Volkswagen AG

Many thanks, Ulrika. Yes, good morning, or good afternoon, or good evening from where you have dialed in, and a warm welcome to the Volkswagen Group's Analyst and Investor Conference 2024.

And with me today here are Oliver Blume, our CEO; and Arno Antlitz, our CFO/COO. The presentation we will give is structured in three parts.

So we will start first with Oli, who will provide a brief overview and status update on 2023, followed by Arno, who will guide you through the financials of 2023 and the outlook for 2024. And the final section is then again Oli with what's next and closing remarks.

Before we start, let me provide you with a few remarks. You should have received the press release, the annual report and other related materials, all of which were published this morning.

If you haven't received them, you can find them on our website. In case of any issue, please give us a call or drop us an e-mail, and we will send them straight away to you.

Coming to Page 2, our disclaimer. As a reminder and as always, the safe harbor language and other cautionary statements of our presentation will govern today's presentation.

I would like to encourage you to read the disclaimer carefully since all forward-looking statements are qualified by this language. In order to maximize our time we have today for the presentation and the Q&A, I will not read it out loud to you.

And with that, I hand over to Oli.

Thank you very much, Rolf. We delivered robust results, desirable products and an effective strategy with a strong focus on execution.

The Volkswagen Group is taking the long-distance race of transformation from a position of strength. This was an extraordinary achievement.

This achievement was only possible thanks to an exceptional team. The year 2023 was a real sprint for the Volkswagen Group's more than 680,000 employees worldwide.

They are the DNA of our company and shape it with great passion. This is why I would like to start this conference call today saying thank you to everything to the member of the Volkswagen Group team member together with the entire Executive Board.

It has been a convincing performance with great team spirit and overall, a strong year. We look back on an inspiring year in 2023.

We have great fans all over the world with new products and exciting anniversaries. We established our top 2023 TOP-10 program.

This program defined our center fields of action, strategically and operationally, with clear responsibilities and ambition levels with regular reporting on the progress, all of that in a very transparent way. Most importantly, the Volkswagen Group implemented and delivered along the defined measures.

We reached out major milestones and took key decisions to our future. We are executing.

We are making progress noticeably and measurably day-by-day and hour-by-hour. The true strength of the group and key differentiator is to be found in the strength of its brands.

Our brands fascinate customers all over the world with an unrivaled product portfolio. This broad portfolio is unique, not only because it offers attractive vehicles in all segments, of which many have been renewed in 2023.

For example, the new Volkswagen Tiguan, the ID. Buzz, the Passat, the Å koda Superb, the Bentley Bentayga, the Porsche 911 Dakar, the Volkswagen ID.7 and the Lamborghini Revuelto.

These are just a few examples of our fascinating product novelties in the last year. Our product makes a difference.

It's 9.2 million vehicles delivered to customers in 2023. We were 12% up compared to the previous year.

We recorded strong double-digit growth in Europe and North America in particular. Our deliveries are also increased in China last year despite a very demanding environment.

Our electric vehicles outperformed the strong overall growth in deliveries. With a highly attractive range, we convinced our customers.

Compared to the prior year, our BEV deliveries increased by 35% to a total of 771,000 vehicles. In the final quarter of 2023, the share of our BEVs reached 10%.

This strong basis and the upcoming launches of some highly attractive, new BEV models make us confident that we will be able to grow our BEV share also in 2024. Financially, we achieved robust results in a challenging 2023.

Our strong unit sales performance resulted in a sizable growth in revenues, which increased by 15% to EUR 322 billion. Volume was a main growth driver, but price and product mix contributed as well.

The operating result also improved to EUR 22.6 billion despite substantial headwinds from valuation effects from raw material derivatives. Excluding those, the operating profit grew to almost EUR 26 billion and resulted in an underlying return on sales of 8%.

During quarter 4, we put extra efforts on bringing down our working capital. That clearly paid off and led to a strong full year net cash flow to EUR 10.7 billion.

As a result, our net liquidity came in at a very strong solid base of EUR 40.3 billion. The strong operating performance translated into an increase in net income of 13% to EUR 17.9 billion.

Earnings per share grew to almost EUR 32. And we continue to let our shareholders participate in the financial success of Volkswagen Group, offering an attractive investment proposition.

The Group Executive Board and Supervisory Board will, therefore, propose a dividend of EUR 9 per ordinary share and EUR 9.06 per preference share to the Annual Shareholder Meeting in May. Before we continue, let me briefly revisit our promises we made at the Capital Markets Day in June 2023.

We have defined action fields that are aligned with our ambitions and the expectations of the capital market. And we made significant progress across all action fields.

For example, our TOP-10 programs are having an impact. The 2023 results are first testimony to that.

We have further strengthened the management team. We developed a group-wide sustainability strategy.

With the Audi Q6 e-tron and the new Porsche Macan Electric, we have the first models on the PPE platform ready for market launch. Our battery strategy is right on schedule.

With our mix of combustion engines, plug-in hybrids and pure electric engines, we can adapt flexibly to customer demand and differentiate from other OEMs. We have a clear plan for Audi and Volkswagen brands.

Now we are starting to execute it. In China, we are stepping up the pace with local partners and catching up with competition with our in China, for China strategy.

In North America, we are focusing on greater localization and development and production as a basis for a stronger presence. In Europe, our home market, we are operating from a position of strength.

Here, in particular, we are concentrating our sustainable value creation. Accordingly, we are adapting production capacity to our core workforce.

We have decided on ambitious performance programs together with all brands and are now focusing on consequent implementation. In investment planning, our investment planning is oriented towards the most attractive profit pools.

Management remuneration is mostly closely aligned with our strategic goals, such as the net cash flow targets. The solid financial results demonstrates the group's potential and gives us confidence to master a challenging year 2024.

Our transformation is based on a robust financial foundation, which, at the same time, allows to let shareholders and employees participate in the success of the group. Ladies and gentlemen, we started to deliver across all dimensions.

