and we remain overall confident for China, both in terms of total market and recovering of market share, and also in terms of our proportionate operative result, which is rather important for us, also in terms of of proceeds we get via dividends. You saw already that we surpassed the 2021 level, and we are quite confident that we can also improve there significantly and come back to old strength there. In terms of what we will have a look at, what we already said is in terms of ICE versus BV, We will work on further competitiveness on our BVs, and there we are rather really happy that we could communicate the joint venture of working together with Horizon Robotics, which will give us a significant boost also in driving assistance function and local software capabilities for our BVs in China.

Thanks. Thanks, Charles. So this concludes now the investor and analyst question and answer session. Thank you very much, Olli. Thank you very much, Arno. for the detailed answers. I want to make you aware, before I hand over back to my colleague Sebastian, that we have on December 16th the extraordinary general meeting. Important for dividend entitlement is the same date, so December 16th, and the first ex-dividend price quotation will be on December 19th. I know it's very technical, but important for investors to note. And then the dividend payment date is foreseen for January 9th. If there is anything unanswered, anything unclear, please give us a call here in Wolfsburg. The team is very happy to take any questions which are not answered yet. Thanks for keeping us employed, and I hand it back to Sebastian.

Thanks, Rolf. And now we will make a small break. In three minutes, we'll be back, and all media, all journalists can stay in this call in three minutes, and then we start the Q&A session. Looking forward to it, and bye-bye.

Okay, thank you very much. Thanks for the patience and the short break. We are continuing with the media Q&A. My name is Nicole Mamsen. I'll moderate the Q&A sessions, and we'll start with the AFP.

Thank you. What do you think about the European deal of yesterday night to ban combustion and giant cars by 2035? Also, I had a second question. I wanted to know if you're worried about the political climate worsening between China and Germany. Thank you.

Yeah, may I start? Oliver speaking with the decision of the EU not to allow more engines with CO2 pollution for up to 2035. We have a strong electrification strategy and we will be prepared for this decision. In the meantime, for us, it's important to be flexible in the period of transformation because the different regions of the world are moving with a different speed towards transformation. And so from our perspective, we will be prepared. All our brands are prepared. And we are not worrying about this. OK. Yeah, and the relationship in between China and Germany, China is a strong market for Volkswagen with successful decades in the past. We have strong partnerships in China. We are focusing on our values in China, focusing on our true customers in China, and continuing to offer exciting products to our fan base in China. But on the other side, also, we are looking to the geopolitical situation, and therefore it is important for our business having a robust financial situation and being flexible with our global footprint in terms of being able to react on geopolitical crisis.

Thank you. Thanks for your question. The next question comes from Patricia from the Financial Times.

Good morning. I have two questions. I'm wondering about the quite abrupt unwinding of Argo AI. Can you help contextualize this? How far back will it take Volkswagen and its autonomous driving ambitions in the West? And I also have a sort of China-related question. You spoke about worrying obstacles in the transfer of tech between East and West. Can you give a bit more detail as to what the risks are here and what this means to Volkswagen? Thank you.

Yes, Patricia. First of all, to the AU issue, we started the initiatives for autonomous driving years ago. And it is in a transformation period important to leverage which technology is the right one. And therefore, now it's up to us to order our roadmap. We have already experienced which technological approach will be the right one. And therefore, we decided on the one hand side to continue our partnership together with Bosch and more for the Western world and to open a joint venture with Chinese partner Horizon to be prepared for the Chinese autonomous driving market. In the meantime, we are in a concept phase with another partner for quick approaches for Level 2++ and Level 3. And so it's more to focus our roadmap on autonomous driving. We believe that... it will be very important for the future mobility sector to have the right offer for our customers. And therefore, we will still have offers for individual mobility, but also offers for public mobility when it comes especially for level four driving, like we do it already with Moya. talking about the different ecosystems in between the eastern and the western world. We are already faced to the situations, and for us it's important to develop our products always, first of all, from the customer perspective, and our customers expect in their cars the ecosystems they are using in their software devices and their mobile phones. And there, the situation comparing, for example, North America, Europe with China is different. And therefore, it's up to us to develop regional solutions for regional customers together with regional partners to be adapted very closely to the customers' needs.

Thanks, Patricia. And then we have Bill Boston from the Wall Street Journal. Bill, go ahead.

