Volkswagen (ETR:VOWG_p) Group (VOW.DE) has reported significant developments in its transformation journey during its first-half 2024 earnings call, despite geopolitical and economic challenges. The company's CEO, Oliver Blume, highlighted the launch of over 30 new models, a focus on electrification with over 317,000 battery electric vehicles (BEVs) delivered, and a commitment to cost-cutting and efficiency measures. Financial performance for the first half showed sales revenues of €159 billion and a return on sales of 6.3%, with 4.35 million vehicles delivered to customers.
Key Takeaways
- Volkswagen Group's sales revenue increased by 4% in Q2, achieving an operating margin of 6.6%.
- The Automotive Division's net cash flow was at minus €0.1 billion after six months, primarily due to working capital buildup.
- The company delivered 317,000 BEVs in the first half of the year, with the BEV share rising to over 8% in Q2.
- SKODA and Volkswagen Commercial Vehicles improved profitability, while the Volkswagen brand fell below expectations.
- CARIAD's sales revenue increased by 30%, but the operating result was minus €1.2 billion.
- TRATON showed strong performance with a 9.1% operating margin.
- Financial Services division's operating result fell by about a third to €1.4 billion.
- The company aims to reduce R&D and CapEx investments to well below €170 billion from 2025 to 2029.
Company Outlook
- Volkswagen Group projects up to 5% sales revenue growth and operating margins of 6.5% to 7% for the second half of the year.
- Cost reduction and productivity improvements are planned, with expected benefits from performance programs in the future.
- The company is focused on restructuring to adjust capacity and reduce costs, aiming to improve net cash flow generation.
Bearish Highlights
- Operating results declined by 8% to €3.5 billion in Q2, with a margin of 5%.
- The Brand Group Progressive sales revenue was significantly lower due to vehicle sales constraints.
- The China joint ventures experienced a 19% decline in volumes in Q2.
- The Financial Services division's operating result decreased by about a third.
Bullish Highlights
- BEV deliveries in China increased by 21%.
- Volkswagen Group Mobility's overall contract volume increased by 2%.
- Strong order intake and expected growth in the Western European market.
- Positive feedback on the launch of the new Volkswagen ID UNYX in China.
Misses
- Volkswagen brand's performance fell below expectations, highlighting the need for cost reduction and productivity improvements.
- CARIAD's operating result showed a significant loss of €1.2 billion.
- Net liquidity declined by €9 billion, although overall net liquidity remained solid at €31.3 billion.
Q&A Highlights
- Executives emphasized their focus on cost reduction and the expected payoff from restructuring measures in the coming years.
- The company's CO2 compliance plan and electric vehicle offerings received a positive response.
- Executives did not provide specific quantifications but reiterated their commitment to achieving financial targets.
Volkswagen Group remains confident in its strategic direction and execution plan, with a clear focus on electrification, productivity, and efficiency. The company's partnerships, such as those with Rivian (NASDAQ:RIVN) and CARIAD, are set to play a significant role in shaping its future software and electric vehicle strategies.
Despite some challenges, particularly in the Chinese market, Volkswagen Group anticipates stronger performance in the latter half of the year, driven by key markets such as North America, South America, and Europe.
InvestingPro Insights
Volkswagen Group's ambitious goals and strategies have been reflected in some of the key financial metrics and market indicators. According to InvestingPro data, Volkswagen Group (VWAGY) presents an attractive investment profile with a notably low Price to Earnings (P/E) ratio of 3.57, which further adjusts to 3.34 when considering the last twelve months as of Q1 2024. This low P/E ratio, especially in relation to near-term earnings growth, suggests that the stock may be undervalued, providing an opportunity for investors.
In addition to a favorable earnings multiple, the company's commitment to shareholder returns is evident with a significant dividend yield of 5.49% as of May 2024. This is supported by a long-standing history of dividend payments, with the company having maintained these payments for 33 consecutive years. This level of shareholder return is particularly noteworthy in the current economic environment and underscores the company's financial stability.
Furthermore, the company's Price to Book (P/B) ratio stands at a low 0.3 as of the last twelve months ending Q1 2024, indicating that the stock is trading at a discount to the value of its assets. This could be an enticing metric for value investors looking for stocks that are trading below their intrinsic value.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available for Volkswagen Group, which can be found at https://www.investing.com/pro/VWAGY. These tips provide further insights that can help investors make informed decisions regarding Volkswagen's stock.
Full transcript - Volkswagen ADR (VWAGY) Q2 2024:
Operator: Ladies and gentlemen, welcome to the Volkswagen Investor Analyst and Media Call First Half 2024. I am George the Chorus Call operator. I would like to remind you that all participants will be listen-only mode and the conference is being recorded. The presentation will be followed by Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Oliver Blume, Chairman of the Board of Management. Please go ahead sir.
Sebastian Rudolph: Good morning everyone and this is not Oliver Blume, but Sebastian Rudolph. Thanks George. You will listen to Oliver in a few seconds. Good morning to the half year results call of Volkswagen Group. It's a joint call for both media as well as investors and analysts. Teamwork effort also from our side. It's a pleasure to have Rolf Woller with us our Head of Treasury and IR and I'm the Vice President of Global Group Communications. With us today is Oliver Blume, our CEO; and Arno Antlitz, our CFO and Chief Operating Officer. Let me provide a few remarks before we start. You should have received the press release, the interim financial report, and all other related materials all published this morning. If you do not have them yet, then you can find all documents on our website or just drop us an e-mail and we will send them straight to you. We have also just released the Volkswagen Group Green Finance report which is also available for download on our website. With that, let me now hand over to Rolf for a brief run-through of the next one and a half hours. Rolf the floor is yours.
Rolf Woller: Thank you, Sebastian and a very good morning to everyone on the call. Again thanks for joining us today. Let's have a brief look at the agenda. Ollie will start presenting the key developments of the first half year including an update on the top 10 program and then he will pass over to Arno who will then provide a closer look at the financials and thereafter, to the full year outlook 2024. Following the presentation, we will first host the Q&A session for the investor and analyst community, which is moderated by myself. And after that we will have a short break before we then continue with media Q&A, which will be hosted then, of course, by Sebastian. As a reminder and as always the Safe Harbor language and other cautionary statement on Page 2 of our presentation will govern on today's presentation. I would like to encourage you to read the disclaimer carefully since all forward-looking statements are qualified by this language. As always I will not read it out to you in order to save time. With that I hand over to Ollie and Ollie the floor is yours.
