Volkswagen Ag Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the Volkswagen AG Investor Analyst and Media Call of Q1 2025 conference call. I am Yousef, the course call operator. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. After the presentation, a Q&A session will follow. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. This conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Pietro Zolino, Head of Corporate Communications. Please go ahead.

Good morning, everyone, and a warm welcome to the first quarter 2025 results call of Volkswagen Group. This is a joint call for both the media and as well as investors and analysts, moderated by Rolf Voller, our Head of Treasury, IRR, and myself, Pietro Zolino, Head of Corporate Communication. With us today is, as usual, Arno Antlitz, our CFO and COO. Welcome, Arno. You should have received the press release, the interim financial report and all other related materials which were published this morning. If you do not have them, you can find all the documents on our group website. In case of any issue, give us a call or drop us an email and we will send them straight to you. The contacts are also on our website. Now let me hand over to Rolf who will give you a brief run through of the call.

Thank you, Pietro, and very good morning to everyone on the call. I hope the weather on your side is as sunny as it is here today in Wolfsburg. Thanks for joining us today. Let's have a look at the agenda. Arno will first present the key highlights of the first quarter, and after that, we will take a closer look at the financial results and the full year outlook for 2025. Following his presentation, we will host a Q&A session for the investor and analyst community which is moderated by myself. And after the session, we will have a short break before we continue with the media Q&A, which will then be hosted by Pietro. Since today's call includes forward-looking statements, as always, the self-harbor language and other cautionary statements on the slide will govern today's presentation. Please read it yourself because I will not read it to you. And with that, I hand it over to Arno. Arno, go ahead, please.

