Volkswagen Ag Unsp/Adr

Ladies and gentlemen, welcome to the Volkswagen AG Investor Analyst and Media Call 9th Month 2024. I am George, the chorus co-operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star N1 on your telephone. For operator assistance, please place star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Pietro Zorino. Please go ahead.

Good morning, everyone, and a warm welcome to the nine-month 2024 results of Volkswagen Group. It is, as usual, a joint call for both media as well as investors and analysts. which is moderated by Rolf Woller, our head of treasury and investor relations, and myself, Pietro Zolino. I'm heading corporate communications here at Volkswagen Group. With us today is Arno Antlitz, CFO and COO of Volkswagen Group. Let me provide a few remarks before we start. By now, you should have received all materials, including the press release. the interim financial report, and the presentation, all of which were published this morning. If you do not have them yet, you can find all the documents on our corporate website. In case of any issue, give us a call or drop us an email, and we will send them straight to you. With that, let me now hand over to Rolf for a brief run-through of the next one and a half hours.

Thank you, Peter, and a very good morning to everyone on the call, also from my side. Thank you very much for joining us today. What's on our agenda? We will have Arno presenting the nine-month financials and then the key developments during the quarter, and thereafter providing the full year outlook for 2024. We will continue then with his presentation in a Q&A session for the investor and analyst community, which will be moderated by myself. And after this session, then we will have a short break, as usual, before we continue with the media Q&A, which will be hosted by Pietro. As a reminder, as always, the safe haven language and the other cautionary statements on page two of our presentation, which will govern today's presentation. Please read it yourself, because I will not read it for you. With that, I hand over to Arno. Arno, please go ahead. Thank you, Rolf, and good morning to all of you. Before we go into the details of the presentation, allow me to briefly comment on the current situation in Brand Group Core. The nine-month results, and particularly the earnings development at Volkswagen Brand, Volkswagen Commercial Vehicles, and Technology Components over the last three quarters demonstrate the urgent need for action in a volatile environment characterized by intense competition. This is why we are facing important and painful decisions that we need to make together and to bear together. I am well aware that the cuts we are facing are tough for all of us and that many employees are worried about their future. However, it is our shared responsibility to act for the future of this company and for generations to come. We have not forgotten how to build great cars. But the costs, specifically in our German operations and factories, are far from being competitive. This is why things cannot continue as they are now. In view of the confidentiality of the ongoing talks with our tariff partners, I ask you for understanding that we do not want to comment specifically on plans, on measures, or speculations in the press. With that, let me continue. to the presentation with the highlights of the third quarter. Starting with quite a number of exciting product launches in the third quarter, the new ID.7 GTX is currently the most powerful electric car from the Volkswagen brand. We have also just marked a new range record of 794 kilometers with one single charging load with the Pro S version. The famous four-way transporter is now in its seventh generation with more space and payload, as well as improved towing capacity and economics. The new ID.UNIX-E SUV has been launched to the Chinese market. The vehicle, which is tailor-made for the demand of Chinese customers, is characterized by a particularly progressive design and a smart human-machine interface with a customizable 3D avatar. New Skoda Elrock is a brand's first all-electric model in the important compact SUV segment. The model is on sale since early October with an entry price of around €33,000. The Audi A6 e-tron is Audi's first purely electric Sportback and Avant model. Its striking design enables the best aerodynamics in the portfolio and therefore greater efficiency. Last but not least, Porsche has just launched the new 911 Carrera GTS. as the first road-legal 911 to be equipped with a particularly lightweight performance hybrid. These exciting new models will add to the product momentum we see currently in our other intake figures. I come to that topic later. We also made important progress in the formation of the planned Joint Venture with Raven. In the past month, we received all necessary regulatory approvals And even more importantly, we were able to prove the full technical feasibility of the Rivian architecture and software in a drivable demonstrator vehicle. Both were key milestones on our way to set up the joint venture and finally start working on, as a team, developing the next generation STV software-defined vehicle architecture. The joint venture fits very well into our platform strategy and the roadmap we have set for software architectures. It enables our brand to launch future electric vehicles on the PPE and SSP platform based on a highly competitive and state-of-the-art electrical architecture and vehicle software at significantly reduced costs per vehicle and this more efficient use of capital. We also hosted the world premiere of Scout last week in Nashville. For us, as the Volkswagen Group, it is more than just another model or a new brand. It's a once-in-a-lifetime opportunity to strengthen our position in North America in the long term. With Scout, we will be represented in the most important segments of the U.S. market in the future, see pickups and rugged SUVs. These two highly profitable off-road segments have been dominated by American manufacturers for decades. The segment previously consisted of combustion engine vehicles, and we had neither the brand nor the scale to be able to seriously play in this segment. Now, this segment is also gradually turning towards electric, and we have all the ingredients we need to be successful. The electric technology, local batteries from PowerCore, and last but not least, a great brand with heritage, namely Scout. We are convinced that the future is electric, but the transition to electric mobility in the U.S., is not as fast as originally assumed. And one example of how we want to shape the transition to immobility is the introduction of a range extender for Scout. Scout is a fully electric vehicle per se, but we want to offer a range extender as an option from the beginning on. With that, back to the nine-month results, starting with group deliveries. We delivered 6.5 million vehicles to customers, about 3% below the prior year level. Order intake in Western Europe remained robust due to seasonal effects. Q3 order intake at 674,000 units were some 82,000 vehicles below the number achieved in Q2 2024, but 27% up on the prior year number. And it's worth noting that September order intake accelerated again substantially compared to the summer month and compared to the previous year, driven by a good customer demand for the attractive new product lineup, which is becoming more and more available in the markets. As per end of September, the order bank in Europe stood at 870,000 units. The 3% decline in deliveries was in particular driven by lower volumes in China, where volumes were 10% lower year over year in the first nine months and 15% lower in the third quarter. The overall growing Chinese market is still characterized by significantly declining ICE volumes and a shift towards BEVs and specifically PHEVs. Deliveries in Europe were almost stable in the first nine months, but weakened in Q3, with a decline of about 7%, not least to the lower BV volumes. In the North American, South American market, the positive trend seen in the first half year continued in the third quarter. Our team in the North America delivered a very solid 7% growth, with Volkswagen brand growing even by 24% in the region, a significant first step towards a more robust global footprint and an excellent result of our team there. Group deliveries in South America grew by 15% year-over-year. Demand for battery electric vehicles in Europe and North America continued to be mooted as a result of BV deliveries were 5% lower year-on-year. BVs deliveries in Europe and the US were down by 14% and 26% respectively. This could not be compensated by double-digit growth of 27% in China. In total, we delivered 507,000 BVs to customers worldwide in the first nine months, corresponding to a share of about 8% of group deliveries. During the year, the BV share improved sequentially to a level of around 9% in Q3. BV order intake in Western Europe showed an encouraging trend recently, more than doubling compared to year-end 2023, supported by recent new model launches. Let me now give you a summary of the Q3 financials. The third quarter was expected to be the weakest quarter of the year 2024 in an overall challenging environment. Not only for seasonal reasons and corresponding lower volumes, but in particular due to the flagged restructuring expenses booked at Audi related to the potential alternative use or closure of the Brussels plant. In addition, supply shortages were a headwind at Porsche and Brand Group Corp. whereas availability of six and eight cylinders engines that Audi was normalizing in Q3. With this general remark, let's move on to the financials and the operating performance of the Volkswagen Group. Vehicle sales came in at 6.5 million units in the first nine months, down year on year at minus 4%. Excluding our joint venture operations in China, vehicle sales were down by 1% to 4.6 million vehicles year to date. The corresponding slight decline of 1% in automotive sales revenues could be overcompensated by improved sales revenue in the financial service business. And as a result, group sales revenue improved slightly year-over-year to €237.3 billion. This is up 1%. Operating result came in at €12.9 billion, corresponding to a margin of 5.4%. one percentage point below the prior year period. Profit before tax amounted to €12.5 billion in the first nine months of 2024, some 29% below prior year period. In addition to the lower operating result, this was due to a lower financial result. Profit after tax declined by 31% to €8.9 billion, and as a result, earnings per share were down by 33% to 50%. All these figures are reported and are not adjusted for any non-operating effects. Third quarter results were impacted by additional €1.2 billion restructuring charges, largely related to ongoing information and consulting process with regards to the Audi Brussels side. This brings the total impact from various non-operating items accounted for in the first nine months to 2.5 billion euro. The remaining 1.3 billion had already been booked in the first half. Net of these non-operating items underlying operating result in the first nine months to that 15.4 billion euro and a margin of 6.5%. The underlying operating result in the third quarter stand-alone amounting to 4 billion euro and a return of 5.2%. But