VLKPF - Volkswagen AG (VWAGY) H1 2023 Earnings Call Transcript

2023-07-27 10:22:08 ET

Volkswagen AG (VWAGY)

H1 2023 Earnings Conference Call

July 27, 2023 03:00 ET

Company Participants

Sebastian Rudolph - Head of Global Group Communications

Rolf Woller - Head, Group Treasury & Investor Relations

Oliver Blume - Chief Executive Officer

Arno Antlitz - Chief Financial Officer

Conference Call Participants

George Galliers - Goldman Sachs

Daniel Roeska - Bernstein

Jose Asumendi - JPMorgan Chase & Co.

Tim Rokossa - Deutsche Bank

Horst Schneider - Bank of America

Daniel Schwarz - Stifel

Henning Cosman - Barclays

Stephen Reitman - Societe Generale

Michael Tyndall - HSBC

Philippe Houchois - Jefferies

Victoria Waldersee - Reuters

Monica Raymond - Bloomberg

Markus Klausen - Dow Jones News

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining the Volkswagen Group Investor Analyst and Press Call Six Months H1 2023. Through today's recorded presentation, [Operator Instructions]

Let me now hand the floor over to Sebastian Rudolph, Head of Global Group Communications. Please go ahead.

Sebastian Rudolph

Thank you, Emma. And good morning, everyone and a warm welcome to all of you to our half year conference call. It's a joint media and investors and analyst call and the investors analyst call will be moderated by my colleague, Rolf Woller, Head of Treasury and Investor Relations; and myself, Sebastian Rudolph, responsible for Global Group Communications.

With us today is our CEO, Oliver Blume; and our CFO, Arno Antlitz. Welcome to both of you. Good to have you in this call. Before we start, let me give you some remarks. We have already published and you should all have received the press release, the interim report for the first six second and all other PR-related materials. If you do not have them yet, you can also find them on our website, volkswagen.com, or just give us a call and we send them to you directly.

So now let me hand over to Rolf, who will give you a brief rundown of the next minutes, hours. Rolf, the floor is yours.

Rolf Woller

Thank you, Sebastian. Yes. Welcome to everyone also from my side. We will start with Oli, who will talk about the highlights of the first 6 months and the second quarter. And after that, we have Arno; he will take a closer look at the financials, as always. We will host a Q&A session for the investor and the analyst community moderated by myself, followed by the Q&A session for the media community and that will then be hosted by the Sebastian.

As already mentioned during the pre-close call, we have extended today's Q&A session for the analysts and investors, so that any question which has been not answered at the CMD will have enough room for an answer today. And obviously, also your questions which might have arisen on the latest press announcement here on the Xpeng and Volkswagen partnership. After the session, we will have then a brief break and then continue with the media Q&A. As a reminder of the Safe Harbor language and other cautionary statements that will govern today's presentation which you will find on Page 2. I would like to encourage you to read the disclaimer carefully since all forward-looking statements are qualified by this language. I, however, do not want to read it in order to have enough time for today's presentation.

And with that, I hand over to Arno. That's Oli, sorry.

Oliver Blume

No problem. Thank you. Thank you, Rolf. Thank you, Sebastian. Oliver Blume is speaking. Good morning and also a warm welcome to all of you from my side.

Let's dive directly into the presentation and start with one of my personal highlights of the first half year of 2023; The Capital Markets Day on 21st of June at Hockenheim Ring. We were pleased to welcome 100 people on site, as well as the more than 16,000 guests connected online and hope you enjoyed the rent as much as we did. After an emotional and exciting brief in the event, we were able to present to you our group equity story which is built on 6 pillars on that day. Our new team, technology at scale, unleashed brands, regional leadership, our new steering model and financial targets.

At the end of the main presentation, we asked you the question which would be the preferred next Volkswagen event of the building blocks of Volkswagen Group's success story. As we promised you, you can see here the results of the poll. The winner is not totally unexpected, China and of Battery and software. Amongst our brand groups, Brand Group Core made a race. We used the week since the CMD to sort the next -- the building blocks of the Volkswagen Group's success story. After your feedback, we plan to host the next Capital Markets Day in April 2024 at the Beijing Motor Show and it will deal with our China strategy, including a deep dive into the local carrier approach.