I hope you can hear me. Thanks for taking my question. I also wanted to follow up a bit on the software. There are a couple of questions. One is, this seems like the first time that you've actually broken out figures for Cariad. And It shows up as a loss, a significant loss. And I'm just wondering, why are you showing that since the only revenue is between companies, right? It's within the group. So I'm just wondering, is this a real figure that belongs in the profit and loss accounts, or is this just some kind of internal accounting? And, you know, what is the significance of this number? Because if it's showing that in the future there will be revenue, I mean, when is Carrier going to then show a profit and where is that revenue going to come from? That's one question. The other is Oliver's discussion of in how the software strategy is changing to include more external partners, but at the same time, reaffirming the company's commitment to developing its own operating system. So I'm wondering, what has really changed in your software strategy? Are you open to bringing in external partners for the kind of the internal part of that software that in the past the company has said, This has to be a VW territory. No one can be in here to get our data or be able to control systems that we should be controlling ourselves. Thank you.

Bill, may I start first with a technical issue? And that was totally the right decision to go for a own operating system for the Volkswagen Group, which should be an open operating system being able to connect solutions from partners. We think that it is important to have the Volkswagen software footprint and benefiting from the scale effects we do have in our brands with over 10 million cars a year. And the positive aspect of software is you can copy it once being ready. And therefore, it was right. And now we are on a point to focus. to define very clearly which are, with our experience from the last years, which will be our core competencies of Carriot, interfaces in between group and Carriot, and then picking the right partners and defining very clearly the level of integration into our open source systems. And coming to the investment question, it's like in other products where we are investing but carry it as a own company. And then I hand over to Arno to explain it a bit more.

Yeah, Bill, coming to the way we set it up, first and foremost, as Oliver said, we really think having the own software in our own hands is a clear competitive advantage. And I don't want to add on what Oliver already said on the strategy. In terms of how we organize that, We organize all the key platforms in the same way that means like Carat is a separate entity, a standalone entity, because we think in this respect we can manage it much better. They have its own culture, its own processes, how to run a software company. They are slightly different to how you run a car company. And this is why we set up an own company, which is more agile, and has own reporting and in order to be better able to capture the synergies throughout the group. In terms of business model and why is that shown and why is it negative? We think it helps much more to understand our performance in the group and the business case is as follows. Carriot does all the upfront investment in terms of R&D, developing our software stacks, so it's natural that they have a loss at the beginning because they get the revenues in terms of a license fee car by car so since we have a lot of upfront investments so far but only the mab cars pay a license fee there will be a phase with losses but eventually that phase of losses will then turn into a significant positive later on So, yes, it's only internal, but it's real basically transfer pricing, and there are clear business plans behind that. So it is basically due to the upfront investment of the carrier that there's a loss, and there will be some more years' losses. But then that's basically as planned, and it will turn to a significant positive in a certain amount of time.

Thanks, Bill. Then we have Monika from Bloomberg News. Monika, go ahead.

Great. Thank you so much, and thanks for taking our calls today. The first question I wanted to ask was on this planning round. You said that the economic outlook has sort of shifted. Can you maybe detail which aspect of the economic outlook is the most concerning for Volkswagen Group overall and needing more time? And then the other question that I wanted to ask is if you could give a regional outlook for car demand. Mercedes earlier reduced expectations for the U.S. and Europe. And I'm wondering what's your view across your luxury and mass market brands and whether or not mass market new orders are weakening?

Yeah. Look, technically, we have a rather long history. And there are several aspects that go into our planning as prerequisite. For example, what are the total markets? What are inflation expectations, interest expectations, and also economic outlooks? And basically, these are the effects. There are other effects, for example, wage inflation, also material cost increase, and more importantly, raw material and energy prices. So as you're aware... All these factors have changed since the terrible war in the Ukraine broke out in February, March, and then it took quite some while until to be able to fully quantify these effects. But in the time being, we basically moved on with our planning cycle and not all of these aspects were reflected fully. And now we have to come up with a plan how to best compensate for these effects. in order to meet our targets, all our targets, as I said before. And this takes a little bit of time, and as I said before, nothing to worry about, but rather we need a little bit more time for that to compensate in terms of, for example, more productivity in terms of fixed cost discipline, in terms of perhaps also price steps in the future. If you look specifically in terms of what do we expect for the total market next year. Look, we don't want to give a guidance today. We will give the guidance in our earnings call next year and then in our capital market stay, as Oliver posted that already. But there are still a lot of institutes that expect a growth of the total industry today. And why is that the case? Yes, the economic outlook has worsened. But on the other hand, you must understand the whole industry today is significantly restricted by supply constraints. So if we would not have the semi-shortage and other supply constraints, the market would be much higher. So this is the reason why, although the economic outlook worsened, we still expect from today's perspective growth. a market that is next year growing, not by double digit, that's for sure, but we still expect a growing market next year from today's perspective.