to be very clear, a reported margin of 5.4% after nine months is by far not a satisfactory level and clearly below our ambition and potential, giving the product substance and the global scale of our group. We must and we will continue to intensify our efforts across all brand groups and business divisions to bring costs down, improve our competitiveness, and our financial performance going forward. Net cash flow in the automotive division totalled €3.3 billion in the first nine months, about €1.6 billion below prior year level. This was mainly due to the lower gross cash flow, which was driven by the lower operating result, as well as a build-up of working capital of about €2 billion and higher investments. Now, working capital higher inventories in the magnitude of €7 billion were partially offset in particular by increased provisions and higher payables. In the third quarter, the standalone net cash flow came in at a solid €3.4 billion. Which brings me to our automotive net liquidity, which recorded a corresponding improvement of €3.1 billion compared to end of June 2024. Compared to the year end, 2023, it declined by about €6 billion. This was mainly attributable to the dividend payments as well as the redemption of a hybrid bond, which has already been booked in the second quarter of the year. Overall, at €33.4 billion, net liquidity continues to stay on a solid level. Coming to the divisional performance, passenger cars recorded an operating result of 7.3 billion, about a third below the prior year period. The margin amounted to 4.7%, 1.8 percentage points below the prior year level. Commercial vehicles continued their convincing performance trend, results advanced to 3.1 billion euro and return on sales stood at a strong 9.1%. The financial services division recorded an operating result of €2.2 billion, corresponding to a decline of 27% year-over-year. Let us look at the drivers behind the operating result development in the passenger car segment. Volume price mix contributed a negative €0.7 billion. As already mentioned, vehicle sales, excluding China JVs, were 1% lower. The volume other effect on the operating result was positive despite the slightly lower vehicle sales, excluding the Chinese JVs, and this was mainly due to an improved spare part business. Mix over nine months was affected by a weaker model and brand mix with lower sales at Porsche and Audi. It was however neutral in the third quarter. After it had turned negative in the second quarter, pricing nearly stabilized in the third quarter, benefiting from last year's price increases, but offsetted by higher temporary sales promotions, specifically for battery electric vehicles. Product costs were a minor headwind year over year, and fixed costs and other costs increased considerably as a result of higher R&D costs, increased depreciation and amortization, as well as continued inflationary trends including higher wages. This bucket also includes the restructuring provisions in the magnitude of 2.2 billion euro. Our overhead costs in our automotive division continue to show a clearly disappointing trend. Both in absolute and relative terms, overhead costs increased considerably in the period under review. This was mainly driven by the carryover effects of wage increase from 2023 and the lower sales revenue. And as a result, overhead cost ratio stood at 17.4 percentage points in the first nine months of this year, 170 basis points above the prior year level. Given an intensifying competitive environment as well as the ongoing transformation of the industry towards better electric mobility, this is clearly a call for action. We increased challenges in the market environment. We have to step up our efforts to improve our competitive position and cost structures, in particular in our German operations. Moving on to automotive investments into R&D and CapEx. R&D costs increased by €1 billion in the first nine months as a result of the accelerated transformation of the Volkswagen Group's brand towards electrification and digitalization, as well as the ramp-up of our PPE and PPC platform at Audi and Porsche. CAPEX continues to be at high levels due to significant upfront investments in new models, in battery and software, as well as the execution of our regional strategies. Relative to automotive sales revenue, the investment ratio stood at 13.6% up on the prior year level due to higher investments as well as lower automotive sales revenue in the first nine months. We continue to work towards reducing investments in R&D and CapEx to $165 billion in the next planning round, 2025 to 2029. Key to achieving this is a consequent utilization of synergies across the groups and within the brand groups, of course, more efficient R&D processes and structures, gradually lower investments in ICE, the expected effect from the Plantron venture with Rivian, and adjusting our battery capacity build-up to the market needs. With that, let's move on to the performance of our brand groups, platforms, and financial services business. Brian Krupp Core recorded stable sales revenues year-over-year, supported by increased list prices and positive mix, but held back by higher fixed costs and higher technicals, specifically for battery electric vehicles. The operating result declined by about 10% to €4.5 billion, corresponding to a margin of 4.4%, 50 basis points below the prior year period. If adjusted for restructuring expenses, however, the underlying operating margins stood at 5.2%. Brand Group Progressive recorded sales revenue significantly below last year's level, mainly due to lower vehicle sales and constraints of V6 and V8 engines, in particular in the first half of the year. Operating results came in at 2.1 billion euros, corresponding to a margin at 4.5%. As mentioned before, earnings were particularly burdened by the restructuring provisions of 1.2 billion in the third quarter related to the potential alternative use or closure of our Brussels side. We expect the positive underlying earnings trend to continue in Q4 with Brand Group Progressive aiming for a double-digit margin in Q4. Brand Group Sport Luxury recorded an operating margin of 14.6% in its automotive business, corresponding to a decline of 4.3 percentage points compared to the prior year figure. This was mainly due to lower sales volume, in particular in the Chinese market, higher ramp-up costs due to a record number of new model launches, as well as headwinds from supply shortages. In Q, overall Q3 should have marked a low point and Porsche plans to re-accelerate into Q4. Let us have a more detailed look at the brand group core. Two developments stand out here. First, Goda delivered a very consistent performance throughout the year and achieved a solid 8.3% return on sales in the first nine months in a challenging environment. This once again underlines that efficient cost structures combined with strong product substance can generate highly competitive margins. All other brands and businesses of the brand group recorded a sequential erosion of the operating margin in the course of the first nine months, once again highlighting the urgent need to take decisive action to reduce cost and enhance productivity, in particular in the German operations at Volkswagen brand, Volkswagen commercial vehicles and technology components, as mentioned earlier. Carriot continued to roll out software which resulted in an increase of sales revenue of about 20% year-on-year. Operating results continued to be significantly negative at minus 2.1 billion euro. Reported net cash flow stood at a negative 1.3 billion euro as Carriot benefited, like last year, from a 1.1 billion intra-group income tax refund. The underlying cash out total to minus 2.4 billion closer to the operating loss. Our battery business continues to ramp up the organization and advances in the construction of production capacity in particular at the Salzgitter site leading to an operating loss and cash out of about 400 million euros year to date. Trayton continued its positive earnings trajectory and delivered another strong performance in the third quarter after already very solid results in the first half of the year. Unit sales normalized in a weaker market environment, specifically in Europe, and decreased by 2% year to date. Operating margin came in at a strong 9.1%, up 110 basis points versus the prior year period, driven by increased ARPUs and improved cost structures. In the period under review, Trayton delivered a net cash flow of $1.1 billion and was able to reduce indebtedness in its industrial business further. Volkswagen Group Mobility saw a slight increase in overall contract volume. The credit loss ratio was stable on an overall solid level. Operating results in the financial services division in the first nine months of 2024, as expected, fell by about a quarter to €2.2 billion. This reflects a continued normalization of used car prices, a more difficult business environment in markets outside Europe, and higher risk costs. Moving on to our performance of our China JVs. From a volume point of view, sales decreased by 11.5% to 1.9 million vehicles in the first nine months of 2024. We saw strong growth in sales of battery electric vehicles, which could not be compensated for significant decline in our ICE business as the market continues to shift to NEVs. The proportionate operative result of our Chinese JVs amounted to €1.2 billion after nine months in 2024, down 37% on the prior year number. Lower volumes in a highly intense competitive environment, the margin dilutive effects from higher BV sales and costs related to the realignment of our business and the VCTC ramp-up were main reasons for this development. Overall, results here to date are in line with our expectations and we expect to end the year at the proportionate operating result of around €1.6 billion. Finally, moving on to the full year outlook for 2024, which we had adjusted on the 27th of September. We expect sales revenue to around €320 billion, operating profit at around €80 billion, an automotive investment ratio between 30.5% and 40.5%, and automotive net cash flow of around 2 billion euro. Net liquidity is expected between 36 and 37 billion euro. The outlook reflects a total of minus 2.6 billion in non-recurring earnings effects. However, it does not include a potential additional burden from a conclusion of the current ongoing negotiations in Germany. That said, we continue to expect a solid fourth quarter this year, In order to deliver on that expectation, we built on a step-up of sales and earnings momentum supported by the launch of the new models. We are building on a solid order bank in Western Europe with visibility well into the first quarter of 2025. At the same time, we factor in that markets will remain highly competitive. And we continue to push ahead with the execution of our performance programs and intense cost work across all brands and divisions as the basis for a successful transformation. of the Volkswagen Group going forward. With that, I hand it back to Rolf, and thank you for listening. Thank you, Arno. And we will now proceed to the live Q&A session. Anyone who wishes to ask a question may press star followed by 1. And I can already see first questions coming in. we would start the Q&A with Jose Azumendi from JP Morgan. Jose, please unmute and go ahead.