Yeah, thank you, Rolf. Ladies and gentlemen, we saw a mixed start to the year 2025. We continue to make significant progress in implementing our strategy. Some tangible results could be seen some days ago at the Shanghai Auto Show. We have some encouraging news on the customer side. Sales revenue was up 3%. Auto intake in Western Europe grew even by 30%. Our BV share was up 10%, up to 10%, and the BV share in Western Europe more than doubled to 19%. This is evidence that our vehicles are very well received by our customers. As expected and as guided, Volkswagen Group got off to a slow start to 2025 in financial terms, and on top, we had to book some special effects and restructuring expenses. On April 9th, we pre-released some of our KPIs Therefore, let's dive straight into the presentation with the highlights of the first three months. And let me explain to you why we think our performance in Q1 was still respectable. The largest product renewal in our group's history has continued in Q1 with quite a number of new model launches. These include exciting new models such as the Audi A6, the Skoda Elrock, and Momentum will continue into 2026 with the launch of the urban VV family. An even bigger step will be the ID Every One. We have shown the first prototype of the affordable electrified future of Volkswagen, expected to hit the markets in 2027. During last week's Shanghai Auto Show, we've provided a follow-up on our In China, For China strategy. Truly amazing achievements on the product and technology side, but we also did not stand still to optimize costs and our financial setup. Following Volkswagen AG's agreement in late 2024, Audi's management and works council negotiated the future of the brand's chairman plans and this is done to make Audi more resilient and more flexible and leaner going forward. We successfully renewed our revolving credit facility with 44 banking partners and increased the amount to 12.5 billion Euro from 10 billion Euro. And last but not least, we've completed the placement of 11 million Triton shares, and with that, we increased the free float to 12.5%. Our colleagues in China are delivering. Time to market is down 30%, allowing us to develop vehicles in 24 to 33 months. Material costs are reduced by 40%, with the ambition to bring it down even further by another 10% until 2026. And the highlight highly competitive central solar architecture, CEA, is being locally developed. The China Electric Architecture will enable numerous software features that are tailor-made to the wishes of Chinese customers. Our joint venture, Corizon, will launch highly competitive Level 2 Plus and Level 2++ ADAS solutions in 2025 and 2026, respectively. And the execution of our in-China for China strategy is fully on track with customer centric, China specific and highly competitive product substance, both in terms of tech and in terms of cost. And with around 30 new models by 2026. Back to the first quarter results. Global deliveries in the first three months of 2025 increased to 2.1 million vehicles. This is 1.4% above prior year quarter. Incoming orders in Western Europe were strong with an increase of 29% year on year. And BEV order intake was particularly strong, up by 64% compared to the same period last year. Our models are well received in the markets And new models across drive chains and types enjoy great customer demand, such as the ID.7, ID.7 Tourer, Skoda Elrock, Cupra Terramar, Audi A6 e-tron, or the Porsche 911. As a result, order book in Western Europe has been growing to about 1 million vehicles at the end of March, reaching well into the third quarter. And in the coming months, we expect additional tailwind from numerous new models. Deliveries growth in the first quarter was driven by strong performance in Western Europe and North America region, which were both up 4%. Our operations in South America achieved double digit growth overall, supported by a particularly strong increase in Argentina, where we more than doubled volumes. Growth recorded in all three regions has more than compensated for the decline in China. Our BV deliveries saw Boyan growth and reach 217,000 units, corresponding to a 10.2% of group deliveries and 59% year-on-year growth. Our BV share in Western Europe grew even stronger and more than doubled year-on-year to about 90% of our sales. With that, let's move on to the financials and the operating performance of Volkswagen Group in the first quarter. Vehicle sales came in at 2.1 million units in the first three months, slightly up year-on-year at 1%. Group sales increased by 3%, driven by both automotive and financial services. Operating results came in 37% lower at 2.9 billion euros, corresponding to a margin of 3.7%. Our product offensive continued across all brands, but in particular at Audi and Porsche. The substantial increase in PV sales and their share in the group's volume is evidence of our strong product momentum. On the other hand, the strong increase in PV share led to the expected margin delusion since, as of today, margins of the battery electric vehicles are still significantly below those of ICE cars, thus putting pressure on our margins. On top of this development, special earnings effects totaled 1.1 billion or 140 basis points in March and in Q1 2025. Around 0.6 billion euros have been booked to provision for potential penalties in connection with the current CO2 regulation in Europe based on the current regime. Around 0.4 billion euro costs were in court for restructuring measures at Carriot and Audit. Another 150 million provisions were booked related to the diesel issue. And effects from the valuation of vehicles in transit in connection with the import duties introduced in the United States at the beginning of April burdened results by 150 million euros. Excluding the special effects, Q1 2025 operating margin would have amounted to 5.1%, roughly in line with the expected mooted start, but definitely not expected. at a satisfying level. We need and we will continue to reduce fixed costs and expand productivity measures to compensate for the margin derivative effect of the BV ramp up throughout the remainder of the year. The cash flow in automotive division totaled to minus 0.8 billion euro in the first three months, about 1.7 billion euro above prior year quarter. Overall, a solid cash flow performance in the mooted first quarter, which was impacted by about €0.5 billion cash out for restructuring initiated in 2024, largely related to the end of production in the Brussels plant. The lower operating result was more than compensated for by less working capital outflow, as well as lower investment spent in the quarter. This brings me to the automotive net liquidity, which declined by about 0.2 billion Euro compared to the year end 2024. Two additional items are worth noting in addition to the net cash flow. M&A expenses of about 700 million Euro, largely related to the acquisition of a stake in Sauber Formula One from Audi and an investment of Porsche in Varta. And about 400 million inflow from the placement of Trayton shares. Overall, at 33.2 billion euro, net liquidity continues to stay at a solid level at the end of Q1 2025. Coming to the divisional performance, passenger cars recorded an operating result of 0.6 billion euro, about 50% low below the prior year period. The margin amounted to 2.8%, down 3.2 percentage points. Commercial vehicles saw decline of 38% to 0.6 billion euro. This corresponds to an operating margin of 6.2% below the full year guidance range. The division expects a pickup in particular in the second half and confirmed its full year targets. The financial services division recorded an operating result of 1.1 billion euro corresponding to an increase of 90% year over year. Let's look to the drivers behind the operating result development in the passenger car segment. Volume price mix contributed to a negative 0.8 billion euro. The higher volume outside China could not fully compensate for a negative mix and pricing due to the higher sales incentives for BVs. On top, CO2 provisions had a negative