Then we have Jan Schwarz from Reuters. Jan, go ahead.

Yeah, thank you. Can you hear me? Yeah, very well. Okay, great. So I would like to come back to the capital markets day next year. You speak about these virtual equity stories earlier already in an interview, but will you be in the position then to, let's say, present names saying, okay, this or the other brand would be? would be, yeah, could go to the, could go to the, have an IPO in the next time. How concrete would you be on this?

Yeah, talking about the virtual equity stories, the idea behind was also coming from the experience I was able to to take during the last month with the Porsche IPO is to unleash the full potential of all our brands and that is an exercise to focus on the right things, to sharpen the strategy, to have a clear company footprint when it comes to sustainability, for example, and We see this more as an exercise to also increase the profitability of each brand. And at the end, we will use this exercise for the Capital Markets Day for Volkswagen Group 4 for the next year. We haven't decided for another upcoming IPO. We see Porsche IPO as a role model. but we have to work step by step in the brands, in the entities, and so it's only an exercise. What we will do during this equity story in the single brand, we will assume this for the brand groups, and what we will present in the Capital Markets Day is a situation in the brand groups and how they will support the evaluation of the whole group.

Thank you. And then we have Christiane Miskens from Frankfurter Allgemeine Zeitung.

Hello?

We can hear you.

Okay, thank you. My question is on Carriot. You said you will have a meeting this afternoon about Carriot, so maybe you can explain a little bit about that. What will you decide about? Will you clear up what will be the starting time for each platform in the models already? or what will be the topic. And the second question is, is this in any way connected to cancel the planning round? I mean, Carat is connected to each and every model that will come to the market. So does this play any role in the decision concerning the planning round?

Yeah, we have a very tough schedule taking decisions. And I stand for decisions. for all of the program I kicked off beginning of September. And this afternoon, that's right, we will have one step of taking decisions. It's nothing to publish. It's internal. And it will have an impact also on cycle plans and product planning. That is very clear. It's the first step of all in the roadmap on the level of software, but also we will talk about platforms. And during the next weeks, we will have other decision points. And I have got a very clear plan what we have to decide up to the end of the year, while we build already a plan for the next year with clear goals and clear milestones and decision points. Going public with decisions at the end, we will consider when we have a complete picture there, we can show where to go, but it's still too early to go out. It's more an internal process how we take decisions.

Thank you. And then the next question comes from Stefan Menzel from Handelsblatt.

Hello, good morning. Can you hear me? Does it work?

We can hear you.

Okay, that's fine. Good morning again. Just more technical question about the playing around, maybe a question for Arno. Normally, in November, we've got a special supervisory board meeting, and after that, a press conference and so on. So nothing, does it mean what you said about the playing around for next spring, that nothing will take place this November?

Mr. Wenzel I said before we need some more time to reflect what has changed in the economic environment and also what Oliver just said in terms of cycle plan and so we will decide then next year and the results of that we will communicate then early as possible potentially in the earnings call we will give an outlook and then in details we will present all the strategy and the sum of the virtual equity stories in a capital markets day, which we're planning for Q2.

Okay, thanks a lot.

And we have the next question from Henning Kolk. Henning, please go ahead.

Ahoy from the Moya City, Hamburg. Mr. Blume, the topic planning round is the number one within your 10 points plan for the VW Group. Now, having this in mind, what is standing at the very top of your personal management agenda for the fourth quarter of the current year? As mentioned, in a clear connection with planning round. Mr. Antlitz, you are in charge of finance for quite some time now and have taken over the function of VW Group's chief operating officer. Which new tasks did that bring along for you? Please give some examples and which part of your additional function turned out to be the most demanding so far. Thank you.