Oliver Blume: Yes. Thank you, Rolf and good morning to all of you. It's a pleasure to guide you through our achievements and the key developments of the first half year. Later Arno and I are looking forward to answering your questions after the presentation. Ladies and gentlemen, we are at half time of a truly demanding year. When we started into 2024 we had expected a year full of task and challenges and the six months proved us right. Our environment is challenging. We are faced by geopolitical and economic crisis. The changed framework conditions in China in particular are a major challenge for our group, as already discussed at our recent Capital Markets Day in April in Beijing. Competition has intensified significantly worldwide. New competitors are entering the market with a high level of innovation and cost advantages. What's important for us, first of all, in this environment we delivered on central decision points of our top 10 program to transform our company at high speed. Second, we made important progress in what is the most comprehensive restructuring program in the history of the Volkswagen Group. Third, we pushed ahead with our product offensive with attractive highly competitive new models over 30 new cars this year and more to come in 2025, the positive feedback received so far makes us confident that we are moving in the right direction. And fourth, we are strongly advanced with the execution of our in China for China strategy with first exciting vehicles launched to the market and bring our local partnerships to the next level. With this we continue preparing the ground for an accelerated performance from 2025-2026 onwards. We also took decisive steps in software. And that's my fifth point the global future electric architecture and software strategy is now in place together with strong partners. This enables us to speed up the software development process and to develop cutting-edge products at lower costs. And last but not least, financially we delivered a solid set of results on an underlying basis as we handled significant non-operating effects in particular related to the restructuring of Volkswagen Group. In the competitive environment, we held up well. Nevertheless, we still have a long way to go to achieve our medium and long-term goals. But we have a clear plan and we deliver. Let's look at the financial performance. After the expected softer start to the year we came back with a strong second quarter. Sales revenues in H1 came in 1.6% higher at almost €159 billion. The return on sales stood at 6.3% in the first half; however, results were held back by significant non-recurring items in particular the provision related to severance programs at Volkswagen AG (OTC:VWAGY) and other restructuring items. Excluding those the underlying return on sales stood at 7.1% also here we achieved a solid sequential improvement in the second quarter with an underlying margin of 7.6%. Net cash flow was strong in quarter two at plus €2.9 billion. With that we almost compensated the outflows of the first quarter. The solid set of results were supported by above-average performance of brands in the second quarter which delivered even in a challenging environment. Higher volumes and positive price mix drove [indiscernible] margin further up to very competitive 14.5%. MAN proved its new resilience with a margin of 8.5%. Our luxury brands, Lamborghini and Bentley delivered stellar 29% and 20% return on sales within Brand Group Progressive. Porsche showed a strong rebound in quarter two to a margin of 17.8% after a muted start to the year, and this in spite of renewing nearly all model lines in only one year and a very weak China luxury market. The Skoda achieved a strong return on sales of 8.7% backed by great product momentum and competitive cost structure. However, our results also show where we need to improve. Audi continued to be held back by supply chain shortages and saw a margin of close to 7% only in quarter two. At Volkswagen Brand, higher fixed costs and restructuring expenses lead to a return on sales of below 1%. Now that we have to put the group technically on track, our main area of action is cost cutting. Here, we are working with an intense systematic program at group level and in all brands. Group vehicle deliveries were on prior year's level after six months in 2024. Overall, we delivered 4.35 million vehicles to customers that represents a share of around 11% in the global automotive market. The basis for this is a healthy regional mix. We continue to keep our strong position in Western Europe, in North America and South America, we grew significantly and were able to expand our market share. In China, as announced we have prioritized sustainable value creation over higher volumes in a highly competitive market environment in order to achieve our long-term strategic goals. This is another positive reflection of our strategic value of our volume approach. Volkswagen Group is continuing to roll out its electrification strategy. In the first six months of 2024, we delivered more than 317,000 BEVs to customers worldwide. Doing so, the BEV share rose to slightly above 8% in quarter two. Especially in China, the group delivered significantly more BEVs in the first half of the year, resulting in an increase of 47%. Attractive electric cars, such as the Volkswagen ID Family made this increase possible. The upswing of BEV deliveries in China almost compensate for the currently softer demand in Europe and the US. Still, there are signs of recovery in the electric segment across all markets. After a slight decline in quarter one, the global BEV deliveries were on prior level again in Q2. And Volkswagen Group BEV order intake in Western Europe showed an encouraging trend, supported by strong product momentum, orders more than doubled year-on-year in both the second quarter and the first half of this year. We are confident that Volkswagen Group is operating on a solid foundation. We are advancing our transformation and are navigating with a clear and transparent strategy. The top 10 program marked the operational and strategic priorities of our group. We are focused on execution, and we are getting things done. Let me highlight some more recent examples. We aim to increase productivity and efficiency at Volkswagen Group. Therefore, we have implemented a variable set of effective instruments across all brands and divisions. Our performance programs have already started to show first progress and we are consistently implementing its measures. For example, technical adjustments, organizational measures, capacity adoptions, plant cost reductions and platform, synergies and where we see already early impact. And we continue to make concerted efforts to consistently decries our overall investment volume going forward. The group's largest product renewal is full and swing greatly strengthening our competitiveness. 2024 is a record year for Volkswagen Group in terms of new model launches across all brands. More than 30 new vehicles will be presented to the public this year. And as per day and as planned more than half of these new cars have already been launched to the market with great feedback from customers and strongly positive reactions by the automotive press. The Electric Porsche Macan, the Audi Q6 e-tron of the Volkswagen, ID 7 Tourer, are just some examples for our inspiring model lines in the electric world. The start of sales states for icons of a new era such as the ID Buzz Long-Wheelbase and new Porsche 911 GDS ST Hybrid and the Audi A5 as well the A6 e-tron, are just around the corner. And also important in the period of transformation our combustion hybrid versions of the new Tiguan Golf Passat, the superb the Audi Q5 or the Panamera Cayenne are only some examples. Our product of underlines our driving strategy with a clear commitment to electromobility, flexibly covered with a full-size offer of modern combustion engines and hybrids to be able to fulfill the desires of our customers in the different regions of the road which are moving with a different speed towards the transformation. And we are delivering on our promises. A new product strategy has been developed especially for the brand Volkswagen and for Audi. We completed extensive design programs and develop new product concepts in all brands. Also our quality improvement initiatives over all brands showed good progress. We continue to enhance our position in the world's largest automotive market by systematically implementing in our in China for China approach. Key initiatives in the region showed significant progress. The cooperation with shopping is fully on track. I'm really impressed by the high pace and commitment of the local team and I'm glad to say that the project advances faster than initially planned. Together, we will jointly develop the electric and electronic architecture to turn pure electric models of Volkswagen brand into software-defined vehicles in China. This will allow for a standardized system increasing scale and efficiency. From 2026, the China electronic architecture will be used in all locally produced Volkswagen brand models based on China main platform and the MEB platform. We successfully launched the new Volkswagen ID UNYX developed in China for China. The feedback is overwhelming positive, especially from a new target group of younger customers. The E-SUV coupé is characterized by a particularly progressive design, a smart human machine interface with a 3D Avant and a range of more than 600 kilometers. Finally Audi and SAIC are enhancing their partnership. The joint venture is preparing to launch some of the most appealing and progressive cars in the Chinese market. The cooperation between Audi and SAIC starts with three bet models, first models will enter already the market in 2025 with a time to market reduced already by more than 30%. Volkswagen Group's new management team took responsibility, we promised to realign the software activities in this company. We kept this promise by fixing the existing platforms. First proof points are the Q6 e-tron and the Macan Electric and defining the new worldwide strategy and partner network. In China, we are closely cooperating with our partner Xpeng (NYSE:XPEV) in the A&B segments. For the rest of the world we focus on our new partnership with Rivian, where we recently announced our intent to establish a joint venture. Here we will jointly create the next generation of electric electronic architecture and software for electric vehicles. The vision of the software-defined vehicle is becoming reality in a short time period of time. The new activities with Rivian will complete our smart partnership ecosystem across all technologies and regions. Volkswagen Group together with Xpeng, Mobileye, Horizon Robotics and others is a powerhouse of automotive software development. We will continue to reshape our software company carried for us is and remains an important part of Volkswagen Group's software strategy. We will combine expertise of partners with our own know-how and our capabilities for global scaling and industrialization. One of Volkswagen Group strength are high-performance, standardized vehicle platforms. Building on this we have realigned our architecture structure and defined clear development responsibilities. With the Porsche, Macan, we have launched the first model on the new PPE with the EQ 1.2 architecture followed by the Audi Q6 e-tron. First customer deliveries of the Q6 e-tron started a few weeks ago and deliveries of the Macan will start in September. For both the Porsche, Macan and Audi Q6 e-tron, the feedbacks are very positive in terms of design, performance, range, efficiency, charging speed and the digital interface. These successful launches marks the start point of more models to come on the new platform in particular the Audi A6 e-tron and the electric Porsche Cayenne. On top, we will bring new ICE (NYSE:ICE) cars to the market on the PPC platform, with the Audi A5 the Q5 and the A7, each with a modern plug-in hybrid version also driven by the EQ 1.2 software architecture. Ladies and gentlemen, our team has a clear focus on execution in this year of transformation. We are delivering in a challenging environment and setting now the base for a successful ramp up from 2025, 2026 onwards. Let's now have a closer look at the financials in the first half of this year. And therefore, I would like to hand over to Arno.