impact of around 0.6 billion euro. Fixed costs and other costs increased to a large extent due to restructuring measures. Let us have a more detailed look at the overhead cost development. The group recorded a slight increase of overhead cost in absolute terms. This was due to increases at Porsche and Trayton as well as related to the ramp up of new business fields. On the other hand, we achieved first effects from restructuring measures. The overhead cost ratio was stable in the quarter. We've just started accelerating the execution of our efficiency programs across all brand groups and business fields. Rest assured that we continue to drive implementation of the defined measures with full force to improve our position from here in the coming quarters. The measures in implementation related to Zukunft Volkswagen, which we agreed in December, play an important role here. Zukunft Volkswagen is delivering results as evidenced by the reduced headcount. The tariff agreement is implemented. In the first three months of 2025, Volkswagen AG reduced the number of active employees by about 2,000 at its German locations. In total, since the end of 2023, headcount declined by about 7,000 as a result of our performance programs and the hiring freeze. Moving on to the performance of our brand groups, platforms, and financial services business. With the passenger car segment, brand group core, recorded strong sales revenue growth of 8% year-on-year. The operating results stood at $1.1 billion and a margin of 3.2%, 3.2 percentage points below the prior year level. Headwinds were recorded from a significantly higher BV share and special effects related to a CO2 regulation and an increase of allowance for the diesel issue in the magnitude of $150 million. Including special effects, the operating margin would have amounted to 4.6%. The product momentum at Audi is paying off. Brand grew progressive, recorded sales revenue significantly above last year, with a plus of 12% driven by growth in unit sales. Despite the strong top line, operating results came in at 0.5 billion euro, corresponding to a margin of 3.5%, only 10 basis points above the prior year quarter. Positive effects from volume growth were compensated for by high ramp-up costs related to new model launches, provisions for vehicles in transit, and the strong increase in PV share. Operating margin of brand group luxury came in at 8.7%. The decline was mainly due to lower sales, in particular in China, higher material and R&D costs, as well as expenses for adjustment of the company organizations. Let me outline some effects at Brand Group Core. SCOTA margin continued to stay strong at 7.5%, and Brand Volkswagen recorded strong product and sales momentum with sales revenue plus 10% above prior year, but was burdened by special effects in a magnitude of 350 million. Even after these effects, Brand's margin amounted to just 2%. Both brand Volkswagen and brand commercial vehicles had an encouraging start to the year in terms of fixed cost reduction, but need to speed up implementation of productivity measures in the German plants. Barrett continues to increase license income, backed by increased sales volume on the 1.1 and 1.2 software stack. Sales rose accordingly by 33% to around 0.2 billion euro. Operating results stood at a negative 0.8 billion euro excluding the mentioned costs related to restructuring measures of 0.2 billion euro results, would have been stable compared to the prior year period. The power core ramp-up of the Skidder plant and the build-up of the organization is continuing, which leads to an operating loss of 0.2 billion euro in the first quarter, some 100 million euro higher than in Q1 2024. Great and slow start to the year, both in terms of volume and financial results, In the first quarter of 2025, Triton recorded about 10% lower unit sales, which translated into a corresponding decline in sales revenue in the quarter. Mainly due to the resulting lower fixed cost absorption, the company's operating results declined by 38% to €0.6 billion. Our financial services business performed well in the quarter, supported by improved contract volume, especially in Europe. Operating results increased by 90% to €1.1 billion. The used car business benefited from positive free marketing results, while the normalization of used car prices continued in the quarter. The credit loss ratio slightly increased to a still solid level of 0.42%. Expenditures on capex and R&D in the automotive division decreased by around 11% overall to €7.7 billion in the first quarter. This quarter responds to an 11.2% of the automotive sales revenue, which is slightly below our forecasted range, mostly due to a reduction in R&D costs. Reduced investment spend of $165 billion for the 2025 to 2029 planning round period is confirmed while we continue our efforts to improve investment efficiencies. Moving on to the performance of our China joint ventures in a highly competitive market environment, we continue to balance profitability and market share. Deliverance in China fell by 7% to about 644,000 vehicles. The proportionate operative result of our joint ventures activities in China came in at 272 million Euro in the first quarter of 2025, about a third below prior year period. Based on a solid start to the year, we regard the upper end of our guidance range of 0.5 billion to 1 billion euro in proportion operating profit as a realistic target. This brings me to the financial outlook for 2025 financial year and the key results drivers. Continue to expect a tailwind from our revamped model portfolio in a slightly positive volume trend and the markets outside China. We expect regular increasing benefits from the execution of our performance programs and restructuring initiatives. The significant expansion of BV volumes, particularly in Europe, as well as the ramp-up costs of numerous new models and related to the new business fields are expected to burden earnings in 2025, but at a slower pace than in the first quarter. In summary, we confirm the financial outlook for the year 2025. We continue to expect the Volkswagen Group to increase sales revenue by up to 5%. The operating return on sales is expected to be in the range of 5.5% to 6.5%. This outlook is based on the tariff situation as per end of February and thus does not include potential additional effects from the introduction or adjustment of trade tariffs as the effects and their interactions cannot be conclusively assessed at present. The investment ratio in the automotive division is expected to be in the range of 12 to 13%. Automotive net cash flow should be in the range of 2 to 5 billion euro. This includes cash out of around 2 billion in connection with the implementation of restructuring measures. And we continue to expect net liquidity to be in the range of 34 to 37 billion euro. Taking into account the most recent announcement of Porsche AG related to the adjustment of their full year outlook, we currently expect group return on sales as well as automotive net cash flow and net liquidity to trend towards the lower end of the presented guidance ranges. Ladies and gentlemen, our start to the year was mixed. We continue to make significant progress in the implementation of our strategy. For example, in China, As presented last week at the Shanghai Auto Show, our product offensive is starting to pay off, as evidenced by the strong momentum in the auto intake and our top-line performance. On the other hand, we cannot be satisfied with our results in the first quarter and the financial outlook for the full year. An operating margin of around 4% in the first quarter clearly shows that there is a considerable amount of work lying ahead of us. Given the current volatile global political situation, it's even more important to focus on the levers within our control. This means driving our strategic initiatives with full force and complementing our great product range with a competitive cost base so we can ensure to succeed also in a rapidly changing global market environment. With that, I hand back to Rolf.