Let's summarize. 2023 was a year of restructuring.

The clean-up work has been completed. We consistently adhered to our ambitious roadmap by focusing on action fields along the TOP-10 program.

We reached key milestones and made strategic decisions for a successful future. At the end, an enormously productive year.

In 2024, we aim to stabilize these achievements, further executing on our core decisions in all relevant areas. This will form the basis for an ambitious and accelerated ramp-up from 2025 on.

I already provided a glimpse of our 2023 financial results. Nevertheless, it's worth taking a closer look.

That's why I now hand over to my colleague, Arno, our CFO and COO. Arno, please, it's your turn.

Yes. Thanks very much, Oliver, and a warm welcome to everyone on the call.

Ladies and gentlemen, Volkswagen Group once again delivered robust financial results in a demanding environment. At the same time, we have made further important progress in key areas of our strategy and strongly advanced our transformation.

Volkswagen is well positioned and operates from a strong financial position with a solid operating result last year. I would like to thank all employees who have contributed to these convincing results and to the progress we've made in implementing our strategy.

Let's now turn to our 2023 financial results in detail. Vehicle sales came in 10% higher at 9.4 million units.

Excluding our JVs in China, vehicle sales advanced even stronger by 18% to 6.3 million vehicles. This was driven by double-digit volume growth both in Europe, plus 21%; and North America, plus 13%.

Sales revenue improved to EUR 322 billion in the full year, up by 15%. Again, Q4 was the strongest quarter of the year with EUR 87 billion in revenues.

Operating result came in on par with prior year level at EUR 22.6 billion, corresponding to a margin of 7%. Excluding the overall EUR 3.2 billion headwind from valuation effects of our raw material hedges, we achieved a return on sales of 8%, exactly at the midpoint of our original guidance of 7.5% to 8.5% given at the beginning of the year.

We consider this to be a solid set of results in view of the challenges currently facing in our industry and the disruptions in the global supply and logistics chains in the past year. Earnings before tax grew by 5% to EUR 23.2 billion in 2023.

Profit after tax improved even stronger by 13% to almost EUR 18 billion, thanks to a lower tax burden. Earnings per share grew by 8% as minorities increased year-over-year as a result of the Porsche IPO in 2022.

The cash flow situation has improved considerably due to a stronger operating business and an excellent working capital management towards year-end. Net cash flow in the Automotive Division amounted to EUR 10.7 billion in 2023, which includes a contribution of EUR 5.8 billion in the fourth quarter alone.

Our teams were able to reduce inventories by about EUR 5 billion in the final quarter. Here, too, we delivered on our promise at the Capital Markets Day in June last year.

The stronger finish will obviously have implications on our working capital opportunities in 2024 since a large share of our ambition had already materialized in the final weeks of 2023. Clean net cash flow totaled to EUR 13.5 billion compared to EUR 9.2 billion last year.

Just as a reminder, to calculate this KPI, we adjust cash flow for M&A and diesel-related outflows. Automotive net liquidity at a solid EUR 40.3 billion stood above our self-imposed target of 10% of sales revenue by the end of 2023.

All in all, a very comfortable position in an industry in transformation. Compared to the year-end 2022, net liquidity declined by about EUR 3 billion, mainly as a result of dividend payments to Volkswagen shareholders in total amount of EUR 11 billion.

These dividends are truly a proof that our shareholders are participating in the success of the Volkswagen Group. Coming to the divisional performance.

Passenger Cars delivered EUR 14.7 billion operating result, almost on par with the prior year number. The corresponding margin amounted to 6.7% before special items.

This result is actually an outstanding achievement. Thanks to a strong underlying performance, we were able to nearly compensate the swing in valuation effects of our raw material hedging portfolio in the magnitude of EUR 5 billion.

Commercial Vehicles continued their positive earnings trajectory and closed the year with a strong final quarter. Operating results came in at EUR 3.7 billion, which is more than twice the level recorded in 2022.

The Financial Services Division recorded an operating result of EUR 3.8 billion, about 1/3 below the prior year level, which is the result of a normalization of the business after unsustainably high used car price levels in 2021 and 2022. Needless to say that we took a good care of the residual value risks.

Let's have a look now at the drivers of the operating result development of our Passenger Cars business. Volume/price/mix contributed EUR 9.5 billion, EUR 7 billion stemmed from strong volume growth, mix was slightly positive and pricing contributed with EUR 2 billion, in line with our value-over-volume strategy.

Exchange rate and derivatives were a significant headwind with a negative EUR 4.8 billion. This was primarily driven by noncash effective fair value effects of our raw material hedges outside hedge accounting.

Product costs were overall higher at minus EUR 2.6 billion in the full year 2023. However, as expected, we experienced a first relief versus the prior year in the fourth quarter totaling to EUR 0.8 billion.

Fixed costs and other costs increased only moderately. This is attributable to higher R&D costs, the ramp-up of new businesses like battery or Scout, higher wages and inflation.

But these effects were partially offset by a rigorous execution of fixed cost reduction measures, specifically in the overhead cost area. Within the Passenger Cars segment, all brands contributed to the strong top line growth, to the underlying operating profit and a solid cash generation.

Brand Group Core saw significant year-on-year improvement in operating result margin and cash flow. Strongly increased sales volume in Europe and North America translated into 21% higher sales revenue.

The operating result grew by almost 80% to EUR 7.3 billion and stands at a margin of 5.3%. Brand Group Core thus took an important first step towards achieving its strategic target return of 8%, when Volkswagen achieved a margin of 4.1%.

And we are aware that these margins are still below the margins of some of our competitors. But it's specifically noteworthy that Brand Group Core generated a cash flow totaling EUR 5 billion, corresponding to a cash conversion rate of 77%.

