Operator: Good morning, and thank you for standing by. Welcome to the Volkswagen Group nine months 2026 results conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be the question and answer session. We will first take questions from the investors and analysts. After a short break, followed by a separate Q&A session for members of the media. To ask a question during the session, you need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star 1 and 1 again. Please be advised that this conference is being recorded. I would now like to hand the conference over to our speaker today, Pietro Zollino, Head of Corporate Communications. Please go ahead.
Pietro Zollino: Good morning, everyone, and a warm welcome to our call about the nine-month results of the Volkswagen Group. As usual, this is a joint call for both the media as well as investors and analysts, and moderated by Rolf Woller, our Head of Group Treasury and Investor Relations, and myself, Pietro Zollino, I am the Deputy Head of Group Global Communications. With us today is also, as usual, Arno Antlitz, our CFO and COO. A few remarks before we start. You should have received the press release, the interim financial report, and all other related materials, which were published this morning. If you do not have them yet, you can find all documents on our website, or if you have any issues, give us a call or drop us an email, and we will send them straight to you.
Pietro Zollino: Now let me hand over to Rolf, who will give you a brief run-through of the next about 1 and a half hours.
Rolf Woller: Thank you, Pietro, and good morning to everyone on the call. Let us have a look at our agenda. Arno will take you through the nine-month results and the full-year outlook for 2026. Following his presentation, we will first conduct a Q&A session for the investor and analyst community, which is moderated by myself. After this session, and a short break of between 5 to 10 minutes where you will hear no music, we will continue with the media Q&A moderated by Pietro. Since our call will include forward-looking statements, the safe harbor language and other cautionary statements on the slide will govern today's presentation. As usual, I encourage you to read the disclaimer carefully, as all forward-looking statements are qualified by this language. With that, I hand it over to Arno. Arno, please go ahead.
Arno Antlitz: Thank you, Rolf, and a warm welcome to everyone on this call. Ladies and gentlemen, the Q3 has once again shown how demanding our environment remains. China's market is contracting sharply, driving further export growth into other regions. Tariffs, geopolitical tensions, and unprecedented competition add to the pressure. Europe's shift from combustion engines to electric vehicles has accelerated. All these factors weigh on our volumes, mix, and margins. We are managing this environment with discipline. At the same time, we are moving ahead with our strategic initiatives. We are ramping up our attractive new electric and combustion engine vehicles. We continue to reduce investment spending and overhead costs. We are making progress on workforce reduction as planned, and we deliver on automotive net cash flow. EUR 4.4 billion year to date is a strong achievement.
Arno Antlitz: However, even before special effects, our operating margin stood at 3.8% after 9 months, which shows the clear need for action. We must accelerate and broaden our efforts to structurally lower our cost base. This is essential to earn adequate returns and deliver on our financial ambition. For this, we need lasting structural improvements across the Group. It means lowering vehicle costs without compromising product substance, lowering overhead costs, and substantially improving efficiency in our plants. It also means faster technology development and decision-making. These are all areas addressed by the Group Target Picture 2030. What matters now is swift discipline, and consistent execution.
Arno Antlitz: The developments in our industry show we have no time to lose. With that, let's dive straight into the presentation. Our product momentum remains strong. The launch of our Electric Urban Car Family was an important milestone.
Arno Antlitz: All 4 models, including their entry-level versions, are now available to order. Customer interest is strong, with around 150,000 orders received so far. At the Paris Auto Show, we also unveiled the new ID. Tiguan, electrifying one of the Group's most successful models. In the United States, we started production of the next generation Atlas. Audi is strengthening its premium SUV offering with the all-new Q9. Developed specifically for US customers, it will reach showrooms in the coming weeks. Alongside this strong product momentum, we continue to advance the strategic transformation of the Group. In early September, the Supervisory Board approved the Group's Target Picture 2030. The objective is clear: a stronger, more competitive, and more effective Group and brands. We also advanced our active portfolio management in the Q3.
Arno Antlitz: Following the announcement of sale of a majority stake in Everllence, we sold a further stake in Sinotruk, divested MHP, and sold our remaining stake in Bugatti Rimac. Together, the completed and announced disposals are expected to generate cash proceeds of around EUR 10 billion.
Arno Antlitz: Active portfolio management also means selectively opening our business to strategic partners where this creates additional value for Volkswagen. PowerCo and Gotion have agreed to accelerate the development of a regional battery supply chain for Europe. Gotion will contribute up to EUR 1 billion. Building on their long-standing cooperation, PowerCo and Gotion plan 3 joint ventures at Valencia, Šurany, and Kenitra in Morocco. This will cover industrial production of LFP battery cells and cathode active material. The partnership is strategically important for Volkswagen Group. It will give access to competitive LFP cell technology and diversify our supply of critical battery materials in Europe.
Arno Antlitz: The partnership combines PowerCo's capabilities and European footprint with Gotion's LFP technology and industrialization expertise. The partners will share investment requirements and industrial responsibility. Before we turn to the numbers, let me briefly comment on Audi's announcement from last weekend. Audi plans to establish its first US production site in Peach County in Georgia. The brand intends to invest around EUR 4 billion in a plant that is designed for an annual capacity of up to 200,000 vehicles. Construction is scheduled to begin in 2027, with production planned to start in the early 2030s. The focus will be on premium SUVs tailored to the North American customers and built locally. The final decision still requires approval by the relevant committees. We therefore ask for your understanding that we are not yet able to comment on financial implications.
Arno Antlitz: This step would be fully consistent with our regional strategy in US, for US as part of our global strategy to broaden our regional footprint, especially in one of the financially most attractive markets in the world, the US. In North America, we are closing portfolio gaps in the most attractive segments, specifically large SUVs and pickups. Together with the Volkswagen plant in Chattanooga and the Scout plant under construction in Blythewood, Audi's new site would be an important element to create a targeted and resilient local for local footprint in the US. This would reduce our exposure to trade barriers and currency movement. With that, let's now turn to our deliveries in the first nine months of the year. Global deliveries declined by 9% year on year in the first nine months to 6 million vehicles.