A safer date in white will follow in due course. In the meantime, we are working intensely on our strategic targets to achieve 10% RoS by 2030 with a range in between 9 and 11 RoS goal. As part of this work, the team of Brand Group Core will present the first milestone at our short at -- or shortly after our Q3 conference call. They will share with you the result of the route to 6.5 program of Volkswagen brand which is key to the midterm strategic targets and an important proof point.

In the second half of 2024, we are planning to host the Brand Group Core Capital Markets Day to provide further details of the plan to achieve 8% return on sales and 60% cash conversion rate in the midterm to unleash the full potential of the core brands.

We are fully aware that we have to deliver on our promise and focus on execution. This was mirrored by your comments during and after the Capital Markets Day. As said, on that day, we are on a path towards a new Volkswagen. And we want to take you with us on that journey. Over the last months, we have been taking many important strategic decisions. The cleanup work is done and now we will focus on execution. We have sharpened the design identities and intensified the quality programs at every single brand of our portfolio.

Last week, the group Board visited our locations in Mexico and the U.S. to review the status of our North American strategy, including the initiative on Scout. As you already saw in the press release yesterday afternoon, we made progress on our China strategy. I will detail it to you into a minute. After the reorganization of CARIAD, the team is now working on the consequent execution of the Five-Point Plan with focus on the successful launch of the EQ 1.2 software stake.

On the Capital Markets Day, you were able to experience our capabilities on autonomous driving with our IDBUS-AD and we are expanding our efforts on the mobility solutions field with further test activities in U.S. and Germany. And as promised at the Capital Markets Day, Arno will present you solid financials for the half -- first half year of 2023.

The list for our upcoming ones is full packed. All brands are working heavily on their performance programs which should start to contribute to our midterm targets in the second half of this year on platforms and better reach which includes vertical integration of critical raw material, we are working on the execution of our strategies and are developing innovations, such as the dry coating proof of concept to ensure cost competitiveness. We will review their progress at our top management meeting in late summer. We will update you on our progress during the upcoming events of our Building Blocks strategy.

To give us enough time for the Q&A session, let us now come to the detailed update on our China strategy. As said, during the Capital Markets Day on the 21st of June, we want to be and maintain the number 1 international OEM position and rank amongst the top 3 players in the Chinese market. For that, we must localize and control our value chain in China. We must increase the regional independency for a faster decision-making process. And last but not least, we must speed up the time to market for our cars.

To achieve our goals, we are building our implementation plan around 3 pillars. First, we -- with the establishment of our 100% tech company, we will strengthen our own development capabilities. We aim to reduce the development time for new products and technologies gradually by around 30%. This is a massive step. Second, local partnerships with leading technology players will enable us to speed up time to market. And third, local product partnerships will ensure tailored and superior ICV product offerings soon.

Therefore, we are happy to announce a new strategic partnership from Volkswagen Brand with Xpeng and deepened partnership of Audi with our long trusted JV partners, FAW and SAIC. With this, we gained speed in the Chinese market. Xpeng has a unique brand positioning as a tech leader in Chinese ICV segment and also as leader in smart ICV tech capabilities, especially in electrical, electronic architectures, ADAS, in-vehicle infotainment and smart cabin software.

The strategic collaboration and strategic minority investment of 4.99% includes Xpeng developing and providing an 800-volt platform, connectivity, OS software and ADAS system for use by VW in 2 VW midsize segment ICV models, with a target SOP in early 2026. These additional models will expand the existing MEB product portfolio and tap into new segments in the fast-growing e-mobility markets. The envisaged cooperation will result in an accelerated volume ramp-up, increased competitiveness and potential to realize synergies for both companies in terms of development and procurement estimated cost savings of up to 20% and brand enhancement.