Thank you very much, Arno. And we are now starting the Q&A session. Give you a little bit of time. In order to register a question, you have to press star one. If you want to retrieve your question, you have to press star two. So we see the Q&A rolling up. And the first question comes from Jose Azumendi from JPMorgan. Jose, please go ahead.

Good morning. It's Jose from JP Morgan. Thank you all. Thank you, Arno, for all the comments. Again, the first question, please, on tariffs. And obviously, they're the most recent announcements by the administration. I would love to, you know, to hear a little bit your take with regards to the latest announcements and what can Volkswagen do in the U.S. to improve the level of localization of vehicles, or components and whether, you know, you're thinking about what could be the potential impact of the tariffs in your financial guidance. That would be the first one. And second, Arno, I'd love to hear a bit more about also, you know, China. We saw the update you provided also in the past weeks and the product launches. Maybe more on a positive note, I'd like to hear, you know, which product launches you think are going to be more meaningful in 2026, and how do you think this will impact the T&L of your operations in the region? Thank you.

Yeah, I will say, first on the tariff side, on the quantitative side, as I said before, since the full impact of the tariffs going forward could not comprehensively be assessed by us, we guide before tariffs because it's It's highly difficult to give a concrete projection for the full year. On the side, what we can do, I mean, what I can say, we have already a strong presence in the U.S. We are localized in Chattanooga. We run a factory there. We have a huge operation in the U.S. with a lot of dealers. We are ramping up Scout. and we are strong in North America. And obviously, we look on various scenarios to localize small group models too early to say. And what I can say, we stand ready to work with policymakers to find solutions to support the industry while preserving our opportunities and opportunities for workers. This is what I can say where we stand currently. And yeah, rest assured we work on that topic. On China, we are quite excited about the update we were able to give in China because basically we said we work on several topics. First, on the product offensive. Second, on technology. And third, on cost. And I was very pleased with the performance our team presented in China on all three dimensions. They are really delivering, and they are delivering fast, and they are not only delivering in time, but partly or even over exceed the targets, both in terms of SOP, number of months or years, how long it takes to develop the cars. I don't know whether your colleagues had the opportunity to drive the ADA stack, which is currently developed with Horizon. It's a great, great stack. It drives really great. We've made good progress on the work on cost down. Our target was 40%, including obviously battery where we move from LFP, from NMT to LFP. The team also achieved the 40%. And all of that should really lead to the situation that we achieve our targets in what we communicated in 2027 with the 2 billion net operating. proportionate operative result. So having said that, you asked obviously for 2026. Let me jump back to 2025. The second good message is we currently expect to be more on the upper end of the guidance range between 500 and a billion, which you could see we had a good quarter, 272, so a good compromise between pricing and volume. And in 2026, basically the most important models from Volkswagen kick in The EVO, the AURO, and the AERA, three great models, one on the Xiaoping platform, one of China main platform, and an SUV developed together with SAIC. Audi is bringing some very interesting models. So they kick only in 2026, so it's too early to give you a concrete guidance for the 2026 operative proportion, operative result, but the rest is short. With the kicking in of these models and knowing the current P&L of these models, we are on a very good track to achieve the targets for 2027.

Thanks, Jose. And we continue with Horst Schneider from Bank of America. Horst, please go ahead.

Yeah, thank you, and good morning, everyone. First question that I have, of course, that relates to terror, and I understand that you cannot comment that much on that because negotiations are running. But coming back to this interview that also Oliver Bloomer gave in the Manager Magazine, he was saying that is negotiating directly with the US. And I know you can't comment on that, but is it possible that we see basically a firm-based exemption on the terrorists? And any comment on that would be helpful. And then, of course, I know also you do not want to quantify tariffs right now, but Porsche did that for April and May, so maybe you can just give some hint what is the potential impact. The other question that I had that relates to volumes, S&P lowered recently substantially the Volkswagen volume outlook. I know they're always wrong. I think they use Volkswagen as a kind of cushion to the rest of the market, so therefore, I do not pay too much attention to that. But they say, Volkswagen says globally, I think something like minus 5, minus 6%. You still guide for this 5% revenue growth. There's a China element also included, of course, in this unit sales number of S&P. But can you explain again why you remain optimistic on volume growth, and particularly in which region? And what do you see in Europe? Why is Europe for you at the moment increasing in terms of demand?

Thank you. Yeah, thank you for your question then. Some of the answers you gave already rightly commenting that obviously we can't comment on current discussions for obvious reasons. And also in quantifying, look, we really don't want to add to the speculation. But I said before, we are ready to work with policymakers to find solutions that support also the US industry. And this is where we stand today. What I can say, I really don't want to quantify, but as you know, our deliverance to customers in US are about 730,000, about 200,000 of them are produced in the US, including international. About 290,000 come from Mexico and some 240,000 come from Europe. And I think knowing the size of the magnitude of the tariffs, I mean, everybody could do a little bit of a math. In terms of volume, yeah, we stick to our volume outlook. both in terms of deliveries and in terms of sales. In terms of sales, we are even a little bit more confident. Why? Because the deliverance outlook in total includes a positive trajectory in Europe, U.S., and also specifically South America, while China, we expect another, I would say, loss of about a percentage point or even a little bit more, and I wouldn't call it loss, We delivered, they give up another point of share until the great new models hit the market in China. And just to remind you of some of them, ID Evo, it's on the Xiaoping platform, and the ID Era with SAIC and Oro with FAV. So these are really great cars hitting the markets in China, but only 2026. So for 2025, we wanna be a little bit cautious, but that means in order to achieve our deliveries outlook, we expect a growth in the areas which are basically in our books. And as you know, the Chinese deliveries are not in our books. They're only accounted for at equity reside. So we are quite confident that we have a good trajectory there. And there are obviously two elements. First is total market. Yes, total markets. are mooted currently. Specifically, there might be an effect from the tariffs. Who knows? But on the other hand, we have really encouraging auto intake. We gained some share in Europe. Even on a high level, even our BV share now increased our share in the total market. So cars are very well received. We see a very strong auto intake. And there are more great cars to come. So basically what we see in terms of our momentum, we stick to our current outlook of the up to 5% sales for the remainder of the year.

Just a quick follow-up. What is then your visibility in Europe given this order book? Is that already something like two quarters or one and a half quarters?

What would you say? We achieved a million cars. I'm not sure whether I can say that, but April would even see a little bit higher figures than the million. So the momentum continues in April. And so this reaches well until the Q3 in Europe.

Okay. Interesting. Thank you.

Thank you, Horst. And we continue with Tim O'Costa from Deutsche Bank.

Yeah. Thank you, Ronald. I also have two questions, please. The first one is sticking with this order intake that you just talked about, Arno, obviously quite positive in Western Europe, probably the most positive news, at least I think today, for ICE and VEF. We already know a couple of moving parts for Q2. We know that Porsche takes a really big hit, almost a billion euros in one house. There's maybe some charges at Audi that I was going to ask about for their restructuring processes. How should we think about Q2 with this order visibility in mind that you have right now? Do you think you can be within the full year guidance range? And then when we think about one of the burdens that you had in Q1, it was clearly coming from the BEV with a very high dev share now that you already have. How should we think about the headwind from here? Is that getting lower, staying on about the same amount? And I'll try again on the tariffs. I mean, there's all sorts of analyst estimates out there. We all try to do the math. It's multiple billion euros, potentially low single-digit euro billion at the low end. Is there anything that you can at least vaguely confirm with respect to the tariff impact on that side? Thank you.