Arno Antlitz: The decline was driven by China, where volumes fell 30% amid a sharply contracting market and a weak consumer sentiment. Our combustion engine volumes, in particular, remained under significant pressure as a result of the increased gasoline prices. Outside China, deliveries to customers were broadly flat. In Europe, deliveries rose by 1.7% in the first nine months. BEV demand grew strongly, while demand for combustion engine vehicles weakened. South America achieved 4% growth rate year to date. In contrast, deliveries in North America declined by 4% year on year in the first nine months due to lower BEV deliveries and model changeovers, particularly the new Atlas. Turning to electrified vehicles, the regional picture remains mixed. Strong growth in electric vehicles in Europe in the last month only partially offset the market pressure in China and US.
Arno Antlitz: Globally, we delivered 679,000 fully electric vehicles in the first nine months, down 5.4% year on year. Nevertheless, the global BEV share rose by 40 basis points to 11.3%. In Europe, electric vehicles accounted for 20% of our deliveries, up from 18% a year earlier. The immense success of our electric Urban Car family has contributed only modestly so far, as deliveries have just begun. Our order situation in Europe remains robust. In the first nine months, order intake increased by 4%, about 3 million vehicles. At the end of September, the total order book in Europe stood at 1.1 million vehicles, around 11% higher than at year-end 2025. The increase was driven above all by BEVs, with particularly strong demand for the electric Urban Car family.
Arno Antlitz: Based on this development, we are increasingly confident that we will meet EU CO₂ fleet targets for the 2025 to 2027 compliance period, since our BEVs now account for roughly 40% of the order book. At the same time, the shift in mixed towards BEVs is still dilutive to our margins in the short term, despite the clear process we make on the BEV cost side. We have already seen some of this negative mix effect in Q3, and we expect the BEV ramp up to put greater pressure on margins in Q4 and the H1 2027. Let's now turn to the group financial and operating performance in the first nine months of 2026. Lower vehicle sales reduced group sales revenue by 2% to EUR 233 billion. The operating result was close to break even at EUR 0.1 billion.
Arno Antlitz: This was mainly driven due to significant special effects in the soft China business. Our nine-month result was burdened by special effects totaling EUR 8.7 billion, EUR 7.8 billion of which were recorded in Q3. The main items within the EUR 7.8 billion are a Porsche goodwill impairment of EUR 6.4 billion, an impairment of assets of fully consolidated companies in China of about EUR 1 billion. Before special effects, operating results came in at EUR 8.8 billion, with a margin of 3.8%.
Arno Antlitz: This is slightly below our recently revised full-year expectation of around 4%. Just as a reminder, this operating result before special effects contain a burden from tariffs paid to EUR 1.2 billion in the first nine months of 2026. For the full year, we expect the US tariff to impact our results with about EUR 2.8 billion.
Arno Antlitz: It contains roughly EUR 500 million related to early retirement schemes in the Volkswagen AG. Profit before tax declined to EUR 0.5 billion in the first nine months. This was mainly due to the lower operating result. The financial result turned out positive for the nine-month period. This was largely due to the further sale of Sinotruk shares. The share sales reduced our stake to below 20%, triggering a reclassification of our remaining holding. The total book gain from the sale and reclassification contributed to around EUR 2 billion to the financial result. After tax, we recorded a loss of EUR 2.7 billion. This is due to the unusually high taxes, mainly because some of the special items booked in Q3 are not tax deductible, particularly the goodwill impairment.
Arno Antlitz: In addition, no deferred tax assets were recognized on tax losses incurred in Germany in the current year, as these losses are not expected to be utilized within our planning period. Nevertheless, the resulting tax loss carry forward have not been permanently forfeited. Our cash flow performance shows that the processes we made and established to strengthen cash generation at Volkswagen Group are delivering lasting results.
Arno Antlitz: Automotive net cash flow improved to EUR 4.4 billion in the first nine months. Improvement was supported by lower investment spending as well as net inflows from M&A. Net inflows from M&A amounted to EUR 0.6 billion. The EUR 0.9 billion investment in Rivian was more than offset by the cash in from other portfolio measures. Proceeds mainly included EUR 0.7 billion from Traton's Sinotruk stake sales and EUR 0.9 billion from the remaining Bugatti Rimac stake.
Arno Antlitz: Porsche AG used some of the proceeds from the Bugatti Rimac disposal to fund pensions totaling EUR 500 million in the first 9 months. Cash flow performance supported a solid net liquidity position. Automotive net liquidity remained at EUR 33 billion at the end of September, some EUR 1.5 billion below the level at year-end 2025.
Arno Antlitz: We fully offset dividend payment and Porsche additional pension funding. Let me now turn to the performance of our divisions in the first 9 months. Passenger cars recorded an operating loss of EUR 2.6 billion, largely as a result of special effects and our performance in China. Commercial vehicles delivered a solid operating result of EUR 1.7 billion and a margin of 5.2%, roughly on par with prior year period. Financial Services remains robust, with an operating profit of EUR 3.0 billion despite higher residual value risk.
Arno Antlitz: In a Passenger Cars profit bridge, volume and other effects reduced the result by EUR 1.1 billion year-on-year. Mix impacted the result by -EUR 1.8 billion. This reflects an unfavorable regional and product mix, particularly driven by higher mix of electric vehicles and a negative segment mix. High incentives more than offset the positive pricing effects, resulting in a net burden from price of EUR 0.6 billion. Product costs reduced the result by EUR 0.4 billion, mainly due to the higher raw material costs. Favorable hedging positions provided a partial offset here. Fixed and other costs made a positive contribution of EUR 0.4 billion with a sizable contribution from lower overhead costs. Special effects were a year-on-year headwind of EUR 3.1 billion.
Arno Antlitz: This mainly reflects the Porsche goodwill impairment, partly offset by lower restructuring costs and the absence of last year's burden related to the realignment of Porsche product strategy. Our overhead costs benefited significantly from consistent implementation of the 2024 and 2025 agreements Future Volkswagen. These include the agreed headcount reduction of around 50,000 across Volkswagen, Audi, Porsche, and Cariad in Germany. Since at the end of 2023, about 19,000 employees have left Volkswagen AG and around 25,000 have left Volkswagen Group in Germany.
