Volkswagen Ag Unsp/Adr

Good morning, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the Volkswagen Group Investor Analyst and Press Call Six Months Last 8, 1-20-23. Throughout today's recorded presentation, all participants are in a listen-only mode. The floor will be open for questions, and if you'd like to ask a question, you may press star followed by one on your telephone keypad. Please press the star key followed by zero for operator assistance. Let me now hand the floor over to Sebastian Rudolph, Head of Global Group Communications. Please go ahead.

Thank you, Emma, and good morning, everyone, and a warm welcome to all of you to our half-year conference call. It's a joint media and investors and analysts call, and the investors and analysts call will be moderated by my colleague, Rolf Wöhler, head of treasury and investor relations, and myself, Sebastian Rudolph, responsible for global group communications. With us today is our CEO, Oliver Blume, and our CFO, Arno Antlitz. Welcome to both of you. Good to have you in this call. Before we start, let me give you some remarks. We have already published, and you should all have received the press release, the interim report for the first six months, and all other PR-related materials. If you do not have them yet, you can also find them on our website, volkswagen.com, or just give us a call and we send them to you directly. So now let me hand over to Rolf, who will give you a brief rundown of the next minutes, hours.

Rolf, the floor is yours. Thank you, Sebastian. Welcome to everyone also from my side. We will start with Olli, who will talk about the highlights of the first six months. and the second quarter. And after that, we have Arno. He will take a closer look at the financials, as always. We will host a Q&A session for the investor and the analyst community, moderated by myself, followed by the Q&A session for the media community, and that will then be hosted by Sebastian. As already mentioned during the pre-closed call, we have extended today's Q&A session for the analysts and investors, so that any question which has been not answered at the CMD will have enough room for an answer today and obviously also your questions which might have arisen on the latest press announcement here on Xiaoping and Volkswagen partnership. After the session, we will have then a brief break and then continue with the media Q&A. As a reminder of the safe-haver language and other cautionary statements, that will govern today's presentation, which you will find on page 2. I would like to encourage you to read the disclaimer carefully, since all forward-looking statements are qualified by this language. I, however, do not want to read it in order to have enough time for today's presentation, and with that, I hand over to Arno.

Sorry. No problem. Thank you. Thank you, Rolf. Thank you, Sebastian. Oliver Blume is speaking. Good morning and also a warm welcome to all of you from my side. Let's dive directly into the presentation and start with one of my personal highlights of the first half year of 2023. The Capital Markets Day on 21st of June at Hockenheimring. We were pleased to welcome 200 people on site, as well as the more than 16,000 guests connected online, and hope you enjoyed the event as much as we did. After an emotional and exciting pre-CM Day event, we were able to present to you our group equity story, which is built on six pillars on that day. Our new team, technology at scale, unleashed brands, regional leadership, our new steering model, and financial targets. At the end of the main presentation, we ask you the question, which would be the preferred next Volkswagen event of the building blocks of Volkswagen Group's success story? As we promised you, you can see here the results of the poll. The winner is not totally unexpected, China, ahead of battery and software. Amongst our brand groups, Brand Group Core made the race. We used the weeks since the CM Day to sort the next building blocks of the Volkswagen Group success story. After your feedback, we plan to host the next Capital Markets Day in April 2024 at the Beijing Motor Show, and it will deal with our China strategy, including a deep dive into the local carrier approach. A save-the-date invite will follow due course. In the meantime, we are working intensely on our strategic target to achieve 10% RRS by 2030 with a range in between 9 and 11 RRS goal. As part of this work, the team of Brand Group Core will present a first milestone at or shortly after our Q3 conference call. They will share with you the result of the Road to 6.5 program of Volkswagen brand, which is key to the midterm strategic targets and an important proof point. In the second half of 2024, we are planning to host the Brand Group Core Capital Markets Day to provide further details of the plan to achieve 8% return on sales and 60% cash conversion rate in the mid-term to unleash the full potential of the core brands. We are fully aware that we have to deliver on our promise and focus on execution. This was mirrored by your comments during and after the Capital Markets Day. As said on that day, we are on a path towards a new Volkswagen and we want to take you with us on that journey. Over the last months we have been taking many important strategic decisions, the cleanup work is done and now we will focus on execution. We have sharpened the design identities and identified the quality programs at every single brand for our portfolio. Last week, the group board visited our locations in Mexico and the U.S. to review the status of our North American strategy, including the initiative on Scout. As you already saw in the press release yesterday afternoon, we made progress on our China strategy. I will detail it to you into a minute. After the reorganization of Carriot, the team is now working on the consequent execution of the five-point plan with focus on the successful launch of the eCube 1.2 software stack. On the Capital Markets Day, you were able to experience our capabilities on autonomous driving with our IDBus AD, and we are expanding our efforts on the mobility solutions field with further test activities in US and Germany. And as promised at the Capital Markets Day, Arno will present you solid financials for the first half year of 2023. The list for our upcoming ones is full-packed. All brands are working heavily on their performance programs, which should start to contribute to our mid-term targets in the second half of this year. On platforms and better reach, which includes vertical integration of critical raw material, we are working on the execution of our strategies and are developing innovations, such as the dry coating proof of concept to ensure cost competitiveness. we will review their progress at our top management meeting in late summer. We will update you on our progress during the upcoming event of our building blocks strategy. To give us enough time for the Q&A session, let us now come to the detailed update on our China strategy. As said during the Capital Markets Day on the 21st of June, we want to be and maintain the number one international OEM position and rank amongst the top three players in the Chinese market. For that, we must localize and control our value chain in China. We must increase the regional independency for a faster decision-making process. And last but not least, we must speed up the time to market for our cars To achieve our goals, we are building our implementation plan around three pillars. First, with the establishment of our 100% tech company, we will strengthen our own development capabilities. We aim to reduce the development times for new products and technologies gradually by around 30%. This is a massive step. Second, local partnerships with leading technology players will enable us to speed up time to market. And third, local product partnerships will ensure tailored and superior ICV product offerings soon. Therefore, we are happy to announce a new strategic partnership from Volkswagen brand with Xiaopeng and deepen partnership of Audi with our long trusted JV partners, FAW and SAIC. With this, we gain speed in the Chinese market. Xiaopeng has a unique brand positioning as tech leader in Chinese ICV segment and also as leader in smart ICV tech capabilities, especially in electrical, electronic architectures, ADAS, in vehicle infotainment, and smart cabin software. The strategic collaboration and strategic minority investment of 4.99% includes Xiaoping developing and providing an 800-volt platform connectivity OS software and ADAS system for use by VW in two VW mid-size segment ICV models with a target SOP in early 2026. These additional models will expand the existing MEB product portfolio and tap into new segments in the fast-growing e-mobility markets. The envisaged cooperation will result in an accelerated volume ramp-up increased competitiveness and potential to realize synergies for both companies in terms of development and procurement, estimated cost savings of up to 20% and brand enhancement. The MOU also includes the joint development of a new local platform for the next generation of fully connected electric vehicles, as well as technological collaboration on autonomous driving functionalities and connectivity solutions, allowing Volkswagen to leverage Xiaopeng's strong tech stack. The partnership also opens the door to further strategic collaborations on charging network, mobility services, procurement and engineering, and R&D. We are targeting to conclude the full assessment over the next nine months. ICV market in China is experiencing intense competition and therefore this strategic move will allow us to consolidate our leadership position in this important market. Our strong joint venture partnerships are crucial for our transformation in China. For China, and will allow Volkswagen brand as well as Audi to transform successfully. Audi and FAW will complete the existing product portfolio for the new mobility era in the Chinese premium market. Furthermore, both sides will continue strengthening their cooperation in production and sales. The Audi FAW NEV company is on schedule and will start production of PPE vehicles for China by the end of 2024. At the same time, Audi is, after the first two successful years of collaboration, strengthening the long-term commitment with SAIC. The jointly developed e-models will be equipped with state-of-the-art software and hardware to provide Chinese customers with an intuitive, connected digital experience in the premium market segment for fully electric and fully connected vehicles in China. We are pleased that we were able to take these important decisions before the summer break. The teams will now go into detailing the corporations and execute the strategies. We will keep you posted on our progress. Let's now have a look at the delivery situation during the first half year. We are stepping up our deliveries, driven primarily by Western Europe and North America. Deliveries to customers in first half year 2023 reached 4.4 million vehicles, up to 13% versus the first half year in 22. While the supply situation has clearly improved, we experience delay in global logistics, hindering us to deliver our vehicles to customers worldwide with negative effects on inventories and finished goods. We continue to experience a stable level of order intake in ICE cars. Our order books stand unchanged at around 1.65 million vehicles in Western Europe, therefore more than 200,000 battery electric vehicles. We have sold roughly 322,000 battery electric vehicles in the first half year, 23, equaling 7.4% of deliveries. The order intake of BEV cars in Europe is at more than 200,000 units and is expected to increase during the remainder of the year, as the availability of BEVs, especially in the second half of the year, is expected to improve and delivery times will shorten. On top, the ID.7 is ramping up. However, we see a slower development of the European BEV market as we felt a certain degree of reluctance from our customers since the beginning of the year. Reasons for this included reduced incentive programs and the reduced purchasing power due to high inflation. Since May, we have seen a slight upward trend in order intake and in view of the recent significant reduction in delivery times, we expect this positive trend to continue. But to act prudently and in line with our value over volume approach presented at the Capital Markets Day, we widened the bandwidth for our BEV deliveries in the running year from 8 to 10%. Thank you very much for the first part and let me now pass on to Arno to provide you details of our financials. Please, Arno, go ahead.

