[Company Representative] (Audi): deliveries. The global BEV share of the Audi brand came to 13.8%. In Europe, BEV sales grew by 1% to 110,000 cars. The strong growth of 39% in Germany was the main driver. BEVs accounted for 21.5% of Audi deliveries in the region. The Q6 e-tron overtook the Q4 e-tron, our best-selling BEV globally, while the updated Q4 e-tron is now being rolled out across markets. The order books of the new Audi A2 e-tron opened on 10 September, and we have received more than 11,000 customer orders already to date. Deliveries will begin in December. Deliveries of plug-in hybrid vehicles more than doubled year on year to 102,000 vehicles. As a result, plug-in hybrids accounted for 9.8% of our overall deliveries.
[Company Representative] (Audi): The increase was supported by strong customer demand for our expanded plug-in hybrid portfolio across the A5, Q5, Q3, and A6 model families, with the Q3 and A5 making the largest contributions. As you can see, the varying development of electrified vehicle deliveries reflects the complexity and diversity of market conditions across the regions. Let me now bring these developments together and look at our overall deliveries and the full-year outlook. Across the Audi, Lamborghini, and Bentley brands, we delivered 1,056,000 vehicles in the first nine months, 11% fewer than in the prior year period. Our luxury brands were not immune to the challenging market conditions. Both Bentley and Lamborghini were affected by weakness in China, softer demand in the United States, and the situation in the Middle East. For Bentley, the portfolio lifecycle created an additional constraint and limited the potential to compensate in other markets.
[Company Representative] (Audi): Given the sales development so far this year, we are adjusting our guidance. We now expect deliveries to customers of 1.35 to 1.45 million vehicles. The adjustment is primarily driven by China. We no longer expect a meaningful market recovery in the Q4. Nevertheless, we count on the letter brand to provide a positive contribution. The luxury segment in China remains under pressure, affecting Lamborghini and Bentley deliveries. In the United States, structural disadvantages and policy changes are having a greater impact on sales than anticipated. For economic reasons, we have also reduced our BEV offering in California. Several other markets are developing below expectations. For example, continued geopolitical uncertainty in the Middle East and the financial crisis in Turkey are further weighing on volumes. With that, ladies and gentlemen, let me hand over to Jürgen, who will take you through our financial report.
[CFO] (Audi): Thank you, Martin. Let me turn now straight to our revenue development. In the first nine months of 2026, revenue decreased by 13% year on year to EUR 42.1 billion. Across all brands, wholesale volumes, excluding local production in China, decreased by 9%. Wholesales in Europe were lower, partly due to the phase-out of the Q2 and A1 ICE models. In addition, imports to China were substantially lower. The US contributed to the decline as well. In term of mix, the compact and middle-class segments performed better than the upper-class segment. The model changeover in the Q7 family contributed to this shift. A lower share of BEVs added to the negative revenue mix effect. Part kit revenue for local production in China declined by 30%, reflecting 25% lower deliveries to our joint venture partners, amid a substantially weaker market and intensifying price competition.
[CFO] (Audi): Against this backdrop, we are adjusting our revenue guidance. We now expect revenue between EUR 55 billion and EUR 59 billion. Current market headwinds are severe and have intensified from Q3 on. Despite the new model launches, we now no longer expect a major recovery. Market pressure in China and the US have led to the adjustment in our volume guidance. The deliveries of parts kits to China are expected to be weak due to the current inventory levels at our joint venture partner, and furthermore, pricing remains under pressure across markets. Moving on to our operating performance. In the first 9 months of 2026, the Audi Group generated an operating profit of EUR 1.2 billion. The return on sales came to 2.7%. The operating profit bridge shows the significant impact of global market developments. The volume pricing and mix item was negative at EUR -1.6 billion.
[CFO] (Audi): The volume effect was the main burden at approximately EUR -0.9 billion. This includes a decline in global volumes, as well as a significant decline in parts kit sales for local production in China. The overall mix effect was slightly positive, driven by a higher share of deliveries in Europe. The mix effect in China, on the other hand, was negative. Pricing amounted to EUR -0.2 billion. Residual values burdened the result by EUR 0.4 billion, mainly due to a higher share of BEVs in the used car pool, as well as a general pricing trend. CO2-related provisions, however, provided a positive year-on-year effect of approximately EUR +0.6 billion. This was mainly due to US greenhouse gas policy changes. Additionally, higher BEV sales at the VW Group level eased pressure in Europe. US tariffs had a lower negative impact in 2026, mainly due to lower volumes.