Yeah. Auto intake, as you said, Ais and Beth, we discussed and . There are several effects, but to start with the conclusion, even with these effects, we expect to be in the guidance range in Q2. So what are the plus and minus? We continue to expect product momentum and sales momentum to continue. We will see and plan for an even higher increase of PV share, obviously. because you saw the burden of 600 million Q1. From today's perspective, now quarter by quarter, we will increase the BEV share, yes. But if you do the math, last year, we also had an increase on BEV share quasi quarter per quarter. So let's call it the distance. In the first quarter, it was about 10 percentage points. And we had to compensate on the cost side for 10 percentage points in the first quarter. And this basically difference between the target PV share we need to achieve and versus last year, there's narrows quarter over quarter. So the burden is there, but the burden narrows quarter over quarter. And on the other hand, hopefully you saw also the progress we made on reducing the headcount. 2,000 people already left in one quarter. Brent Volkswagen is doing progress in the plans. Just to give you an indication there, they managed to manage the factory cost down significantly, not to the target. The target wasn't vicious. They made a good progress, but more progress to come. And they put a lot of pressure on that topic. And the wage piece is implemented already. So from, for example, Brent Volkswagen, you could expect now a decreasing burden from the ramp-up of PV share and an increasing support from our cost measures, and that this should give you an indication of where we want to hit in the end of the year. You rightly mentioned the one-off Porsche communicated yesterday or two days ago, and you rightly mentioned that we could expect some restructuring measures at Audi. They are still calculating the measures. They're still deciding on the measures and negotiating the measures. This is why we could not and had not to book for them for the time being. But both topics taken into account, we expect to be in the guidance range for the second quarter.

just to confirm that this would still be pre-tariffs, right, within the guidance range?

Yeah, obviously. That's very important. All the forward-looking statements I make today is obviously pre-tariffs. We are aware that some other automakers, they refuse to do a guidance at all. It's really currently we must say the effects we cannot conclusively assess. So what we decided on, We want to do the math. We want to stick to all of our guidance. So to be consistent, but all of the forward-looking measures discussion today is pre-tariff. Thank you.

I'm happy to contribute to your web share. You too. I just got my Audi Q-tron Quadro last week.

Oh, excellent.

Congrats. Thank you. Thank you, guys. Thank you, Tim. We continue with a question we got online. To be fair, it's from Stuart Pearson from Exxon BNP. He was sending me the email on rank three or four, better said. And this is why I read it now to you, Arno. His first question is, could you update us on the competitive environment in China? given comments regarding reaching the upper end of the guidance range and also noting a slightly better performance from GM in China reported this week too. Could we start to see some stabilization in the market pricing dynamic there? And how does it differ between the premium and the mass market? And the second question would be, how is the pricing dynamic developing in Europe? Renault, when they released revenue, results just a couple of weeks ago has mentioned the phase of price stabilization is that something you're also seeing and how does the negative 0.3 billion pricing in the first quarter bridge break down between the regions and just to amend this I think Renault largely referred with price stabilization to the European market

Yeah, in China, I mean, it's generally the market stays very competitive and it stays a very competitive pricing environment. And this is why we decided to, again, in 2025, take deliberate actions not to participate to full extent in that, let's not call it price war, let's call it challenging pricing environment, And so this is why we make deliberative decisions between pricing and volume. There is some, I would call stabilization over the last month, but it's really too early to say. They also talks about new stimulus. So what we concentrate on us for the time being, This year, we deliberately make a choice to give another percentage point or so. But, on the other hand, we want to stay relevant in China. We can't fall too far below. We want to have a good starting position in 2026 when all the new models from Volkswagen and Audi kick in. I don't want to reiterate all the models. Some of you have been at the auto show at really great models. We are really excited about both the customer acceptance of the models at Volkswagen and Audi. Audi with the four rings and Audi. And so we set the ground for re-engaging in this environment in 2026 with a much, much better cost base. This is our way forward. Yeah, pricing. In terms of our bridge, I don't want to bother you too much, but technically I must give you one example or one information you know already. We have in the pricing and the mixed bridge, we have the – I would say the typical countries, the big regions. The higher inflation countries pricing, for example, Argentina or others, we don't even show in pricing. So we balance this pricing we do in China – sorry, we do in Argentina in exchange rate others. Obviously, the exchange rate hit in Argentina, Brazil, and these countries is much higher. But in this – we basically assess it more in dollar terms and the pricing we do in this region, it's not in the price volume mix. So the pricing you see there is basically the big regions, Europe, US. So pricing is by minus three. This is basically given the current situation and giving the situation that is the PVs and the PV ramp up is obviously in that in that line, including the, to be honest, high incentives we currently still give for the BVs, we are quite pleased because what we originally guided for, that volume price mix should be stable. So we already almost achieved volume price mix stable and taking into account what I said some minutes ago, that the gap between the BV share we had last year and the BV share we are targeting for is narrowing over time, the buckets volume price mix should have even a small chance going out throughout the rest of the year.

Very good. Thank you, Stuart, for those questions, and we continue now with the telephone line. The next one would be Patrick Hummel from UPS. Patrick, please go ahead.

Thank you, Rolf, and good morning. My question is, bit more on the on the capex and free cash flow side of things um i i would assume um your conversations with u.s administration are about local investments and even you know taking the tariff debate aside i think it's fair to say that volkswagen uh group amongst the premium uh oems is least naturally hedged so to say uh in north america uh with with audi and porsche brand um If we think high level, are you gonna make additional North American investment commitments that could undermine your efforts to become a more efficient and more cash-generative company for the next few years? Are there any high-level thoughts you can share how you're gonna approach this? Is that something, be it on the powertrain or component, side or final vehicle assembly? Is that something that could become a significant headwind to your free cash generation in the next few years?