The MOU also includes the joint development of a new local platform for the next generation of fully connected electric vehicles, as well as technological collaboration on autonomous driving functionalities and connectivity solutions, allowing Volkswagen to leverage Xpeng's strong tech stake. The partnership also opens the door to further strategic collaborations on charging network, mobility services, procurement and engineering and R&D. We are targeting to conclude the full assessment over the next 9 months.

ICV market in China is experiencing intense competition and therefore, this strategic move will allow us to consolidate our leadership position in this important market. Our strong joint venture partnerships are crucial for our transformation in China. For China and -- will allow Volkswagen brand as well as Audi to transform successfully. Audi and FAW will complete the existing product portfolio for the new mobility era in the Chinese premium market. Furthermore, both sides will continue strengthening their cooperation in production and sales.

The Audi FAW NEV company is on schedule and will start production of PPE vehicles for China by the end of 2024. At the same time, Audi is, after the first 2 successful years of collaboration, strengthening the long-term commitment with SAIC. The jointly developed e-models will be equipped with state-of-the-art software and hardware to provide Chinese customers within an intuitive connected digital experience in the premium market segment for fully electric and fully connected vehicles in China. We are pleased that we were able to take this important decisions before the summer break. The teams will now go into detailing the cooperations and execute the strategies. We will keep you posted on our progress.

Let's now have a look at the delivery situation during the first half year. we are stepping up our deliveries, driven primarily by Western Europe and North America. Deliveries to customers in first half year 2023 reached 4.4 million vehicles, up to 13% versus the first half year in '22. While the supply situation has clearly improved, we experienced delay in global logistics, hindering us to deliver our vehicles to customers worldwide with negative FX on inventories and finished goods.

We continue to experience a stable level of order intake in ICE cars. Our order book stands unchanged at around 1.65 million vehicles in Western Europe. Therefore, more than 200,000 battery electric vehicles. We have sold roughly 322,000 battery electric vehicles in the first half year '23, equaling 7.4% of deliveries. The order intake of BEV cars in Europe is at more than 200,000 units and is expected to increase during the remainder of the year as the availability of BEVs, especially in the second half of the year is expected to improve and delivery times will shorten.

On top, the ID.7 is ramping up. However, we see a slower development of the European BEV market as we felt a certain degree of reluctance from our customers since the beginning of the year. Reasons for this included reduced incentive programs and the reduced purchasing power due to high inflation. Since May, we have seen a slight upward trend in order intake. And in view of the recent significant reduction in delivery times, we expect this positive trend to continue. But prudently and in line with our value of volume approach presented at the Capital Markets Day, we widened the bandwidth for our BEV deliveries in the running year from 8% to 10%.

Thank you very much for the first part. And let me now pass on to Arno to provide you details of our financials. Please, Arno, go ahead.

Arno Antlitz

Thank you, Oliver and also good morning from my side. Now let's move to the financials and the operating business. Our vehicle sales for Volkswagen Group came in at 4.4 million units, up 11%. Excluding China, deliveries went up even 20% to 3.1 million vehicles. On the revenues, we made a step-up by 18% to €156 billion, driven by a strong vehicle sales in Europe and North America, by healthy mix and continued favorable pricing. Forex had a negative effect on sales revenue of about 2 percentage points.

Our operating result came in at €11.3 billion and a margin of 7.3%. What looks at first class underwhelming is, in fact, a very robust result. Last year's H1 benefited from valuation effects or commodity hedging outside hedge accounting by a positive €0.9 billion. This half year, in contrast, we were burdened by minus €2.5 billion. H1 of 2020 show significant progress and a strong underlying operating performance. Our profit before valuation effects from commodity hedging increased to €13.8 billion, resulting in an underlying operating margin of 8.9%. This includes, in addition to about €0.4 billion Forex losses from the deconsolidation of the Russian business and headwinds from raw materials.