Thank you, Oliver, and also good morning from my side. Now let's move to the financials and the operative business. Our vehicle sales for Volkswagen Group came in at 4.4 million units, up 11%, excluding China. Deliveries went up even 20% to 3.1 million vehicles. On the revenues, we made a step up by 18% to €156 billion, driven by strong vehicle sales in Europe and North America, by healthy mix, and continued favorable pricing. Forex had a negative effect on sales revenue of about 2 percentage points. Our operating result came in at 11.3 billion euro and a margin of 7.3%. What looks at first class underwhelming is in fact a very robust result. Last year's H1 benefited from valuation effects or commodity hedging outside hedge accounting by a positive 0.9 billion euro. This half year, in contrast, we were burdened by minus 2.5 billion euro. H1 of 2023 shows significant progress and a strong underlying operating performance. Our profit before valuation effects from commodity hedging increased to 13.8 billion euro resulting in an underlying operating margin of 8.9%. This includes in addition about 0.4 billion euro forex losses from the deconsolidation of the Russian business and headswinds from raw materials. Coming to the cash flow situation, which has been since we last spoke, the net cash flow generated in automotive division in H1 2023 totaled to 2.5 billion euro, mainly due to the continued negative effects from working capital. The cash flow was only at 0.2 billion euro in Q2 2023. As flagged already at the Capital Markets Day, we experienced additional bottlenecks in global vehicle logistics, with negative effects on inventories and finished goods. Due to the measures we have taken, we expect this to improve during the second half of the year. Clean air cash flow totalled €3.4 billion, significantly below prior year number. Nevertheless, net liquidity at the end of H1 stood at the solid level of €33.6 billion, which represents a truly solid position for a company within an industry in transition. Our net liquidity declined mainly due to €11 billion paid out to shareholders as dividends over the last six months. The decline of €9.4 billion versus year-end was however smaller than the cash-out for the dividends during H1 2023. Now coming to the performance of our divisions in H1. Passenger car divisions delivered €7.1 billion operating result and a margin of 6.7% before special items. These numbers in H1 2023 were negatively impacted by the swing in valuation effects of our raw material hedges of about €3.4 billion from H1 2022 to H1 2023. Our commercial vehicles continued the strong performance. came in at 1.8 billion euro and a margin of 8%. Normalization of used car prices and the change interest rate environment led to lower operating result of our financial service division. It came in at 2.2 billion euro. The major drivers of our passenger car business are shown in the EBIT bridge. Positive development, volume price mix, as seen during the last quarter, continued with the biggest increase resulting from volume. Pricing continued to be healthy and mix turned even slightly positive in Q2. Operating result in the first half year was burdened due to minus 3.3 billion swing in evaluation effects, mainly from raw material hedges outside hedge accounting. Negative impact of product costs totaled to minus 2.3 billion euro. We expect this bucket to turn slightly positive for the full year. Fixed costs increased slightly compared to Q1, which is attributable to higher R&D costs and inflation. Coming to the financial steering model. Our group, the main objective is to effectively unfold the power of our unique setup. Some of the most strongest and fascinating brands bundle to powerful brand groups and leading technology platforms. In connections with the top 10 program, we are managing the group systematically, efficiently, and with a strong focus on execution. Brand group core saw strong uplift in volumes. Sales revenue increased even stronger and grew by 30%. Operating margin at Brand Group level reached 5.5%, including a strong contribution from our North American region. Operating result came in at 3.8 billion Euro. In total, Brand Group Core recorded a 2.6 billion Euro net cash flow. For Waybrand achieved a margin of 3.8%, outlining the task we have in front of us here. But rest assured, Teams are working hard to make Farway Brand a solid contributor to the Brand Group core in the future. They will present their performance program in greater detail to you later in autumn. The margin of Brand Group Progressive declined to 10% from 16.6% in 2022. This development was heavily impacted by valuation effects from raw material price hedging outside hedge accounting. underlying margin in H1 2023 before these effects was about 12 percent and therefore only slightly below the strong levels recorded in H1 2022. Lamborghini, Bentley and Ducati contributed again significantly to the strong performance and net cash flow came in at 1.9 billion euro. Porsche followed its track record and remained strong at the 19.3 percent operating margin The operating result benefited from improved pricing and better product mix and higher volumes. Carrot improved sales revenue by 32%, driven by higher license revenues from MAB cars on the 1.1 platform. Carrot was able to limit losses to previous years despite continued investment in software platforms at the same time. The net cash flow in H1 benefited by about €1 billion from intra-group income tax refunds resulting of an intra-group allocation. The underlying negative net cash flow came in at minus €1.8 billion. PowerCo and Cellco continued to build the global battery business, with cell factories in the ramp-up for Valencia in Spain and St. Thomas in Canada and the construction of the plant in Saltskitting being fully underway. In parallel, the team is working on innovations, achieving a competitive cost base. With the new developed dry coating process, we can save about 30% energy and 15% floor space going forward. Drayton's positive performance continued. Drayton saw unit sales increase by 22% with sales revenues up 27%, driven by strong volume expansion, positive price, mix, and vehicle services. Operating margin came in at 8.1% thanks to better capacity utilization and price mix compensating for higher input costs. Net cash flow saw year-over-year strong increase, but keep in mind that the figure in 2022 was additionally burdened by cash outflow related to legal proceedings of 1.4 billion euros. At financial services, we saw an overall stable contract volume, slightly lower financing contracts were compensated by more leasing and insurance contracts. Credit loss ratio remained stable at the prior year level despite the worsening macroeconomic environment. Operating income in H1 2023 remains at a very solid level of 2.2 billion euro, even though it's below prior year level. The decline reflects the normalization of used car prices and the changed interest rate environment. Our current R&D and capex spending levels reflect the transformation of our company towards electrification and digitalization. At the same time, we keep our combustion engine cars competitive. This leads to a current situation where we invest parallel in both ICE and BEV technologies. This period will last over the next two to three years, After this transition period, we will benefit from lower capital expenditures and lower research and development expenditures. R&D expenses in H1 stood at €10.2 billion. R&D ratio stands at 7.8%. CapEx stood at €5.6 billion, and CapEx ratio stands at 4.3%. Given where we stand after six months, we adapt our outlook slightly and see CapEx ratio to come in at 6%, but R&D ratio slightly higher at 8.5%, which leads to the combined investment ratio outlook unchanged at 14.5% for full year 2023. Coming to the performance of our China joint ventures, after a difficult start in the first two months of the year, the group's delivery figures in March through May were significantly up, on the previous year. Looking to the BEV deliveries, we saw a mooted start as well into the year, but the second quarter, 90% more BEVs were handed over to the customers than in the same period last year. Sequentially, we saw BEV deliveries almost doubling. In sum, Volkswagen Group China deliveries led to a proportionate opportunity result of €1.15 billion down by 18%. The performance lies still within our full-year target of up to 2.8 billion as proportioned operative result, which would represent a decline of about 15% year-on-year. Ladies and gentlemen, coming to our outlook, our H1 performance gave us a good impression of what we are capable of in a challenging environment and how committed we are to act in line what we presented at the capital market stage. In short, we largely confirm our financial outlook. Based on the current run rate, the outlook for deliveries in full year 2023 has been slightly adapted from around 9.5 million vehicles to a range of 9 to 9.5 million vehicles, but we remain fully on track to meet our sales revenue goal in 2023. The underlying margin before valuation effect is running even above our full-year margin corridor and demonstrates the robustness of our business model in a challenging environment. Based on what we've achieved so far, we are confident that we meet our reported margin corridor. Although the supply of semiconductors is improving, the pent-up of demand for vehicles is only slowly moving through the process chain. Currently, the bottleneck has to reach the entire logistics chain to ship finished vehicles. To safeguard our net cash flow, we've taken decisive measures to ensure that we reach the lower end of our guidance of 6 to 8 billion euro in 2023. The topic of cash flow enjoys the highest level of attention of Oliver, me, and the whole board of management. To sum it up, we saw again a very robust performance in a challenging environment in terms of operating result and margins. With the launch of performance program at Allbrand and our strategic decisions in China, we took some major steps to improve the competitiveness of the Volkswagen Group going forward. We rely on a very solid balance sheet and financials, and based on that, we continue to transform our company with full focus on execution, capturing synergies within the group, and delivery on cash flow. Thank you very much so far, and now I'll pass back to Oliver.