Arno Antlitz: Over the same period, our global headcount has declined by around 40,000 or 6%. Automotive overhead costs fell by EUR 0.7 billion in the first 9 months from EUR 33.8 billion to EUR 33.1 billion. Our savings more than offset the ramp-up of new businesses such as PowerCo and Scout, as well as inflation in the current year. Turning to the brand groups, the platforms and Financial Services.
Arno Antlitz: Brand group Core delivered vehicle sales and sales revenue broadly in line with the prior year. Operating profit declined by 8% to EUR 4.3 billion, corresponding to a margin of 4.1%. Brand group Progressive operating profit declined to EUR 1.2 billion and a margin of 2.7%. This was driven by a market decline in volumes in China and the US. Cost discipline and lower overhead provided a partial offset. Brand group Sport Luxury vehicles sales fell 11% and sales revenue declined 7%. Operating profit nevertheless rose significantly to EUR 1.5 billion with a margin of 6.7% lower special effects compared to prior year, a better mix, and cost improvements more than offset the weaker top line here. Let's take a closer look at the brands in the brand group Core.
Arno Antlitz: Volkswagen Brand reported an operating profit of EUR 0.8 billion and a margin of 1.3%, 1 percentage point below the prior year. Even before special effects, the margin stands at 2.6%, which is clearly not where we want it to be. Škoda continued its strong performance in a challenging environment. Vehicle sales rose by 3% and sales revenue by 4%. Building on a highly competitive cost base, the operating margin increased by 30 basis points to a strong 8.3%. Škoda again shows what can be achieved with first-class products based on Volkswagen platforms when operating on a right cost base, even in a challenging market environment. Cariad sales revenue increased by 31% to EUR 1.3 billion on the back of higher volumes on the 1.1 and the 1.2 software stacks.
Arno Antlitz: The operating loss improved by EUR 0.2 billion to EUR 1.3 billion, supported by higher sales and continued execution of the performance program. PowerCo's CapEx available at a constantly stable at EUR 1.1 billion despite the production ramp-up in Salzgitter. Construction in Valencia and Šurany increased investment and net cash outflows. Industrial operations maintained their improved momentum in the Q3. Sales revenue in the first 9 months increased by 2% to EUR 31.9 billion, backed on higher volumes. Operating profit was EUR 1.1 billion with a margin of 5.2%. Operational improvement offset higher tariffs, input costs, and restructure charges. Volkswagen Financial Services delivered a solid operating performance. Contract volumes rose by 1.5% to almost 28 million, and residual value risk also increased, particularly as the European market shifts towards BEVs. Credit loss ratio remains solid at 0.41%.
Arno Antlitz: Operating profit at EUR 3.0 billion or 3% below the prior year period. We are taking early actions to address growing residual value pressure. We have therefore adjusted the financial services division's full-year operating result outlook to now more than EUR 3.5 billion. Our investment discipline continues.
Arno Antlitz: Automotive investment in the R&D and CapEx fell by almost EUR 2 billion to EUR 22.4 billion in the first 9 months. This is equivalent to an investment ratio of 10.9%, some 50 basis points below the prior year level. For the full year 2026, we continue to expect an investment ratio of 11% to 12%. As part of the Group Target Picture 2030, we target 9% of sales in 2030, which equals EUR 135 billion over the next 5 years, 2027 to 2031. The planned Audi plant is not included in this figure.
Arno Antlitz: However, our aim is to compensate as much as possible of the additional investment within the upcoming planning round through stricter prioritization and further efficiencies across our investment portfolio. For us, investment discipline and targeted growth in attractive markets are not a contradiction. They go hand in hand. In China, the automotive market remains under severe pressure. Market volumes are down 21% year to date. Changes in subsidies and tax policies, higher fuel prices, and weaker customer sentiment are driving the decline. Competition remains intense. In this environment, our unit sales declined by 35% to 1.2 million units, with combustion engine models particularly affected. Significantly lower volumes and costs for new NEV models ramp up, weighted on the proportionate operative result. The step-up cost measures could only partly offset this pressure.
Arno Antlitz: In addition, Volkswagen Group China recognized impairments on legacy MEB-related assets in Q3, which reduced the proportionate operating results by around EUR 0.2 billion. Before impairment, the proportionate operating result for the first nine months amounted to EUR 110 million. For the full year, we now expect proportionate operating result from our Chinese ventures before impairments to be around break even. However, there is a significant risk that Q4 will push the full-year result, even before impairment, into the negative territory. Nevertheless, we continue to implement our own China for China strategy with full force.
Arno Antlitz: We are continuing our NEV model offensive rigorously and our cost reductions and capacity adjustments. This brings me to our financial outlook for the full year 2026. We expect sales revenue of around EUR 315 billion and a reported operating margin of up to 1%.
Arno Antlitz: Before expecting special effects of about EUR 10 billion, our full-year margin outlook is around 4%.
Arno Antlitz: Our current run rate is 3.8%, and we expect a higher BEV share in Europe in Q4. Please keep in mind that around 4% means that we are more in line with the run rate the first nine months. Building on the performance in the first nine months, we expect an automotive investment ratio of 11% to 12%, and we continue to expect reported net cash flow of EUR 3 to 6 billion. But we are confident that net cash flow in Q4 will be positive, adding to the EUR 4.4 billion we achieved in the first nine months. We expect net liquidity of EUR 32 to 34 billion. But also here, we see a good chance to end the year at or even above the upper end of the range.
Arno Antlitz: Importantly, these KPIs exclude any effect from the sale of a majority stake in Everllence or from Group Target Picture 2030. Ladies and gentlemen, we are delivering on our strategy and the agreements reached in 2024 and 2025. Yet the world has changed fundamentally since we launched our group-wide efficiency programs. We face tariffs, a sharply contracting Chinese market, and intense competition in Europe from new Chinese entrants. The market success of our electric cars also weighed on our margins in the short term. Against this backdrop, incremental cost measures are not enough.