Coming to the cash flow situation which has [indiscernible] since we last spoke, the net cash flow generated in the Automotive division in H1 2023 totaled to €2.5 billion, mainly due to the continued negative effects from working capital. Net cash flow was only at €0.2 billion in Q2 2023. As flagged already at the Capital Markets Day, we experienced additional bottlenecks in global vehicle logistics with negative effects on inventories and finished goods. Due to the measures we have taken, we expect this to improve during the second half of the year.

Clean net cash flow totaled €3.4 billion, significantly below prior year number. Nevertheless, net liquidity at the end of H1 stood at a solid level of €33.6 billion which represents a truly solid position for a company within an industry in transition. Our net liquidity declined mainly due to €11 billion paid out to shareholders as dividends over the last 6 months. The decline of €9.4 billion versus year-end was, however, smaller than the cash out for the dividends during H1 2023.

Now coming to the performance of our divisions in H1. Passenger Car division delivered €7.1 billion operating result and a margin of 6.7% before special items. These numbers in H1 2023 were negatively impacted by the swing in valuation effect of our raw material hedges of about €3.4 billion from H1 2022 to H1 2023. Our commercial vehicles continued the strong performance. The result came in at €1.8 billion and a margin of 8%.

Normalization of used car prices and the changed interest rate environment led to a lower operating result of our Financial Services division which came in at €2.2 billion. The major driver of our Passenger Car business are shown in the EBIT bridge. Positive development, volume price/mix, as seen during the last quarter, continued with the biggest increase resulting from volume. Pricing continued to be healthy and mix turned even slightly positive in Q2.

Operating result in the first half year was burdened due to minus €3.3 billion swing in valuation effects, mainly from raw material hedges outside [indiscernible]. Negative impact of product cost totaled to minus €2.3 billion. We expect this bucket to turn slightly positive for the full year. Fixed costs increased slightly compared to Q1 which is attributable to higher R&D costs and inflation.

Coming to the financial steering model; our group, the main objective is to effectively unfold the power of our unique setup, some of the most strongest and fascinating brands bundled to powerful brand groups and leading technology platforms. In connection with the top 10 program, we are managing the group systematically and efficiently and with a strong focus on execution.

Brand Group Core saw a strong uplift in volumes. Sales revenue increased even stronger and grew by 30%. Operating margin at Brand Group level reached 5.5%, including a strong contribution from our North American region. Operating result came in at €3.8 billion. In total, Brand Group Core recorded €2.6 billion net cash flow. VW brand achieved a margin of 3.8%, outlining the task we have in front of us here. But rest assured, the teams are working hard to make VW brand a solid contributor to the Brand Group Core in the future. They will present their performance program in greater detail to you latest in autumn.

Margin of Brand Group Progressive declined to 10% from 6.6% in 2022. This development was heavily impacted by valuation effects from raw material price hedging outside hedged. The underlying margin in H1 2023 before these effects was about 12% and therefore, only slightly below the strong levels recorded in H1 2022. Lamborghini, Bently and Ducatti contributed again significantly to the strong performance and net cash flow came in at €1.9 billion. Porsche followed its track record and remained strong at a 19.3% operating margin. The operating result benefited from improved pricing and better product mix and higher volumes.

CARIAD improved sales revenue by 32%, driven by higher license revenues from MEB cars on the 1.1 Platform. CARIAD was able to limit losses to previous years despite continued investment in software platforms at the same time. Net cash flow in H1 benefited by about €1 billion from intragroup income tax refunds resulted of an intragroup allocation. The underlying negative net cash flow came in minus €1.8 billion.

PowerCo and Telco continue to build the global battery business, with sale factories in the ramp-up for Valencia in Spain and St. Thomas in Canada and the construction of the plant in Salzgitter being fully underway. In parallel, the team is working on innovations, achieving a competitive cost base. With the new developed dry coating process, we can save about 30% energy and 15% floor space going forward.

TRATON's positive performance continued. TRATON saw unit sales increased by 22%. Sales revenues, up 27%, driven by strong volume expansion, positive price/mix and vehicle services. Operating margin came in at 8.1%, thanks to better capacity utilization and price/mix compensating for higher input costs. Net cash flow saw year-over-year a strong increase but keep in mind that the figure in 2022 was additionally burdened by cash outflow related to legal proceedings of €1.4 billion.