Arno Antlitz: Yeah. Thank you, Oliver, and a warm welcome from my side as well. In Q2, we achieved financial results that delivered on the statements we made in the Q1 call. It took some important decisions to speed up the restructuring of our European business and we made significant progress with a number of strategic initiatives, specifically software and finally the launch of our PPE platform. In the second quarter sales revenue grew by 4%. Reported operating margin came in at 6.6% in a difficult environment. Adjusted for non-operating items the quarter came in at 7.6% slightly above our ambition of 7% to 7.5% set for Q2. Both Porsche and Audi showed an upswing and trading continued to perform with 9% return on sales. Volkswagen brand results ever came below our expectation and clearly below our ambition. SKODA and Volkswagen Commercial Vehicles helped to compensate for the shortcoming of the Volkswagen brand. Brand group cost stood at 5% at half year the automotive, net cash flow in Q2 totaled €2.9 billion and could nearly compensate the €3 billion cash consumption in Q1. In addition, we took two important decisions. Firstly, the planned joint venture and corresponding investments into Rivian and shortly thereafter, the start of the information and consultation progress process regarding Audi's plant in Brussels. Both decisions have implications for the financial result of the second half year as full year outlook which was adjusted accordingly. With that let's move on to the financials. Vehicle sales decreased 2% in H1 to 4.3 million units excluding China, vehicle sales were virtually flat at 3.1 million. The slight decline was overcompensated by higher sales revenue in the Financial Services division. As a result, group sales revenue were up by almost 2% to €158.8 billion. Reported operating result came in at €10.1 billion corresponding to a margin of 6.3% percentage points below the prior year period. Q2 was impacted by various non-operating items of in total €900 million. Adjusting for this effect, the underlying margin stood at 7.6% in Q2, however, what counts at the end of the day is the reported result and our reported results are clearly down compared to previous year. And the reported margin of roughly 6% is below our ambition and clearly below what we can deliver based on our strong products and also our global footprint. And we must clearly intensify our efforts to improve performance and achieve our targets in the second half of the year. Net cash flow after six months in the Automotive Division totaled at minus €0.1 billion compared to €2.5 billion in the prior year period. This was mainly due to a buildup of working capital of €6 billion and here in particular driven by higher inventories which rebounded by €7.7 billion versus year-end 2023. This brings me to the automotive net liquidity which declined by €9 billion. About three-quarter of the reduction is attributable to dividend payments and the redemption of a hybrid bond. The convertible note related to the announcement partnership with Rivian accounted to €0.9 billion. This had an impact on net industrial liquidity, but not yet on automotive net cash flow. The reorganization of Financial Services impacted automotive net liquidity temporarily with minus €0.5 billion. But this organization was another important milestone in the second quarter. As a result we are now better positioned to achieve our goals as a provider of comprehensive mobility solutions and the integration of our banking business allows us to take advantage of financing benefits particularly in the leasing business, which continues to grow strongly. Overall at €31.3 billion net liquidity continues to be solid. Moving to the divisional performance. Passenger cars recorded an operating result of €6.5 billion about 9% below the prior year period and the margin amounted to 6.2% down by 0.5 percentage points. Commercial Vehicle confirmed a strong performance of the first quarter also in the second quarter. Operating results improved by 15% to €2.1 billion return on sales stood at a strong 9.1%, up from 8% in the prior year period. The Financial Services division recorded an operating result of €1.4 billion corresponding to a decline of 36% year-over-year. Let's have a look at the drivers behind the operating result development in the passenger car segment. Volume price/mix contributed a negative €1.0 billion year-over-year. Mix was affected by weaker model mix in particular due to the V6 and V8 engines in Audi and brand mix with lower sales at Porsche and Audi. Regional mix effects were slightly positive due to a stronger performance in North America and slightly improved European business. Pricing turned negative in Q2 continued benefits from rollover effects from last year's price increases were over commentated by higher tactical in a highly competitive environment and in particular in light of the supply situation of six and eight cylinder vehicles and the current significant model changeover. Compared to prior year period operating results in the first half year benefited from a swing of fair value effects outside hedge accounting ForEx and other derivatives amounting to about €3.8 billion. Product costs were slightly headwind year-over-year but turned positive in the second quarter on a stand-alone basis. And fixed costs and other costs increased considerably as a result of higher R&D costs higher depreciation and amortization the ramp-up of new businesses as well as inflationary trends and the step-up of wages. Of course this bucket also includes the provisions for the severance program. In that content let's have a more detailed look at the overhead cost development. To be very clear right at the beginning we are not satisfied with the development here. Higher overhead costs driven by wage increases from 2023 and 2024 are slightly lower Automotive sales revenue resulted in a strong increase in the overhead cost ratio in the first half of 2024. In an environment characterized by excess capacity and pricing competition specifically in Europe and China this is a trend, which we need to reverse. We will rigorously continue to execute our performance programs to improve profitability across all brands and groups and value drivers. With continued implementation of the early retirement scheme the hiring freeze and the severance program at Volkswagen AG as an example. Moving on to Automotive investments to R&D and CapEx. R&D costs increased by €1.2 billion in the first half year evidence of the accelerating transformation of the Volkswagen Group to electrification and digitalization and focus on the ramp-up of our PPE platform for Audi and Porsche. CapEx is currently at an elevated level with the high upfront investments in battery and software, as well as execution of our regional strategies, including Scout, a stronger focus on leveraging consulates more efficient R&D processes reduction of this year's peak level of ICE investment, as well as the expected effects from the announced partnership with Rivian will drive the restructuring in expenditures going forward. Taking all this into account, it's our clear ambition to reduce investment in R&D and CapEx to well below €170 billion in an expanding round from 2025 to 2029. Moving on to the performance of our brand groups, platforms and financial services business. Brand group core recorded 2% higher sales volume in H1. Sales revenue was broadly flat year-on-year supported by continued positive pricing, but held back by higher tacticals, regional mix and fixed costs. Operating result declined by 8% to €3.5 billion corresponding to a margin of 5%, 50 basis points below last year's level and excluding the effects from restructuring measures. The underlying operating margin amounted to 