Arno Antlitz: We must fundamentally reshape our business model and deliver a decisive improvement in cost competitiveness. This requires a substantial reduction in complexity across the company. The Group Target Picture 2030 provides a framework for these changes. Now it is our task to implement it swiftly and with discipline. Our financial performance leaves no room for delay.
Arno Antlitz: Thank you very much. With that, I hand over back to Rolf.
Rolf Woller: Thank you, Arno. With that, we conclude the prepared remarks and let us now enter into the Q&A session. As a reminder, if you want to ask a question, please press star followed by 1 and 1. If you would like to withdraw your question, then you press again star 1. With that, we are expecting the first question, and the first question comes from Patrick Hummel from UBS. Patrick, please go ahead.
Patrick Hummel: Hi. Good morning. Can you hear me?
Rolf Woller: Very good and loud.
Patrick Hummel: Okay, great. Thanks, Rolf. Good morning, Arno. Two questions, please, from me. The first one, I would like to double-click on your comment about the BEV mix dilution. You said it is going to be larger in Q4 and even more so in H1 2027. It has already taken a toll in Q3 and, looking at the whole complex of EV mix shift and with that also lower CO₂ compliance cost, on the other hand, how much of a headwind is this going to be in 2027 if the current trend continues? To take it even on a higher level, if we look at the big picture, all the puts and takes that you see from today's perspective, I guess significant raw materials inflation, but on the other hand, substantial cost saves that you are also working on.
Patrick Hummel: Can you just elaborate a little bit on the largest building blocks for the EBIT bridge going into next year, starting off that, say, 3.8% clean run rate basis that you are basically endorsing for 2026? My second question, how important is China still from an earnings standpoint? JV proportionate result now guided break even or slightly below. We have got a pretty decent idea about what Porsche still makes in China. Can you give us an idea about the consolidated result within Volkswagen Group ex-Porsche, meaning predominantly, I guess, Audi, that is still contributed by China, including all royalties and spare parts, et cetera, just to get a sense of the remaining downside risk related to group numbers coming from China. Thank you.
Arno Antlitz: Patrick, good morning and thank you for your two questions. As always, and hopefully you are not disappointed, I have to start with, it is too early to give you an outlook for 2027. This is what we typically do, as you know, in March next year. But some of the building blocks, and you mentioned them basically already. Look, the BEVs are still margin dilutive, but over time they improve. This is the positive news. For example, from the new electric Urban Car Family, the ID. Cross, there is already, I would say, an 80% margin, 70% to 80% versus combustion engine.
Arno Antlitz: The smaller cars like ID. Polo are still weaker. What happens over time is, of course, we bring all the cost-down measures into the BEVs and improve our costs there with LFP batteries, with more integrated drivetrains, but they come only over time.
Arno Antlitz: What happened now is due to the fuel prices, specifically in Europe, and I would say also the great performance of our new Electric Urban Car Family, the ramp-up of our BEV share is much faster than the ramp down of the cost. Ultimately, we expect margin parity and also cost parity towards 2030 with the SSP. But now we are faced with a mix in the order book of 40%. Just to give you an indication, 40% was the BEV share we was planning for 2029 in Europe. So this is what we are facing.
Arno Antlitz: This is one of the headwinds. In terms of raw materials, yes, this might be a headwind, but here we have a lot of hedging and a lot of long-term agreements on energy, and also Rolf and his team does a lot of hedging on aluminum and other raw materials.
Arno Antlitz: But yes, there is steel price and there is also certain risk for semiconductors. In terms of momentum, we bring fantastic new models to the market, specifically Audi, with the Q7 and the Q9 and later then also Q8. So there should be also continued product momentum. The biggest building block in that equation is obviously our reduction program.
Arno Antlitz: The Group Target Picture 2030 is an immense cost program of more than EUR 30 billion. From that, the overhead cost reduction we want to achieve is EUR 11 billion. Here we want, and we need to get really a step down in 2027. It is not our plan that we linearly reduce overhead costs and reduce them linearly by EUR 11 billion towards 2030, but rather a step down with certain measures we are just discussing and working out with tariff partners and with our internal partners.
Arno Antlitz: This is really a bigger step we are planning for 2027, and this is really too early to give you an indication on that. But this might be the building blocks. In terms of regional development, China, that stays very competitive as market in Europe. We expect the competitive pressure to stay, although there might be first effects from the agreement the European Union reached with China that might give a small relief. We expect a product momentum in US despite the tariffs by the new cars from Audi and also the new Atlas and the new Tiguan.
Patrick Hummel: Let me, if you don't mind, Arno, just follow up on China. Basically, the idea is really to understand what's the remaining downside risk to group earnings related to China, if China remains on a constant decline path. Another way to ask the question is, do you think the volume share that China still has, in the group context, for you, for Volkswagen Group, is representative of the profit share you have in China? Or would you say by now, the volume share is actually higher than the profit share because the JVs are profitless?
Arno Antlitz: Patrick, you know we are reluctant to disclose these combined effect from China
Arno Antlitz: due to competitive reasons. But what I can say, you see the proportion operative result, which is already basically at breakeven, and there's a certain risk that it turns negative this year. So we don't expect any further contributions from dividends in the cash flow next year. So this is basically factored in in our guidance. Also from the volume, it's a much smaller part than in the past. Also the profitability, specifically in the premium market is lower. So that all is factored in. Also Porsche gave some indication on what they expect in China.
Patrick Hummel: Yeah.
Arno Antlitz: Overall, the dependence on the China market in terms of profit has significantly decreased over time. I think, Rolf, you want to add a comment? Or put it positively, we have successfully diversified our Group profits from China. In history, I think the contribution on Group level was close to 50%. In the meantime, I think it is very fair to say that we should be well below 25% in the meantime, Patrick, if that helps.
Patrick Hummel: It does. Thanks very much to both of you.
Rolf Woller: Very good. Then we continue in the Q&A row with Tim Rokossa from Deutsche Bank. Tim, please go ahead.