Brand Group Progressive also improved operating profit on an underlying basis. Reported operating profit was burdened by valuation effects in the magnitude of EUR 1.4 billion, mainly resulting from raw material derivatives.

The underlying margin increased to 11%. The margin of Lamborghini and Bentley of 27.2% and 20.1%, respectively, are particularly noteworthy here.

The impressive -- this impressively demonstrates the positive leverage from synergies in the brand group on the profitability of these two jewels. Brand Group Sport Luxury continued its successful track record and remains strong at 18.6% operating margin.

CARIAD continued to roll out software to a growing vehicle park as planned, which resulted in a significant increase in contracted licenses of about 30% year-on-year. Losses on operating levels were up on the previous year due to accelerated efforts to secure time to market and quality for upcoming key product launches such as Porsche E-Macan and the Audi Q6 e-tron, both presented to the market.

Reported net cash flow stood at minus EUR 3 billion. But just as a reminder, CARIAD in H1 have benefited from a EUR 1 billion intra-group income tax refund.

So the underlying cash-out totaled to EUR 4 billion in 2023. Our battery business continued to make fast progress in the ramp-up of the organization as well as in the construction of Salzgitter plant, which is progressing according to plan.

In the period under review, cost for this buildup and higher CapEx led to an operating loss of EUR 0.4 billion as well as a net cash outflow of EUR 0.8 billion. We view these upfront investments for our battery activities as an essential prerequisite for the successful ramp-up of the electric vehicle production.

TRATON delivered a convincing performance on its promises for 2023. Unit sales increased by 11%, supported by a continued robust customer demand and improved supply chains.

Strong volume expansion, positive price and mix effects as well as growth in vehicle service drove sales revenue up by 16%. Operating margin came in at a strong 8.1%, about twice the level of the previous year.

And this is, in particular, driven by a strong rebound of MAN and Scania's return to a double-digit margin of almost 13%. Net cash flow increased significantly to EUR 2.7 billion.

Financial Services kept the overall contract volume stable. Credit loss ratio was largely unchanged versus the prior year despite a worsened macroeconomic environment.

Operating income in 2023 fell by about 1/3 to EUR 3.8 billion, corresponding to a margin of 7%. This decline reflects the meanwhile normalized business environment with regards to used car prices and provisioning for residual value risk as well as the higher interest rate levels.

Now moving on to our China joint ventures. Thanks to a strong fourth quarter, deliveries to customers in the full year were up 2% year-on-year at about 3.2 million vehicles.

We were able to further strengthen our position in the ICE segment, advancing our market share there. Our BEV sales accelerated their sales momentum, in particular, supported by an extensive cost work and improved product substance.

As a result, BEV volumes increased by 22% to 191,000 units with 74,000 units in the fourth quarter alone. The proportionate operating result of our Chinese JVs amounted to EUR 2.6 billion, thus holding up well in a highly challenging competitive environment, particularly in the BEV segment.

For the full year 2024, we expect the market to remain highly competitive during the transition toward new energy vehicles. Short term, this will adversely affect profitability.

And we expect a proportionate operating profit in the range between EUR 1.5 billion and EUR 2 billion in 2024. Ladies and gentlemen, overall, we delivered a robust performance in 2023.

With a convincing plan and a robust financial position, we are well prepared to master the transformation of our company. Our dividend proposal is evidence for this and our strong commitment to let our shareholders participate in the financial success of the Volkswagen Group.

We will propose a dividend of EUR 9.06 per preferred share to the Annual General Meeting in May, equivalent to a payout ratio of 28%. Ladies and gentlemen, we are looking with confidence and optimism into the year 2024, which brings me to the outlook for 2024.

We expect global vehicle sales to slightly increase in 2024. We aim to gain share in the North American region, whereas it is our target to sustain our position in Europe.

In China, we expect to consciously give share in a highly competitive BEV environment in line with our value-over-volume strategy. Our price/mix should benefit from a number of new model launches.

Lower material prices and product costs should favor us in 2024 as well as first positive effects from the execution of our performance programs, not to forget our continuous fixed cost work. What we have to offset is, in particular, the significant ramp-up costs for new models, the continued upfront investments in our battery business as well as for our fully consolidated China operations and an increasing BEV share, which is currently diluting our margins.

These factors translate into a solid financial outlook in a continued demanding environment. We expect sales revenue to grow by up to 5%.

We expect our operating margin before special items in a range between 7% and 7.5%. Automotive net cash flow should come in within the range of EUR 4.5 billion to EUR 6.5 billion.

This outlook contains up to EUR 6 billion cash outflow for the expansion of our battery activities on top of our current core business of today. Last but not least, Automotive net liquidity is expected in the bandwidth of EUR 39 million to EUR 41 billion in 2024, and with that to stay on a very solid level.

With regards to our guidance, it should be noted that our start into the year is expected to be slower. We are currently experiencing temporary headwinds, in particular, from a supply constraint at selected Audi models and a significant amount of new model launches across all brand groups over the coming 2 years.

However, we expect to catch up in the course of the year, specifically in the second half. Ladies and gentlemen, the Volkswagen Group owns a portfolio of some of the most fascinating, strongest and most valuable brands in our industry.

There's no doubt that strong individual brands will remain a differentiating factor in the future. At the same time, however, we must transform ourselves into a technology and mobility service group.

This means that we need to focus on our platform, such as BEV hardware, unified software stack, battery, mobility and autonomous driving. The transformation of our company towards electromobility and digitalization requires focused financial steering.

On the one hand, it requires a courageous and smart allocation of resources to future topics. On the other hand, we want and will keep our combustion vehicles competitive to ensure the flexibility we need in an uncertain environment during the transformation phase.

This task is also reflected in our upfront investment ratio. For the full year, total R&D expenditures within the Automotive Division amounted to 8.1% of sales.