Thank you very much, Arno. Oliver speaking and let me provide you a short summary before coming to your questions. We see a good progress of restructuring Volkswagen Group following our 10-point plan. We have still challenges ahead in the transformation and they are different in our 12 brands. Financially, we achieved a robust result in the first half of 2023. In terms of operating results, for special items we grow 13% with 13.9 billion euros, we achieved around about 9% profit margin. In terms of sales, we went up 13%, and with 4.4 million units, we grew stronger than the overall worldwide market, and we sold over 50% more BEFs in the first half year comparing to last year. We keep on working on our cost structure and improving our cash flow and break-even situation. Our focus lies to unleash the full potential of our 12 brands. The unique portfolio of our brand groups, core, progressive, sports and luxury, and trucks, is a backbone of our rail rust positioning of Volkswagen Group. Overall, our cleanup is done and the main strategic decisions are taken. So in the first half of the year, we focus on execution and to establish our performance programs. Yeah, that's a short summary of our situation the first half year 23. And then I hand over back to Rolf and looking very much forward to your questions. Thank you.

Thank you, Olli. Thank you, Arno. And now to the even more interesting part, to the Q&A session. We have at least one hour and 15 minutes. So please, you don't have to limit yourself this time, but don't exacerbate it, as always. And we would start with the first question coming from George from Goldman Sachs. George, please.

Yeah, good morning, and thank you for taking my questions. I'm sure you're going to get a large number of questions around the new strategy in China. But what I wanted to ask was specifically what implications this should have for your total investment levels. Obviously, at the planning round, you cited an approval for 180 billion euros over the next five years. Does this more collaborative approach and leveraging local players provide an opportunity for Volkswagen to reduce the level of investment going forward? Or should this be seen as additional and incremental steps on top of the spend that you have already planned? The second question I had was just with respect to the free cash flow during the second quarter. Obviously, only free cash flow break-even is somewhat disappointing. particularly when we see Stellantis print free cash flow of over eight and a half billion for the first half of 23. I understand you have major logistics issues, but can you give us some insights into when this working capital might unwind, if indeed you think it will unwind at all over the next 12 months? Thank you.

Thank you for your question. First, on the investment side, if you allow me to come back to what we presented on the Capital Markets Day, the 180 billion, and there was kind of a pyramid. When you remember, we had like the basic investment, then temporary investment for increasing competitiveness, and also strategic investment for strengthening our position in the region, specifically US and China. And the new models we announced yesterday are fully covered by that pyramid so they won't add basically or they won't increase 180 billion for the current planning round. For future planning rounds going forward, we gave you an indication already that once the phase of the parallel investment of ICE business and BEV business phase out and we fully concentrate on further development of our BEV business, there is a chance to reduce the overall investment. We gave you an indication that we even come from proportionate, we come to basically then 11% and eventually 9% of turnover, which would be rather aggressive, but also in absolute terms, we could see that number going down. In terms of free cash flow, on the second quarter, we are not pleased with the situation at all. That's clear because, I mean, we had a really strong underlying operating result of almost 14 billion, 31.9 billion, and that didn't really translate into a cash flow. And there are two reasons. First and foremost, of course, we saw some investments in terms of R&D and CapEx going forward for the transformation to making our company even more competitive in the future. We discussed that a lot. but we are convinced that we're spending that money wisely. And second, as I said before, a lot of cars are basically, a lot of funds are tied up due to the inventory. I mean, we have great cars and we would have loved to bring these cars to the customers and to the dealers earlier. The fact is that we move now from a bottleneck of chips to a bottleneck in transportation. We are lacking trains, trucks, truck drivers, not only Europe, specifically also US. It's a challenge for us to bring the cars from Mexico to the North American region. We took decisions already to de-bottleneck. And we are confident that we, from today's perspective, then we can meet our cash flow guidance, $6 to $8 billion lower range, so basically $6 billion. But, yeah, we are working on these topics. And as I said before, we are sure that we make significant progress there in terms of increasing the capacity. In terms of orders, we have a strong business. We still have 1.65 million orders on our hands in Europe alone, 200,000 PVs. of that, so it's really an abnormal situation where we have a strong order book and high inventories, and this is really the major reason for that is the transportation, and as I said before, we took decisive measures to de-bottleneck. George?

Thank you.

Okay. Very good. So the next question comes from Daniel Roska from Bernstein.

Gentlemen, good morning. Two maybe longer-term questions, if I may. Given the comments you made on the China joint ventures and also the corporations with SIC and now Xiaopang, could you comment what that tells us about the SSP? I think in the Capital Markets Day, you said SSP 2026 plus. Now, startup production is kind of 26 for some of the cars in China you talked about. you know, is SSP a lot later? So how do we think about kind of those initiatives in China and the SSP platform more generally, how it also relates to the other markets? And then secondly, on the CapEx holiday, Arno, you just outlined, right, once the double spending on ICE and BV stops, there's a chance to reduce the CapEx overall. But how do you see this in the context of the pace of innovation that's going on in the market generally? Wouldn't you expect that actually for quite, let's say, a longer time as innovation is very fast also on the BEV side, the BEV investments would need to ramp up and accelerate platform development as well? And so how much, right, doesn't the BEV share in that plan need to grow even as ICE kind of declines over time? Thanks.