Tim Rokossa: Thank you very much, Rolf, and good morning, Arno as well. I have two questions as well. The first one is, there is always a lot of moving parts with you guys, Arno. When I think about two of the absolute key elements outside of China that determine your immediate and midterm future, it is A, the union negotiations about the plan, obviously, and the future of Audi. Can you update us on what your thinking is about the two of them? Will the negotiations likely be done before year end? Is this something that could very well drag into next year? Secondly, should you not get this Audi deal, which by the way, does it include tariff reliefs potentially, or is this just a CapEx deal? What is really the plan to turn around Audi here?
Tim Rokossa: I hear you on the Q7 and Q9, but arguably someone like Mercedes has an even better product momentum currently, and they really struggle, as we all learned yesterday. Secondly, perhaps also when we think about modeling the next 2 years, those elements that are still pretty loss-making, like PowerCo, Cariad, now Scout also, how shall we think about the loss-making contributors going forward? Will you cut these losses most likely, or should we continue to model that as a drag? Thank you.
Arno Antlitz: Yeah, Tim, thanks for your questions. First and foremost, obviously, we want to close the deal with the unions or the negotiation with the union as fast as possible. If you look at our results, we need urgent contributions on that. But we don't have it in our own hands alone. I cannot now predict whether we get an agreement at the end of this year or early next year. What I can say, I really ask everybody to remind him of the responsibility we have for this company and for the picture, for our also suppliers and partners.
Arno Antlitz: We need the contributions of the EUR 11 billion, and part of the EUR 11 billion, obviously, is the headcount reduction by 50,000 of indirect worldwide. We have started in some areas there already, but we need the contributions, definitely. In terms of Audi.
Arno Antlitz: Audi, first and foremost, has a certain product momentum. The RS models are doing very well, RS 5. Now with the Q7 and Q9, we will see some very mixed, strong cars. But let's not forget, also Audi has a huge job to do on the cost side and on the productivity side in their plants. It's not only Volkswagen Brand or Volkswagen AG that has to discuss with the unions and has to reduce headcount. It's also Audi that has to do the job there. In terms of US, what I can say, I said it would be a huge step in terms of localization. US is one of the most profitable markets, and the most promising markets in the long term. Our share is basically limited. So far, our market share. It's really a long-term strategy.
Arno Antlitz: If you remember, Tim, back then in Hockenheim 2023, remember my presentation. We said, "Look, we want to defend Europe, we want to turn around China, and we want to grow in US." This is a long-term plan we're pursuing with Scout, with more local for local, tailored to local segments, products for Volkswagen, and also for more localization for Audi. Now with the tariff scheme and the regulatory uncertainty, the local for local strategy is even more important, which we pursue for Europe, for US, and China. In terms of the loss-making, look, there are basically 3 to 4 loss-making areas. One is PowerCo, which we are very transparent. Also, Cariad. Obviously, Scout. There's a fourth loss-making element, it's our fully consolidated unit in China, it's Anhui. They also make losses, upfront losses today.
Arno Antlitz: What I gave you already is an indication that the losses are 1.5 to 2 percentage points currently, and we want to turn them at least to breakeven by 2030. Here, more or less, the combined effect would be linear over the next years. As we discussed in Paris, the turnaround of these four loss-making units is planned to contribute also by 1.5 percentage points, almost 2 percentage points for the turnaround plan towards 2030.
Tim Rokossa: Thank you very much, Arno.
Rolf Woller: Thank you, Tim. We continue with Stuart Pearson from Oxcap. Stuart, please go ahead.
Stuart Pearson: Questions. Just China and the joint ventures and just the path forward from here. I just wonder if you are considering, obviously, you have quite a patchwork of joint ventures and alliances there. Just noticing the consolidation with Toyota and GAC and their FAW JVs. Is that something that is possible for Volkswagen Group in China, or are there just too many moving parts and different interests that make that impossible? I just wondered whether the China positioning could be streamlined. The second question, just quickly on the Urban BEV orders. I get that it is margin dilutive. I just wonder, actually you are kind of answering it in terms of the percentage of your order book. How much is it cannibalizing orders for Polos and the ICE cars in that segment?
Stuart Pearson: Or is it incremental volume that is coming into the Group, or is it really cannibalizing the ICE almost one for one? Thank you.
Arno Antlitz: Stuart, look, it all starts with the volume protection and Ralf Brandstätter was very clear about that in the interview he just gave some days ago. We had our capital markets day in China. We are expecting some two, three years ago, 30 million vehicles in China, total market, and we reduced that to 27, 25, and now we have an expectation of more than 19 to 21 million. So let's count with 20 million.
Arno Antlitz: A total market, and if we keep our market share protection of 11%, that definitely would reduce our volumes to more like 2.2 million. So there's one missing element in that. As other Chinese manufacturers, we have the chance to increase that volume in the local production by export. So we are already planning a significant amount of export, 200,000, 300,000 cars to, we call it Global South.
Arno Antlitz: We will start first deliveries to certain regions, Mexico, also South America, which might then add to the 2.2 million units I just derived from the math of the total market. We need to do the math then, and definitely, when we have to do more restructuring, that more restructuring starts with looking at the manufacturing footprint. So we have to further reduce our manufacturing footprint. It also is the classical cost work of our units in China. More synergies.
Arno Antlitz: We have a huge holding there, so they have to do the cost works as well. Then we look into the chance of export. At the end of the day, we need to also look at the question you just raised, how many partners and how many entities we have there, but this is much too early to give you an answer there.
Arno Antlitz: For obvious reasons, I cannot comment on that topic.
Stuart Pearson: Okay.
Arno Antlitz: But at the end of the day, it has to start with a realistic volume assumption and then work back from then, and this is what the team is doing. New electric Urban Car Family. Segment by segment, it comes on top. The Polo orders is running on previous year, and so it really adds significantly to the volume. Our order intake and order bank speaks for itself. This is very good news. As always, I must say, yes, the cars are margin dilutive, but there is also a very positive signal in that whole topic. Look, Volkswagen was always wrong when we delivered on three virtues. First, great products with, second, great quality, and affordable prices. The good news is, once we deliver on these three dimensions, we are very successful.