[CFO] (Audi): Lastly, the performance of the brands was lower year on year, primarily driven by Bentley. Turning to the remaining drivers in the operating profit bridge, currency effects and commodity hedge valuations had a positive effect of EUR 29 million. Product costs worsened by EUR 289 million. Despite our hedging activities, continued cost inflation, including memory chips, weighed on our profitability. In addition, lower-than-expected volumes adversely affected factory costs. Fixed costs and other items made a significant positive contribution of EUR 1.4 billion. The largest positive effect came from a substantial improvement in overhead and R&D costs. Additionally, the prior year period included approximately EUR 0.3 billion in expenses related to the so-called Agreement for the Future. EUR -0.2 billion were booked in unscheduled amortization due to Porsche portfolio realignment. As you can see, the worsened market environment continued to weigh heavily on our performance.
[CFO] (Audi): It is reflected in our updated full-year outlook. We are lowering our full-year return on sales guidance to 3% to 5%. We continue to face volume and pricing pressure resulting in lower revenue. In addition, cost inflation remains a headwind. The restructuring measures agreed in 2025 are on track and being implemented alongside our performance program. However, the weaker market environment requires substantial actions. The updated guidance does not include any potential restructuring charges beyond the 2025 agreements. The revised guidance range still implies a step-up in profitability in Q4. As in the past 2 years, we expect a stronger year-end. It should be supported by some volume tailwinds outside China and a better mix from the new Q7 and the new Q9. The effects of our performance programs are also back-end loaded. Let me now turn to the investments.
[CFO] (Audi): Maintaining strict investment discipline is a key element of our measures, and we are making tangible progress. Cash R&D decreased by 3% to EUR 3.2 billion. The R&D ratio increased to 7.6%, mainly reflecting the lower revenue base. The capitalization rate rose slightly to 42.5%. CapEx amounted to EUR 1.4 billion, 21% below the prior year level, and equivalent to 3.3% of revenue. In total, our investments, CapEx and R&D combined, represented 10.9% of revenue in the first nine months of the year. Our full-year guidance remains unchanged despite the lower revenue base. We expect an investment ratio between 11% and 13% in line with the usual seasonal pattern. Investment spending is likely to increase in the Q4. Moving on to the net cash flow. In the first nine months of 2026, net cash flow amounted to EUR 2.4 billion, marking an improvement year on year.
[CFO] (Audi): Gross cash flow reached EUR 4.2 billion, 13% below the prior year level. Profit before tax declined, reflecting a weak operating and financial result, driven in part by the China business. Non-cash effects had a positive impact, in particular due to developments in residual values. Changes in working capital contributed a positive year-on-year effect of EUR 0.3 billion. The main driver was lower accounts receivable. We also received a cash inflow from Porsche in the first quarter for the use of Audi PPC technology. Cash flow from investing activities amounted to -EUR 2.6 billion. The year-on-year improvement was mainly driven by significantly lower capital expenditure. Investments in participations included the acquisition of shares in our Formula 1 team in 2025. In 2026, we undertook a smaller divestment in line with portfolio optimization.
[CFO] (Audi): In view of the lower operating profit outlook, we are adjusting our full-year guidance to between EUR 2.5 billion and EUR 3.5 billion. Let's take a quick look at the brands, starting with Bentley. Deliveries to customers declined by 17%, primarily reflecting developments in China's luxury market and the impact of US tariffs. The ongoing conflict in the Middle East also affected deliveries. Revenue decreased by 25% to EUR 1.4 billion. The operating result came in at EUR 49 million. Headwinds included lower volume and negative exchange rate effects. The corresponding margin was 3.5%. Bentley is planning for a considerably stronger Q4. Lamborghini continued to perform at a strong level. The brand delivered 7,983 vehicles to customers. The 2% year-on-year decline primarily reflected the introduction of US tariffs and the ongoing conflict in the Middle East. Revenue rose by 5% to EUR 2.5 billion, while wholesales declined slightly.
[CFO] (Audi): Growth was supported by improvements in mix, pricing, as well as personalization. Operating profit came in at EUR 564 million, corresponding to an operating margin of 22.3%. US tariffs weighed on the results. Lamborghini's refreshed portfolio underpins our expectation of a continued robust full-year performance. The challenging conditions in the motorcycle market continued to impact Ducati's results. Ducati delivered around 39,000 motorcycles, representing a 7% year-on-year decline. In the first nine months of the year, revenue declined by 10% to EUR 659 million, in line with lower wholesale volumes. The operating return on sales came in at 4.4%, with an operating profit of EUR 29 million. Ladies and gentlemen, the improvements we had anticipated early in the year are now unlikely to materialize. In light of recent market developments and the persistent challenges we face, we have made a substantial revision to our full-year guidance.