6%, up 40 basis points year-over-year. Brand Group Progressive sales revenue was significantly below last year's level, mainly due to the lower vehicle sales and constraints of V6 and V8 engines. Operating result came in at €2.0 billion corresponding to a margin of 6.4% and some 3.6 percentage points below the prior year period. Operating result was burdened by valuation effects in the magnitude of €0.4 billion in particular resulting from Audi's residual value model. Adjusted for these valuation effects, the underlying margin of brand progressive came in at 7.7%. Ranku Sport Luxury achieved a 6% operating margin in its automotive business despite lower sales volume and higher ramp-up costs due to a record number of new model launches this year. Let's have a closer look at the Brand Group Corp. The weaker operating performance of Volkswagen Brand at 2.3% or 3.6 percentage points on an underlying basis could be compensated by strongly improved profitability at SKODA and Volkswagen Commercial Vehicles of 8.4% and 7.9% respectively. This clearly shows two things. Firstly, the quality of the product substance of the MQB and MEB cost allowing brands SKODA to achieve an operating margin of 8.4% in a difficult environment based on efficient cost structures. And secondly, the clear need for a step-up in cost reduction and productivity improvement efforts at Brand Volkswagen including our component business specifically in the German plant and operation in the course of the current efficiency program. CARIAD continued to roll out software to a growing vehicle park which resulted in an increase of sales revenue of 30% Operating result came in at minus €1.2 billion. Reported net cash flow stood at a negative €0.4 billion or minus €1.5 billion if you adjust for intergroup income tax refund. Developments in our battery business continue according to our adaptive planning both in terms of operating results, as well as the buildup of production capacity. The operating loss was broadly stable at €0.2 billion. We continue to monitor our global sales, BEV sales expectations and are prepared to adjust capacity and CapEx plan further if necessary. TRATON continued its positive momentum and delivered another strong performance in the second quarter. Unit sales were down 4% year-to-year, held back by lower volumes at MRN and in particular due to supply shortages at Navistar (NYSE:NAV), which are expected to recover in Q3. The lower volume was compensated by stronger product mix and better average revenue per car per unit. As a result sales revenue were up by 2%, operating margin came in at a strong 9.1%, driven by the increase in sales revenue and the improved cost structure. And net cash flow of TRATON was flat in the period under review and held back by a buildup of inventory, which was due to a large extent, driven by supply shortages related to a fire incident at the suppliers at plant in North Carolina. Volkswagen Group Mobility recorded an increase of the overall contract volume by 2%. The credit loss ratio increased slightly in the first half year, but remains on a solid level and operating result in the Financial Service division in the first six months 2024 fell by about a third to €1.4 billion corresponding to a margin of 4.8%. This decline reflects the ForEx valuation effects related to the deconsolidation of our VW Bank Rus business in Russia increased interest expenses and a continued normalization of used car prices. Moving on to the performance of our China joint ventures. Volumes were down by around 19% in the second quarter with deliveries at 652,000 vehicles. The decline was due to a weaker ICE demand in an overall declining ICE market whereas BEV deliveries increased by 21% to almost 50,000 vehicles. Proportionate operating result of our Chinese JVs amounted to €0.8 billion after six months in 2024, down 30% on the prior year number, but fully in line with our expectations of the €1.5 billion to €2 billion proportionate operating result for the full year. This decrease is mainly reflecting the margin relative effects of the ramp-up of our BEV business and initial costs for the realignment of our BEV and ICE business, which will positively impact our business from H2 2025 onwards. Finally, moving on to our full year outlook for 2024. We continue to expect an improved underlying performance in the second half of the year in order to deliver on that expectation. We build on a step up of sales and earnings momentum, supported by the launch of new models as well as a stronger mix due to in particular better availability of six and eight cylinder models at Audi. We are building on a solid order bank in Western Europe of 900,000 cars, still above pre-COVID levels with visibility into the fourth quarter and an overall encouraging order intake which is above prior year level. Overall, we anticipate mix to positively contribute to the second half of the year. At the same time, we factor in that markets will remain highly competitive, broader costs are expected to be a small tailwind in H2 and we continue to push ahead with the execution of our performance program across all brands and divisions. Based on these assumptions and developments, we expect sales revenue to advance by up to 5%. The operating margin in the bandwidth of 6.5 % to 7% and automotive net cash flow in the range of €2.5 billion to €4.5 billion. Outlook reflects a total of minus €2.6 billion in nonrecurring earnings effect, with the €0.9 billion severance provisions and about €1.3 billion of expected expenses related to Audi Business process plant being the largest drivers. Taking into account the most recent announcement of Porsche AG (ETR:P911_p), related to the adjustment of the full year outlook, we currently expect to range at the lower end of the presented guidance across all KPIs. And looking at the second quarter and looking at the second half of the year, you should take into account that the Q2 -- the third quarter is typically the weakest quarter of the year, because of the plant holidays and please bear in mind that it will be additionally affected by provisions at Audi for the Brussels plant and the supply constraints at Porsche. So that means, Q4 is expected to be by far the strongest quarter of the year. With that, I hand back to Oliver to give us a small summary of what we achieved.
Oliver Blume: Yes. Thank you, Arno for providing our financial overview. And ladies and gentlemen, let me summarize quickly. First, we delivered solid underlying financial results. We are holding our own in demand in first half year and need to act, with even greater determination. Second, this is why we accelerated speed and enlarge the scope of restructuring measures. Third, our comprehensive global software strategy is now fully in place with throughout smart partnerships to improve competitiveness globally and in China. Fourth, execution of our regional strategy in China is in full swing. Fifth, the group's largest product renewal is continuing with full force greatly strengthening our competitiveness particular in 2025. And six, we expect a strong underlying financial performance in the second half of the year especially in quarter four. To achieve our full ambitions and to deliver on our outlook, we must switch gears and make considerable efforts especially on the cost side, in the second half of the year. And with this said, I would like to hand back to Rolf.
Rolf Woller: Thank you, Oli. And thanks to both of you for the very comprehensive overview of the development in the first half of 2024. With that, we would start the question-and-answer session.
A - Rolf Woller: [Operator Instructions] So we would start with the first question coming from Tim Rokossa from Deutsche Bank (ETR:DBKGn). Tim, please go ahead.