At Financial Services, we saw an overall stable contract volume, slightly lower financing contracts were compensated by more leasing and insurance contracts. Credit loss ratio remained stable at the prior year level despite the worsened macroeconomic environment. Operating income in H1 2023 remains at a very solid level of €2.2 billion, even though it's below prior year level. The decline reflects the normalization of used car prices and the changed interest rate environment.

Our current R&D and CapEx spending levels reflect the transformation of our company towards electrification and digitalization. At the same time, we keep our combustion engine cars competitive. This leads to recurrent situation where we invest parallel in both ICE and BEV technologies. This period will last over the next 2 to 3 years. After this transition period, we will benefit from lower capital expenditures and lower research and development expenditures. R&D expenses in H1 stood at €10.2 billion. R&D ratio stands at 7.8%. CapEx stood at €5.6 billion and CapEx ratio stands at 4.3%.

Given where we stand after 6 months, we adapt our outlook slightly and see CapEx ratio to come in at 6% but R&D ratio slightly higher at 8.5% which leads to the combined investment ratio outlook unchanged at 14.5% for full year 2023.

Coming to the performance of our China joint ventures. After a difficult start in the first 2 months of the year, the group's delivery figures in March through May were significantly up on the previous year. Looking to the BEV deliveries, we saw a muted status well into the year but the second quarter, 90% more BEVs were handed over to the customers than in the same period last year. Sequentially, we saw BEV deliveries almost doubling.

In sum, Volkswagen Group China delivered -- deliveries led to a proportionate operating result of €1.15 billion, down by 18%. The performance is still in our full year target of up to €2.8 billion as proportionate operative result which would represent a decline of about 15% year-on-year.

Ladies and gentlemen, coming to our outlook. Our H1 performance gave us a good impression of what we are capable of in a challenging environment and how committed we are to act in line what we presented at the Capital Markets Day. In short, we largely confirm our financial outlook.

Based on the current run rate, the outlook for deliveries in full year 2023 has been slightly adapted from around 9.5 million vehicles to a range of 9 million to 9.5 million vehicles but we remain fully on track to meet our sales revenue goal in 2023. The underlying margin before valuation effect is running even above our full year margin corridor and demonstrates the robustness of our business model in a challenging environment. Based on what we've achieved so far, we are confident that we meet our reported margin corridor.

Although the supply of semiconductors is improving, the pent-up of demand for vehicles is only slowly moving through the process chain. Currently, the bottlenecks has reached the entire logistics chain to ship finished vehicles. To safeguard our net cash flow, we've taken decisive measures to ensure that we reach the lower end of our guidance of €6 billion to €8 billion in 2023. The topic of cash flow enjoys the highest level of attention of Oliver, me and the whole Board of Management.

To sum it up, we saw again a very robust performance in a challenging environment in terms of operating results and margin. With the launch of performance program at all brands and our strategic decisions in China, we took some major steps to improve the competitiveness of the Volkswagen Group going forward. We rely on a very solid balance sheet and financials. And based on that, we continue to reform our company with full focus on execution, capturing synergies within the group and delivery on cash flow.

Thank you very much so far. And now I'll pass back to Oliver.

Oliver Blume

Thank you very much, Arno. Oliver speaking and let me provide you a short summary before coming to your questions. We see a good progress of restructuring Volkswagen Group following our 10-point plan. We have still challenges ahead in the transformation and they are different in our 12 brands. Financially, we achieved a robust result in the first half of '23.

In terms of operating results before special items, we grew 13% with €13.9 billion. We achieved around about 9% profit margin. In terms of sales, we went up 13%. And with 4.4 million units, we grew stronger than the overall worldwide market. And we sold over 50% more BEVs in the first half year comparing to last year. We keep on working on our cost structure and improving our cash flow and breakeven situation.