Yeah, Patrick, as always, I have to say too early to give you details. What I can say, there are a lot of significant initiatives in the U.S. already factored in in the current figures. Obviously, Ramp-Up Scout is the joint venture with Rivian and ramp up of R&D in a joint venture with Rivian and the stake in Rivian. And yes, we are currently evaluating options to localize more in the U.S. This is what I can say. But on the other hand, what we also always said, going forward year over year, we are basically in a phase that the that the combustion engine investments, although they are like some more investments in drive trains, for example, like hybrids or range extenders, the major investments in ice running out and the double investments run out. For example, look, there are still investments in the Q7 and Q8 combustion engine and equivalent electric cars, but moving a year ahead or two years ahead, So the burden or the peak is basically also behind us, and this is how you should think of our investment in R&D CapEx going forward. But obviously, currently we stick to the $165 billion, and let me put it like that. They are to that $165 billion, there are clearly chances in what I just mentioned, and some something in the other direction, what we could do more in the U.S.

And, Arno, if you allow me that follow-up, I know Scout is your baby also, but it feels, you know, from a group perspective, protecting the cash cows of your portfolio should have a higher priority than a new EV-centric brand that comes at a time to the North American market when EVs are maybe not that much in demand. favor of the administration and of the consumer. So is there any flexibility to repurpose the two billionaires spending on Scout? Maybe, you know, as also some capacity for the existing brand portfolio?

Yeah, Patrick, first and foremost, as Volkswagen Group, we are not driving forward Scout because it's my baby. That's very important. We are driving Scout forward because it's the really biggest single promising segment, automotive segment in the industry. C pickup and B rocket SUVs in the U.S. is from a profit pool perspective really the most attractive segment, and this is why we are driving forward. Second, I would understand completely your question, and I still understand it, but I would understand it. if we would stick to 100% BEV strategy for Scout. But having a really convincing concept introduced with a range extender with an engine coming locally from Mexico for 500 miles of range, really positive customer feedback on that topic and basically 80% take rate for the pre-orders moving to that range extender. We are much more optimistic that we can hit the plant volumes first. And second, yes, there are also chances to include other activities in the factory in South Carolina. And we also look into that as well.

Thank you, Arnaud.

Thank you, Patrick. Before we continue with Mike, I was reminded by Tim that we have not really answered the question on the tariffs and the impact. And Arno said that, yeah, it's currently too early to make a conclusive judgment. However, I think what we can see and read is obviously the analyst reports with the numbers provided, the 700,000 and the breakdown Mexico imports in the U.S. We can clearly comprehend how most of the analysts come to their conclusions. with a potential burden of two to four billion and just wanted to confirm that that's not our estimate, but this is something we can comprehend. Let's continue now in the line here with Mike Tindall from HSBC. Mike.

Yeah, thank you, Mike from HSBC. Appreciate you giving me a chance to ask a couple of questions if I can. Arno, can we talk about BEV profitability? You flagged that it's significantly below ICE. And I'm just wondering what the moving parts are there it feels like you're being quite aggressive on pricing, which I wonder if that's the bigger headwind, because from what we can see from a cost perspective, I would assume the cost position of those vehicles is improving. And then the second one, again, focusing on costs, just the savings that are coming through. Can you give us a sense of what the cadence is? Does it accelerate from here considerably? Is there a point where that fixed cost other component in the EBIT walk might actually turn positive, and if so, when? Thanks.

Yeah, Mike, in terms of bad profitability, look, to be very honest, I was talking about margin parity some days ago, and we did some really major improvement, first on the raw materials, look at lithium, look at other raw material prices. But to be honest, on the pricing side, there's still a lot of support necessary for the BVs. I mean, you look at the internet site, you know our offers. So there is some support necessary. And this is where we stand today. But we shouldn't give up because with the ID2 family, 2026, They kick off, basically kick in for the Volkswagen group, and then also available in other Volkswagen brand models and at least volume models. A total new chemistry, LFP, with a significant cost improvement, and also a new battery type. So it's a much more integrated type. We don't operate on models anymore, so we talk about which we call then cell-to-peg, which is positive. We have a next-generation electrical engine with much more integration of parts. Although I charge engineering, I'm missing the word for it. In Germany, you say bauteleintegration, so converters and all these kind of topics are then integrated into one electrical engine, which makes really a step forward in terms of cost on an electrical engine. And more of these cost innovations kick in with the ID2 family and then will be rolled out. So this is why we're also confident together with the scale and the site, the ID2 family will be built in Matarell, very cost effective from today's perspective, low labor cost. So this will be the first car which could really reach margin parity with the equivalent, which would be a T-cross. And so for the time being, as I said before, and as I'm communicating externally and internally, we have to compensate for the margin dilution effect of the ramp-up of PVs on the cost side, and we have the chance for that. And you rightly mentioned to the overhead cost and our clear – goal is that throughout of the year 2025, there is a margin contribution. And we be guided for that as well. And if you take out Triton and Porsche, the relative burden on overhead costs is already positive in brand group core. It was not high enough to compensate for the ramp up of PVs. But as I said before, the compensational effect on the fixed cost versus the burden on the margin dilution of the BEV over the year should really turn, that the margin dilution effect relatively versus prior year should decrease, and the compensational effect of the cost side should increase with a clear target of showing a positive overhead cost contribution in the EBIT bridge throughout the year. Got it.