Thank you very much, Wolf. Good morning, Arno. A few questions, please. The first one, I mean, without going into the different restructuring actions you're looking to take, I would love to understand a little bit better, where do you see the biggest cost competitive differences to your peers? And what kind of margin uplift are you looking to achieve when executing these measures, specifically looking at the Volkswagen brand? And second question, we get this question all the time as we're seeing all these headlines on potential restructuring and potential plant shutdowns. Will this impact the ability to pay a dividend in 2025 if these measures will be taken in any shape or form? Thank you. I'll leave it there.

Jose, hello from my side, and thank you for your questions. I mean, the margin uplift is clear. We always communicated that the target for brand group, for Volkswagen brand is 6.5% in 2026, and that would sequentially lead to 8% margin of brand group core in this year. And we originally communicated an improvement program of $10 billion. But since the circumstance in the industry and the environment deteriorated, we had to step up these efforts. And we made it very clear from the early beginning on that the target is not delivering on the 10 billion, but the target is really to achieve a margin that leads to a brand group core and specifically brand Volkswagen that is highly competitive going forward and is able to generate the funds to invest into the future product. So looking into the competitive situation and where we see most of the uplift, I mean, we described the program earlier. It has all elements. We work on the revenue side, on the margin side, but specifically, of course, on the cost side and specifically on indirect area and productivity in the plants and also labor-related costs. And so basically with the mentioned topics, I think that the biggest disadvantage versus competition is from my side, the fixed cost side, the overhead cost side, and specifically, as mentioned several times, productivity and costs in the German operations. And this is where we focus on, but that doesn't mean that we don't focus on other topics as well. We focus on material cost improvements and we focus on other improvements, but these are, from my point of view, the things we really have to focus on. And your second question, dividend. I mean, our payout ratio is set, our strategic payout ratio is set that we want to have a payout ratio of at least 30% as part of our dividend policy. Of course, as you saw, the current situation is impacting also our financial result and operative result and, in subsequent, our earnings per share. Our earnings per share declined currently by 33% to 15.2 euros per share And we cannot rule out additional burdens from restructuring in the fourth quarter due to the ongoing discussions. But we will then, of course, help significant step-ups in profitability going forward. It's just reasonable to assume that the dividend for 2024 will be below the 9.6 euros per preferred share of 2024. But let me restate it. Our dividend policy of at least 30% of payout ratio is still valid.

Thank you.

Thank you, José. And we continue with Patrick Hummel from UBS. Patrick. Yeah, thank you, Rolf.

Good morning, Arno. I have also two questions. My first one is regarding the... even tougher stance that you're obviously taking here in restructuring the German business. And I don't expect you to comment in detail and understand the nature of the negotiations. But a few weeks we talked about up to two plans that could be subject to closure. Now we're talking about a list that goes way beyond that also in terms of wage reductions, etc. So I'm just wondering, has there been anything happening in the last, say, month or two that that has driven that even tougher stance on restructuring. And I wonder, that should be part of that question, is the free cash flow a limiting factor to how you go about restructuring? Because it sounds like, you know, if you're going for very comprehensive measures, this could trigger one-time effects that would basically eliminate the entire free cash flow for a year or two. I'm just wondering if that plays a role. And if you allow me a second one... Is there anything new in terms of your thinking on the CO2 front? Because that's obviously a significant earnings risk for next year. There is limited action for now, at least from the European Commission, as far as the debate about moving or pushing back the targets is concerned. So how does that CO2 complex flow into your thinking about the restructuring needs and thoughts for next year? Thank you.

Patrick, thanks for your question. I mean, as I said earlier, our target was 6.5% for Brandt Volkswagen in 2026. And of course, with the deterioration of the market environment over the last, I would say, quarters, it became clear that we had to step up our efforts. But nevertheless, the principle of the need for a restructuring program at Brandt Volkswagen on the fields I just mentioned, fixed costs, productivity, overhead costs, that was very clear from early on. So the situation had not fundamentally changed, and there was not a single impact or incident that drove that change. It's just that we said we want to and have to deliver on the 6.5% in order to make the group and the brand future-proof, and we had to step up our ambition. In terms of plan closures, the situation We see, and I described that earlier on in several locations, it is not new. The market, the total market in Europe was, as we counted, 60 million cars before COVID. And after COVID, we see 40 million cars. And we don't expect that to significantly change over the next years to come. So this is like 2 million cars missing. We have 25% market share, which leads to the overcapacity we have of about 500,000. And this has also not changed. And we have to tackle this topic as well. In terms of free cash flow, I would put it like the following. Our focus now is in the discussion with our partners from the unions and the labor representatives, should really be on fine measures to make sure that Volkswagen has a good future. The brand Volkswagen is able to achieve the 6.5% and is also able to earn the financials and have the strength in the earnings and to significantly invest into future products. And we should take the measures that are necessary in this situation. And from my point of view, we should not limit ourselves by potential consequence on the free cash flow. And we have the possibility for doing so because we have very solid net liquidity. And this very solid net liquidity puts us in the situation that we are able to do the decisions necessary to lead Volkswagen into a good future. And thirdly, CO2. Yeah, 2025 will be a challenging year. This is clear. We want to achieve our compliance by ourselves while protecting our profitability. This is clearly a trade-off. You are very well aware of that. What makes me confident is the very positive order intake in Q3. So basically, if you compare our order bank in the BEVs, it almost doubled versus end of last year. And very, very positive and strong models to come. We have a good order intake on the ID7 Tourer. Audi is bringing great models. Porsche is bringing additional models, so that gives us confidence for a significantly better CO2 position in 2025. Will it be enough at the end of the day? We have to look and see because, as we discussed, we also want to protect our margins. There also might be a potential credit pooling chance for us. We will have to look at that. But this is really too early for the beginning. We set on a really good product momentum. I talked about the Skoda Elrock with something like 33,000, a great car coming. Unfortunately, the ID.2, which is then really the game changer in our business, come 2026. But it doesn't help to mourn on that. The significant step up really will come with the ID.2 family, a really great, great design car. for 25,000 euros, very competitive cost structure, built in Spain, LFP battery entry from our own power core. So that will be really in terms of volume and CO2, the game changer from 2026 onwards. And 2025, we have to look how the year goes.

Thank you, Arno, and good luck with the negotiations.

Thanks, Patrick. And maybe what we can add, we have also seen very good reports not only by you, but also by others, analyzing the CO2 situation, coming up with in part quite drastic headwinds for 2025. And as said during the roadshow activities as well, we don't think actually that the worst case scenarios are calculating up to 4 billion headwinds, that this reflects the current situation should be much, much lower. And what I forgot to mention, but we could also mention is we have an extremely good auto intake on our PHEVs, which are extremely competitive in terms of range. Passat, specifically Tiguan PHEV. And so as you're aware, this helps also in the CO2 balance for 2025. Thanks again. Thanks, Patrick. We continue with Tim Rokosa from Deutsche Bank. Tim, please go ahead.

Yeah, thank you very much, Arno and Rolf. I would have two questions as well, please. The first one is on the very strong order intake while simultaneously having the surprising stable pricing. Just to clarify this, is that the model initiative that we are starting to see bearing fruits? Or have you done anything else to stabilize pricing and increase order intake? And if that is indeed the case, where do we stand on the rollout? And should we expect this both to develop favorable also in Q4 from what you can hardly judge? And secondly, Arno and Evergreen, in our discussions, you're coming close to your planning round. Let's talk about investment needs. Last time we spoke, you said that there's room to the downside in spending given Rivian and other developments. Do you still see the investment plan coming down? If so, to what? And are we now at the peak of the investment spending? Is the ratio coming down from here? Thank you.