Our focus lies to unleash the full potential of our 12 brands. A unique portfolio of our brand groups -- Core, Progressive, Sports and Luxury and Trucks is a backbone of our robust positioning of Volkswagen Group. Overall, our cleanup is done and the main strategic decisions are taken. So in the first half of the year, we focus on execution and to establish our performance programs.

Yes, that's a short summary of our situation in the first half year '23. And then I hand over back to Rolf and looking very much forward to your questions. Thank you.

Question-and-Answer Session

A - Rolf Woller

Thank you, Oli. Thank you, Arno. And now to the even more interesting part to the Q&A session. We have at least 1 hour and 15 minutes. If so, please you don't have to limit yourself this time but don't exacerbate it, as always. And we would start with the first question coming from George from Goldman Sachs. George, please.

George Galliers

I'm sure you're going to get a large number of questions around the new strategy in China. But what I wanted to ask was specifically what implications this should have for your total investment levels? Obviously, at the planning round, you've cited an approval for €180 billion over the next 5 years. Does this more collaborative approach and leveraging local players provide an opportunity for Volkswagen to reduce the level of investment going forward? Or should this be seen as additional and incremental steps on top of the spend that you have already planned? The second question I had was just with respect to the free cash flow during the second quarter. Obviously, only free cash flow breakeven is somewhat disappointing, particularly when we see the [indiscernible] free cash flow of over €8.5 billion for the first half of '23. I understand you have major logistics issues but can you give us some insight into when this working capital might unwind if indeed you think it will unwind at all over the next 12 months?

Arno Antlitz

George, thank you for your question. First, on the investment side. When I -- if you allow me to come back to what we presented on the Capital Markets Day, the €180 billion and there was kind of a pyramid. When you remember, we had like the basic investment and temporary investment for increasing competitiveness and also strategic investments for strengthening our position in the region, specifically U.S. and China and the new models we announced yesterday are fully covered by that pyramid. So they won't add basically or they won't increase €180 billion for the current planning round.

For future planning rounds going forward, we gave you an indication already that once the phase of the parallel investment of ICE business and BEV business phase out and we fully concentrate on further development our BEV business, there is a chance to reduce the overall investment. We gave you an indication that we -- even come from proportionate, we come to basically then 11% and eventually 9% of turnover which would be rather aggressive. But also in absolute terms, we could see that number going down. In terms of free cash flow, on the second quarter, we are not pleased with the situation at all. That's clear. Because I mean, we had really strong underlying operating result of almost €14 billion, €13.9 billion and that didn't really translate into the cash flow. And there are 2 reasons. First and foremost, of course, we saw some investments in terms of R&D and CapEx going forward for the transformation to making our company even more competitive in the future. We discussed that a lot but we are convinced that we are spending that money wisely.

And second, as I said before, a lot of cars are basically -- or a lot of funds are tied up due to the inventory. I mean we have great cars and we would have loved to bring these cars to the customers and to the dealers earlier. The fact is that we move now from a bottleneck of chips to a bottleneck in transportation. We are lacking trains, trucks, truck drivers, not only Europe specifically also U.S. It's a challenge for us to bring the cars from Mexico to the North American region. We took decisions already to debottleneck and we're confident that we -- from today's perspective, then we can meet our cash flow guidance of €6 billion to €8 billion lower range, so basically €6 billion.

But yes, we are working on these topics. And as said before, we are sure that we make significant progress there in terms of increasing the capacity. In terms of orders, we have a strong business, yes? We still have 1.65 million orders on our hands. In Europe alone, 200,000 BEVs. So it's really an abnormal situation where we have a strong order book and high inventories and this is really the major reason for that is the transportation. And I said before. we took the decisive measures to debottleneck.

Rolf Woller

George? Okay. Very good. So the next question comes from Daniel Roeska from Bernstein. Daniel?