Let me start with planning around. Playing around is one of my top ten points and that's all about increasing the financial robustness of our business and therefore we are focusing on the product range for each brand, focusing on the scale effects in between the platforms and then having an adaption of the volume targets. We will take We will define very clear KPI frameworks for the brands, and that is the work we have to do during the next weeks. And talking about the KPI framework, for me it's important that we as Volkswagen Group acting as an investor, what is our expectation from the brands, giving guidelines, but having enough space for the brands to move like an entrepreneur. And that is what we are working out right now. And then having a consistency in between the subplans in the planning round, having an optimized cycle plan, CAPEX planning plays a big role. And this, as Arno Antlitz already mentioned, in the surrounding we do have and evaluating the new aspect is important to implement, and therefore we postponed closing the planning round a bit later and going public in the beginning of next year.

Yeah, in terms of my role as CFO, let me first say that Oliver and myself, we know each other for quite a while. We work closely together on all the topics. look, we have really an ambitious transformation in front of us. Electrification, digitalization, all these projects need a lot of investment and funds. And there's one program we call that financing the transformation. And in that program, we make sure that we have the funds available, but not only in terms of funds available from the capital market or from external, but also that we have enough and we have enough internal cash flow to finance that program, the transformation, and part of that is the fixed cost initiative we talked about. Part of that is productivity improvements in the plants, also on the sourcing side, also on costs in our retail network. So if you ask me what is an important pillar of your COO role, I would say being responsible for the program, financing the transformation is surely one of these pillars I could mention here.

Thank you. And then we are moving on to Frank Johansen from Automobilwoche.

Yes, hello from Wolfsburg. Can you hear me? Yes, I hope so. Just two questions at the end of the day. The first one was your joint venture with RYI. You just finished or stepped out. You talked about a new partner to find quick solutions for level 2++ and level 3, but at the end of the day, what... uh id bus uh for for commercial vehicles and moya plan in hamburg will need level four driving so how will you how does this fit is will the new partner also develop level four as agua i has tried to do so far and the second question to what uh carry it and software you said that the 1.2 software will be available in 2024 so not end of 2023 as was I think the last plan. Will this be the basis for future developments too? So postponement of 2.0 where you did not say any deadline so far?

Mr. Johansen, first of all, about the decision of Argo AI was to order our roadmap for autonomous driving. And now we have strong partners for level 4 driving. In China, we published with Horizon Robotics, and we will continue very clearly with Bosch for the other regions of the world. Level 4 driving depends also a lot on regulations, and we are still not at this point to go directly into Level 4 driving like the whole industry, and therefore we need intermediate steps with 2++ and Level 3. Therefore, we have a concept phase, which is already run, for example, by Volkswagen Nutzfahrzeuge, but also with other brands. We will decide during the next month to go for it, and then having a clear plan, step-by-step, over Level 2++, Level 3, coming later to Level 4 with the right partners. Coming to Carriot, that's right, that we will be in the market in 2024 with the first project with the 1.2 software level of Carriot. We are already in the ramp-up activities, preparing everything. For example, the Porsche Macan, I had already the opportunity to drive the Porsche Macan which opens the full potential, and I'm looking very much forward. I'm having these products in 2024 on the market, but ramp-up activities are already kicked off, and we will have the start of production in the next year. Talking about 2.0, that depends also on the study we have done during the last weeks in between what functions will we connect with which software level, and that will be a continuously path coming from level 1.2 to 2.0. And timing plays a role that should be feasible, and connecting the decision we will take on the carrier issue, combining it with the platform decisions at the end, the result will be the optimization of our cycle plan.

Okay. Thank you. Then we have the next question from, thanks, Frank, from Victoria Leidersee from Reuters.

Hi, thank you very much. Just two quick questions. One, how is it that you are planning on keeping your margin at the same level in your outlook despite lower deliveries? And then second question, Arno, you mentioned positive scale effects, that you were seeing positive scale effects as battery electric vehicle sales rise Is that something that you're already seeing also in the volume brands or just luxury at this stage? And more broadly, how will you make an affordable electric car with costs rising and inflation squeezing consumers? Thank you.