Yeah, Tim, thanks for mentioning. Now, we are very pleased with the price bucket, price versus incentives. in the quarter Q3, which really stabilized. And yes, there's a kind of positive momentum from the new from the new models, which are, of course, young and fresh. And we will continue to see a positive momentum from the new models there. On the other hand, we have to step up significantly the BV side. And as you know, the BVs are currently margin dilutive. The first really basically BV with margin parity will be the Q2. that ID2, and the BEVs are not only marginal, currently the BEV, as you see in our pricing, carry higher incentives, obviously. So, in principle, we expect a more stable situation on pricing versus incentives and technicals, but the BEV ramp-up will deteriorate in the coming quarters, obviously, once we go into 2025. And, yeah, but as I said before, rest assured, we want to make sound or we will make sound compromises between pricing and volume. Yeah, on the famous, it used to be 180, then 170, now 165. Everything we said before is still valid. From today's perspective, we expect R&D CapEx combined to peak in 2024, and not only relatively, but also in absolute terms. And yes, specifically the joint venture with Rivian will give us a potential to improve specifically on the software expenditure. So nothing new on that. If there might be a necessary of stepping up of investments R&D CapEx, for slightly more capacity on PHEVs or HEVs, we will then have to compensate that on the expenditures on the PV side. So they won't come on top. Thank you. Very clear. Thank you. Thank you, Tim. Then we continue with Horst Schneider from Bank of America. Please go ahead.

Yes, thank you. I hope you can hear me. I have got two to three questions. First one, maybe more plain vanilla ones on Q3. Since you pointed out your price mix impacts, which were both just 100 million euro each in Q3, was there kind of sequential improvement in terms of price mix? And if that was the case, why? And on product mix, we still can't see any positive raw material price impact. So what's driving here the product mix line? And is there a chance that this gets any better in Q4 or maybe this just happens in 2025? On the restructuring, I know you cannot say a lot on that because the second negotiation round starts at 10 o'clock today. So therefore you need to be tight-lipped. But I think what we fear now from a capital market perspective is that you run into severe strike situations in December. And of course, also you cannot rule that out today, but maybe you can tell us What is the daily usual production volume at Volkswagen AG, so the mass market business in Germany? And what would it mean if the production would stop by one day in terms of earnings? Just the ballpark range, that would be great. And last but not least on restructuring, on the government, I realize that the unions say always, not just Volkswagen needs to do something, also the government needs to do something. Is there anything that the government can do that you basically step back a little bit from your restructuring ambitions? Thank you.

Yeah, I asked several questions on the price mix side. I can only reiterate that we had really a stable third quarter and And on the mix side specifically, we were restricted by Audi with Q6 and Q8 engines, which we basically got a significant release in Q3 and also Porsche had a significant changeover. So, and with going forward and the recovery of Audi and the recovery of volumes at Porsche with moving on to the new models, you should also expect a significant positive product mix going forward. In terms of pricing, I just explained the mechanism. We see a very good pricing on the ice, but as you can see in the market, not only with us but also with our competitors, you see a dilutive effect. of the of the of the bv ramp up specifically in in q4 and then going into 2025 which is really too early to tell how the situation 2025 will be but because you're aware every competitor wants to achieve the two two targets in in this in this um here um yeah in terms of restructuring i i really don't want to speculate on on strikes and on potential calculations. It depends on, of course, on which factory. It depends on is it car and component business. Don't forget we have also component business in Germany. But all I want to say, we need to make sure that the compromise we find will be significant so that Volkswagen can achieve the 6.5% margin and can move into a profitable and successful future and will be able to invest into future projects for themselves and not depend on the group. And I'm confident that we reach agreements so that we will achieve this target. But, of course, I cannot rule out strikes. This is clear. But sorry for not being more specific, but I don't really want to do more on a speculative... But just your daily production in Germany? In December, normally a little bit lower, because, as you know, there are holidays also coming in December. But ask for your understanding, Horst, that we are not going into details here. I mean, Horst, if you take some factories, you know the output of like Amt and Zwickau, Wolfsburg, and you know the number of working days, so you can have a rough indication. Okay. So we got 250,000 units over the year. So I think you can do a very rough math on that if you calculate that down by months, weeks, and then days. But really, I don't want to give a number and don't want to speculate on that. Yeah, yeah, sure. No problem. Yeah, in terms of government, my position is we have to look into ourselves and do our homework, do what we can do, and we have to focus on what we have in our hands. And we did that, and I'm confident that we can deliver on that. Of course, there's a discussion of CO2 regulation, what about 2025? But all I can say, in a more general topic, we adhere to the ramp-up of electrification. We invested accordingly. We are convinced that the future will be electric. And for that, we need, of course, stable a stable situation and stable decisions, but also for the current discussion on productivity and competitiveness, we really look onto ourselves and discuss the measures we can do as a company.

All right. Thank you. Good luck.

Thank you. We can definitely need the good luck. And we continue with the next question, which comes from Henning Kosman from Barclays. Henning, please go ahead.

Yeah, thank you for taking the question. The first one may be on this encouraging statement on the brand group progressive double digit in the fourth quarter, not least context warnings from Mercedes and BMW. So that looks really good. Is that a sustainable level or is there anything in there that would make you think you can't extend that into 2025? And then the second question on Scout, good to hear that you had the technical feasibility done and also the regular improvements. Is there anything more that you can say around Scout and Rivian on the potential of that first nation, the vehicles obviously fairly similar would appear to go head to head in terms of competition in the market. you have via the investment equity stake already. Could you just share about, you know, how keeping that perhaps a further integration? Thank you.

Thank you on your comment on Audi and also on Brand Group Core. Let's not forget there's also two other great brands or three other great brands. It's Bentley and Lamborghini, which really work closely together and already draw a lot of synergies. We always said that Audi has a very strong product momentum. Now a lot of new cars are coming, Q6 e-tron, and then we have the A5, A7, Q5, and Q7. So there's a lot of momentum there. I don't want to do too much of detailed discussion because when is the conference call of Audi? Okay. I think tomorrow or the day after tomorrow. So even tomorrow. So I don't want to give you too much detail, but also not forget that with the ramp-up of BVs, also in our premium brands, currently the BVs are margin dilutive, and so that will have an effect. But nevertheless, we are really confident that the product momentum Audi will show over the next 24 months will significantly benefit Audi. But really, for more detailed discussion, I refer to my colleague, Jürgen Rittersberger, which is happy to give you more details tomorrow. About Scout, I must be careful that I'm not too enthusiastic about this project because I'm also the CFO, but also in my role of looking to the North American market. The key elements I gave you already, it's potentially outside in one of the most profitable and encouraging segments worldwide with stable returns. It's turning electric, and we have the ingredients we need for that. We have the battery technology. God will get it from Ontario. The batteries from Canada, from Powerco, with very competitive prices. We have an electrical component. Although it's a new brand and new products, we try to get a lot of synergies within the group. One synergy is, for example, the electrical components. It will share it with the Audi Q8 e-tron, and we call it the LK4, so it will be electrical components from the group shared with Audi. And although it's not 100% decided on already, it's also a possibility that the electrical architecture we currently develop together with Rivian in our JV, of course, it's clearly an option that one of the early users of this electrical architecture will be Scout. So this is another synergy. In the market, I spent... a lot of amount last week on this great event in Nashville and I talked to the teams and I talked to the marketing people so they did a lot of like typically segmentation and all these kind of things and Scout and Rivian are really in different segments in terms of pricing, in terms of milieus, in terms of customers so I'm not afraid that there will be too much competition but nevertheless Scout is a standalone brand And they will find their customer in the heart of this really American segment. And last but not least, and then I'm done, we had a very good response on the range extender. There was a little bit of skepticism about our volumes. Going forward, how fast is this segment turning electric? But with the including of the range extender and we got the technical feasibility now, there's a lot much more, I would say, confidence in the ramp-up because specifically in the early years, we expect this range extender to significantly add to the demand and stabilize the volumes.