Thank you.

Thank you, Mike. We continue in the line. We have three still questions or questionnaires. Harald Hendrikse from Citigroup. Harald, please go ahead.

Yeah, thanks, Rolf. Thanks, Arno, for taking my question. You know, interesting, coming back from China, you know, it feels to me like the local for local strategy in China has worked incredibly well. And in this sort of global changing environment, tariffs in the States and all that sort of stuff, You know, what other learnings can we take from China, right? And I'm talking specifically the technology decisions over there seem to be much, much faster. You know, the model decisions seem to be incredibly quickly. You're talking about ID2, things like LFP, integrated motor and stuff like that, technology that China's obviously been working with for some time. How much can you take from China to think strategically about your regional businesses, including obviously the U.S.? I know you've been trying to answer, but what I'm really thinking, what can you take away? What can you learn from there? to make yourself, A, much more competitive, and B, longer term, even more resilient? Thank you.

This is a great question. This is also the impulse, what we internally, obviously, also use. Try to learn from China, and there are a lot of elements you mentioned already. Look at the tech. In China, we work together. in a cooperation with Chopin to work on our backend, it's a solar architecture. And the same we do with Rivian in the rest of the world. So we move from the current software to a solar architecture, state of the art, much more cost competitive as well. So if you look at LFP batteries, in the rest of the world, you have normally NMC batteries, rather expensive. Yes, a better range, but expensive. China is basically working on LFP. What we are doing, we bring the LFP battery, 2027, to the ID2 family and then roll that out. And we even want to combine it with our strengths. So in ID2, you can order an LFP battery for more affordable costs, but some compromise on range. And you can basically order an NMC battery with much better range. So we look on other topics like ADAS. and also on speed of development. Obviously, we see that China is able to speed up product development, and we have a close look on that. We have a good understanding of that. Some topics we really can basically learn from other topics. It's more in our DNA how many winter tests, how many summer tests you do. This is more like Volkswagen brand and group is really deeply rooted in safeguarding and making sure everything is basically perfect. So this is what we look at. On the other topics, to be very honest, in terms of speed, it's not only great technology. Sometimes China people are just working harder, to be honest. They work like 10 hours a day, six days a week, and in two shifts in R&D department. So we look on a two-shift system. Perhaps here in Europe, or we basically try to copy a tool shift system, develop things in Wolfsburg, and then push it in the evening to our development headquarters in Mexico and Brazil and use the time there and get it back the next morning. So there's a lot of things we look at, and you could expect also learnings to evolve in Wolfsburg from these topics.

Great. Thank you.

Thank you, Harald, and we continue with Steven Reitman from Bernstein. Steven, please go ahead.

Yes, good morning. I have some questions, please. Obviously, the situation is shifting very fast, but what can you tell me your current understanding of the status of your plants in Mexico, and particularly your engine plant? You are one of the only of the Germans that actually have manufacturing on the North American continent for engines. I understand that, obviously, you're supplying Volkswagen's, but not Audi produced in Mexico. How are those engines being treated? Are they fully USMCA compliant? Do you believe that the engines come in tariff-free into the United States? Can they be used in Audi products? That's the first question. The second question is on the progressive margin. Obviously, I understand the underlying margin was 5.9%. But even still, how do you feel that is compared to where you think it should be? Obviously, we know the last year was burdened by the significant problems you had with the starter belt generators, which meant you couldn't supply the V6 and the V8. But given the dynamic situation, you're talking about the European market, this seems still a little bit on the low side. And finally, you're giving, you mentioned about the profitability of the BEVs. And obviously, you've had a surge in BEV sales. So given the fact that the phase-in could come in, it obviously still has to be approved by the Parliament. Does that make some sense for you to maybe to ease back on some of these incentives, the €3,500 starting you're doing on the ID3, because as I said, you're very much more confident about some of your new products coming in 2026 and 2027, which will make it much easier then to make your average CO2 requirement over the three-year average. Thank you.

Thanks for these three questions. Of course, we have a plant in Mexico, an engine plant. And what I just mentioned is, for example, we call it 211. In English, in German, we call it Zwerver. This plant is basically producing the engines for Volkswagen. And and they go into the Volkswagen cars. And this would be also the potential engine for the range extender for the Scout. Not a turbocharged version, naturally aspirated, but this is so, we still use that. And let me also remind of another topic we decided long before the tariff discussion. In the course of the two points pact, We will allocate the current golf to Mexico in the run out to make space here for great new models on the SSP. We call it on a game changer project. And so most of the golfs we build then in Mexico will be basically for the European market anyway. So there will be a future for the plant in Puebla and also for the engine plant also in Mexico. whatever setup you can think of in the future. All is currently not producing under USMCA. So this is why the reason they have even higher tariffs. And as I said before, we look at various options to improve the situation. We had the question on the PV sales and the change of the of the legislature regime. To make that very clear, even if the regime changes and we have three years' time to fulfill the target, that would not put any pressure away from us or from other OEMs. We still need every gram, because from today's perspective, we will see still a burden in 2025, perhaps a smaller burden in 2026, from today's perspective be overfilling in 2027. What helps us is that we can put together the three years and can take together the burden in 2025 and basically and can offset it with the 2027 positive. And just to remind you in 2026, Then the ID.2 family kicks in. And then 2027, the ID.Everyone, we are very excited about this car. And with these two cars kicking in from a range, price range, 25,000 on ID.2 family, 20,000 plus ID.1 family, we are very confident that we can heavily overachieve in 2027. And we have the chance to then take the three years But coming back to your question, that wouldn't put pressure away from the industry or us for 2025 and 2026. We have to concentrate on improving the costs of the electric cars. It's clear to say not making compromise in the interior or on quality, rather on the things I discussed before on the battery chemistry. And to significantly and consequently implement a future Volkswagen, which will be the biggest single element to compensate on the cost side for the continuous ramp up of the BVs and the marginal dilution of the BVs until 2027. And I said, with the ID2 family, the marginal dilution effect of the BVs should really then be much smaller than today. And Audi, yeah. Audi obviously has basically the same effect. In margin dilution, BVs, they did also very well on the Q6, E6. Deliveries to customers were up, and they had some special effects. And what you could expect from Audi, Going forward, the positive restructuring effects from Brussels, they also negotiated now in negotiation with the Works Council also a reduction of their workforce, I think in the magnitude of 7,500, and these effects give the same positive tailwind as on the Volkswagen side, and the margin, the guidance is 7 to 9%. Thank you.