Yeah, it's a very valid question. First of all, the margins, we have really close look at the margin. And as you see in our results during the last, I would say, months and years, we've achieved to be much more robust than in the past. First of all, if we talk about the contribution margin, of course we work on cost optimization to balance the cost increase, specifically on material costs, and there are also, I would say, pricing discipline measures in order to keep the margins. And on the second topic, on operative margins, as you're aware, so far we were able to almost fully compensate the increasing costs on the fixed cost side due to inflation with energy costs, the fixed cost measures. These are the two major effects. Overall, as Oliver mentioned, the good margins start with great product substance and then finally willingness of the customers to pay for our cars. And there is also great news. So cars are very well received, the BEVs. have a huge order bank, 350,000, we mentioned before, and more to come. So these are the effects to keep the margins in the fourth quarter. In terms of battery, raw materials, battery prices, and cars, as I said before, one lever is also to gain the efficiencies we get from greater scale. Look, we have one of the biggest platforms with the MAB in the world, capacity of 1.5 million cars only on that platform. The platform is invested in Europe, now in Zwickau, which was our fourth plant, and at Skoda. We ramp up now Empton and Hannover, so it's in four plants in Europe. I personally just visited Chattanooga some days ago where we ramped up the MAB, and we have two plants in China. So this is one level, how we wanna achieve like a cost competitive electric cars using the scale and using the synergies worldwide.

Thank you. Then we have Steven Wormuth from the Wall Street Journal. Steven, go ahead.

Hello, thanks for taking the questions. Two from me. One, I'm just gonna come back to this question of the virtual equity stories. Just to try and understand, is the purpose, would the purpose of these, of, you know, seeing Porsche as a, the Porsche IPO as a role model for other brands in the group, is the purpose to raise capital or is the purpose to try and improve the valuation of the VW group itself just because, as Patrick Kummel mentioned earlier, we haven't actually seen any benefit from the rising share price at Porsche AG on Volkswagen Group's shares. So that's one question. And the other question I wanted to ask is about the divergence between what you're seeing, what we're seeing globally, but particularly in Volkswagen's results between premium and volume performance, particularly at the margin level. Is there something you can, can you talk a bit about why your premium brands are doing so much better than your volume brands in the current environment and what the latest trend on that is. Thank you.

Steven, may I start with your first question about virtual equity story and then I hand over to Arno to talk about the margin level and expectations. And it is right that the purpose of the virtual equity story is to focus to improve the business model of each brand. And I personally take the Porsche process as a role model. Everything we learned in this process to focus on. more on the main issues to have a clear strategy, to have a clear path for the future. And we think that we can unleash the full potential of all brands at the end. I think also it will have an impact on the whole evaluation of our group. And we sum up the results of the virtual equity stories on brand group level for our capital markets that we will have next year for the group. And so it's the start point of a process. And I think up to now, we see that the full potential of the Volkswagen Group isn't valued And therefore, we have to crystallize more the potential of all of our entities. And then I hand over to Arno talking about the margins.

Yeah, I mean, you are quite right. But let me start first with our two other groups. Premium Group had a margin of 14% in difficult environment, and Porsche has a margin of more than 19%. we can be very pleased with the margin of our premium and sport group already. The brand Volkswagen and the volume group stand at 4.6%, and there are some operational reasons behind that, and of course we have a program to improve that. First, operationally, they were hit harder by the shortage of semiconductors, specifically Seat and Skoda, and also by the postponement or of the situation of our Russian business. But on the other hand, we clearly see all together, we clearly see room for improvement there. And the most important thing that needs to be achieved in the volume group is to lower the break-even, to be more resilient in the future. And in order to achieve that, of course, we work on the cost and efficiency side and productivity side. side. But there is one important measure. We haven't discussed that in detail so far. It's the formation of the volume group itself. But that doesn't mean that cars in front of the customer will become similar. No, exactly the other way around. In front of the customer, they will differentiate even more. But in the back office, we will get even more synergies in the volume group. Exchanging ideas, getting more synergies on the on the sales side, on the after-sales side. So this is one of the very important levers to improve the margin of the volume group. You know the margin target is 6% for Volkswagen brand, and, of course, the margin target of the volume group will be even higher. We'll communicate that in detail also on the capital market today, but rest assured, we work heavily on improving the productivity and the margin in the volume group as well.