Q – Tim Rokossa: Yes. Thank you, Oli Arno and Rolf. I would have two questions, please. The first one is on investments. Obviously, we had Rivian you can and should spend money only once. If you already get the EE architecture and the software from them, you probably need less money to invest into CARIAD and possibly even Scout. Is it fair to assume that we can see synergies thinking about this, with respect to the €180 million respectively €170 billion investment budget. And as a follow-up to that, with everything going on with respect to EV demand, is it fair to assume that you will spend less money than you had previously thought on PowerCo. And my second question is, also probably to both of you or mainly Oli it's great to see that you're addressing the cost base in Europe with Brussels. Some would say that's even revolutionary for VW. Is this only the beginning? Or do you feel like you're done with that move? Thank you.
Oliver Blume: Yeah. Maybe I take over, and thanks Tim for your questions. And first of all talking, I think it's interesting for the whole group about our software strategy. We are now in place with our overall worldwide group software strategy. As you know we are bringing in order the existing platforms 1.1 and 1.2 now with the first product to the market. And we have built now our software strategy as we are speeding up the move to a software-defined vehicle with a topping [ph] approach in China where we also use the topping architecture for the MEB, and now with Rivian for our first SSP models to adapt them for the group. On the other side, we have CARIAD in responsibility beside of the existing platforms for cross-functional items like autonomous driving, infotainment, connectivity, cloud, data and back-end. And all of this brings us in a very flexible situation regionally and in a better cost positioning. And having said that the investment in Rivian is well-sought also to reduce investments in CARIAD. First part of your question. Second part is about PowerCo. There we think it is the right approach to have engineering and production in-house. And what we have done is to adapt the sequence of the ramp-up of our plants depends on the demand of battery cells. And with this, we are also able to decrease investments and we will leverage at any time, the mix of own production and all partners and resuming it also has a high flexibility and it brings us to a better cost positioning. In terms of our planned investments €180 million less planning round, this planning around €170 billion and we plan more reductions for the future and we see especially this year at the peak of our investments and now decreasing with all the strategic decisions we have taken. Then let me come to the second part. You asked about the restructuring of capacities. And there first of all you know that we are in the middle of the implementation of our performance programs over all brands. Then we recently launched the severance programs especially Brand Volkswagen. And we'll be informed about the consultation process of the Audi Brussels side. Besides of this we have a lot of capacity and adjustments already done. And there we are talking about organization and about technological adaptations for example in Roseburg in Emden, in Sika (SIX:SIKA), Nakasone, and Ingolstadt. We already reduced technical capacity by 25%. And we continue to plan with our stuff-oriented so-called plant allocation. That's an important factor especially in Germany where it brings us in a better positioning. And we are reducing all factory costs, overall levels with productivity but also supply chain costs and labor costs. And that's a complete program which is directly linked to our performance programs.
Rolf Woller: Tim, I think we have a brief follow-up on the investment spending.
Arno Antlitz: Yeah. Tim, I think everything is said by Oliver already, but just to give you a little bit more clarity on our opportunities. I mean, its clear 2024 will be the peak year on R&D and CapEx. For the planning round, we are already committed for the next planning round to €170 million due to a significant ramp down of our ICE. And currently we think of about €165 million taking into account the JV with Rivian. This provides us obviously with multiple opportunities, because we can draw on very competitive solutions that are developed already. So that helps us to save time and also expenditures. And we continue to plan for lower investment ratio about 11% in 2027 and 9% in 2030, just to give you a reminder. And of course, that will favor the net cash flow generation as well.
Rolf Woller: Thank you, Arno for that addition. I hope, Tim that has answered your questions.
Tim Rokossa: Yeah. Obviously, we would like to hear some sort of quantification, but I understand that it's probably a bit too early.
Rolf Woller: The quantification on the investment I think was given by Arno to the €165 million…
Tim Rokossa: Yeah.
Rolf Woller: … from the €170 million currently. Okay.
Tim Rokossa: Okay. Thank you very much.
Rolf Woller: Thank you. We continue with Mike Tyndall from HSBC, Mike?
Mike Tyndall: Yeah. Thanks gentlemen. Just a couple of questions from me, I guess the first one, equity income went to negative. And I can see that China profits, is down per vehicle, but I'm kind of curious what the driving forces for that equity income being negative? And then, just picking up again on the restructuring side of things, you talked about reduced technical capacity of 25%, but fixed costs even if I strip out the restructuring side of things look like they're going up. So I'm trying to square that, when are we going to see the benefits of the performance plan start to actually bear fruit? Is it just simply too early? Or are you seeing other headwinds which means you've got to run faster. Thanks.
Arno Antlitz: Yeah. I'll take the first question, in terms of the equity result. The first driver clearly is the equity result of our big Chinese JVs. But there are also some smaller JVs. We just found it which incur significant head-up upfront investments for example, the JV with Horizon Robotics we call it Horizon, they will develop the next generation of ADAS/AD Software in China for Level 2, Level 2+ and the losses they incur an upfront investment they are also booked in this category to give you one example.
Oliver Blume: Yeah. And Mike coming to your second question. First of all, the technical adoption of the plant is necessary to further benefit in the upcoming years, from a better cost positioning of the plant also in the shifts we are driving. And talking about the performance programs, we kicked them off. We are implementing the performance programs and some in the early phase. They are to compensate expected headwinds and also one-time effects in the restructuring process of the group. But in the upcoming years, we will also see positive momentum for the development of our group. That's planned step-by-step. Now we have all the measures defined for this year, for next year, for the upcoming years, we are working on measures, and we are still in the ramp-up curve, and it will pay off in the upcoming years.
Mike Tyndall: I wonder if I can just a quick follow-up. Just Arno mentioned that the VW Passenger car result was not where you expected and it wasn't in your ambition. Does that mean we need to do more -- or is it just a case of waiting for these programs to kick in?
Oliver Blume: Yes. That's our main focus. And therefore, we have mentioned it. And for us, in the upcoming months, in Volkswagen Group, we have now all the strategic bases. We have taken all the technical decisions. We have done all the organizational steps needed. And now it is about costs, costs and costs. And that's especially in the brand of Volkswagen, but also we will focus in all the other brands.
Mike Tyndall: Got it. Thank you.
Rolf Woller: Thanks, Mike. And we are moving on to Patrick Hummel from UBS. Patrick?
Patrick Hummel: Yeah. Good morning, everybody. I just wanted to ask very simple on the cost side of things. Why are you not giving yourself an absolute €1 billion target for fixed cost that would make the life of our analysts or investors much easier. We wouldn't have to deal with all the puts and takes? And also, it would probably give you a better handle internally to achieve an absolute €1 billion target if you have cost inflation in other areas that are offsetting all your efforts which seems to be the case for the time being. And related to this, as you enter more partnerships, it feels like more and more of cost burdens go into the equity result structurally, so that an important part of the operating performance is actually below the line that you focus on, which is operating profit. So are you thinking about including that in some form going forward? Because it feels like it's going to get more important. And if I may, Oliver, on the second topic, CO2. You sounded in the last call, quite confident that you could get a bit more flexibility for 2025. It feels like listening to the EU Commission President that we shouldn't expect too much for next year, if anything at all later on. So can you just give us an update about your CO2 compliance plan for 2025 and the related cost? Thank you.