Arno Antlitz: Unfortunately, it is more like an upfront investment in terms of margin, because currently we give affordable prices to the customers, but our cost base is not there so far. This is what we have quickly aligned now. The good news is our winning formula still works, and in order to make that on a long-term success, we have to lower the cost base because you can only provide affordable prices if you have a competitive cost base. Everybody in the company is aware of that fact. This is what we set up now in the Group Target Picture 2030, align the cost base in order to have enough margins to invest significantly into future products and technologies, but also living up to the promise of Volkswagen, which also stands for affordable prices.
Stuart Pearson: Okay. Thank you. Just quickly to follow up on that, does that mean if there is a headwind coming from these cars, they are not cannibalizing it is fair to assume that at least for now in this startup phase, they are loss-making at the EBIT level?
Arno Antlitz: So far, they are still loss-making at the EBIT level, yeah.
Stuart Pearson: Okay. Thank you.
Arno Antlitz: It is clear, but I want to say, of course, we have a clear positive contribution margin. That is clear.
Stuart Pearson: Yeah. Understood.
Rolf Woller: Thank you, Stuart. I like winning formula. We continue with Daniel Schwarz from Metzler. Daniel, please.
Daniel Schwarz: Yeah. Thank you for taking my question. I have three quick questions. Firstly, who needs to approve the Audi plant? Does it need the two-third majority in the Volkswagen Supervisory Board, or is it the Audi Supervisory Board that could approve the factory? A follow-up on China, if the JV would start to burn cash, would you potentially transfer cash to China, i.e. could the JV contribute negatively to cash flow, or is zero dividend from China really the downside risk? Lastly, financial services. The equity that keeps going up every quarter, it is now EUR 48 billion, and the return on equity is quite low if you apply the full EUR 48 billion. It seems overcapitalized. What is the target here? Thank you.
Arno Antlitz: Yeah, Daniel, first and foremost, for obvious reasons, and hopefully you have understanding for that, I cannot give certain details on our internal processes on the approval of that plant. I think there was some information already given on that process. In terms of China, the downside risk is really zero dividend. To be very honest, if our proportionate operating result this year is negative, with a certain risk that I mentioned, then we are on that situation in 2027, and we have to factor in in our cash flow guidance for 2027 that there might be no or very limited China dividends.
Arno Antlitz: The return on equity on our finco, we are heavily regulated in the finco business. There are certain capital markets rules on core capital and other elements of the capital. You know them very well. They are disclosed very well.
Arno Antlitz: We are aware that we are slightly above this capital scheme. On the other hand, there is still some room for growth. What we expect over the planning round, that we need not to increase the capital, but rather with the growth of our finco, they will more and better utilize this equity scheme they have currently so far. This is our planning going forward. It is well disclosed where we stand and what our capital right now is. We expect that the end of the planning round, that we are exactly, in terms of capital need, on what we need from a regulatory point of view. This is what we factored in now in the planning.
Daniel Schwarz: Sorry, could you remind us what the dividend inflow is in 2026 from China?
Arno Antlitz: Roughly, Daniel, the year with the proportionate operating profit we did in 2025. That is the logic.
Daniel Schwarz: Yeah. Okay. Thank you.
Rolf Woller: So very prudent approach on the equity within the finco, meeting the requirements we expect from the growing business by 2030, and the Volkswagen Bank, obviously heavily regulated. With that, we continue with Henning Cosman from Barclays. Henning, please go ahead.
Henning Cosman: Yeah. Good morning, everybody. Thanks for taking the question. Arno, I just have one question really, which is on the free cash flow for next year.
Henning Cosman: I appreciate you do not want to go into the guidance for next year too much, but just conceptually, and I understand the China dividend could be down, but you seem to be tracking very well against your free cash flow guidance for this year, and you have this very big step down in CapEx next year. There should also be less M&A outflow to Rivian. So seems like there could be, everything else equal, could be EUR 8 billion, EUR 9 billion free cash flow next year. I am just wondering if I am missing anything there conceptually, right? Not to hold you to a certain number. Where I am coming from is consensus is not remotely at that level. So I am just wondering if I am missing anything.
Henning Cosman: Related to that, if you could just remind us what sort of capital requirements. You previously said you have this threefold approach to cash allocation. If you could just remind us on the balance sheet, what you are aiming for before more of that super strong cash flow that should be coming very soon, before you can allocate more of that to shareholder returns. If you can just remind us of how much you want before you can look into that. In fact, actually, one quick clarification. I am not sure if I did not hear, but I believe Tim asked earlier about the potential tariff implications related to the Audi plant. I think Oliver always made it very clear that he wanted some sort of tariff offset, in exchange for committing to incremental investment in the US.
Henning Cosman: I think there was something in the media, but could you just confirm that that is still the case, that it is a precondition to actually go ahead with that investment, that you get a tariff offset that is equivalent to the investment? Thank you very much.
Arno Antlitz: Yeah, Henning. A lot of questions. First and foremost, free cash flow. It is even more important that we wait until March next year for the guidance. There are some obviously moving parts. It starts with the operating result and the cash conversion rate. Yes, we want to be even more disciplined on R&D and CapEx combined. We are a very good trajectory there. On the other hand, as said, operatively, we see a headwind from the margin dilution effect of the BEV, specifically in the Q1, in the H1, order book is 40%. It depends very much also on M&A. But do not be afraid, we are not planning to spend significant amount on M&A. I just see that this year, clearly, we had some positive effects from disposals as promised. Sinotruk, Bugatti Rimac, MHP, and others.
Arno Antlitz: Yeah, we want to continue on that path. We have not discussed about Everllence, but it is not very clear that next year we will do the next significant steps. We have to look at the entities that we want to sell, and is it the right time and are they in the right shape? We do it when it is best for the company and our shareholders and us in terms of value creation. So we are not desperate. So it very much depends, as said, also on M&A and asset disposal next year, which we will give you an indication. In terms of our net liquidity, first and foremost, you know how important the rating for our company is and how we strongly look on our rating.
Arno Antlitz: We need that for the refinancing capacity and the competitiveness of our finco.