Thank you. Next in line is Matthias Schmidt, Stuttgarter Zeitung.

Hello, thank you. I'd like to know, how do you look at the EU decision in regards to e-fuels? Does it affect the Porsche plans for e-fuel production? And what is your prospect? Is there Do you think that there will be a Model 911 in Europe after 2035, the combustion engine?

First of all, Volkswagen Group is prepared for the EU decision for 2035, and they are still considering how to continue with synthetic fuels and e-fuels. because we think that these e-fuels are supportive for the electrification for the future. Very clearly, the technology path is focused on EVs, but we need solutions during this period. And therefore, e-fuels and the investment Porsche is doing is very supportive. And therefore, as a group, we are very clear that we focus on investments only in Porsche, The rest of the group will focus only on electromobility while having the flexibility for the transformation, offering in the different regions of the world a mix in between combustion engine cars, hybrids, and fully electric cars because different regions of the world are moving with a different speed towards the transformation. Talking about the 911, we will continue as long as we can with the combustion engine 911, and that depends also on the different regions of the world. We are very successful right now. The order intake is as high as an all-time high in history for the 911, and so we think we are in this mix on the totally right path at Porsche. We have a clear strategy being able to offer in all the Porsche segments all three options in between combustion engine hybrids and fully electric cars during the next years, and then going electrified step-by-step through the brands, and the 911 will be the last one.

Thank you.

Thank you. And then we have Samuel Reeves at Agence France-Presse. Thank you.

Hi there. A question for Mr. Blum. I just wondered if you're able to confirm that you're going to be accompanying the Chancellor Olaf Scholz on his visit to China, which is expected next week. And if you can confirm that, what you're kind of planning to achieve on this trip.

Yeah, they asked me to join and I will go there. because we think it is important in our world to have communication in between the countries, to listen what are the ideas, perspectives, and therefore it's helpful that also partners from industrial companies join the politics. when they have the talks, and that is also important to build our own perspective in these discussions with the Chinese government. And I think it's very positive that they, after their political event in China, get in touch directly with the German government to change opinions, positions. and to further plan future corporations. Thank you very much.

Thank you. Just as a reminder, you can press star one for questions, and the last one in the line is from Bill Boston, again, at the Journal.

Hi, thanks very much. I just have a follow-up. On Argo, when Ford was explaining the decision yesterday, they made very clear that their position was that fully autonomous vehicles are still a long way off and that they won't be profitable for a very, very long time. It doesn't sound like that's your reasoning for getting out of the venture. So I'd like, if you could explain your view on the future deployment of autonomous vehicles, fully autonomous vehicles, robo taxis in particular. And, you know, and what were your reasons for getting out of out of the Argo venture? Was it the business case? Or was it because you have you just want to work together with Bosch rather than with with the the American company? Yeah, that was basically it. Thank you very much.

Yeah, what is very clear that autonomous driving is a potential for the future. And today in the roads, we see already applications of autonomous driving, which are very helpful for the driver, which are very helpful for security. When it starts with lane assist, for example, we are avoiding accidents. But the development of autonomous driving is going step by step. And our strategy is focused on this step-by-step development, first tapping into the market with level 2++, then level 3, and then level 4. But I think for a big car company like Volkswagen, globally positioned, it is important also to continue activities with level 4, That has something to do very clearly on the one hand side with technology, on the other side with regulations, but we have to be prepared once when regions of the world will open the markets for fully connected and fully autonomous driving cars. We have to differentiate in between the individual mobility where these options are helpful and but especially when it comes to robot taxis, which we kicked off with a Moja project to get experience for this market. We will be prepared, and therefore we rebuilt our landscape together with Horizon Robotics, with Bosch for the Level 4 issues, a different partner for Level 2++ and Level 3. And so we are prepared as a group. Talking about Argo, there are technical and business case reasons behind. It's not a cooperation with Ford. We are continuing strongly with Ford, for example, when it comes to share the MEB platform together with Ford. And it was more a redesign of our landscape of autonomous driving.

Thank you, Bill. We don't have any further questions. As always, the whole press team and obviously also the IR team are available for your questions and to give answers. We are all here. And with that, I wish you all a great day and say thank you and talk to you next quarter. Bye-bye.

All the best to everybody. Thanks for your questions. Also for my part.

Thanks very much.