On CapEx, the group spent a total of EUR 14.4 billion, corresponding to a CapEx ratio of 5.4%. For 2024, we expect the combined R&D plus CapEx ratio in the range between 13.5% and 14.5%.

And we expect fiscal year 2024 to be the peak year in terms of expenditures. Looking further out, our primary focus is on realizing group synergies and the gradual phasing out of upfront investments in our ICE business.

This is enabling us to target a lower cumulative spend for R&D and CapEx over the 2025 to 2029 planning round at the level of EUR 170 billion. We are continuing to invest in the electrification and digitalization of our company.

At the same time, we are doing our homework on the cost side. An improved element of our group strategy is to enhance resilience by reducing group overhead costs.

By 2023 compared to 2019, we were able to reduce the ratio of Automotive revenues by, in total, 3 percentage points. In an industry that generates a margin of 8% to 10%, this is a significant contribution to the robustness and success of our company.

And this is for sure at the end of the journey. We believe there is further room for improvement, in particular, from the consistent execution of our performance programs across all brands.

Ladies and gentlemen, we have a clear plan for the transformation of the Volkswagen Group. We will continue to invest in the ramp-up of our electric platforms and keep our combustion engine vehicles competitive during the transition phase.

We will continue to systematically develop our automotive software stack and we continue to invest in future-proof mobility services. The priorities for 2024 from a financial perspective are also clear.

In 2024, we must focus on the ramp-up of our great new vehicles, on massively improving our cost base. We must make greater use of synergies within the group.

And we need to position ourselves more robustly regionally. That means implement our catch-up program in China and continue to grow profitably in the U.S.

Thank you so far. And with having said that, back to Oliver.

Thanks, Arno, for your insights. These results form a strong basis for a year 2024, which is expected to be demanding in many aspects.

Establishing a TOP-10 program was a crucial success factor in 2023. Also, in 2024, we will be focusing on clear structures and clear goals.

The TOP-10 program is and will remain our central management tool with expanded content. It is clear, simple, unambitious -- unambiguous.

And that makes it efficient. And that is why the Volkswagen Group brands have adopted this logic.

It enables us to manage it in a uniform manner and makes our activities significantly more effective. 2024 will be a record year in terms of model launches.

We are preparing for the biggest product offensive in the history of the Volkswagen Group. We are planning with not less than 30 new models across the brands.

These cars will electrify and excite customers and fans across the globe. We have already announced the market launch of all-new electric Porsche Macan, the Audi Q6 e-tron and the Volkswagen ID.7 Tourer.

Our focus is also on rolling out further new PPE models on the market. The premium platform for our electric vehicles demonstrates the group's competitiveness.

In the upcoming planning rounds, we will continue to focus on the strategic direction of the company, a strong product strategy, the performance programs for our brands, strategic investment planning, continued realistic volume planning for the planned occupancy and management compensation in line with our strategic goals. These measures will have an impact on our results.

They are significant growth drivers for cash flow, returns and sales. At the same time, they will enable us to actively reduce our investment in the coming years.

Ladies and gentlemen, the Volkswagen Group is facing major challenges. It is in our hands to be successful in this challenging environment because the Volkswagen Group has immense potential.

We completed the structural cleanup work in 2023. For 2024, we are setting clear rear guards and priorities with our TOP-10 program.

We will do the right things right. We are entering the year of the biggest product offensive in the group's history.

30 new models will be launched in 2024. That makes us confident 2024 is the foundation for an accelerated ramp-up from 2025.

We have a huge responsibility here. And we strongly intend to live up that for our society, our company, our employees and the environment.

The Volkswagen Group will deliver reliably, fast and sustainably. Volkswagen takes responsibility.

You can see this for yourself again in April as part of the Beijing Auto Show. We are organizing a Capital Markets Day under the motto in China, for China.

The focus will obviously be on our position and strategy on the Chinese market and how we aim to win in the new era of ICEs. This is our clear target that we would like to showcase to international stakeholders, investors and analysts.

I look forward to exchanging ideas with you all. And for now, my colleague, Arno, and I look forward to your questions.

Thank you very much for your attention.

Thank you, Oli. Thank you, Arno.

[Operator Instructions] And we start with Tim Rokossa from Deutsche Bank.

It's Tim from Deutsche Bank. I would have two questions, please.

The first one, Oli, is probably for you. You run an extremely complex business.

The economies of scale are very helpful. But speed and agility are completely of essence here.

We know you are a big fan of partnerships. Can this mean that you're going to replace some of your vertical integration and ownerships over time?

And in the end, you always use sports analogies. Most football clubs, they don't make their own jerseys.

They don't make their own buses that drives them to games. Do you think VW should be as big and complex as it is today in the mid- to long run or rather focus on the core business of producing and selling passenger cars over time?

And then secondly, Arno, I guess, perhaps that's for you. On the margin and free cash flow outlook, there was obviously quite a bit of a discussion when the outlook to came out.

Last year, many thought you were too aggressive. Now you're probably a bit too cautious.

P911 guides for 200 bps range. Your range is much narrower.

Why did you decide to only guide for 50 bps range? And how should we think about the cadence of the development, considering a lot of the product ramp-ups are actually still to come?

And the same for free cash flow, can you perhaps walk us through your assumptions there?

Yes. Tim, may I start?

And coming to your question about vertical integrations or partnerships, and there, we are leveraging in every technical area where it's useful to have a partnership or what is our core competence in everything, watching on the aspect of speeds you mentioned, which means a lot to us and is one important driver in the transformation. Giving you some examples, in terms of battery, for example, we decided to make a strong vertical integration in terms of developing battery cells and producing them.

And there, we are aiming a share of around 50% in-house and 50% together with partners around the world, depending on the different regions of the world. And partners are today, LG, for example, or CATL.

We have the partnership in China for Guoxuan and then really decided to make our own battery factories in Salzgitter, in Valencia or in Canada. CARIAD is another example in software.