Okay Daniel, may I start with the first part of your question and then I hand over to Arno. First of all, coming back to the China strategy and we build our China target picture 2030. And the new corporations are one part of this strategy. And the main part of our strategy is to do more business in China for China. And therefore, we decided to increase our engineering capacities in China. We built in our tech co in Anhui over 2,000 people. right now, and we have already built Carriot in China with quite a success. On the other side, we are aiming for partnerships to offering to our Chinese customers the best solutions they can get in the market, tailor-made for the Chinese market. For example, In autonomous driving, our already announced partnership with Horizon Robotics or Infotainment with Thundersoft. There are only some examples. On the other side, we are focusing on increasing our own battery business, for example with a PPE company in Changchun, where Audi will start beginning next year with their new PPE models. And in our new company in Anhui region, we are starting next year with new NEVs from Volkswagen. Beside of this we want to speed up in our product offering and therefore we decided to build this partnership with Chaoping for Volkswagen bringing two new models in the upper B segment in 2026. And we decided to make a deeper partnership with SAIC and Shanghai for Audi in terms of sharing modules, components, and software technologies, also to speed up and making our product range wider for the Chinese customers produced in China for China. Coming to the SSP, we stick to our plan to start with the first SSP level in the end of 26 and then we are rolling out all the different SSP levels up to the end of the decade. So the technology profiles are already defined. And now it's up to execute and to engineer all the details for the product. And we are sticking to those plans. And so we think it fits well together. On the one hand side, coming with PPE, MEB updates to China, having the partnerships, and then coming to the market in the second half of the decade. And then I hand over to Arno to your second question.

Daniel, on your question on the investment spending, let me give a little bit of a more broader perspective. In the 180 billion we outlined on topics, but you could also do a split in terms of R&D and CapEx combined for BEVs and ICE. And in this 180 billion, we still have 30% of funds allocated to our ICE business. So we think this is, we're spending this money wisely. I mean, at the end of the day, even in 2030, there will be like 50, 60, 40 to 50% globally. And even like in Europe, you know, 30% ice business. It's like seven years from today until 2030. So we deliberately decided to keep our major platform competitive by then. because they are highly profitable today and they will create significant amount of the cash flow to finance that transformation. That is true for Volkswagen, next generation T-Roc, next generation Tiguan, and specifically for Audi, A4, A6, Q5, Q7. But it's also a chance in fading out of these additional funds of 30% that free up some capacity to even speed up the transformation in terms of BVs, but also freeze up some of the funds so that we might be able to lower the 180 billion or will be able to lower the 180 billion. And second, there's an additional level, not only fading out ICE investment, but also with the strategy to rely more on partnerships. For example, on mobile autonomous driving now, the announcement on Chopin, we also see a more, I would say, investment-efficient approach going forward and a good compromise of being like offering attractive cars to the customers in new segments. And on the other hand, being more, I would say, efficient in our spending. So it's basically really phasing out of the ICE investment and second approach that relies more on partnerships and smart partnerships should lead to a more efficient way going forward.

Thank you very much.

Thank you, Daniel. The next question comes from Jose Azumendi from JP Morgan.

Good morning. It's Jose from JP Morgan. Thank you, Rolf. Maybe two questions for Arno and two for Oli, please. Arno, can you speak a little bit more around the China joint ventures, a little bit more of the profitability mix between SAIC and FAW? Is FAW holding up a bit better than SAIC, Volkswagen, and Volkswagen? And where have you seen the biggest impact on the promotions in those two joint ventures? The second question for Arnold would be if you can speak a little bit more around this new line we need to forecast now, the battery cell. If we think about, let's say, 2023, 2024, what kind of, you know, negative contribution should be expected from this division and what kind of capital commitments cash flow wise should be expected from you in the next, let's say, 24 months. And then, Olli, please, just a couple of quick ones. On Traton and the free float, do you think this is something that strategically you could consider at some point to increase the free float in the entity? And second, as we think about the ID.2 and the vehicle, the Volkswagen ID.2 you showed us at the Capital Markets Day, can you comment on when should we expect a ramp-up of this vehicle? And do you think the car overall is competitive in the light of maybe some other Chinese entrants entering the European market in the same segment at probably a little bit more price competitive levels? and a vehicle size that could be larger than the ID2. So I would like you to please just assess the competitiveness of this vehicle and also the ramp-up. Should we expect this car to ramp up in 2025 or can it come a little bit earlier, maybe 2024? Thank you.

Yeah, Jose, I mean, you know, we don't really disclose the individual results of our JVs, but to give you a little bit of flavor, the operative result and the proportion operative result and also the margin of FAW JVs is stronger than SAIC. This is the case because in the Northern Transvention, the FAW Transvention, we have the Audi, which is a stronger contributor, and as you said, Volkswagen Group is more under pressure in the current pricing environment in China, so the higher proportion of that result comes from the Audi FAW business, but that doesn't mean that Volkswagen is not also contributing significantly, but it's more like from the north in China. And also with the decisions going forward, we will see the significant improvement on the BV side as well. I would like to reiterate on what we said before. Yes, we have these new product partnerships, but step by step, we will increase the competitiveness of our current MAP platform with Horizon Robotics, with Inca Entertainment, with Thundersoft, and also with bringing in next generation iron phosphate battery, which much better cost position. So this will improve cost position there. In terms of battery, as indicated in the capital market, we foresee about 15 billion on R&D and CapEx combined for the battery business and the launch of the first factory will be 2025, and then eventually Spain and Ontario. And from a from a capex burden, the biggest capex burden will be like 2024, 2025, 2026, and then eventually then fading out from today's perspective. And we gave you also a net cash flow and an operative result indication with a net cash flow break even in 2029 and the cash, sorry, the operative break even in 2029. and the net cash flow break even in 2030. And from then onwards, really a sharp ramp up in sales and in operative result with this margin from today's perspective beyond 10%.

Okay, thank you, thank you, Arno. And Jose, I would like to come to the third and fourth question. First of all, trade-in. Very clear, the reduced free float has an impact on the market cap development. But first of all, for us it was important doing all the restructuring work for the trade-in group. We have taken... some very important strategic decisions. And when we see the development of the operating results and also the profit margin, we see a positive development. And two weeks ago, I had the opportunity to spend a day in MAN. And before, I've been at Scania. And what we are doing there is considering also important engineering corporations to improve our cost positioning in terms of engineering costs. And therefore, I think we still have some steps to go. What is very promising is the opportunity to test the new trucks. And I was very passionate on the development on the ICEs, but also on electric trucks. And so the future I see very positive. We have a very strong order intake in the truck business. And so we haven't decided yet to increase the free flowed. because we have priorities in our steps. And first of all, it's improving our profitability. It is on a good path. And then what will come next, we have to consider later. Then coming to your question of the ID2, we presented a design approach of the ID2 that's by far not... The final model, we are still improving, but the feedback from our customers and dealers was very positive. And on this platform, it's the MEB update. we will offer to our customers a totally improved technology profile in terms of range, in terms of charging time, in terms of infotainment offerings. And so it's very promising what I see already there. And that will not only stay with the ID.2 only. On this platform, we will offer models from Skoda and from Cupra as well. with a pricing range of around about 25,000 euros and what we are calculating right now with a positive profitability. In terms of bringing smaller cars, we haven't decided yet. It might be an opportunity for the future to bring younger customers to the brand and motivating them to stay true to the brand, like we did years ago when we entered into Volkswagen brand with the Volkswagen Beetle or with the Volkswagen Golf or the Volkswagen Polo. And therefore, we need a strategy, but first of all, we focus on this battery electric vehicles in this range of the ID.2 with a very promising technology profile. Thank you very much.

Thank you, Jose. And we are coming over to Tim from Deutsche Bank.