Thank you, Steven. And we are coming to the last question. Philippe, best for last.

Please go ahead. Thank you very much. Good morning, Philippe Ochoa-Jeffries. Two questions. First one is, we talk about guidance, but of course, it's all pre-tariffs, and we know tariffs are going to happen. Against that, you've taken that 600 million provision on CO2 in your Q1 accounts, and I'm just wondering, What is the scope for Volkswagen to reverse that provision, especially on the basis of the banking system they're going to be putting in place in the summer, we hope? And the second point is we talk about earnings but no cash flow. You've given us a guidance, and I'm just trying to understand. We had cash burn in Q1 that was expected. I'm just trying to think what can you tell us about – Is the $4 billion kind of M&A still on the cards for 2025? What's the outlook for dividend from China? And as it seems like your net cash position come under some pressure, how do you see the leverage and the funding of the financial services at this stage as an additional source of stress or not? Thank you.

Yep. Philipp, thanks very much for your questions. I'm not 100% sure whether I understood the question right. I tried to answer it, and I asked you whether that's what we would ask for. Look, we provisioned 600 million in the first quarter. If the European Union would change the legislative regime throughout the year, we don't expect that 600 to significantly increase then for the full year. that would be basically then almost the whole burden we would have provisioned for already then in the first quarter. But why is that still – why I'm a little bit cautious? That obviously depends on your expectations for the next three years. So as you understand how volatile the markets are, and it depends on our ramp-up targets on BVs, in 2026 and 2027, and obviously to calculate that because we have to take the ramp up of the recent 2027 into account to make a three-year calculation, which in the nature of the subject is basically volatile. So this is why I'm a little bit cautious, but 600 million, perhaps a little bit less than should be than the whole burden for the full year. Was that your question, Philippe?

Yes, exactly. So I was just trying to think, can you reverse? But I think your answer is no. It may not increase, but it's not going to reverse.

It may not increase. I don't expect that we can reverse significantly, but the first quarter burden would be already the burden then for the full year, which is also good news for the quarters to come. Exactly. Okay. Thanks. And on a cash flow, I think we were very precise on the cash flow guidance. 2 to 5 billion more towards the lower end of the range. You mentioned the 4 billion, one is for Rivian, some M&A we had already. And of course, we look to the topic. On the other hand, we are glad to announce at least the first small step on the trade, increasing free fraud. So that works also in a positive direction. And I don't rule out that we stand I don't expect that we stand still there. We have a look at that. But we also have a small chance over time. Of course, not in the next weeks and months. And, yeah, this is where we stand. And the cash flow, as we also guided, is significantly burdened by the outflow of cash in the magnitude of $2 billion by restructuring measures. We decided on last year. You also have to take into account the dividends from China As always, we don't exactly guide the dividends from China, but by and large, the proportion of operative results from this year would be the China dividend for next year, and obviously what you can expect this year is basically strongly related to the Chinese operative results we achieved last year. So this is how we think of the cash flow, and obviously giving the the unsecure and the current geopolitical environment, we are really focused on cash, preserve cash, increase liquidity to have a really strong liquidity base because a strong liquidity base, and we have a strong liquidity base, is the best assurance in a challenging environment. Yeah, one other topic. you said it, I think it was a dividend. No, it was related to the bank, to the financial services. No, it's even the other way around. We achieved the dividend from the bank. So it's actually the other way around.

Right. And please think about the project which has been concluded last year. So financial services, I would not see any funding pressure And in the current environment, of course, rating, we always have to take insight. And we are, of course, very much focused on keeping our strong investment grade rating in proper shape. But because of the cash flow development short term, I don't see any additional funding pressure. Great. Thank you very much. Very good. That brings us to the end of the Q&A session. Thank you for all this discussion. We are now at the end of the investor and analyst call. If anything was left unanswered, you know where to find us. You have our telephone numbers, and the RR team in Wolfsburg is very happy to take any additional questions. Our next event will be the Volkswagen Group ESG conference, which will be held next week on May 7th. And then we will have the annual general meeting on May 16th. H1 results will be released on July 25th. And we are now doing a short break before we continue with the Q&A session for the journalists, which will start at about 10.25, Pietro. And thanks very much for your numerous participation. Take care. And for those who have a long weekend, a good long weekend, and for those in the U.K. who have a bank holiday on Monday, Also a long weekend just with the Monday editor. Thank you very much and speak soon. Thank you also from my side. Thank you for your time.