And there, as you know, we are working closely together with Apple. But also important are big partnerships.

And there, we are now in good talks with big partners, having reoriented our partner landscape and focusing more on single big partners than many different partners for remaining speed but having the power also of these big partnerships. Autonomous driving is an example for partnerships in China with Horizon Robotics, Mobileye from Israel or the Bosch activities for the future in Europe.

Or in car business, deciding clearly in China what we are doing by our own with our platforms, MEB plus PPE and, in the future, the SSP but also having partnerships with Xiaopeng or SAIC. So for us, in terms of deciding what we are doing by our own or where we choose a vertical integration, it's about speed, quality and know-how.

And I think we can't and we don't want to do everything by our own and leveraging where we do have the biggest opportunities.

Do you need to build trucks and sell them over time, Oli, if I can ask this directly?

Up to now, we are quite successful with our trucks. And the profit margin has increased with a turnaround of MAN.

And I think in terms of complexity, it does not slow down our activities in the car business. And we think with a complete portfolio, we are well positioned.

What we'll bring in the future depends also a bit on the development of the profitability in our truck group and the share price. But today, I think we are well positioned with all these being active in all segments.

Yes. Tim, I'll take the second question.

Yes, you mentioned several topics. And I start with the notion of being -- having been very ambitious last year.

Look, there were a lot of discussions about our deliveries outlook we had. And so on the other hand, the sales revenue guidance, we even overachieved.

And looking at the deliveries, I mean, perhaps you realized we didn't even give a guidance anymore. So it's not a relevant factor for us.

We gave a guidance of sales revenue, which we think is robust, up to 5%, which is absolutely in line with our value-over-volume strategy. So we don't want to overpace on the top line but rather start from -- with the robust planning.

So I take this, at least for this part, as a compliment. On the second, yes, if you look at the remaining KPIs, I think 7% to 7.5% is a robust outlook in a challenging environment, specifically with all the upfront investments, with all the upfront costs of [Audio Gap] Also as said, Audi temporarily having headwind from supply constraints, specifically on six- and eight-cylinder models.

And so from today's perspective, we think that's a solid outlook. And coming to the cash flow, I would like to elaborate a little bit on that.

First and foremost, you have to take the cash flow from 2023 and 2024 together in perspective. Because we were really, really -- our teams were really successful to ramp down the adventures.

We have been building up. And during the year 2023, remember, when we had the Capital Markets Day, we said there were like bottlenecks in the logistics chain of finished vehicles.

And this basically led to a cash flow of EUR 10.7 billion last year. And looking to the guidance of this year, or for 2024, EUR 4.5 billion to EUR 6.5 billion, so let's say, an average EUR 5.5 billion in the midpoint, it looks underwhelming in the first glance.

But in that -- yes, in that EUR 5.5 billion, it's, I would say, a number of more than EUR 6 billion are earmarked for the ramp-up of our battery business, both in terms of CapEx to ramping up the three plants at the same time in Salzgitter and Valencia and also in Ontario. And so there are also some funds earmarked for potential M&A or investments to secure raw materials.

So if you theoretically -- and this is a business we don't have today. So theoretically, if you add the EUR 6 billion to the EUR 5.5 billion, you have more like somewhere around EUR 10 billion to EUR 12 billion of net cash flow.

And this is a very solid cash flow for a company in transformation.

Maybe one word on the cadence of the earnings development in 2024?

Yes, thanks. Yes, as indicated, we -- due to the model launches or to the temporary headwinds at Audi as a supply constraint, we expect a rather weaker Q1.

You should expect Q1 also below the guidance corridor we gave. And we are planning to catch up during the remainder of the year with first positive effects or more positive effects kicking in from our efficiency program and eventually in the second half of the year with the ramp-up of great new models, E-Macan, Q6 e-tron, ID.7 Tourer, while in the first quarter and also in the first half of the year, we have a major headwind from ramp-up costs from this effect.

Thank you. Arno.

I hope, Tim, this has answered your questions. And the next one in line would be George Galliers from Goldman Sachs.

The first question I had was with respect to some of the strategic initiatives you announced back at the Capital Markets Day last year. Specifically with respect to Scout, given the announcements from some of the U.S.

domestics around their own EV strategies as well as the soft sales performance and financials of some of the battery electric vehicle startups in North America, has that led you at all to reassess your Scout strategy or at least the timing of your investments there? Or is everything still very much as conveyed 6 months ago?

The second question I had was with respect to the M&A. And I appreciate the comments you've just made around acquiring certain aspects like raw materials, which you maybe didn't have previously access to.

But if we look at the M&A, it was more than EUR 2 billion in 2023, more than EUR 3 billion in 2022. And obviously, it's going to be around EUR 4 billion this year.

Do you think we should really think of M&A as one-time in nature for Volkswagen? Or is it actually just part of the strategic investments you need to make, given your scale and obviously the ongoing evolution of the industry?

Yes, thank you, George. We are well aware of the discussion around electromobility currently in the market, at least in two major markets, Europe and U.S.

But we are convinced the future will be electric. And we continue to invest accordingly.

In the meantime, we keep our combustion engine cars competitive to be flexible. So basically, we invest in the last generation, as I said before.

But we haven't made major changes on our investment strategy on our electrification strategy and also ramp-up so far. Of course, we will monitor that closely.

This is specifically true for the investments in our battery capacity. We review whether we need the capacity at specific blocks and specific capacities within these three factories at certain points of time.

And we are prepared to be flexible there. And of course, we also reviewed the Scout project.

In terms of Scout, we must say, look, this is a once-in-a-lifetime opportunity for us to grow in the U.S. For a long time, we had really difficulties to enter a major segment.

And the C-pickup segment in the U.S. is one of the most promising and also potentially, at least from an outside-in point of view, a profitable segment.

And in order to get a more robust footprint globally, we really want and need to seize the growth opportunities in the U.S. And so this C-pickup segment and also B-SUV is in terms of profit pool is -- are the most promising segments.