Arno Antlitz: There is this one element, obviously, next to margin net cash flow, it is net liquidity. Our policy is more than 10%, but we are also aware that some of our competitors are much stronger in terms of balance sheet, and they have much better rating. Look at some peers that it is more like X and 20%. We have not changed our policy of more than 10%, but obviously in difficult times, a strong balance sheet is an asset, and we want to increase that. It is too early to give you the combination of the three elements. We said a strong balance sheet. Second, obviously, a dividend policy means more than 30% payout. The third element of that is we look at our hybrid bonds, how to cautiously reduce the exposure there. This is where we stand.
Arno Antlitz: It very much also depends on Everllence, whether we close the deal this year or next year. Just to give you a reminder, this would be another cash inflow of EUR 7.2 billion, which is also a strong signal. But again, it is too early to give you a concrete number. But we carefully balance these three dimensions in the best interests of all the stakeholders, including our shareholders. As said before, we cannot comment on any potential agreements on the Audi deal.
Henning Cosman: Fair enough. Thank you, Arno.
Rolf Woller: Thank you, Henning. We continue with Philippe Houchois from Jefferies. Philippe, please go ahead.
Philippe Houchois: I am taking the question. My question is on the. We have, again, a very strong performance from Financial Services, and we have seen positive surprises yesterday, Ford and Mercedes. I am just trying to understand what is driving such upside and how we should think about it next year in terms of, we know residual values might be a headwind, rates are a headwind. Do we still have a momentum of all residual values that will carry us into 2027? That is my first question.
Philippe Houchois: The second one, possibly, if you can maybe give us a bit of visibility on what will drive. I think you are clear that Q4 cash flow will be good again. We know capital spending is going down, but is it going to be more of a working capital benefit as you end the year with low inventory?
Philippe Houchois: What is driving the positive cash flow in the fourth quarter? Thank you.
Arno Antlitz: Yes. Thanks for your questions. The finco, it is basically a lot of elements. First and foremost, it is a very stringent process of managing the risk, including residual value risk. I mentioned that before. We see some risk on the combustion engine cars, but it is still, from our perspective, well managed. In this finco, we also started a significant cost and improvement and efficiency program because, at the end of the day, our finco provides lease rates and they are partly subsidized by the groups. So we have a huge performance program in the whole, which includes the finco.
Arno Antlitz: Third, we look at optimizing refinancing in certain areas. For example, in US, we have a cooperation with Wells Fargo to optimize refinancing, and we look in other areas where we could potentially optimize refinancing, which then also would improve performance.
Arno Antlitz: So it is really managing the risks, manage down the overhead costs, and we have really stringent overhead cost ratios, given our finco, and optimize refinancing. I would say these are the elements of the performance of our finco so far. To be very transparent, as I said, we see also risks there, and this is why we adjusted our outlook with this caution.
Arno Antlitz: Cash flow Q4, yes. Obviously, there are some elements where we think we should expect on top of the cash flow we achieved so far, a positive warning Q4. First and foremost, some kind of seasonality on working capital, on inventory. It is even that despite a lot of processes in the working capital management work really very well, and they are continued since months and years. There is a slight burden currently on the working capital due to the ramp-up of our electric car family.
Arno Antlitz: There is even more chance to, once these cars flow into the market, working capital, then obviously a positive operative business. Everything starts with operative business. We expect a positive margin and operative business in Q4. Then, there are very stringent investment disciplines. Currently so far, we are EUR 2 billion below last year, in absolute terms and also percentage point-wise. We have some basis points below last year, and there is no reason why we shouldn't continue that performance throughout the year, because we have to reduce on the CapEx anyway, target-wise, for the next year and for the EUR 135 billion. So I would say this should be the major contributions to a positive net cash flow in Q4. Rolf, do you want to add?
Rolf Woller: No, I think everything well explained.
Philippe Houchois: If I can squeeze another one.
Arno Antlitz: Are you happy as well, Philippe?
Philippe Houchois: I am happy that your cash flow remains positive.
Arno Antlitz: Very good.
Philippe Houchois: Can I please squeeze another one? Your hedging on raw materials seems to be delivering impressive results, but usually it is a timing difference. We get bad news from GM, we get bad news from Ford overnight on commodity, on DRAM, et cetera. How are you managing that? Or is there a step they should worry about in 2027 where your hedging kind of runs out?
Arno Antlitz: I would propose that I hand over to Rolf because he is responsible for that whole process. So I would ask Rolf to answer.
Rolf Woller: Yeah, Philippe. As always said, we started into the year well hedged.
Rolf Woller: On those raw materials, actually, we can hedge. We always have to say that there is obviously certain raw materials, like plastics or oil-based components, where it is obviously difficult to hedge, or also steel is something, actually, which we do not hedge. But in particular, on the battery raw materials,
Rolf Woller: we have also some reasonably good hedge positions left, actually, for the remainder of the year, which make us confident that the impact in the Q4 is limited. And we recently saw, in particular, lithium hydroxide as well as lithium carbonate coming down quite significantly. And we obviously used the opportunity to increase our hedge ratio, particularly for 2027.
Rolf Woller: Cobalt also recently came down in our favor, and we still have a very reasonable position hedged of our 2027 exposure on the aluminum side. So, that is similar to what Arno Antlitz has said to the building block, where we are refraining from giving already an outlook for 2027 on the profit bridge. But we are using the optionalities which are offered by the fluctuation in raw materials to mitigate the issue as much as we can and do this reasonably successful for those raw materials which we can manage.
Philippe Houchois: Mm-hmm. Okay. Thank you very much.
Rolf Woller: Very good. Then we continue with Frank Biller from LBBW. Frank, please go ahead.
Frank Biller: Thanks for taking my question. It is just one remaining on the dividend strategy here. You are targeting more than 30% payout ratio. On what basis are you calculating this more than 30%? Is this including or excluding the one-offs or only the non-cash one-offs? What is your thinking behind that?