Thank you.

Thanks, Henning. And I have to apologize. The OD conference call is on November 5th. I should have known this. Yeah, thanks, Robert, actually, for texting me. So they need a little bit more time in order to put together the very encouraging outlook. Yeah, but then Jürgen Wilsberg has also more time to prepare very convincing answers. Very good. So we continue with Tom Narayan from RBC. Tom, please go ahead.

Thanks for taking the questions. One is a follow-up on Hennings, on Scout and Rubens. I understand right now the two very gorgeous vehicles, by the way, Scout, don't price exactly where Rivian is with their R1S and R2. Sorry, R1S and RT. I guess the thinking is that when Rivian does come out with their R2 and R3, that starts to compete head on with where Scout is. So is the strategy going forward to be keeping both complementary, where the two are not competing on price and demographic? That's the first question. The second one is, you'd made a comment, Arno, I think earlier, about pre-pandemic, Europe was doing 16 million, now it's 14 million. I guess, what would you say is driving this? Is it just a pricing issue? Is it because of BEVs? And why would this structurally continue? We saw one of your German peers last week reported down 10% revenue per unit X China, which suggests price mix came down significantly in Europe. So why wouldn't pricing come down and that then lead to volumes returning, maybe not back to 16 million, but at least somewhat closer?

Thanks. Yeah, Tom, I want to make the thing very clear. Scout is a group brand. It's newly founded. It's 100% group brand. And we focus really with Scout, we focus on the segments, on all competitors, not on all competitors in terms of focus, but we are aware of all the competitors. And Scout is doing the positioning and the pricing really for themselves. The joint venture with Rivian is really focused on software. So we don't discuss and see Rivian specifically from a product side and where Rivian is positioned. We see the whole market and all the competitors. And this is what Scout takes into account and the Scout team takes into account when they do the pricing, when they do the segmentation, when they do the design. And as I said before, Rivian is focused, our transformation is really focused on creating the next generation electrical architecture, state-of-the-art architecture, and food-approved architecture in the JV. So we shouldn't mix up these two discussions. And yeah, if I understand you right, you asked me and us, why do we expect the 40 million cars continues in Europe? I mean, if you look at all the trends in terms of growth, in terms of household income, And we don't expect the market to grow significantly in Europe. Next year, we expect a 1% to 2% increase. And so, yeah, might it be like 14.1%, 14.2%, 14.5%? It might grow slightly, but from our perspective, we won't see levels of pre-COVID, COVID before. And so there are inflation trends, there are macroeconomic factors, customers and people have to spend more for energy and other topics. So this is our forecast going forward. And I think it's safe and robust to not base our assumptions on a growing market. And then that will eventually not come. So I think it's absolutely important the best assumption we can take in the company. I mean, you are doing a lot of like this economic research. Can you want to add on that? Tom, you're right. I mean, price is a decisive factor when we look pre-COVID or since the pandemic, obviously prices have risen in average by more than 20% car prices. On the other hand side, you have trends like home office, alternative mobility solutions. So therefore, the structural under demand, whether it will persist now at 40 million remains to be seen. It's not only us who are seeing this trend, it's also third party who clearly sees that at least for the foreseeable future, there is no recovery above this 14 million level. And forecasts can be wrong, but for the time being and looking at the arguments, it looks reasonable to assume that the demand stays at this 14 million level for the foreseeable future. Thank you. And we continue with Stephen Reitman from Bernstein. Stephen, please go ahead.

Yes, good morning, everybody. Two questions, please. I'm looking at your deck and looking at slide number five, looking at the plan JB with review, and I'm comparing it to slide 23 with the carrier results. And obviously, congratulations on proving technical feasibility of the concept already and done in very quick time. So that's very good. What is that telling you about how fast Rivian moves and how fast you can move with Rivian compared to the relative slow speed of Cariad and the fact that Cariad looks like it's lost another 900 million euros in the third quarter? And how do you see Cariad's, the vector of Cariad's results going forward on that, please? And secondly, on BV sales in Germany, you have enough promotion at the end of the year, which basically means that you're selling the ID3 for just under 29,800 euros in Germany. Do you think that's actually going to be the sort of pricing levels you're going to have to maintain through 2025 to make your CO2 emissions targets? And what does that say about the profitability at that kind of levels? Thank you very much.

Now, Stephen, Thanks for a very valid question in terms of Carriot. We already communicated that we will basically, in the JV, with Rivian, we will develop the next generation software stack. We call it 2.0. But don't forget that Carriot is currently deeply involved in the ramp-up and and improvement of the stack 1.2. This is the software of the PPE platform for Audi and Porsche, which will be also very competitive in front of the customer with a lot of features, and also with the 1.1 software for all our MABs, and also there will be other functions that will be responsible, for example, ADAS. driving assistance functions. So, Curriot will play an important role going forward. And in terms of business case, of course, we expect Curriot to significantly improve in terms of Airbnb and cash flow. Why? First and foremost, it's depending on the business model. As you know, Curriot had basically all the upfront investment on their books, and then The sales basically are license fees that are paid by the brand car by car. So since the 1.2, the first 1.2 cars are ramping up just now with the PPE on the PPE platform, Q6 e-tron, A6 and EMA car. So eventually the sales side basically on character significantly improve a going format starting this next year. And also with the ramp up of more MAB cars, the license income will significantly improve. And at the same time, you rightly expect that the expenditure should go down since we have the improvement of the 1.2 and the 1.1 software in our books and others. But the expenditures for the 2.0 will basically move to the... So you will see a significant increase in profitability or an improvement in the current profitability situation going forward for Carriot. And the current, I would say, increase in losses in Carriot has also to do that in anticipation of the software situation going forward. The capitalization rate of the carried software went down in the third quarter. So this was basically driving the profitability situation carried in Q3. And which was also basically a consequence of the software strategy going forward. And in terms of PV sales, I mean, you're aware that You are aware we had the repositioning of our ID3 models, and new models are coming, for example, like the LROC with basically 33,000 euros in Germany, but you're also obviously aware that, for example, ID4 and ID7 And IDBUS and other models and the premium models are very stable in pricing. So it's more like, I would say, a contribution to the BV ramp up in the fourth quarter and then sequentially into 2025. And as I said before, the ID2 will be then really the game changer with 25,000 euros and a very attractive model in the market coming only 2026. So the strategy is like the ID3 should somehow bridge the time between now and until, for example, Skoda Elrock and the ID2 is coming. And I wouldn't look on the profitability on the specific ID3 model that it's repositioned, but rather on the greater profitability. profitability of the ID family and our electric cars. And in that, I would say, greater view, the repositioning of the ID3 plays a major, a minor role in terms of margins. Thank you, Stephen. And we are moving on to the next question, which comes from Mike Tindall from HSBC.

Morning, Jens. Thanks for taking my question. Two questions, if I can. Just one, I know you've focused quite a lot on the 6.5%, and if I'm not wrong, when you first announced the plan, you needed around about $10 billion of savings to get to that. Is that $10 billion number still a valid number, or has the world changed and actually you need more now to get to the 6.5%? And then just a follow-up on the dividend, and I don't know how much you can help me here. But given the ongoing negotiations, how do the optics of paying the capital side versus the worker side influence that payout? Or is it a hard greater than 30% and what's going on in the rest of the business is separate to that particular calculation? Thanks.

Yeah, thanks for the question. I think I mentioned earlier already, originally we, let's put it the other way. The target is clear. We need to achieve the 6.5% in 2026. So we originally started with 10 billion. And so what happened was like, some of the 10 billion had like negative, we saw negative effects. For example, we had some assumptions on pricing and on positive effects on the pricing side. So that didn't materialize due to much intensified competition. And so we had to I would say step up the $10 billion. So the $10 billion are now slightly higher. We agreed that we don't really want to give a specific number on that. But yes, the $10 billion are not significant, but they are higher from today's perspective because we had to factor in the negative effects, the headwinds specifically from the markets, as you see in how the competitive environment is intensifying. This was specifically due since the situation, look, we came from a chip crisis and they were basically, from my perspective, there were two phases. First and foremost, in the past, due to the shortage of chips, nobody could build and deliver as much cars as there was demand. And so they were like the first step when everybody started could build as much cars as everybody needs, as every competitor needs. But there was still a high order bank. And with the ramp down of the order bank, not only within Volkswagen, but in the whole industry, the competition intensified significantly. And we had to compensate for that in addition in order to restate that in order to achieve the 6.5%. So the $10 billion were gross, but the real target is the 6.5%.