And it was really not possible for us to conquer this segment or hardly possible for us to conquer this segment in the combustion engine world because we're just lacking scale. And now this segment is turning electric.

Perhaps not as fast as everybody assumed, but eventually it will turn electric. And this is our unique chance.

We have a great brand. We have the technology.

We have the capacity for batteries in Ontario. And so we still pursue this fascinating project, Scout.

Fine with that, George?

Yes. And sorry, just with respect to M&A, maybe being kind of more of an underlying and continuous part of the investment plan rather than something we should treat as one-off?

Yes, George, thanks for the question, yes. Look, we -- of course, we do M&A planning for like 4 or 5 years ahead.

But in the magnitude of EUR 2 billion to EUR 3 billion to EUR 4 billion, let's say, EUR 3 billion, this is something one could expect year-over-year. Because it's also to the strategy, what Oliver said, we carefully review what competencies do we have internally, what competencies are in the market, how do we partner with outside players who has more or other competence that they have in certain fields.

And so this is something you might model in your cash flow planning going forward year-over-year.

Thank you, George. And we are coming to the next question, it comes from Patrick Hummel from UBS.

The first one I'd like to ask is regarding CO2 compliance 2025 in Europe. I would like to understand from your perspective, what is your strategy here?

It looks like you have to increase your EV sales a lot next year, which might be difficult in a market that seems to be oversupplied and under a lot of pricing pressure. So I want to understand, is pooling an option that you consider?

How much of a headwind could this become earnings-wise in 2025? And also, when you talk about regulation in the media call, I heard you mentioning you will ask regulators and policymakers for a bit more flexibility.

Was that only a statement as far as the 2035 combustion engine ban is concerned? Or are you effectively asking also for more flexibility in regards to the 2025 regulation, 2025, not 2035?

And my second question is on markets. Can you help us?

As far as China is concerned, you're putting obviously a quite significantly more cautious view into your guidance, what is the volume, what is pricing here. I understand there is a consolidation effect also in the more negative outlook.

But you sounded pretty positive about the combustion engine vehicle business until recently. So I want to understand what's going on here.

And as far as Europe is concerned, you mentioned in the media call, the backlog has now normalized. But I sense you're still kind of constructive in Europe later in the year.

Is that mostly product cycle-driven? Do you see any inflection points on the macro front that could lead to a better demand situation in the course of the year?

Yes, Patrick, may I start with your CO2 question? First of all, and I mentioned in my speech today, that we are expecting from the politics in the EU clear regulations, where we have a clear orientation.

Because we are a more long-term business and we need planning transparency there. And all these discussions are not useful.

And on the other side, depending on the framework we have in the different markets, it's important to adjust the CO2 targets and to think what is realistic on the one [indiscernible]. Looking to 2025, on the one hand side, we have a strong product offensive.

We will have or expecting a growth in electromobility, especially because of our product. And on the other side, we will leverage, depending on the volume in between pooling and also where it's profitable to work with incentives, to avoid the CO2 payments we would have in '25.

And so we will plan step-by-step. First of all, what is important for us, launching now the new product, then we will mention the response in the market.

The first product we are launching right now, we are getting very positive response. Yesterday in the Porsche press conference, I mentioned the positive order intake in the first weeks of over 10,000 units for the Macan only and [indiscernible] from Volkswagen and from Audi and all the other brands.

And so that's the basis. And at the end, we will leverage in between all the drivers to avoid payments.

Yes, Patrick, and in addition to what Oliver just said, this ramp-up of electrification in Europe and worldwide in Europe, this is factored in, in our guidance, margin guidance, and also in our long-term guidance for the brand and the brand group. Look, we come from 8% this year, guide basically for 10% next year.

But that 8% globally is about 13% in Europe already for 80,000 cars. And then 2024, there will be a lot of new cars coming but specifically in the second half of the year, which will give us a tailwind for 2025.

In terms of margin, yes, electric cars are margin-dilutive still. And with the ramp-up, this basically puts a challenge, it's basically a headwind.

But look, this is what's factored in, for example, in the margin guide of brand Volkswagen. Their margin guidance is 6.5% in 2026.

Look, let's assume they make EUR 100 billion turnover sales. So this EUR 6.5 billion now, but they shoot for EUR 10 billion improvement program and efficiency program in gross measures.

And one of the component is to compensate for higher BEV share. But with like scale increasing, with product substance even more increasing and also with also more cars in the smaller segment, ID.2 with LFP batteries, the margins will improve as well.

So overall, yes, we will increase BEV share and -- but this is all factored in, in our long-term margin guidance. In China, China is a slightly different case.

In China, we really see two markets. The ICE market, in ICE market, we are rather strong.

We even gained market share. I think we gained more than -- we turned over 20% last year and see strong demand.

Yes, there is also some pressure on the margins. But overall, the business is very, very healthy.

In terms of BEVs, we always said we have to catch up. We set up a program to improve the cars both in terms of ADAS, driving assistance function, with Horizon Robotics, together with ThunderSoft in-car infotainment, we bring in LFP battery.

But that takes time. That takes some quarters.

And also in 2026 kicks in really two new great products that we developed together with Xiaopeng. And in between, from today until, I would say, 2026, we make sound compromises between margin and volume.

And this is why I said or we said, we are deliberately prepared to give up some more share in the next 2 to 3 years, I would say, 2 years. And from 2027 onwards, we want to pick up also shares significantly in the BEV segment, in the BEV market.

So this is our path in China going forward.

Thank you. Very good.

And just to be precise, 8% was the best share [Audio Gap] firmly inside with our balanced value-over-volume approach. Thank you, Patrick.

Next question comes from Mike Tyndall from HSBC.

It's Mike from HSBC. Two questions, if I may.