Yeah, thank you very much. Good morning, guys. I would have three questions. The first one is on the China Corporation. The second one on stuff that primarily you, Olli, but also you, Arno, have said at the CMD. Firstly, when we think about the China Corporation that you just announced, I actually, in contrast to many on this call, think this is a great thing. It's very un-BW-ish. It's very quick and capital efficient. And it's a small price to stay relevant in that market. What I'm asking myself though, is why do you limit this to China? I mean, the tech element is one point. You may believe that you have superior tech or better tech relative for the European market, but what you clearly miss is that structure on your mass market brands. When we look at what still under the chiefs on the best market side, it's just far from what you guys are capable of doing as it seems right now. So why don't you use this platform or other platforms actually also for partnerships where you have guys that can produce more low cost, and take that also into markets like Europe, maybe more from the cost and the tech angle. Secondly, Olli, you always said multiple times at the CMD that you want to become more agile and leaner, and you also say that VW is more than the sum of their parts. Now, the downside to a large organization is very obvious. Speed is one of them. Focus is another. Why do you believe your job isn't a lot easier if VW was a lot smaller? Can we talk about real benefits between the different brands? In the end, we see that Audi spends almost as much money as BMW and Mercedes, for example. And finally, becoming more agile and focusing on accountability and fostering entrepreneurship all sounds great, and I'm sure it's the right thing to do for you guys. For us, it's very difficult to judge how you implement these ideas. Can you give us some examples of how you ensure accountability and how you would foster entrepreneurship? Thank you very much.

Okay, Tim, let me start with your first question on China corporations. And I think you're totally right. That is a great opportunity to come to a better cost positioning. That's what we are aiming in the first step in China. And as you know, the ecosystems are different in between the Western and the Eastern world. We are building our partnerships in both regions. But in our framework agreement we do have with Chao Peng, There is the opportunity to go out of China. But first of all, we want to establish the China business with a showcase of two Volkswagen cars and then thinking ahead. And as I mentioned before, there are much more besides of the platform component and technology business. It's up to mobility services. It's up to charging infrastructure. So the framework offers us a wide range of opportunities for the future. And I think this is totally the right approach for Volkswagen Group. On the one hand side, with our strong base, our strong experience in monotech technology, building cars, but having the right partnerships. We don't want and we can't do everything by our own and everything we are doing comes from the customer perspective and we want to offer our customers their demands in the different regions of the world and therefore especially these approaches when it comes to infotainment what we did for example with Sundersoft in China, or autonomous driving in China with Horizon Robotics, or Anu mentioned before, the mobile approach for the Western world. And so picking up the right partners, which are fitting perfectly together, where it is a win-win situation for both of us. And there you're totally right. That's the idea behind. When we have opportunities to offer technologies worldwide, we will do so. Coming to our presentation in the Capital Markets Day, to be more agile, to be leaner, to getting more speed and focusing our business, it's all about entrepreneurship. And for me, it is important building the guideline from the Volkswagen Group perspective as an investor. And firstly, I started with the top 10 plan. And that's the first guideline on our operating and strategic action field. Then I asked all the brands and all the operational organizations to give me their priorities as an entrepreneur. Then we agreed the priorities for each organization and now all brands and all organizations have their framework and can move into this framework as an entrepreneur. So I think everybody has got the freedom to build the business, but on the other side, having very clear targets. And we presented the targets on the strategic level in terms of profit margins. and therefore we gave the method how to build the programs behind to achieve the strategic profit margin situation and then everybody is entrepreneur to build its program and we will support with our experience how to drive forward the programs And so, first of all, I see big potential having started this performance program in all 12 brands. It's the first time in history that Volkswagen Group starts with the same approach with a comparable ambition level in between the 12 brands. And that will be a main lever for future profitability to bring the brand over 10% profit margin in the future. On the other side, we have taken a lot of strategic decisions to improve our cost structure. Before we talked about the SSPs in terms of technology platforms. And there we opened our landscape of SSPs and being able now with three lead engineers, Volkswagen, Audi, and Porsche, offering two platform levels where all our brands can pick their solutions for their segments. That's one example. Next example is ours. battery cell approach with around about 50% own development, own production, and 50% working together with partners with a unified cell. That will bring us in a unique cost positioning and That is crucial, especially in terms of material costs. And there are many, many more examples how we want to bring a Volkswagen group in a better positioning on the one hand side with an entrepreneur approach and on the other side by benefiting from our unique scale effect positioning of Volkswagen brand with around about 10 million cars a year.

And what's your leverage for these managers to actually make their targets? Is it a substantial amount of their pay according to the targets that you agreed with them? Or do they not rather just get paid by the group results? Is it public naming and shaming within the organization and career trajectory? Or what's really the penalty should they not make their targets or the incentive to actually make it?

Very important aspect. And For me, it is very important to also adapt the management compensation on these targets. We will start next year to bring our management compensation more in the situation to be more accountable, to be more comparative to the competition. And what we are doing is not only defining a strategic goal. We have intermediate milestones. Arno and me, we will watch the progress every quarter. When we have to speed up in one brand or in one organization, we will do so. And at the end of the year, we will measure very transparent also in between the brands. And that's the advantage having started the program at the same time in all brands. That's a kind of competitiveness in between the brands. and then the management compensation will be linked directly to the performance of all the brands. That's important. And on the other side, I have already explained that I see this approach like in a sports team, that everybody is going to the gym right now, making himself fitter. And as fitter is everyone. As fitter is a whole group. And so you can understand the whole group as a sports team. And every sports team is working like an entrepreneur. That's a kind of changing the mindset in the brand and one very important part of the 10-point program.

Looking forward to see you, Arno, and Rolf being jacked next year then from all going to the gym. Thank you, Olli.

We do so. We do so. Tim, it was a really comprehensive answer already. Let me give you a short add-on in terms of financial steering. You always refer to like we are. a huge number of brands and how do we steer it. Look, with our setup, which is unique in the industry, I think we made a major progress going forward. Look, we bundled the brands to brand groups, to strong brand groups, and basically we are managing from a group perspective, a brand group core, progressive sports, a drugs business, and in parallel we have standalone platforms like software, a battery, and a mobility platform run by Finco. So this is a very lean and comprehensive way of steering this group. And I don't want to comment on what Oliver already said, but it's really a very clear and very efficient way of steering a company like us. And we as a group, we basically interact with the brand groups and they then organize themselves, Volkswagen SEAT, Skoda, Volkswagen Commercial Services, So we really took a major step forward, taking out complexity with this setup.

And Tim being very, very concrete on the compensation issue. We have two parts of compensation. It's the short-term incentives and that it's focused on cash flow and profitability targets. And we are marrying it against brand and brand group performance, first part. Furthermore, we have ESG targets, and that is an important multiplier for our short-term incentives. On the other side, and that shows our focus on the capital market, our long-term incentives, And they are focusing on the shareholder value. And this one is measured against the group performance. And that fits perfectly together, making everybody fitter and then supporting the overall group performance. And that will be very accountable for everybody in between the short-term and the long-term.

Thank you very much.

Thank you, Tim. And we are coming to the next question, which is from Horst from Bank of America.

Yes, good morning and thanks for taking my questions. The first question that I have Maybe one for Arno. When I look at the underlying margin in Q2, 8.5%, that is below the one from Q1, 9.3%. I know there were some one-offs also related to Russia, but also in Q1, there were these employment bonus provisions. So therefore, I think there was a 0.5% sequential decrease. operating margin decline. Can you maybe explain what triggered this decline? Was it more on the cost side or was it already on price and mix side? The other question that I have that relates again, China, but then also the link to Europe. What my take is now that basically the MEB platform is not strong enough for the Chinese market and therefore you need a partner there. There's a saying that says, if you make it in China on BEF, you make it elsewhere in the world. So if the MEB is now too weak for China, should we be concerned about the MEB success also in Europe? And in that context, when I look again at the CMD targets for Brent Group Core, it is basically the main division where you target operating margin increases and this So part of the group seems to get now the biggest problems, and that is on MEB. I know you have got a 2027 target, and in between a lot can happen. But should that mean now that we should expect basically some problems, let me put it that way, in 2024 and 2025, that we have got at first some deterioration in margin before we see some improvement? Thank you.