And on the dividend?

Dividend, we had already answered that before. But please repeat the question. I've missed it as well.

I know that the calculation is 30% or greater, but I'm wondering about the optics of that, given what's going on. I know you probably will struggle to answer this, but just how difficult will it be to pay capital when you're in the midst of restructuring?

Yeah, but I mean, I tried to give the answer before on that. You see the earnings per share going down. So you shouldn't expect the same dividend we paid last year. Of course, there might be even more restructuring, which puts more pressure on earnings per share as the mathematics works in the P&L. But on the other hand, I also said Our dividend policy stands at a payout ratio of 30%, and this is what I can say currently.

Okay, thank you.

Thank you, Mike. So we are coming closer to the finish line, but there are still three to go. We continue with Daniel Schwartz from Stiefel. Daniel.

Yes, thank you for taking my question. I have one more technical on the restructuring. Assuming if you had an agreement with unions to cut wages by X percent, do single employees need to agree on that? Assuming they have individual contracts, or can unions negotiate this and the outcome is simply applied to everyone within the collective agreement and outside the collective agreement? And then on China, the proportional operating profit was 1.2 billion in nine months. That's down 37%. The dividend you received is 1.7 billion, actually even slightly up here. Could you explain why and how the JVs are paying that much of dividends? And the last technical question, why is the net cash position expected to increase in Q4 while the pre-cash flow guidance is negative for Q4? Thank you.

Daniel, for your first question, I must Admit I'm not an expert. We will find out. I'll give you an answer later on. But I can't answer the technicalities of how that really technically works. So I can't comment on that. Sorry for that. And China, I mean, look, the $1.6 billion we expect this year and the dividends paid is in a magnitude that the 1.6 billion this year will be relevant for the dividends paid next year. So the Chinese are currently paying a slightly higher dividend because that's basically related to the result we earned last year and on exhibit we just distributed. Last year we had a 2.6 billion proportion of the result and the dividends we achieve or get this year are based on the $2.6 billion. But as the mathematics works, unfortunately, the $1.6 billion will be irrelevant to next year, and we have to compensate for that as well in our cash flow. And in terms of the cash flow and net liquidity, this has something to do with how we treat the investment in the Caribbean JV and also the convertible. that technically will convert basically in the fourth quarter and then burden the cash flow, but the net liquidity is already burdened by it. Yeah, we'll see a release. Thank you. So the improvement in fourth quarter in the net liquidity has to come from cash flow from financing and not out of the operating or Which basically is a reclassification of the convertible into M&A, basically. And it's included in the M&A forecast already. Thank you. Thank you, Daniel. And we move on to Michael Ponset. Michael from DZ Bank, please go ahead.

Yes, Michael Ponset, good morning. I have two questions. First one is on the order bank in Western Europe. Can you give us, please, a number for the overall order bank and also, in addition, a number for the BEF order bank? And the second question is with regard to the ongoing negotiations in Germany. According to some press articles, the cancellation of the wage agreement will lead to wage increases up to 10%. Can you confirm that? And if so, when will this effect hit the P&L market?

No, the order bank is $870,000. It's basically, to give you a rough comparison, $800,000 was the typical order bank we had pre-COVID. So it's really... an order bank that was typically for 2018, 2019. So yes, it's down, but it's not significantly down compared to a more normal situation pre-COVID. And the order bank for BVs is 170.

870 was the overall number.

870.

OK.

And the other question, what you have read, Michael, in the press, is that if we don't come to an agreement with the unions on the new tariff, then obviously the old tariff from 1984 would come into force, and that this might then lead to a technical increase of wages, et cetera, et cetera. Again, speculation. It's rather difficult to say whether really the old regime would then come into play or not. and ask for your understanding that we don't want to comment here on the speculation currently in the press.

Okay. Thank you.

Thank you, Michael. So we continue. Best for last, George. George Cuddy is from Goldman's. Please go ahead.

Thank you, Rolf, and thank you, Arno, for taking my questions. The first one I wanted to focus on was personnel costs in light of the negotiations that are taking place. If I look at your reported personnel costs as a percentage of revenue, they were just over 15% last year. If I look at the majority of your peers in Europe, the ratio is closer to 9% to 11%. As part of these negotiations and also as part of the 6.5% margin target for VW Brands, Are you looking to get down to parity with your peers or are you simply looking to close some of that very material gap? Second question I had was with respect to the range extender technology that you have unveiled with Scout. Is that a technology that you have developed at Volkswagen or is it something you will develop in conjunction with Rivian? And do you plan to also examine using range extender technology in both Europe and China going forward? Thank you.

Yeah, thanks for your question there. Look at the personnel cost. Of course, we have a target for the personnel cost. We don't really calculate it basically specific like for like with our competitors because that has heavily to do something with the value added debt And as you are aware, we run also a lot of component businesses in Germany. Braunschweig, for example, Kassel for gearboxes and electric engines, Salzgitter for engines, and also in Wolfsburg. So I would expect that our value at depth is higher than from the competitors. Or even with a 100% competitive position, you should expect a slightly higher percentage of personnel cost because that would, compared to other competitors who had less value added debt, should be done material cost by them. So rather on comparing on that cost proportionally, we look on what needs to be done in order to be 100% competitive, both in terms of a margin, but in terms of factory costs. And we have a clear factory cost target. for all factors obviously, but we specifically have to bring our factory costs down in our German operations, in our German factories where the personnel costs from the factory costs are over proportionally high. Of course, we have targets there and not only in terms of cost per hour, but specifically also in terms of productivity. And with the implementation of the measures there to become competitive, also in the German plus, the personnel cost as percentage point should obviously significantly go down. Jan, your second topic on the range extender. The range extender was really developed by Scout together with Volkswagen. And as you're aware, the range extender's concept is a specific concept where you have a battery and it stays 100% electrical concept. You either have a big battery for the Scout or you have a smaller battery and in the package that you free you implement the engine and the gas tank and so on. This concept is a concept that is specifically suitable for bigger cars with a bigger footprint The concept is more difficult to integrate into smaller cars. So this is why we start with Scout. Of course, we look on the different options, but for the time being, the range extender concept is really a concept we want to bring firstly at Scout. And as I said before, it's an all-electric Scout, and the range extender, as you know, charges basically the battery.

Very good.

That concludes the Q&A session for today. Thank you very much for the very vivid discussion we had. Of course, if there is anything left unanswered, please contact the team here in Wolfsburg, Lars, myself, or any of the other IR members. Next time to meet us is at our virtual and physical road shows in London and the U.S. and in Paris. And the fiscal year results will be released on March 11th. And now we go for a short break before we return in about five, seven minutes. And then we'll continue with the media session. Again, thanks very much. Stay healthy and looking very much forward to catch up in person or virtually over the next couple of weeks. Thank you. you you you George?

Ladies and gentlemen, please hold your line. The conference will continue shortly. Thank you.

So hello, everyone. We would be ready for the media Q&A now after the investors and analysts call. I just want to remind you that if you want to ask a question, please press star followed by one, and then we will take questions one by one. So if you want to ask a question, please press star followed by one. Thank you. So, okay. And I would hand over first to Arno Antlitz, as he want to give a short introduction before we can start with the Q&A. Thank you.