[CFO] (Audi): Importantly, we believe these changes in the automotive industry are structural rather than temporary. We have already taken significant steps to strengthen Audi's competitiveness. Our strategic direction remains unchanged, with a clear focus on a leaner and more focused portfolio. We have continued to roll out our model initiatives across key markets, while our entry into Formula 1 further strengthens the Audi brand. The closure of the Brussels site and capacity adjustments in Germany have already optimized our production footprint. In parallel, we are executing the restructuring measures agreed in 2025 and maintaining strict cost and investment discipline through our performance programs. Nevertheless, these measures will not be sufficient. In October, we announced our intention to negotiate an additional package of transformation measures in response to the significantly more challenging market environment. This is only one element of Audi's broader transformation.
[CFO] (Audi): Audi is accelerating a wide range of measures as part of its contribution to the Volkswagen Group target picture. Starting with the portfolio, we are reducing both variety and complexity. We already plan for roughly 50% fewer model derivatives. In addition, our future offer structure will not only significantly reduce variance, but also deliver a clear and more compelling premium customer experience. In technology, we are accelerating the convergence of E/E architectures and leveraging partnerships as well as group synergies. While we have already optimized our production network, further action is needed to improve the competitiveness of our German sites. Another key pillar is operational excellence. Here, we are simplifying and improving processes to enable a significant reduction in overhead costs. We are also systematically addressing material costs, both in our current vehicle portfolio and in future products.
[CFO] (Audi): With respect to personnel costs, we will reduce management positions and lower headcount. Finally, this week, we announced an intention to invest in a US production site. The decision is economically compelling while establishing a strong foothold in this strategically important market. The site is planned to have an annual capacity of up to 200,000 large SUVs, with production schedules to begin in the early 2030s. In China, we streamlined our strategy. FAW now focuses on the four-ring brands, while SAIC is responsible for the AUDI letter brand exclusively. Taken together, these measures address both our operating model and cost base. They are designed to deliver a structural improvement in competitiveness and support our ambition of achieving an 8% to 10% return on sales over the long term. With that, we are now happy to take your questions.
[Head of Investor Relations] (Audi): Thank you, Jürgen. Thank you, Martin. Valentina, we can start now the Q&A session, please.
Operator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn up the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. Back over to you, Robert, for the first question.
[Head of Investor Relations] (Audi): Thank you, Valentina. The first question comes from Horst Schneider. Horst Schneider, please go ahead.
Horst Schneider: Thank you, Robert, and good morning. Thanks for taking my questions. The first one, maybe I read my questions out one by one. That makes it maybe easier to answer them. Number one is, as you can imagine, it is my standard question. Since you have nicely explained the impact on the EBIT bridge for the nine months, can you maybe break it down for the influence factors in Q3, especially when it comes to the volume price mix effect, but also regarding the one-offs for Q3?
[CFO] (Audi): Okay, so I answer directly. First of all, hello, Horst. Welcome to the call. The Q3 year-over-year bridge shows strong headwinds from volume market. Can you hear me? Hello?
Horst Schneider: I can hear you well, yeah.
[CFO] (Audi): Okay, sorry.
Horst Schneider: I can hear you well.
[CFO] (Audi): I will go again. Q3 year-over-year bridge shows strong headwinds from volume market, and they are partially offset by fixed costs. Especially the volume and market item contributed -0.9 billion EUR in Q3. The biggest and strongest negative effect came from volume with -0.6 billion EUR. Mix was slightly positive, and pricing deteriorated slightly by -0.1 billion EUR. On the other hand, we had a positive effect from CO2 provisions. They contributed positively by roughly +0.2 billion EUR. Fixed costs and other items, they had a strongly positive effect of roughly +0.7 billion EUR, first and foremost overhead costs and lower R&D expenses. Maybe also to add, in the previous year or in the previous period, we had a negative effect coming from the write-off of the SSP61 platform due to the adjustment portion bid.
Horst Schneider: Mm-hmm. But you didn't have residual value write-downs in Q3?
[CFO] (Audi): We have also a residual value effect, but it was just a small effect, roughly EUR 15 million. 15, 1, 5.