Yeah, Arno here, thank you. Now, if you look at basically to a kind of an EBIT bridge of the first and the second quarter, it's really the topics you mentioned already. And you saw it from our EBIT bridge for the first half, price mix still strong with a billion. Mix even turned slightly positive, volume plus 4.1. And on the product cost, there were like some smaller one-offs, and we had the provision or the burden of 400 million in Russia and slightly higher increase in fixed costs. So there was really no major changes on how we operate currently and also going forward for the full year. If you look at the full year, we expect these effects really to stay, so no major effects.

But Arno, should that mean then, because you gave some guidance on volumes of course for H2, that now the performance that we saw in Q2 is a performance that we can also see in H2?

In terms of profitability? I mean, we gave the performance guidance of seven and a half to eight and a half percent. And we said that we want to have that basically reach for the reported and not for like the underlying. So this is the one topic. So we have to basically improve. And also, if you compare... the performance. We expect a slightly positive product cost for the full year, so there should be like a tailwind in the second half of the year. A fixed cost, basically, you could more work with the run rate, and volume price mix should stay the same. Perhaps, again, because it's not 100% clear, the one is deliveries, the other one is sales revenue. So we took down the delivery target mainly because of the run rate in China. And as you know, our China business is not in our operative business, but it's in our basically equity business. So if you look at the sales revenue and the sales revenue trend, we are even above our guidance. So that should give us really confidence to meet the second half of the year.

But that means, again, sorry, Anna, for being so persistent on that. That means that H2 margin could be even stronger than H1 on operating margin if the guidance is still unreported, right? Because in H1, you have been below the 7.5% to 8.5% margin range. So that means that H2 basically then should be clearly up, right? Also, I mean, underlying may be then unchanged, but reported up.

Yeah, it has to, because we want to really meet the, I mean, from today's perspective, you know, if something major happens on the derivatives, on the exchange rate, that's basically kind of non-performance. But from today's perspective of where we stand today, we give through a guidance of 7.5% to 8.5% for the reported, not for the underlying. Okay. Which implies even a step up in performance in reported in the second half of the year. Okay.

Okay, Horst, and then let me come to your second question about BEV and especially on MEB. First of all, as we have announced today, is that we increased our BEVs 50% comparing to the previous year. That is positive. Could it be better? Yes, of course. And as you know, when I started the 10-point program, One of these ten points and one of the important ones are the products. And for me, it's about the right product strategy, it is about design, it is about quality, and it is about the right profit margin. And it was one of the first activities we launched last year to enter in our product strategy and especially into our technology profiles. There is need for action in the MEB for CLEAR. There are fields of improvement and therefore we defined a very CLEAR program on short-term, mid-term and long-term. Short-term, for example, we launched this year The ID3 update, for example, to improving the interior perception and to repair some design issues. And mid and long term, we entered in a lot of designs of the whole Volkswagen group and improving them with a clear brand and product identity. Then we launched last year a quality program for all brands. The approach is different depending on the situation of all brands, but quality is one of the most important issues. Being able to position our brands in our pricing level we are used to. Talking about the competitiveness in the Chinese market, we will bring to the Chinese market a MEB update. And for example, you will see it next year, firstly in our new company, NEV company from Anhui region, where we bring a new Volkswagen product, and then bringing further products on this MEB update in terms of technology. Linking this to our partnership with Xiaoping, for example, we can benefit also bringing components, technologies, software, and combining it, for example, with the MEB of the future. Giving you one example, we know in the worldwide benchmark that Xiaoping is leading in voice recognition, and that is an easy thing. to combine it with our platform and offering in the Chinese market the best class voice recognition. That's only one example. And so that is our product strategy to improve our existing technology profiles in terms of range, charging times, infotainment offerings. And then for the future platforms in terms of SSP or we did it already for the PPE, what we will bring with the first product next year, we have defined technology profiles not focusing on the competition of today, focusing what we are expecting, where will be the competition in five years. And that, from my point of view, is the right approach to bring the right technology profile for our future products.

Just a small follow-up then. When we talk about, again, CMD and mid-term target, especially for 2027, is it a smooth path to the 2027 target, or is it a path basically that could be first down and then up? Or is it too early to make a statement on that?

No, of course, it's our ambition to have a smooth path. There's no plan to fall down and then eventually rise in 2027 again. We gave you a guidance on the sales revenue already, 5% to 7%. year on year. Of course, it's too early to give you a concrete outlook for 2024, but from our perspective, the industry will grow. We expect a 45% growth of the industry, specifically in the U.S. and Europe, China perhaps a little bit lower, so 5% to 7%. the sales increase year on year, what we communicate at the capital markets, they would basically mean we grow in line with industry and we have strong products, we have great brands, we work on the competitiveness on the MEB step by step. So if there are no major incidents like COVID crisis or whatever, again, you should expect a smooth path from us.

Okay, great, thank you. The first proof point are the results of the first half of this year. You know about all the cleanup we have done and all the challenging conditions we are moving. and delivering around about 9% of profit margin. For us, it was an important proof point to show that we are not only focusing on mid- and long-term targets, but also on short-term targets. And so I would underline what Arno said. We want to have a continuous improvement And then with bringing more and more of the future focused products, we will strengthen our positioning. And what is important as a message is we have this robust situation of Volkswagen Group because of our product portfolio in between the four brand groups. Core, Progressive, Sports and Luxury and Trucks. And that will bring us in a very leveraged situation, robust situation. with very strong brands and then supporting with a new product I explained before.

Okay, great. Thank you.

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

Thank you for taking my question. The first would be on the audit that you announced for the Chenyang plant. Have you nominated an auditor for this and did the audit start already? And in your understanding, if the outcome is positive, would you expect MSCI to react right away and remove the ESG red flag? Second would be a follow-up on Beth. You said order in bank remained solid and you saw an uptick in orders recently. In that context, why did you reduce the output in Emden? And I think you also lowered leasing rates for the ID4 a few weeks ago. Are you planning to go back to two shifts on potentially three shifts in the course of the year. And very quickly on the dividend payout ratio, with solid earnings but lower free cash flow in 23, is it fair to assume that the dividend payout ratio will not increase for the time being? So 30% is rather the maximum for now. Thank you.

Okay, Daniel, thanks for your questions. As we announced, we want to do the audit in China. We make good, good progress, and therefore it's also important to have the political agreement, and we are moving forward with our activities, and what is very clear, we stay true to our values and want to show very, very transparent how the situation is in Shenyang, and our aim is very clearly to... to exit from the red flag from MSCI. And that is our aim to play with full transparency and showing the world how we are working there. Talking about the situation of production planning in Germany and Europe, there very clearly that underlines our new approach value over volume. And we will link our production planning very much on the demand in the market, which is strong product by product. But what we won't do is to build cars on stock. and coming in the situation of a high incentive level and therefore we are deciding plant by plant to steer more market driven than production driven and therefore we are watching very deeply how the market will develop and then we decide month by month how we will drive our production sites. Then I hand over to Arno to your further question.