Yeah, thank you. I would like to do some. First of all, thank you for joining our Q&A session for media. As you know, talks with employee representatives are currently ongoing, which include the restructuring of our chairman business of Brent Volkswagen, including the component business and Volkswagen light commercial vehicles, and in parallel, the second round of collective bargaining negotiations started today. As always, we have agreed on confidentiality with IG Metall and the Works Council, and we adhere to this agreement. Let me comment on the situation in general. So you have the background. And let me do this in German to make sure that everyone is able to follow. You should have received an English translation a couple of minutes ago. Yeah. . The order entry in Q3 in Western Europe is encouraging and shows that we have products that are excellent across all types of drive, which are now also fully available on the market and exactly the product momentum that we now also need. However, the essential business characteristics on the corporate level are sobering. The vehicle sales were at 6.5 million, which is a decline of 4%. The sales only increased slightly. And in total, our company only had a profit of In the last quarter, it was only 3.6%. We are therefore clearly below our capabilities in terms of first-class products and our worldwide scale advantages. And this is especially true for the Volkswagen brand. The brand started with a margin of around 4% per year and is currently at 2% after 9 months. This corresponds to an operational result of 1.3 billion euros. At least, says one or the other and asks, where is the problem? The problem, of course, in quotation marks, is that in this result or from this result the future investments have to be financed. Pre-performance for new vehicle projects and the conversion to electromobility. And the development costs and investments for this amount to 4.9 billion euros. And 1.3 billion euros result and around 5 billion euros pre-performance for development costs And investments simply do not fit together. And consequently, the net cash flow, i.e. the money that actually stays in the cash register, is negative for the brand. The Volkswagen brand builds excellent cars, but does not earn enough to finance and invest in the future. The numbers show this very clearly. And China cannot compensate for this deficit any longer. In the third quarter, the light utility vehicles write losses and also in the component, the costs are not competitive. Important performance indicators such as common costs or factory costs in German factories continue to deteriorate, absolutely, and also in comparison to competition. However, there are also positive signals. Wolfsburg is expected to end in the factory costs just under the year 2023 in 2024. So at least the direction is correct here. But it is not enough in terms of expansion yet. The opposite wind has been added. We have to strengthen our efforts so that we remain competitive. And we have to push traders now. It would be irresponsible. It's about the future. Due to the overcapacities in the market, the supply is large. The demand has gone back. The prices are under pressure. In such an environment, prices cannot be increased despite our excellent products. And that's why we only have one possibility. We have to reduce costs and increase productivity, especially in German factories. And of course, the market also plays a role, but not only. What is possible, SCODA shows. In the same environment, in the first nine months, SCODA has a solid over 8% interest rate. SCODA acts with a web-based cost base. And currently there are talks with the employee representation, how we can reduce our costs in Germany. In these discussions, it is also about the reduction of overcapacity through possible factory closures in Germany. In parallel, the second round of the tariff negotiations starts today. I am aware that the cuts that are in the Volkswagen AG are hard and that many employees are worried about their future. We are facing essential and painful decisions. But it is our common responsibility to lead Volkswagen into a good and safe future. We owe this to the coming generation. Where does this path lead us now? This path leads us back to our strengths, back to what has made us successful. For me, Volkswagen stands for three virtues. First class products, competitive products throughout the decades. Second, uncompromising quality. And third, affordable prices. This is how we became Volkswagen over all these years. This is how we became the most successful brand in Europe. Volkswagen is constantly demanding vehicles in the entry-level segment, especially electric vehicles. But affordable, competitive prices can only be offered if you have a competitive cost base. Diese zukunftsfähige Kostenbasis müssen wir uns gemeinsam wieder erarbeiten. Das ist jetzt unsere Aufgabe. Das muss uns gemeinsam gelingen. Herzlichen Dank.

Thank you, Arno. We will now switch back to English and proceed with the live Q&A session. Again, anyone who wishes to ask a question may press star followed by one. First one in line is Christian from FAZ. Christian, the line is yours. Yeah, hello, good morning. Can you hear me? Perfect loud and clear.

Yes. Okay. Uh, so that's the question on the timeline. Um, do you expect to to finish the negotiations on the whole package, including, um. everything you're just dealing with in this year, or do you expect this to go into the next year? So what's your timeline? And then looking on China, what's your expectation for the next year for the operating result? Is there any danger that you could go into the red numbers next year in China? Thank you.

Christian, thank you for your two questions. I think we continue in English, right? Yeah. Look, it's difficult to give an expectation or a judgment on the timeline. I think what is important that we reach a result that is really sufficient for Volkswagen moving successful and profitable into the future. And we need to take the time it takes. This is my position. And it's up to the parties negotiating how fast we can reach a good result and a result that provides us with the possibility of moving successfully into the future. Hopefully it will not take too long time, but we should negotiate as long as possible to reach a good result for Volkswagen and its employees going forward. This is my personal position. Yeah, in terms of China, it's obviously too early to give an outlook on 2025 in terms of operative results. This is what we typically do in the next March when we communicate the final year 2024 results. What I can reiterate on is we have a very convincing comeback plan in China. And we communicated that before, but let me Let me take a minute or two to remind you on that. We significantly invested in several areas to improve, specifically on the software side. We worked together with Xiaopeng on the core software stack. We worked together with Horizon Robotics to improve driving assistance functions, so-called ADAS. We will integrate LFP battery together with Goshen, and we already bring avatars into the in-car entertainment, also together with Thundersoft. And over the time, and we always communicated until 2026, we will come up with a very competitive platform in China and very competitive cars again, and basically regain, we expect to regain growth then from 2027 onwards. In between, we invest in our own local R&D center, and we also bring two very competitive cars on the Xiaoping platform to fill gaps in our segments. And so with these measures, we are, the team of Rolf Banzcher is implementing currently, we are convinced that we have a very good, compact plan and we will basically regain market share 2026, 2027 onwards. And from today until 2026, we always said we don't sound compromises between pricing and volume. We don't compromise on our margins. And we might even give up some market share this year. Next year, we always communicated that. And this is where we stand. But I ask for some understanding that we can't give a specific number for the year 2025 now. Thanks.

Okay, so next in line would be Kana from Financial Times. Please, Kana, can you hear us?

I'd like to ask, I wanted to ask a bit of a broader question. The fact that Volkswagen is obviously considering these tougher restructuring measures I wanted to ask about the impact on, more broadly on the, I guess, Germany's, you know, the economic and the social model that has really pinned the post-war growth. I mean, Volkswagen has been such a symbol of the company, you know, the country's success as well. And so, I mean, do you think that the challenges that, you know, the company is now facing will pose a threat to that traditional model where obviously shareholders and, you know, workers have had sort of an equal relationship in terms of the priority. Could you comment on that on one point? And then my second question is on Northvolt. Is there any risk of a write-down going forward in terms of your investment in Northvolt? And also, whether you're willing to invest further in Northvolt as well? Thank you.

Thank you for these two questions. I give you my personal view on that. We have very, very competitive products and with a very good quality. But as I said before, what makes Volkswagen strong in the future will also be affordable prices. And what we are embarking on that process is that we regain the strength in these three dimensions because that made Volkswagen over the past years to the most successful car company in Europe with a lot of strengths, with industrial strengths, with the competence to innovate, with the competence to produce great cars with quality. We improve our competence in software and will also bring very successful and, from our point of view, successful and competitive cars cars going further. But you need also good cost base for that. You need competitive costs. This is also part of the equation. And this is what we work for and this is what we fight for. And this brings Volkswagen back to its old strength. I'm deeply convinced. And I can't make the comparison, but perhaps that might be also true for where Volkswagen, where the Germany as an economy stand, but I can always speak to Volkswagen and I say it's not a threat of the current model. It's basically the prerequisite to move successfully into the future. It's actually the other way around. This is my deep conviction. Thank you. And in terms of North World, please have understanding, we don't want and can't communicate publicly on a partner on that topic.

Thank you.

Okay, thank you very much. So, Lazar Bakovic from Handelsblatt. Lazar, you would be next on the list. Go ahead, please.

I hope you can hear me.

Yes, perfect.

Ah, great. Thank you, Arno, for taking the questions. There are figures circulating saying that a pay cut will help you achieve the majority of your saving plans. So do you see any possibilities to bring down the costs at Volkswagen without closing down one or ex-VW plans? That would be my first question. And the second is, if you see a possibility that also the management, meaning the Vorstand, will accept pay cuts to the same amount that everybody else in the company would. And if you maybe also see the possibility to significantly lower the dividend in the next year, yeah, these would be my two questions.