Just the first one around launch costs, 30 new models coming this year. I just wonder if you can give us some sense of the actual magnitude of the costs that you're factoring in for those vehicles?

And also, on those new vehicles, how should we think about pricing on the other side? Are we -- is it fair to assume that content levels in those products will go up and we will see a price increase?

Are we likely to see prices go up by more than the associated content? And then the second question is around tariffs.

And I guess, two real perspectives on that. One of your counterparts suggested that Chinese tariffs should be lowered and increase competition.

Curious to know what your perspective is on that? And then also, what are you thinking in terms of a potential tariff situation coming from the U.S.?

How are you prepared for that?

May I start with the launching situation? First of all, we are planning over 30 models all over our brands.

And around half are combustion hybrid versions and the other one, electric ones. It's correct that we have this launching cost technically but also with marketing in the markets, and it's included in our preview.

And on the other side, what makes 2024 so ambitious is this so-called V effect. On the one hand side, we have to run out the previous generation and to ramp up the new generations.

And there, we are coming step-by-step with all our derivatives and the regional introduction. And this makes this year ambitious in terms of volume, but just to greater opportunities from 2025 onwards when we will be with all derivatives and regional products in the market.

In terms of pricing, that's right. In most of our products, we are putting into more content.

And for example, the Macan will have 8% more content. And then on the other side, we will be able also to lift prices.

That's depending a bit on the segments and how the markets react. And there, we have a specific solution market-by-market.

But the aim is to lift pricing and content. In terms of tariffs, we don't know what will happen in the U.S.

For us, it is important to have a free world trade. We are concerned of rising of protectionism.

And we think when you start protectionism in one region of the world, and that affects Europe. And also when we look to China, then you will affect protectionism on the other side.

And therefore, we are fighting for free and fair trade worldwide and talking also to our government.

Next question comes from Justin from Federated Hermes.

I thought it was a very good presentation this morning, which we really appreciated. I have two questions.

Earlier today, you presented a well-thought-out strategy, which strongly features sustainability and reinforces the elements of nature on your workforce, society and business. And it feels like this is a step forward for the company, and we welcome the direction of travel.

Reducing the company's impact on climate change is a big driver behind that strategy and including I noted that you're bringing forward the company's net-zero ambition from 2050 to 2040. And my first question is that for such a material topic for one of the world's biggest carbon emitters, does the Executive Committee believe it has sufficiently explained how the company has handled the impact of its new climate ambitions in the accounts with a little more than half a page stating your climate ambition has limited impact on the consolidated financial statements?

My second question relates to the audit report. Your investors rely on an independent assessment of the company handling the accounts.

And for such a material topic as climate, I noted that the company's auditor continues to make no mention of climate and how it has considered climate in its audit report. As responsible investors, we expect auditors to explain how this material topic is being considered.

And if the decision is made that it's not a key audit matter, we expect the auditors to explain this. Could you outline the discussions that the company -- that you have had with the auditor regarding the handling of climate?

And as a management team, are you comfortable that the auditor has made no comment on how it assessed climate within its audit?

Yes, may I start? Justin, for us, it was important to sharpen our sustainability strategy and put it to the next level.

And we call it regenerate+. And we feel directly responsible to fight against climate change.

And you can see it in all aspects we are acting in our company through the whole value chain, starting with the development of our cars, which level of recycling materials we are using, what energy is used for all materials. It's a whole value chain with our suppliers, which has an importance.

Then of course, our own production, where we are already using 100% renewable energy in our European plants. That is important for us.

And also, our products and our strong electrification strategy behind the investments and partnerings we are doing for building new renewable energy sources. And so overall, we thought that is important to define more ambitious scales.

Therefore, we presented today the 2040 approach. In terms of audit for all the sustainability issues, we have now a very clear structure with target fields for all dimensions I presented this morning and also linked to all our brands when it comes to the ESG criteria.

And for us, it is important to work there with full transparency and showing year-by-year the progress. In terms of your second question about the audit in China, we have done.

For us, it is important that we work with our understanding of values all over the world, the same to our partners. And also, by contract in China, it is defined, for example, in terms of human rights that we are driving the business with our understanding of values.

And therefore, when there are observations from the media or from other people, we check them. And for us, it was also important not only checking them by our own, asking an external independent auditor to take the situation.

Up to now, we haven't seen any aspect which is going against the human rights policy we do have. But on the other side, we are also considering maybe further steps, together with our partner, in terms of an economical evaluation [Audio Gap] driving there in Xinjiang region, it's very small, below 200 people comparing to the 680,000 people we have worldwide.

And therefore, it was convincing for MSCI that the audit went well. That is one point.

But at the end, being always in the critics, we have to think to go further on. The most important aspect for us right now is caring the people there.

That is our responsibility and then taking a decision together with our partner. And there, we have good progress in our talks together with our partner.

Yes, perhaps I didn't fully explain myself on that last one. But I was more looking at the auditor, Ernst & Young, who have audited your financial statements and the fact that they have made no comment about how it has assessed climate within the accounts.

And they continue to say nothing about climate. And it's a key issue for us, and we would like them to be making some statements.

So I guess, the question really is what discussions have you had as a management team with your auditor around the climate and the way in which they've handled climate and the fact that they're currently not stating anything in the accounts, in their audit around how they've handled climate? So it was more for that point.

I appreciate the response you gave on the human rights in the supply chain. And we're definitely following that very closely.

This one was more around the financial audit.

Justin, may I suggest that we take this with us and approach you directly on that, how the auditor treated the climate question and then how we responded to it. Is that fine?

Yes, that would be fine, very keen to all of that.

And adding to this, we will provide very clear with full transparency all the new targets we have defined and for all I mentioned at the end, also to the auditor and we can clarify the point you have got for this audit report and giving you all the details. But everything to come based on the regenerate+, full transparency from our side about the progress.

Our next question comes from Michael Punzet from DZ Bank.