Arno Antlitz: Yeah, Patrick, I'll take the first one. Look, we are absolutely committed and focused on the fixed cost side. This is why we are also very transparent, both in R&D and CapEx and also on the fixed cost side, we give you high transparency. Clearly, we have internally tough targets. And as I said before, we are not happy with the performance right now. It's a little bit technically, you had a huge wage increase in Germany last year. I think 5-point-something percent and now another 3-point something, which, of course, has a lot of carry on, and it takes some while until our restructuring measures, for example, early retirement program take place. But as said before, Oliver and myself, we also have to step up in initiatives there. So we have clear targets internally and we give you a lot of transparency externally. And believe me, we have also the other elements of our results and of our P&L firmly inside we're not only looking at the operative result, we look at financial results and at the end of the day if you look at our performance steering earnings per share is a major parameter of how our Board is incentivized. So don't worry we are absolutely committed also on the earnings per share KPI which is finally everything including all the discussions we have.
Oliver Blume: And Patrick coming to your second question about the CO2 regulation for next year. We still have a gap to close, first of all, on the other side, it's very promising. The order intake we do have on BEVs, which doubled in the first half of this year comparing to last year. And we are launching this year over 30 new models and the half of them are our BEVs and they are entering in the market right now. And the first products are getting very positive feedback and that's very promising for more order intakes which will support us for next year. And being very clear every euro spend penalties is a bad invested euro. And therefore, we will find or we will fight for a way to compensate everything. And the main driver our product offensive with the BEVs and the positive response we are getting already from the markets.
Patrick Hummel: Thank you, both.
Rolf Woller: Thank you, Patrick. And we are moving on to José Asumendi from JPMorgan (NYSE:JPM). José?
José Asumendi: Thank you, all. Two questions please, Oli. You mentioned getting things done fully agree in the last that you're doing now is definitely many more changes. We will see many more changes now than what we have seen in the last 10 years. So congratulations on all the work you're doing there. I'm just wondering if you could just comment on into the second half of the year what is top of your mind? What needs additional restructuring? Which divisions do you think need further acceleration? And then second, Arno there is a lot going on obviously on the cash front with different partnerships and collaborations restructuring charges you name it a lot of things. Does the 2.5% to 4.5% free cash flow guidance that does it -- now are you comfortable with this free cash flow guidance? Does you have all of the elements which we need to think about for 2024? And can you help us a bit on second half free cash generation? How should we think about it? Thank you.
Oliver Blume: Yes, José let me start with your first question. And we are following strictly with our top 10 program for our operational and strategic issues. We have taken already the main strategic technical and organizational decisions. First of all, we brought in order our product management focusing on delivering on SUPs what you can mention already this year that we are reliably bringing our product to the start of production. We have brought in order the technical architecture of our cars. We kicked off a massive design initiative for all brands, which is paying off step by step. We have implemented a complete quality program, which we can already feel on the response from the market. We have brought in order, the software strategy. First of all to repairing the existing platforms, the first results we can see right now with fantastic offer to our customers. And now with the international strategy with Xpeng [ph] and Rivian being flexible, and we have structured or restructured our China strategy, the product offer there but also the China -- in China approach we presented in the Capital Market Day. And we adjusted our battery strategy. And now we have two main issues from my point of view is ramping up all these activities, which are founded on all these directional decisions we have taken. And we are middle of this, what you can mention from the product side. And the second issue now is for me as I mentioned before costs, costs and costs. These two things will be after the first two years restructuring the whole group, my personal focus ramping up all the initiatives and cost and cost and cost with a strong support from Arno.
Arno Antlitz: I'll take the cash flow and also the question we tried to put it in the second half. Of course, we expect the underlying H2 result that it should be better than H1, because Audi Brussels impact earnings but not cash effective in H2. So best operating cash flow, of course, and we have a positive effect from working capital as always in Q4 when inventories are expected to decrease towards year-end, supply parts issues are expected to be solved. So it's a working capital contribution for them. Then from this perspective, it's too early to say but there might be a situation that all M&A would materialize specifically on what we were planning for at CARIAD for some raw material topics. Don't forget China dividend in the second half, it will be slightly higher than in the first. We talked about strong investment discipline. Oliver and myself we’ll really have a look at that. We see the reversal of the €0.5 billion of H1 at [indiscernible]. This internal project name for the reorganization of financial services, but there will be public compensations for the additional investment in Rivian. So the second tranche of about the €1 billion, and then also the first billion will also be cash relevant then for the JV. So these are the ingredients for the second half of the year it will be I would say positive contribution in the third quarter and then the rest should come in Q4 eventually leading us to the €2.5 billion to the €4.5 billion.
José Asumendi: Thank you so much.
Rolf Woller: Thank you, José. And we are continuing with Horst Schneider from Bank of America (NYSE:BAC). Horst?
Horst Schneider: Yes, good morning, and thanks for taking my questions. Two, just more follow-up question from my side. As you rightly pointed out basically, the environment is getting more challenging. You talk about fierce price competition, more technical price actions. With that regard, again, I wonder basically what is needed to achieve this implied close to 8% operating margin in Q4. So I mean when Tim asked about quantification, could you maybe quantify what is needed in terms of cost cutting for example, cost-cutting step-up in fixed cost, but also in the other cost bucket in Q4? And what is -- I know for you it's difficult to talk about pricing, but at least can you say that the pricing gets, I mean more challenging? Or why should we get less challenging in H2 that would be helpful. And then I want to get back on Patrick's question regarding EVs and the CO2 targets in 2025 in Europe. We heard recently that Mercedes said, it would be an option basically to pool emissions with other carmakers. I just want to ask you Oli, if that is also an option for you as a Volkswagen Group and if not, what BEV ratio basically is required in your view in 2025 basically to meet the targets? Thank you.
Arno Antlitz: Yeah. So I'll take your first question. Basically, you didn't ask for the EBIT risk for the second half, but basically you did. So on the underlying basis we should see a result based on H2 2023. And obviously, you have to deduct then the onetime effect of Brussels. So volume price mix should be overall stable with a small positive on volume, why positive because the volumes basically outside our Chinese JVs, we expect positive and it will drive small volume, but as you said mix and pricing challenging, but we have a very good position there. The best position in a challenging environment are great cars and a good order bank in Europe and both we have yes. We bring really great cards from the Brand Group premium from Porsche Macan Q6 e-tron. Turo is doing very well. And we have this order bank of 900,000 cars in Europe. Then we expect a small positive from valuation effects. We communicated our program to basically finalize the transfer them to our -- basically to our balance sheet. So -- but there are small positives from the derivatives in the second half. Broader costs should be a small positive. And yeah there will be continued fixed cost burden, but the fixed cost burden should be lower than in H1 because if you prepare it like-for-like, we had a huge step-up of wage increase basically in the middle of last year. So in the second half we compare like-for-like and the bridges comparing like-for-like to a second half 2023 where the rates already ramped up 5-point-something per I think 5.5%. And then eventually, what Oliver said, our restructuring measures kick in. First effect from our severance program kick in. So this should be the ingredients for the second half and this should bring us to our guidance.