The third question was on the dividend side. We set our strategic target of at least 30% payout ratio, and that remains fully in place. In terms of cash flow, I said before, the situation is yes. The cash flow, we can't be pleased with the cash flow in the first half and specifically in Q2, but it's basically the reason for that is not that we have a weak um um cross cash flow it's rather that that flow that that cash is is tied up in inventories um and and of course this cash flow will will improve over time once inventory goes down again so this gives us also um the financial situation the the financial power to stick to our 30 at least 30 percent payoffs ratio thank you very much can i just ask for the first question uh the the audit did that start already in china or

Have you an auditor for this, or is it still to come?

We haven't started yet, but it's still to come. And we are in the political agreement, and then we will announce soon what will be the next steps there. Thank you very much.

Daniel, maybe one technical comment because you asked if the red flag is immediately removed after a potential positive outcome of the audit. MSCI has its own methodology. They are reviewing their ratings frequently, but it is not guaranteed that according to their processes it will be immediately removed. But we are also in constant exchange with MSCI and will make sure that they are always aware of the latest development and will have the latest information in order to make an informed judgment.

Totally clear. First, we have to do our homework and then it's up to them how to do it. But the clear aim is to remove it. Thank you.

Thank you, Daniel. We are moving on to Henning Kossmann from Barclays. Henning.

Yeah, thank you. Good morning. Thanks for confirming so explicitly that the guidance remains on reported EBIT. I think that's really positive. Perhaps gives me an opportunity. I know we've talked about it a bit, but to come back on the partnership approach in China, I'm still getting lots of questions here from investors who still seem to be a bit confused. So in terms of what that means for the competitiveness and perhaps the risk of cannibalization with your own platforms. And I don't mean so much near-term tech fixes like voice control or things like that, but more when we talk about the platform itself with start of production in 2026, which coincides with the launch timing of SSP. Isn't it, precisely the sort of proposition of EW to have a lot of scale on your own platforms. And how does that fit with the concept of this new partnership approach? I think there's still a bit of confusion. Perhaps we can try one more time to clarify that. Or is it perhaps even something like an insurance policy for yourselves to put yourself on two pillars if unlike your hope and your expectation, Carriot, for example, is not able to come up with a competitive software solution, for example, or otherwise in any of the other material parts of the VW-owned platform. Is that perhaps behind it? If we could try one more time to clarify for those of us who are still a bit confused. Thank you.

Yeah, Henning, I'm very, Oliver speaking, very thankful for your question. I think that that's important. And we have a clear product portfolio strategy for all our brands in the region and especially in China. And what we want to do now with the Chopin partnership is to tap into white spots. on our product portfolio. The Volkswagen product portfolio is in the lower A segment and we have the main A segment and the lower B segment that will be provided by Volkswagen platforms MEB, MEB Plus and in the future SSP. And then we are tapping in the higher B segment now with the ChaoPeng approach with two products, first of all only two products to get into and that offers us the opportunity and opens us to use modules, components, software from this platform also for other approaches and we will pick the best technologies we have and combine it to our platforms. That's more or less the idea. And once again said, everything we do comes from the customer perspective. And the customer perspective in China is totally different from all the other regions of the world. They are very much more tech-focused. There are a lot of applications. offer there in the market are different to other regions of the world. And so let us use it as an opportunity to widen our product portfolio. We still will have the big scale effects in between our platforms because The very, very high percentage of our cars will be on our own platforms, but we have the opportunity to use technologies with this entry of this partnership of Xiaopang. It's a support and improving our product offering coming from the customer perspective.

That's helpful. Thank you. Thank you, Henning. And we are moving on to Stephen Reitman from Societe Generale.

Yes, good morning. Thank you. I have two questions. The first is, Oliver, I'd like your assessment really on how happy you are with the flow of information and the degree of understanding that goes between Wolfsburg and the regions, really. And obviously, you talk about, you know, Chinese customers have a different expectation of technology in their life. But, you know, clearly that wasn't well transmitted when the ID3 was developed for global markets. And obviously, what is changing and how are you getting people to sort of avoid the kind of mistakes that Volkswagen has made over many years, whether it was misreading the U.S. market about SUVs or even the simple things, putting cup holders in the cars many years ago. My second question is really about the next building blocks, the group's success story. I think one of the sort of like caveats about the day in Hockenheim on 21st of June was that the virtual equity stories was not so much was given about the individual brands. It was promised that more would come. You've now given us a timetable for this. And although you're going to give us an update on the core brands in October, you know, the whole brand CMD is only going to be in H2 2024. Now, I know you've done a lot in bringing things very, very fast. But does this suggest that we're only going to get a brand CMD for the progressive group later than that? I just want to see your thoughts about can we get this any quicker, really, because I think that's what the market is really wanting to hear. Thank you.

Let me start with your first question. We have with some products a worldwide approach where we can benefit from our scale effect. But more and more what we see is the ecosystems worldwide are separating in between Eastern and Western world. And we have to respect the offerings for our customers in the different regions and making our products flexible as offering open source platforms. And then connecting them with the applications and fulfilling the expectations of the local customers. On the other side, besides of these worldwide products and adapting them to the regions, we have local approaches. We have, for example, the products we will offer from our new NEV joint venture in the Anhui region are tailor-made for the Chinese market. That is one example. And when we go from China to the U.S., there also... We decided with our scout approach how to tap into the biggest profit pool in the US market, the upper rugged SUV market and the pickup market. And we decided to bring the historical brand Scout into the market with a new technology approach, making this car electric, but combining the heritage with future technologies. And what we have seen last week there is very promising. We are already preparing vehicles. The plant in South Carolina, we make very positive progress in terms of design. We have decided a lot of technological decisions. And these are two examples. The Anhui approach focused tailor-made for China and the approach of Scout in the U.S. And so the whole strategy is built by worldwide products. adapting them and on the other side having local approaches and then combining this with partnerships in the western and in the eastern world being able to fulfill the expectations of our customers. And then may I hand over to Arno or to Rolf for the further planning what we will offer in terms of capital market stays.

So Steven, we made the poll at the CMD and we showed the results in the slide deck and you saw that the China strategy was clearly at first place. So this is why we decided to make this the next CMD in April 2024. But you are 100% right. The brands are also key to the story. And this is why we have also now said that we in autumn will have the performance program of the brand Volkswagen, which is a crucial part of Brand Group Core. And then we'll follow up with Brand Group Core in H2. And Audi, as you can see from the results, so Brand Group Progressive was ranked number five, so seen as six, so seen least important actually by the audience. And this is why we, so we are just following the will of our investors and analysts. And this is explaining the ranking and the explanation to your question. I won't question the action. Thank you. Thank you. The next question comes from Mike Tindall from HSBC.

Yeah, hi there, Mike Tindall. Thanks for taking my question. It's a philosophical one. I guess what I'm trying to understand is if I think about the largest EV maker in the world, they've got a very simple product plan. It's only a few products, whereas your strategy seems to involve nameplate proliferation. And I'm just wondering... Is that because you see the world differently and you think you need to have more customization to win share? Because it feels like the penalty is that the capital invested just continues to go up. So I'm just wondering if you can help me understand where do we end up in the long run in terms of the nameplates? Is there a period where we do see some consolidation or is multiple nameplates really the best way to win markets. Thanks.