Horst Schneider: Okay. Yeah, got that. Thank you. My follow-up is, when I look especially on residual values, Volkswagen was stressing that they have got this ICE weakness now. Could it be that this leads going forward to more adjustments on your side because you book residual values different than the rest of the Volkswagen Group? You do always more mark-to-market valuation adjustments. To what extent do you factor that in for Q4, but then also maybe thereafter? On the fixed cost savings, we have now for something like 2 quarters this strong run rate on fixed cost savings. Is that going to continue? I could imagine in Q4 2026 it does, but also for 2027, can we just take this run rate by 4, or those savings come down?
[CFO] (Audi): Okay, first of all, your question regarding residual values. Yes, we had a very strong negative impact in 2026 so far, roughly EUR -0.3 billion negative. But for the last quarter, we don't expect additional effects here. Fixed costs, yes, we made really good progress here, also due to our Agreement for the Future. Also in the fourth quarter, we expect additional positive effects. We don't give a guidance for the next year, but I can say we also expect in 2027 a strong performance on the fixed cost side.
[Head of Investor Relations] (Audi): Thank you, Horst, for your question.
Horst Schneider: Okay, that's great. Last one.
[Head of Investor Relations] (Audi): Horst, may I limit your-
Horst Schneider: Okay, thank you.
[Head of Investor Relations] (Audi): because there are many people in the queue. Maybe you call up later. We would come to the next question here. It is Michael Pfennig from HSBC. Michael, please raise your question.
Michael Pfennig: Yeah. Morning, folks. Just a couple from me. I wonder if we can talk about the AUDI letter brand in China, 16,000 units out of a total of 328, so about 5%. Where does that sit versus your expectations? I mean, from an outsider's point of view, it looks a little soft. Should we judge it on current performance, or are we still ramping? Is there still more work to do in terms of getting the brand out there? Just curious to know what your impression is of that particular brand, as it were. Then the second question is just, I am wondering about the risk around Q4. I mean, we are sitting here at the end of October. There is not a lot of Q4 left, I would imagine, from an order point of view. Does your backlog pretty much cover all the rest of the quarter at this point?
[Company Representative] (Audi): Okay, let me quickly talk about the AUDI letter brand. Of course, the AUDI letter brand is a completely new brand in China, and it goes without saying that we are still in the ramping up phase, very, very early days for a new brand and a new sales organization in China. That said, given the overall market pressure, especially the new energy vehicle market in China, we are very happy with the development. But clearly, we see that especially top of the funnel, we still have to work on the awareness of the brand in order to support brand and grow business over the next couple of months and years.
Michael Pfennig: Got it.
[CFO] (Audi): Okay, so coming to your question regarding Q4, yes, first of all, we have adjusted our full-year guidance to 3% to 5%. It shows that we are, let's say, a little bit more conservative looking at Q4. Nevertheless, we expect still a strong Q4, and we expect tailwinds from our new models, especially the Q7, the Q9, but also our very strong RS models. In addition, some or a lot of our performance programs measures, they are more or less back-end loaded, so we expect also here a larger effect in Q4.
Michael Pfennig: Sorry. I mean, can I just follow up? I am just thinking in terms of backlog, in terms of orders on the book today, I would imagine you have probably got 2 months of cover already. Is that fair or not fair?
[Company Representative] (Audi): You are talking about the overall order book globally?
Michael Pfennig: Yeah. Yeah, I am just wondering when you sit here at the end of October, do you have enough in the backlog pretty much to cover the rest of the year?
[Company Representative] (Audi): Yes, of course. The year is done, yeah. We have got all orders for this year in the book.
Michael Pfennig: Yep.
[Head of Investor Relations] (Audi): Okay, Michael, clear answer. Thank you for your question. We will come to the next one, which is Daniel Schwarz from Metzler. Daniel, please go ahead with your question.
Daniel Schwarz: Yes. Thank you for taking my question. First is, you are expecting pickup from new models for a while, and you have launched the new models, and of course, the market is difficult. The gap to Mercedes and BMW in terms of volume, that is rather widening, especially in Q3. The question is if there is a more fundamental problem or issue, maybe in terms of design or perceived quality or technology, would that undermine the planned R&D savings and CapEx savings? Second is the CO2 provision, the EUR 200 million. Is that right? That is a one-off that would not continue in Q4 and 2027 if CO2 emissions remain low. Is that right?