Horst Schneider: Small follow-up, Arno, just when you say lower fixed cost H2 versus H1, despite the cost of the plant closure at Audi?
Arno Antlitz: Yes, lower. I mean, we expect the fixed cost increase in H2 but the increase should be significantly lower than in the first half of the year. But this was basically before the restructuring costs for Brussels. That's clear.
Horst Schneider: Okay. All right.
Oliver Blume: And then Horst, let me come to your other question about pooling emissions. There clearly again, we want to avoid penalties. And so first of all we have big potential with all our groups and the new models we are bringing to the market. We want to help ourselves and only secondly, we will balance other measures like pooling emissions but always leveraging expenditures on the one hand side and benefits on the other side. And therefore, we work firstly on our own issues. And then at the end we will think about if it's necessary to take other measures.
Horst Schneider: The target for 2025 the debt penetration ratio you would need to meet the targets. Can you share that information or you don't want to share that.
Oliver Blume: It's so too early to predict. We have what I already mentioned very positive order intake. And I think we have to wait for the second half of this year with all the new models coming to the market. It's very promising. And then we think that we come to our target situation. But to be very clear we need to wait for the whole reaction of the market.
Horst Schneider: Okay. All right. Thank you.
Rolf Woller: We are moving on to Henning Cosman for Barclays (LON:BARC).
Henning Cosman: Yes, good morning. Thank you for taking my questions. I had a clarification first Arno, when you talked about the bottom of the guidance ranges respectively across all KPIs. I just wanted to make sure that means really everything you have on the slide. So sales revenue up to 5%. So does that mean closer to zero than to 5% margin closer to 6.5%. I think you talked about the net cash flow but just on the cash flow as well specifically, I wanted to ask you have €4 billion M&A included in that number. If you end up spending less, should we expect the free cash flow to be higher by the balance that you don't spend? That's the first question. If you could just clarify that point around bottom end across the KPIs. And second question maybe Oli for you. I wanted to ask you to discuss the dynamics a little bit of 50% of your model launches being BEV because not just by yourselves but it's often discussed in a very positive context. But of course, these BEV launches even though improved generation over generation they're still dilutive for you right? So could you help me just understand the positivity around the BEV launches with respect to the financial results, not just generation over generation but also in the context of combustion engine profitability Thank you very much.
Arno Antlitz: Yes Henning, you're right that my – what I just said is basically refers to sales revenue, the margin and net cash flow more towards the lower end. And you're quite right. There are some chances concerning cash flow specifically as I mentioned before concerning M&A. On the other hand, we have some additional burden on the inventory side, because we have really a lot of new model launches and these new model launches they kick in, in Q3, Q4. We ramped up the PPE platform, [indiscernible] Q6 e-tron and eventually E6 on the year and it's really too early to give a very precise production on the burden on inventory there. But we -- from today's perspective, we will have a step-up in inventories which then will be more than a chance in 2025. But from the debt perspective for the three KPIs you mentioned, we are more at the lower end of the range.
Oliver Blume: And Henning coming to the cost positioning and profit positioning of our BEV. First of all, we have the flexibility in between combustion hybrids and BEVs that makes us flexible. And in terms of the BEV ramp-up, we are benefiting from scale effects and from our platforms we do have. And our strategic financial targets bringing the group up to 20%, 30% to 10% return on sales is directly linked to the BEV share we are expecting. And we are working on the cost structure. We are benefiting from strategic decisions bundling products on one platform. For example, the entry cars we will bring to the market soon on a level of €25000 is shared by Volkswagen with two models SKODA and CUPRA and so on. And now, the PPE for Audi and Porsche where we will bring many, many more products. That brings us to a better cost structure and also the strategy moving to LFP batteries is an impact on this. And so it's very clear that our strategic plan takes in mind the BEV share.
Henning Cosman: But it's fair to say all you that the current generation of EV launches is still dilutive, right? And that's something that you have to compensate elsewhere as that share goes up.
Oliver Blume: Yes. We are now in the second generation. On the one hand side, the technological profile is much better than the first generation. And we are just at the beginning of the second generation. And there the benefit of the scale effects we will see in the upcoming years. And then what will strengthen our competitiveness there is also the decrease of raw material prices will have an aspect there. And -- which with all the points I have mentioned working on cost structure, LFP batteries, raw materials, scale effects, bundling products that will have an effect now with more and more be products to come on the same platforms.
Henning Cosman: Thank you.
Rolf Woller: Thank you Henning. And we are obviously aware of the fact that the competitor is starting let's call it 10:15. It's in your hands. We have now five people still waiting in the queue. George, you would be next and then try to hurry up to let the others also have a chance to raise their questions. Thanks, George.
Unidentified Analyst: Yes. No absolutely. Well, I'll just ask one quick question then. ,Obviously encouraging to see the new products on Slide 11. And you talk about European orders increasing slightly over the course of the first half. Could you perhaps just give us an update on the health of the European market and the consumer? And do you think your order growth is more a function of your strong product portfolio that is coming to market over the course of the next six months? Or are you actually also seeing some margin improvement in terms of the consumer and appetite for new cars. Thank you.
Oliver Blume: Yes, we expect a slightly growth of the Western European markets. And the strong order intake, we do have is mainly driven, because of the product momentum we have on BEVs very attractive products very positive feedback from the automotive media from the customers, and for combustion engine and hybrids also. And that will help us especially from 2025 onwards when we are with a completely new product range in the market. we expect a strong momentum.
Rolf Woller: Thank you George. And we are moving on to Philippe from Jefferies.
Philippe Houchois: Yes, good morning. Thank you very much. I have a couple of questions. One is Arno I'm looking at your working capital net working capital inventory payables receivables. It's about €50 billion, which by the way is the market cap of the group which says a lot about how much value we think the market puts on your core business. I'm just trying to think is what can you do to reduce net working capital. And whether we look at inventory payables receivables you tend to be at the high end of or the low end of the performance of your peers. Is that part of your KPIs? Is that part of your action plan to free up liquidity capital in the business? And then I have a question maybe more for Oli. I look at your CO2 compliance for next year there are two ways of complying. You can start to comply right away from January lower your CO2, or you can grow as a year progresses to the first one, which I think is easier or is better, that requires ramping up quite a lot of your deliveries of EVs to dealers starting September, October so they can hit registrations in January. Are you in position to do that or what we're going to see the second scenario where we start noncompliant and then we improve a lot of stress in 2025 to try to get to the target. Thank you.