Yeah, Mike, may I come to your question, which is a very good one. First of all, we are a company to make a transformation coming from a traditional ICE manufacturer to a future BEV manufacturer. And because the different regions of the world are moving with a different speed through the transformation, we need a balanced mix offering in between ICEs, hybrids and BEVs with a clear focus for a strong ramp up of fully electric cars in the future. But on the other side, we have still great opportunities with our ICE offerings. to being able to finance this transformation. I see this as an opportunity. When you look to the offering and number of cars, we have a different approach comparing with Tesla. We will have our scale effects by using platforms and offering these platforms to all our brands for their segments. But our customer structure is different than Tesla. We are offering very individualized cars, which are linked to the brand identities and product identities of each brand. And that's a big strength of Volkswagen Group, having so many strong, strong brands. and such a big customer base. And so we have the approach to tailor-made our products for our customers while offering this individualization. That's honored by our customers. That is shown by the strong order intake we have already in this year. That's a strategy we will do in the future as well. We don't want to compare with others. who offer only single models, we have a big, big variety of a product portfolio looking to the future. The number of cars will reduce, that is a clear message, because of reducing the offering of ICE models. And that is the strategy driving the company through transformation, which we will have at least for the next 10 years. But step by step, we are reducing the product, benefiting from the scale effects of platforms, but offering individual fantastic and exciting cars to our customers.

Mike, let me add on what Oliver just said. And he mentioned already that we will increase the model efficiency by reducing models specifically on the eyesight. But since you started with saying a little bit philosophical, I would like to give also an add-on and a little bit philosophical. We touch now our strategy versus competitors in a market which is rather small in terms of PVs. But the market is increasing year over year. Let's assume 70 or 80 million cars. Eventually, we will have 20, 30, 50, and even more million electric cars on the total market. And it might be also the case that our strategy will be even more powerful going forward when the whole electrical market is evolving. And so we are then there with great models, with great brands, and we are convinced that even in the electrical world, if more and more models are, more and more volume is there, there's a lot of room for differentiation.

Yeah. Just one quick follow-up. Would it be fair to assume that individualization, if I can say that word, actually drives higher loyalty? I mean, if I get the car I want, Am I more likely to come back?

Yeah, I think people love brands. People love design and people love individualization to express themselves. And that's what we are mentioning more and more in China. 20 years ago, we have had a very low level of individualization in China. And now there's a big, big demand. And therefore, we think that is especially our positioning. And with individualization, you bring the product to a higher profit margin, independent of the segment, and you build a very loyal customer base. We have already millions of fans of our brands around the world. And we will widen up this also in the electric world. And so that's a strategy of Volkswagen Group. On the one hand side, scale effects, reducing the model range a bit, but in between the models, having the opportunity of offering a new realization. Thanks.

Thanks, Mike. And we are coming to Justin from Federated Hermes. Justin, the floor is yours.

Hi, thank you for taking my question. Very interesting listening to the various aspects of the business in terms of going forward. I'd be interested to understand a bit more about how you are mitigating the risks with the increase in the partnerships in China and the extension of the supply chain there, bearing in mind the issues around human rights. that have been highlighted recently, particularly in China. Clearly you're doing the audit in the Chenyang plant, which we appreciate and we're looking forward to the outcome there. But I'd be interested to understand how you are managing and mitigating those risks with these partnerships and the extension of supply chain that that brings. Thank you.

Yeah, it's a very important issue and all partnerships we are closing have a very deep compliance part where we are tapping in all these standards and values we are standing for. And so our partners have to ensure these compliance issues and have to assure the values we are driving our partnerships. And that is on the top of everything we are doing, values respecting human rights, but also all the environmental aspects play a big role for us. And therefore, we have built in all our brands now the ESG profile to improving there. And the social aspects play a big role. And not only in our partnerships, in the whole value chain where we work together, we are working with a clear framework of KPIs, of criteria to work together. Thanks for your question. And that is for us the most important thing before having a partnership.

Thank you, Justin. And the last question comes from Philippe from Jefferies. Philippe, please.

Yes, thank you very much. I just had a question. I'd love to have your comments on when you and other carmakers talk about an order book of several months, I'd love to know really how that order book is, what it is made of in terms of end customers, how much is fleets, company cars, how much is daily rentals, how much is dealers? And really, what is the proportion of those orders that really have an end customer name attached to it versus, for example, rebuilding, which you think is an appropriate level of inventory in Europe or in North America? Thank you.

Philipp, I can give you the breakdown of basically that order. that order book. But so, of course, a huge amount of that is like end customers, some of the private, some of fleets. So if you talk about an order, it's either like direct to directed to the and I'm talking about Europe, it's direct to the to the to the end customer or a fleet. And even if it were basically placed on a dealer, so the dealer is rather sure that he can sell this car. So it's really an individualized order book on individual cars. It's not just that we order cars in a factory. And this is also why we say this order book is for Europe, because for obvious reasons in China and U.S. it's different, where you have a built-to-stock market, where yes, we're built-to-stock, But in Europe, we have a built-to-order model, and we are quite sure that eventually, behind every order, there will be a customer.

And if I can go back to kind of an old issue of this model proliferation and building onto Mike's question earlier, have you really tested in a way what your market share would be what your scale would be if you reduce 20%, 25% of our nameplates. I know Tesla's approach is extreme, but I think like auto customers over the years have been kind of spoiled with never-ending choice, never-ending options. And it's nice to have the choice, but it gets kind of productive. And so really, have you really done the work of stress testing how much simpler your organization would be if you ran fewer models? Because I think the theme I'm getting from this one and a half hour conference call, et cetera, is this posing is just too big and complex to succeed at this stage. And I'm just wondering if you've thought about it seriously.

I mean, I think what we don't want to leave is with the impression that we don't work on complexity. In terms of model complexity, we will significantly reduce number of models. We have a plan where we increase model efficiency, which is basically the opposite of model complexity, significantly until 2030. And also, the overall complexity of our BEVs is significantly, significantly lower than of our ICE cars. If you order ID3, ID4, I think you need five to six to seven clicks and you're done, which is significantly more efficient than if you compare it with the ICE car. So we argue for both directions. First and foremost, we reduce complexity specifically in the ICE side. Of models, we reduce offer complexity significantly on the BV side, but at the same time, What I just mentioned is there might be a case, and that case might be too early, when the PV market is significantly higher than today, that our strengths of the width of some of the most fascinating brands in the breadth of from a Skoda to a Volkswagen to an Audi to a Porsche, and also the models will be much more relevant than today when the electrical market is rather small. So we argue for both. We accept and we realize that we have to and we will reduce complexity both on the model and offer side, but at the same time, our time might come with an increasing overall PV market.

And so going in one more detail from the technical side to understand a bit more how we are reducing costs with our approach with the SSP in the future, our only electric platform on different performance levels, for sure, using in this SSP approach the same backbone of modules and components. That's first of all. Then, when we come to the brands, we have an approach, what carryover effect we do have in between the different models. For example, using the same dashboard, using the same consoles, using... door panels and something like that. And therefore, we have a clear strategy. You need a lot of discipline of carryover effects. On the one hand side, as high as possible. On the other side, to differentiate the product. That's the secret behind how to do it. And then the offerings Arno talked before are a bit different in between the segments. As higher you are, as higher are the individualization in between the segments. And so we are balancing quite well in between the expected profit margins what we have to do. That's more or less to explain what is our technical approach to reduce our material costs.

Justin, because this is of utmost importance, I would like to add another element, our production and industrialization strategy. Back then, every brand built its own car, but we moved basically to a strategy where we bundled the cars on the same platforms in the same factory. Let's take the ID.2, all ID.2 cars based from Cupra, from Volkswagen, from Skoda, We'll share the same platform. We'll share common parts. We'll be built all in material, and the same is for other cars. So it will be, from our perspective, a very good compromise between reducing complexity, building all cars on the same line, and some differentiation in front of the customer, which gives us a competitive edge.

Thank you very much.

Thank you, Philippe, and sorry for mixing up your name sometimes in between. We have come to the end of the Q&A session. Thanks for a very, very vivid and interesting Q&A session. So we are now heading to a small break, and we'll start in five, seven minutes, actually, with the press Q&A. Thanks very much.

Sorry, Philippe.

I got it wrong.

Okay, thank you very much for your good questions. It was a good discussion.

Yeah, thanks also from my side. Great discussion.