I have one question or two questions on the performance plan. First one is should we expect any kind of burdens in 2024, like restructuring provisions?

And if so, can you give us any kind of guidance which amount we should expect? And the second one is whether we will get some, let's say, more hard facts on the measurements for the individual brands.

Yes, Michael, in terms of burdens, what we currently have agreed on is basically an early retirement program or early retirement programs for specific age groups. And the way it works, this early retirement program, you book basically or it's hitting the P&L contract-by-contract.

So there's huge programs in place. And we budgeted in 700 -- several hundred millions of basically headwinds for that.

But it's in already. And basically, it's booked contract-by-contract.

This is where we stand so far in terms of headwind from the performance program. Hard facts, I mean, we already started to deliver on the program.

Look, we announced that we stopped hiring in major parts of Volkswagen AG, for example. The allocation of plants is already designed in this direction.

We made productivity improvements. And for example, we took out a shift in our electric plant in Zwickau to optimize capacity.

So -- and yes, so a lot of measures are already implemented already. And the major proof point for me will be margin of brand Volkswagen and Brand Group Core in year 2024.

And this -- and specifically on brand group level, a next step in profitability, we aim for 6% to 7% margin, which would be a significant step forward. To be very precise, 6% to 10% on brand group level, not on brand Volkswagen.

Brand Volkswagen will give their margin guidance tomorrow. But this is obviously in line then with brand group.

Okay. Maybe two clarification questions.

The 6% to 7% for the core group is already the target for this year, 2024?

Correct, Michael. This is target 2024.

The midterm target is 8% for Brand Group Core.

Okay. And the second one is the several hundred millions you have already budgeted in for the early retirement.

That will be adjusted, it's not included in the current margin guidance?

This is included already.

Okay, so you will not adjust for that?

Not for this program, not for the retirement program.

Thank you, Michael. As we are running a bit out of time, next one is Horst.

Horst, may I ask you one quick question so that Harald has a chance to be the last one in line?

Yes, of course, we can do that. I've got one more question then for Arno, especially on the guidance.

So when I consider your guidance of 7% to 7.5% operating margin guidance and I look at the same time at the revenue guidance, up to plus 5%, it would be interesting to get a feeling what means up to 5%. Because it's up to -- if you were raising revenues by 5%, you would basically increase revenues by EUR 16 billion.

If I calculate the 20% operating leverage on that, it takes me to something like more than EUR 3 billion operating profit increase. At the same time, your target for the Brand Group Core here is 6% to 7%.

And you had this more than EUR 3 billion of hedging losses in 2023 and also significant negative product costs. So therefore, to me, still the guidance looks cautious, 7% to 7.5%.

Could you please explain where there's potential upside in 2024 and where you have taken on this group level really to cautious assumptions?

Yes. Thanks for the question.

I mean, if we say on sales revenue up to 5%, I think the best guess would be to take the midpoint, which is, yes, might be cautious. But we had the discussion a year before.

And we think it's for our business and for, I would say, the motivation of the performance programs and also motivation to lower fixed cost. It's much better to rather plan with a cautioned top line and not overpace it.

And yes, in terms of, I would say, theoretical EBIT bridge, there should be positive from mix and small positive from volume. Obviously, mix because we bring -- specifically in the BEVs, we bring really strong products.

E-Macan, Q6 e-tron, also ID.7 Tourer are, from a mix point of view versus the average BEVs, positive, then we bring also the Tiguan is hitting the road, Passat is hitting the road. So that helps mix in brand Volkswagen.

Yes, on the headwind side, we have still inflation on fixed cost, and we have a significant headwind from the ramp-up of the 30 models Oliver mentioned this morning. So -- and this is how we end up with the 7% to 7.5% as said before.

In the current environment, also we're ramping up our BEVs worldwide. In terms of share, we view this as a solid guidance.

Okay. Just to clarify, so the hedging losses were completely reversed, product cost is going to be also a tailwind and pricing is negative, but you don't want to quantify that, I guess?

In a theoretical bridge, we reverse the headwind from hedging. That's the case.

And also, we expect a small positive on the product side, yes.

Okay, all right. And pricing negative, but you don't want to specify that, right?

Not at the moment, Horst. So the last one from Harald.

Harald ideally with a closed question where we can answer yes or no.

Yes, just last question, my -- so on your company, your free cash flow last year was over 60% of your current market capitalization. But then your spend is obviously roughly the same number.

EUR 37 billion a year is obviously an enormous number. It's bigger than all of your competitors.

The competitors also spend a lot of money in battery factories and stuff like that, but they maybe do it in joint ventures, so it's not on their balance sheet or they use more partnerships. You've talked about more partnerships and stuff today, particularly CARIAD is potentially exciting, I think, but also in battery and other parts of the business.

How much do you think you can save off of this current peak level? You talk about 14% to 11%.

But I have a lot of questions on literally IB Today asking me when is this going to happen? Is it ever going to happen?

You heard the question on the M&A, which sounds like another increase in spending. Do you understand the frustration that investors have?

You have this incredible potential. Can you give us some cadence on whether you'll be able to bring those investment levels down and whether we should expect that to drop through to the cash flow in the next 2 to 3 years?

I can be -- so in the sake of time, I can be very brief on that. We stick to our plan to bring that number down in relative terms to 11% in 2027 with the runout of combustion engine investment.

And eventually, we target for 9% in -- towards 2030, as indicated in the Capital Markets Day, which is then absolutely competitive.

And that includes every M&A spending we will plan for.

And we should expect those savings to drop to the free cash flow? Or are there other things that, that money would have to be spent on?

Okay, thank you, Harald. I think we have to close for the -- thank you.

Thank you very much for dialing in and for hanging in with us. And we are very much looking forward to catch up now during the quarter.

First quarter is also around, will be reported on April 30. And yes, wish you all a very good afternoon, and look forward catching up.

Thank you.