Daniel Roeska

Two maybe longer-term questions, if I may. Given the comments you made on the China joint ventures and also the cooperations with SAIC and Xpeng, could you comment what that tells us about the SSP? I think in the Capital Markets Day, you said SSP 2026 plus, now storage production is kind of '26 for some of the cars in China, you talked about, is SSP a lot later? So how do we think about kind of those initiatives in China and the SSP platform? More generally, how it also relates to the other markets? And then secondly, on the CapEx holiday. Arno, you just outlined, right, once the double spending on ICE and BEV stops, there's a chance to reduce the CapEx overall. But how do you see this in the context of the pace of innovation that's going on in the market generally? Wouldn't you expect that actually for quite, say, a longer time as innovation is very fast also on the BEV side, the BEV investments would need to ramp up and accelerate platform development as well? And so how much does the BEV share in that plan need to grow even as ICE kind of declines over time?

Oliver Blume

Okay. Daniel, may I start with the first part of your question and then I hand over to Arno. First of all, coming back to the China strategy. And we build our China target picture 2030 and the new cooperations are one part of this strategy. And the main part of our strategy is to do more business in China for China. And therefore, we decided to increase our engineering capacities in China. We built in our Tech Co in Anhui over 2,000 people right now and we have already built CARIAD in China with quite well success.

On the other side, we are aiming for partnerships to offering to our Chinese customers the best solutions they can get in the market, tailor-made for the Chinese market. For example, in autonomous driving, our already announced partnership with Horizon Robotics or infotainment with ThunderSoft. There are only some examples. On the other side, we are focusing on increasing our own battery business, for example, with a PPE company, in Changchun, where Audi will start beginning next year with our new PPE models. And in our new company in Anhui region, we are starting next year with new NEVs from Volkswagen. Besides of this, we want to speed up in our product offering and therefore, we decided to build this partnership with Xpeng for Volkswagen, bringing 2 new models in the Upper B segment in 2026. And we decided to make a deeper partnership with SAIC in Shanghai for Audi in terms of sharing modules, components and software technologies, also to speed up and making our product range wider for the Chinese customers produced in China for China.

Coming to the SSP; we stick to our plan to start with the first SSP level in the end of '26. And then we are rolling out all the different SSP levels up to the end of the decade. So the technology profiles are already defined. And now it's up to execute and to engineer all the details for the product and we are sticking to those plans. And so we think it fits well together. On the one hand side, coming with PPE, MEB updates to China, having the partnerships and then coming to the market in the second half of the decade.

And then I hand over to Arno to your second question.

Arno Antlitz

And then on your question on the investment spending. And let me give a little bit of a more broader perspective. In the €180 billion we outlined on topics but you could also do a split in terms of R&D and CapEx combined for BEVs and ICE. And in this €180 billion, we still have 30% of funds allocated to our ICE business. So we think this is -- we're spending this money wisely. I mean, at the end of the day, even in 2030, there will be like 50%, 60% -- 40% to 50% globally. And even like in Europe, we have 30% ICE business, it's like 7 years from today until 2030. So we deliberately decided to keep our major platform competitive by then. Because they are highly profitable today and they will create a significant amount of the cash flow to finance that transformation. That is true for Volkswagen, next-generation T Rock, next-generation Tigo and specifically for Audi A4, A6, Q5, Q7. But it's also a change in fading out of these additional funds of 30% that free up some capacity to even speed up the transformation in terms of BEVs but also frees up some of the funds so that we might be able to lower the €180 billion or will be able to lower the €180 billion.

And second, there's an additional lever, not only fading out ICE investments but also with the strategy to rely more on partnerships. For example, on Mobileye autonomous driving, now the announcement on Xpeng. We also see a more, I would say, investment efficient approach going forward and a good compromise of being like -- offering attractive cars to the customers in new segments. And on the other hand, being more, I would say, efficient in our spending. So it's basically really phasing out of the ICE investment; and second, approach that relies more on partnerships and smart partnerships should lead to a more efficient way going forward.

Rolf Woller

Thank you, Daniel. The next question comes from Jose Asumendi from JPMorgan.