Arno Antlitz: No Philippe, you're quite right. It's a really high number, and we also have a very good external obviously external benchmarking where our competitors stand and we know our levels and there are some levers. Obviously, the first one is inventory with all the levers we have for raw materials then inventories in the plants and final goods. Unfortunately, there -- we made some progress there but there were some also headwinds. The first headwind was increase in working capital on the raw materials for batteries. We are quite overstocked currently in some of the batteries. And second we have also an headwind because we roll out our agency model, which will bring significant positive advantage in terms of steering in terms of having the pricing in our own hands, but this is also a small burden on that. But nevertheless, we work intensely on that topic. And what also makes me very encouraging, we have now in the management incentivization [ph] in place not only based on EBIT, but also based on cash flow. And I make you one small example, then to kind of understand, how that works. It takes a little bit longer, but it works already very well. Look in the past, we used to order the biggest ships. The biggest ships had the smallest transportation rate per car and you have to wait until the ship is full, and now the people have started looking into that. Look it's not only EBIT, it's not only the cost per car. It's also how long does the car stand, but about our cash flow. Now we order smaller ships, which are a little bit more expensive to transport, but it's significantly positive on the cash flow. So this is some of the examples, we look at. And yes, there are other dimensions payables receivables, we look at as well. And yes, rest assured we have an absolute focus on cash flow and working capital. And the third topic, I already mentioned this year, this year we see a significant positive momentum for our business by Oliver, I think 30 new models we bring in the market this year. But if you bring 30 new models, you have also kind of a burden on the inventories, because we have to fill up the pipelines worldwide for this model. As I said before, this might be also a chance for next year.
Philippe Houchois: Thank you.
Oliver Blume: And coming back to the CO2 question. First, first of all, we rely on our product momentum for next year. And we will wait up to the end of the year, how will the order intake develop and then thinking about tactical measures to bring cars from 2024 to 2025 that could have a very small, small effect. And so, it's a speculation. And I think first of all, we go for our product momentum where we see ourselves very well prepared.
Philippe Houchois: Thank you.
Rolf Woller: Thank you, Philippe. So we have two to go. Stephen [ph] from Bernstein.
Q – Unidentified Analyst: Yes. Good morning. Thank you for quantifying the potential reduction in CapEx that's going to come from the Rivian deal, which I think you put about €5 billion over five years. Can you put that into context of the loss of carryout, which probably seems to be running at about at least €2 billion a year. When do you think, we'll see a material impact in terms of reduction in losses or even profitability which is a product of that CARIAD and secondly, on the software strategy obviously, you talk about all the flexibility you have from all the joint deals you've done in China and you have CARIAD out and then use in the US. But could you explain, how that works with your platform strategy in terms of really given to one platform. And when you're going to actually have one unified stack where you would actually get real scale effects. Thank you.
Oliver Blume: May I start with the strategy and then in Arno can take over the reduction of investments, we are planning there. We built now a very flexible strategy for our software-defined vehicle, one with a Topping approach and the other one with a Rivian approach. And they are very similar in terms of on architecture. And first to ramp it up. We have chosen in China, the China main platform and the MEB to bring this architecture quickly to the market from 2026 onwards, and for Rivian to start with the first piece. Then, we think about a convergence. And there we have to leverage also in terms of regulations, which tender resides modules, we can use of the architecture and where do we need regional layers. Today, already we are working with regional layers in China, because the demand expectation of the Chinese customers is different than in other regions of the world. And then we will have also Western layers. But in terms of standardization, to carry over as much as possible, what we are able to do also in terms of regulations and then being as specific as necessary in the different regions of the world, that's a short in this software strategy. And therefore, also the cross-functional issues like infotainment, like connectivity and so on, are driven centrally by CARIAD. And therefore, we are very flexible to adapt what we need in terms of autonomous driving where we have a lot of regulation that we have partners in the Western and in the Eastern world, and so everything is carefully balanced to have this flexibility, and also cost positioning and about the investment Arno?
Arno Antlitz: Yes. Thanks for the question. Look the indication of €165 million, it's not directly linked to Rivian. Why? Because I mean look Rivian we have a huge chance now to generate the next-generation software stack, bring our competencies together with Rivian, but that takes a little bit of time. And our planning round is 2025 to 2029. So part of the €5 billion is a significant positive impact from Rivian, because we can use existing very competitive solutions. But it's only a small I would say time frame and the huge benefit will come 2029 and beyond, which is not part of the famous €180 million €170 million, now €165 million. So the benefits, the upfront investment in the joint venture in Rivian, yes, was €5 billion, but the benefits will significantly continue later on. And on the other hand we discussed some chances. We already took some decisions to adapt on our ramp-up of PowerCo for example. We're still absolutely committed to ramp up PowerCo. But, of course, we look at the ramp-up of demand globally. We want to invest 50% in our own battery capacity. So we adapted the PowerCo ramp-up already. So the €5 billion is the chance we have currently looking at 2025 to 2029 but the chances Rivian beyond the strategic and operational advantages are obviously higher going forward beyond 2029. Yeah, of course, if you look at CARIAD it's too early to give you a concrete set of numbers. We gave you an indication at the Capital Markets Day where we see the breakeven and the cash flow breakeven for CARIAD. Obviously what Oliver said CARIAD will play an important part going forward, we'll concentrate on the 1.1 and the 1.2 and the 2.0 platform, the next-generation platform will be basically built out of the Joint Venture with of course an investment of CARIAD. But obviously since in the old, let's call it old business case. The upfront investment for the, 2.0 were in the CARIAD business case. Now it moves to the JV. So we will come up with a revised business plan also for CARIAD which should a bit positive on -- both on the operational side and also on cash flow breakeven.
Q – Unidentified Analyst: Thank you.
Rolf Woller: Thank you, Stephen. And we take the last question from Michael Punzet from DZ Bank. Michael?
Michael Punzet: Thanks Rolf. Good morning. I have one question with regard to your order book. You mentioned a number of 900,000 cars in Europe. That is a drop of roughly 200,000 cars compared with the Q1 result. I would like to have an additional figure for the BEV share that is possible? And the second question is on the expected better performance in H2, which will be the main drivers or regions for that expected development?
Oliver Blume: Yeah. Michael, may I start for the order intakes and expectation for BEV. We are right now in around 8% BEV share and the expectation up to the end of the year is in between 9% and 10%, because of the product momentum we are expecting and the strong order intake. And main driver of the regions, we still see a very strong North American and South American markets, but also Europe play a big role. And we have to struggle this year in China. That's what we presented in the Capital Markets Day in Beijing. But in the other regions we think that we are able to compensate and at the end to go for volume with is comparable with the last year.
Michael Punzet: Okay. Thanks. I mean is -- can you give us any figure for the BEV order into the order book, it's included in the 900,000 cars that was a real question, sorry.
Oliver Blume: Yeah. That's included. That's included. And especially, we said – because, I think that's a strong number being doubled comparing to 2023, but it's inside of this.
Michael Punzet: Okay. Thank you.
Rolf Woller: Thank you, Michael. And thanks to all of you for the questions. We are now at the end of the Investor and Analyst Call. And if anything is left or you couldn't actually take your questions right now. We are very happy to answer them. But laterally and please contact the IR team here in Wolfsburg. Next time, to meet us will be on PreClose in London or in the U.S. and on the East Coast in early September as well we do this in part virtually and in part physically. The nine-month call will be on October 30th. And we will have the PreClose call on October 14th. And after a short break of about five to 10 minutes, we will continue with the Media Session. And hope that you will be arrived at the time, at the Munich Hall for all of those, who have to switch. Thank you.
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