Arno Antlitz: Frank, absolutely, I have understanding for that question. Currently it is really we have, as said earlier, we have a lot of building blocks. We have our reported operative result in all transparency last year. We said we will not take into account the write down of Porsche goodwill impairment. We have not said that so far because we have too many building blocks. We have the Porsche write down impairment, which is not basically cash relevant.
Arno Antlitz: On the other hand, we do not know whether we achieve the closing of the Everllence deal this year or next year. We are absolutely confident that we will close it, but it is not in our hand. We depend on a lot of authorities worldwide for the agreement. They have to agree on the deal and that the agreement we get potentially this year or next year.
Arno Antlitz: We do not know whether we so far achieve a major breakthrough in the negotiation with the unions and in the headcount reduction, which might incur also burdens on the result this year or next year. We have a lot of building blocks, and I really must ask for your understanding that currently we cannot reliably communicate and forecast what the basis of that 30% is. This is where we stand today.
Frank Biller: And you are not including the share price here or the dividend yield?
Arno Antlitz: If we include the share price for the dividend yield, you mean that we want to take into consideration the share price as the time this year?
Frank Biller: Yes. If it is attractive or not. If share price is very low, so it is a very high dividend yield, and maybe your income for it this-
Arno Antlitz: This is only one element of one reasoning of that. You need to be patient. Once we have all the building blocks together in this year, as said, perhaps we get an agreement with the unions, which might also burden our result. Then from there we decide what is the right dividend for next year and also takes into account what our dividend policy is. We really also look at all the stakeholders, including our shareholders. Look at the, for example, dividend yield as well.
Frank Biller: Yes. Okay. You feel comfortable with this more than EUR 4 on a consensus basis for this year?
Arno Antlitz: I think we see less than EUR 4 currently on the consensus basis, but as said, if you would now comment if we feel okay or not, then obviously it would difficult.
Frank Biller: Thanks a lot. Yeah. Okay. Thank you.
Rolf Woller: Thank you very much, Frank. Good. And best for last, Jose. Jose Asumendi from JP Morgan with the last question. Thank you, Jose.
Rolf Woller: Thank you very much.
Rolf Woller: coming on today.
Jose Asumendi: Just a couple of questions, please. Thank you very much. Arno Antlitz, back to the building blocks. Can you comment a bit on cost savings for 2027? If you cannot obviously give us a number, at least directionally in the building blocks, where do you see the cost savings efficiencies coming through? Which pockets do you think will be bigger? Is it purchasing, is it labor, is it any other category that we should have in mind in terms of supporting our mix next year? Second, I was wondering if you could give us any comments.
Jose Asumendi: When you are having discussions on the finance front and you are comparing your manufacturing footprint in China, the work you have done there with the suppliers, the Anhui center, and you look at, let us say, manufacturing costs of an e-motor or transmission, how does this compare China versus what you have in Europe? Which opportunities do you think you have there to make the cost footprint in Europe more efficient? Any numbers you could provide or any examples? Thank you.
Arno Antlitz: Jose, if you jump back to the building blocks of the cost program in the Zukunftsplan 2030, just as a reminder, I know you have all the facts and figures in your head. It is around EUR 30 billion, EUR 31 billion. About EUR 20 billion of that is operational, and EUR 11 billion should come from overhead costs. From the operational side, we talked about material costs. We talked about incentives.
Arno Antlitz: Material costs over the 5 years in the magnitude of 10% incentives, and then productivity in the plant. Obviously, to optimize material costs, it takes some time. Included in that is LFP and NMC switch in the battery front. We said we want to use the material cost reduction to offset potential mix effects in the margin side of the BEVs. That we have to compensate as much as possible, but they will basically come over time.
Arno Antlitz: We expect another step down in terms of productivity in the plant. The process we just launched and the discussion we just had with the 4 plants in Germany which do not have allocation so far, and the transparency we give on factory costs and the competition we put on the plants was very healthy in terms of motivation for the teams. There should good improvement there. As said, the biggest cost improvement should really come from overhead costs. It should not be linear.
Arno Antlitz: We need a step down in 2027, both in terms of headcount and ideally also in terms of labor costs. This is too early to say, but this is what I would expect and what we need in order to stay competitive, and this is what we are negotiating for so far. These are some of the building blocks.
Arno Antlitz: In terms of what we utilize, our knowledge in China, I make you one example. We have achieved significant cost down in China on the whole electric platform, on electric engines, of course, on battery. But also on conventional components like steering, like seats, structures, and so on. In setting up our new SSP toolkit for 2030, we take basically benchmarks from our Anhui factory, which is 100% Volkswagen-owned entity, and compare them where we stand in China, what potential costs are in Europe, and we do some of a, I would say, a walk. If you localize, either we take the components from China as well, like the ID. Every1 will get an e-motor from our 100% e-motor plant in China, which is significantly cheaper.
Arno Antlitz: Or if we localize, we do kind of a cost walk, say, "Look, these are the costs in China. These are potential higher localization in Europe," and then have very stringent targets for each component. The teams in Europe work against these targets, and we are not closing, and we are not giving the approval of the component if it is not close or on par on that target. So we really utilize the knowledge and the experience we have in China by designing our new components first and second, also use our China manufacturing base for potential exports of component into the next generation platforms. Of course, that might conflict with the European EAA regulation, and so we carefully balance that. In most of the times, we have basically 2 sources.
Arno Antlitz: We have a potential component we have in China, the potential component we will localize in Europe, then we are very flexible. This is very specific on the process, how we manage that. Thank you very much. I think that is it. Thank you for all your questions, we are now at the end of the investor and analyst call. If anything was left unanswered, or if there is a question which is popping up as consequence of the discussion, please contact the team here in Wolfsburg, around Lars, Christian, Christopher, and obviously Andy.
Arno Antlitz: We look very much forward actually seeing you on one of the upcoming conferences and roadshows, you see them here on the slide, where there is the next opportunity to meet with us, either in person or virtually.
Rolf Woller: After a short break of, let us say, five, 10 minutes, we will host then the media session, which is moderated by Pietro. Thank you very much for your numerous participations. Have a great rest of the week. Take care, all the best, speak soon. Thank you. Thank you very much also from my side.