[CFO] (Audi): Okay, so maybe your first question, I will start, and then Martin, maybe you can add. If I look to the markets, we see that we have challenges in China, for sure, and in the US. On the other hand, in Europe, our performance is pretty good. We have also growing volumes here, especially in Germany. In the US, the negative effect is driven by mainly two factors. The first, US tariffs, but secondly, also the adjustments in the CO2 policies. There are no incentives for BEVs anymore, and this, at the end, leads to significantly reduced BEV volumes in the US. I think the China situation, you are all aware of that. It is the overall shrinking market. Our new product portfolio is paying off in Europe and in Germany, but we have strong headwinds in China and the US.
[Company Representative] (Audi): Maybe just to add to that, in Europe, we just launched the new generation of the Audi Q4. We are very happy with the overall market reception and with the very strong order book. The new Audi A2, which, of course, has essentially become a really important volume model in our B segment and on the affordable side of our portfolio, hasn't been launched yet. We started collecting orders, and also here, our first market reactions are very positive, but of course, we are going to see deliveries not before early next year.
[CFO] (Audi): Okay, your question regarding CO2. So far, we had a positive effect of roughly EUR 0.2, EUR 0.3 billion, sorry. For the Q4, we don't expect any additional positive effects. So it will remain more or less on the level that we saw now after 9 months.
Daniel Schwarz: Okay, thank you.
[Head of Investor Relations] (Audi): Okay, thank you, Daniel. We move on to the next one. It's José Asumendi from JP Morgan. Jose?
José Asumendi: Good morning. Two questions, please. I will keep it brief. Can you comment, please, on raw material inflation in Q4 and any supply payments, exceptional supply payments you may be planning on the back of the high inflation, obviously, throughout the year, and whether we have seen any impact of raw materials in the first nine months? This seems to be a topic that comes up for Q4. Second, can you please comment a bit on CapEx Q4 and a little bit the run rate into 2027, if possible? Thank you.
[CFO] (Audi): Okay, so on the material cost side, we had some headwinds, first and foremost from raw materials, like aluminum and things like that. On the other hand, also the memory chips are a burden, and especially the memory chips will remain also a burden for 2027. CapEx, as usual, we expect the higher CapEx in the last quarter. This is the normal seasonal effect that we see every year. For the next year, we will give you the guidance then in March.
[Head of Investor Relations] (Audi): Okay, José. Hopefully, your question is answered, and we come to the next one. It is again Horst. I am glad to have you once again in the line, Horst. The line is open for you.
Horst Schneider: Okay, that is great, Markus. Thank you for that. In the tariff context, I can imagine you cannot. Can you hear me?
[Head of Investor Relations] (Audi): Yeah, we can hear you.
Horst Schneider: Can you hear me?
[Head of Investor Relations] (Audi): Yes, Horst.
Horst Schneider: Okay. In the tariff context, I can imagine you cannot talk about a potential tariff deal, but can you tell us how many tariffs you paid year-to-date in the US? If you could split that up between US and Europe, that would be great. Number two, on Q4 again, your guidance implies now 4% to 10% margin in Q4. Any color on if you aim for midpoint of range, low end, or even upper end, that would be appreciated. Thank you.
[CFO] (Audi): So, your question regarding the tariff payments so far this year, we paid roughly EUR 0.7 billion for tariffs. It is a little bit lower than last year due to the lower volume. The second question?
Horst Schneider: That is booked in volume markets, right? That is booked in volume markets, these tariffs?
[CFO] (Audi): Yeah. Correct.
Horst Schneider: In the bridge?
[CFO] (Audi): Yeah. Expectation for Q4, we expect to be more, let's say, at the midpoint of the range.
Horst Schneider: Okay, great. Okay. That is great. Thank you so much.
[CFO] (Audi): Thanks.
[Head of Investor Relations] (Audi): Okay, thank you. I think we have time for a really quick one. I hope, Daniel from Metzler, you make one quick one. That is the time we have got left. Please go ahead.
Daniel Schwarz: Yeah. Quick question. If you had a tariff relief, would theoretically other Volkswagen brands benefit from that as well, or would that be exclusive to Audi?
[CFO] (Audi): Sorry, but I cannot comment on the ongoing talks with the US government. We have agreed on confidentiality. Sorry for that.
Daniel Schwarz: Yeah, I thought so. Okay, thank you.
[Head of Investor Relations] (Audi): Okay. Thank you, Daniel. This was indeed a really quick one, and this concludes the Q&A session. We are at the end of the conference call. Many thanks for your participation, and once again, sorry for the technical problems and the late start of our call. We all wish you a nice day, and take care, and speak to you soon. Bye-bye.
[CFO] (Audi): Thank you.
Daniel Schwarz: Thank you. Bye-bye.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