No, thanks for the three questions. Look, on the topic of plant closures, potential plant closures, the figures are clear and you've The mathematics are clear. We had 60 million cars pre-COVID in Europe. We expect for the next five to six years, 14. That's basically 2 million cars missing. We have 25% market share. This is a math I publicly did several times, and that leaves us with a lack of 500,000 cars, and this is the magnitude of two factories. This is where we stand. But please understand, have understanding. We promised confidentiality on the measures and on the discussion we have currently. And this is also, unfortunately, the answer to my second question. Management, pay cut, yes or no, we have understanding. We will communicate all the measures as soon as we agreed on. and this is where we stand today, and this is what I can say and more I can't say and I don't want to say because we agreed confidentiality. Sorry for that. And lower dividend, this is also the math I tried to explain. We will see lower dividends because we said our policy is 30% payout, and the payout is based on earnings per share, basically attributable to the to the Volkswagen shareholders. And since we are already down 33%, so you should expect a significant lower dividend next year. Although, of course, as you know, the decision is taken by the board and the supervisory board and basically the Hauptversammlung. But I also mentioned earlier, we stick to our policy of 30% payout. And this has also not changed.

Thank you, Arne. Thank you. Okay, so as I can see on the list, Hannah Ziadi, CNN London would be next. Hannah, can you hear us?

Yes, can you hear me?

Yes, perfect. Go ahead.

Great, thank you. Good morning. Thanks for taking my question. Can Volkswagen give any comment on its discussions with the German government and to what extent it is in discussions with the government? Is it seeking relief from the government, help, subsidies? Is it facing pressure from the government to not close factories, to not cut wages? So any kind of detail on discussions with the government on the one hand, and then just sort of related, but a slightly broader question on what you think Germany needs to sort of turn the ship around. Clearly, lots has been written in the past year about the challenges the economy faces and the government is trying to take steps to bolster investment, to kind of improve the fortunes for Germany, but the outlook is not great. So what would you like to see from government?

What do you think Germany needs to sort of improve its fortunes? Thank you.

Yeah, Anna, thank you for your question. And look, let me also make the statement. We first and foremost look on ourselves. We have, from my perspective, a very good view of the things and the weaknesses. We discuss the weaknesses. The weaknesses are on the productivity side. The weaknesses are on the cost side. And we have to address the topics we can address. This is our responsibility. And this is what we are currently doing to bring Volkswagen into a great and successful future. In terms of Yeah, profitability and doing business in Germany, of course, the framework conditions also matter. And there are some topics that are mentioned already several times, the price of electricity, for example, in Germany and other topics. If we talk about the BEV ramp-up, there are also some prerequisites there. What about charging infrastructure? What about other framework conditions, how stable they are? So this is something we could address, but we really, for the time being, we address the topics we can influence and how we can bring Volkswagen in a much stronger competitive situation going forward. And if you want, yes, we also addressed the cost situation in our plans and all these kind of things. But this is basically something we can do within Volkswagen.

Thanks. Can you say anything about your discussions with the government over the restructuring?

As I said before, we concentrate really on our topics. This is what I would like to publicly state here. we address really the levels we can address to become successful.

OK. So next would be, back in Germany, Michael Gerser from Automobilwoche. Michael, are you on the line?

Yes, can you hear me?

Yes, go ahead.

Yeah, hello. Just one more question concerning the negotiations. I know you can't go into details, but the system of powers within the Volkswagen company hasn't changed. So and I would say like a lot of CEOs over the past decades have tried to tackle the problem of costs within the company. What makes you confident that you will be the one that's successful right now in this negotiations?

I mean, look, personally, I must say it's my responsibility, our responsibility, I speak for myself, but I'm sure I speak also for Oliver and others, my responsibility to guide Volkswagen, brand Volkswagen into a successful future, and this is what it needs to improve competitiveness. As I said before, we have great cars, and also things have changed. Volkswagen never earned really high margins over the course of time, but there were different times. First and foremost, competitors also back then, 2013, 2014, 2015, had also not great margins, so the competition was different. And also, we had a very strong business in China, and as I said before, at least for the time being, China cannot compensate for a situation where Volkswagen is not earning the money they need to spend for all the new products. So I'm convinced that everybody is aware that things have changed, circumstances have changed, and Volkswagen has to take the necessary steps in order to move successfully into the future. This is what I can say.

So you also see an understanding on the side of the unions.

I mean, in Germany, you have a saying that says, that is in soccer. And if you look at our cash flow at Brent Volkswagen, the cash flow of Brent Volkswagen is minus one billion after nine months. So hopefully this leads to an understanding of all the participants. The logic is as I explained. We have very strong products, but the amount of funds we generate within Volkswagen is not enough to invest into the future significantly, and this is, I think, a situation everybody is aware of, and I'm confident that we reach a conclusion and a situation where this significantly changes going forward and that leads then Volkswagen into into a good and safe future.

Okay, thank you.

So last but definitely not least, there is Andrew from Reuters in the line. Andrew, can you hear us? Andrew, can you hear us?

Yeah, yeah, I can hear you. Can you hear me?

Yes, yes, we can hear you.

Go ahead. Okay, perfect, perfect. I have a question on the U-target and Chinese CVs. As you know, the tariffs have officially came into power yesterday. I'd like to ask if you have any new comments on that.

Andrew, sorry, Andrew, can you repeat the question? We have really a hard time understanding you here. Yeah, sure. Now it's better?

Yeah, maybe. Go ahead. Yeah, so my question is on the EU tariffs and changes in these. As you know, the tariffs have officially came into power yesterday. And I'd like to ask if you have any new comment on that, and if you're taking any proactive measures in light of potential Beijing's retaliation methods.

No, we really don't have new comments on new situation on that and proactive measures. This is as we stand. And my position on tariffs of Europe is also clear. I can give you my personal view, and this is basically besides that I can say and have to say that we are a global company and we act based on free and open markets in order to achieve global scale. But my personal view is also under a tariff regime, an industry only loses time because it's a felt situation where you feel safe, but If you look at the Chinese competitors, they already embarked on a strategy to set up factories in Europe, and then they will basically sell cars from within Europe, and there will be no tariffs. So we really need and should use the time, the next one or two years, to improve significantly our competitiveness for this competition coming to Europe. And this is basically specifically on the heart on what we are just discussing. Improved competitiveness in the German plants. We have some very competitive plants in southern and eastern Europe in terms of factory costs. In terms of product, we launched some very, very attractive new models, the ID2 and others. And now we improve our competitiveness and basically prepare for this competition from inside Europe.

So I hope that that answers the question. We're on the finish line, but not too late, still in time. Monika Raymond from Bloomberg. Monika, can you hear us?

I can. Can you hear me?

Yes, absolutely. Go ahead.

Wonderful. Anna, you recently talked about your efforts in China and sort of what what Volkswagen what efforts Volkswagen has taken there in order to improve its its lineup and its offering and you mentioned working with Goshen on LFP batteries. I was wondering if you could speak about the outlook for LFP batteries specifically how Volkswagen is planning to utilize them in Europe and the United States in order to bring the margins up on BEVs in its home market and in the United States and where you see the costs going for battery usage in the coming years?

Hello, Monica, and thanks. This is a very valid question, yeah. We definitely look on building up an LFP, I would say, value chain for the batteries also in Europe and a specific first model that uses, first model that uses the LFP battery will be the ID2 family in Spain that are built in at SEAD, our SEAD plant in Spain. And so the entry model for 25,000 euros will get an LFP battery. There will be also an NMC battery for higher range. And this is how we see the Basically, our product offering going forward. So we use LFP batteries and we use LFC batteries. And LMC batteries, the one is focused on cost and the other one is focused on range. And the advantage why we can do so is the unified cell. As you know, the PowerCore pillar is basically, there are three pillars for the PowerCore strategy. One is ramp-up production. The second one is is securing raw materials. But the third one is really the unified cell. And this unified cell concept gives us advantage that we can integrate the LFP battery and the NMC battery within one product offering.

So just to clarify, you anticipate that PowerCo will be producing NMC and LFP batteries in time for the start of production for the ID2 series?

So we look into that, how to ramp up the LFP supply in Europe. But what I can confirm is that the ID.2 will get an LFP battery from the start of production. We're looking into that, how we manage the ramp up of the LFP within our power core, because they can't do everything at the same time. There might be an offer. At the very beginning, not from PowerCore, but we definitely look at that.

Thank you. Thank you, Monika. Thank you for all your questions. I gather that we are now at the end of our media call. Thank you for your very good questions. If anything was left unanswered, please reach out to the team in Wolfsburg as usual. It leads to me just to say thank you very much for your numerous participation. Take care and stay safe. Bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing CoreSchool and thank you for participating in the conference. You may now disconnect your lines. Goodbye.