Jose Asumendi

It's Jose from JPMorgan. Maybe 2 questions for Arno and 2 for Oli, please. Arno, can you speak a little bit more around the China joint ventures, a little bit more the profitability mix between SAIC and FAW? Is FAW holding up a bit better than SAIC Volkswagen? And where have you seen the biggest impact on the promotions in either those 2 joint ventures? And the second question for Arno will be, if you can speak a little bit more around this new line we need to forecast now the battery cell. If we think about, let's say, '23, 2024, what kind of negative contribution should we expect from this division and what kind of capital commitments cash flow-wise should we expect from you in the next, let's say, 24 months?

And then Oli, please, just a couple of quick ones. On TRATON and the free float, do you think this is something that strategically you could consider at some point to increase the free float in the entity? And second, as we think about the ID.2 and the vehicle -- the Volkswagen ID.2 you showed us at the Capital Markets Day, can you comment on when should we expect the ramp-up of this vehicle? And do you think the car overall is competitive in the light of maybe some other Chinese entrants entering the European market in the same segment are probably a little bit more price competitive level and vehicle size that could be larger than the ID.2? So I would like you to please just assess the competitiveness of this vehicle. And also the ramp-up, should we expect this car to ramp up in '25? Or can it come a little bit earlier, maybe 2024?

Arno Antlitz

Yes, Jose, I mean we don't really disclose the individual results of our JVs. But to give you a little bit of flavor, the operating result and the proportion of positive result and also the margin of FAW JVs is stronger than SAIC. This is the case because in the northern joint venture and the joint venture we have Audi which is a stronger contributor. And as you said, Volkswagen Group is more under pressure in the current pricing environment in China. So it's -- so the higher proportion of that result come from the Audi FAW business but that doesn't mean that Volkswagen is not also contributing significantly. But it's more like from the Northern joint venture. And also with the decision going forward, we will see a significant improvement on the BEV side as well. I would like to reiterate on what we said before. Yes, we have these new product partnerships but step-by-step, we will increase the competitiveness of our current MEB platform with Horizon Robotics, with in-car entertainment with Thundersoft and also we're bringing in a next-generation ion phosphate battery with a much better cost position. So this will improve cost position there.

In terms of battery, as said, as indicated in the Capital Markets Day, we foresee about €15 billion on R&D and CapEx combined for the battery business. And the launch of the first factory will be 2025, Salzgitter and then eventually then Spain and Ontario. And from a CapEx burden, the biggest CapEx burden will be like 2024, 2025, 2026 and then eventually then fading out from today's perspective. And we gave you also a net cash flow and an operational result indication with a net cash flow breakeven in 2029 and the cash -- sorry, the operative breakeven in 2029 and the net cash flow breakeven in 2030. And from then onwards, really a sharp ramp-up in sales and in operative result with this margin from the risk perspective beyond 10%.

Oliver Blume

Okay. Thank you, Arno. And Jose, I would like to come to the third and fourth question. First of all, TRATON. Very clear, the reduced free float has an impact on the market cap development. But first of all, for us, it was important doing all the restructuring work for the TRATON Group. We have taken some very important strategic decisions. And when we see the development of the operating result and also the profit margin, we see a positive development. And 2 weeks ago, I had the opportunity to spend the day in MIN and before I've been at Scania and what we are doing there is considering also important engineering cooperations to improve our cost positioning in terms of engineering costs.

And therefore, I think we still have some steps to go. What is very promising is the opportunity to test the new trucks there and I was very passionate the development on the ICEs but also on electric trucks. And so the future I see very positive. We have a very strong order intake in the truck business. And so we haven't decided yet to increase the free float because we have priorities in our steps and first of all, is improving. Our profitability, it is on a good path. And then what will come next, we have to consider later.

Then coming to your question of the ID.2, we presented a design approach of the ID.2. That's by far not the final model, we are still improving. But the feedback from our customers and dealers was very positive. And on this platform, it's the MEB update, we will offer to our customers a totally improved technology profile in terms of range, in terms of charging time, in terms of infotainment offerings. And so it's very promising what I see already there. And that will not only stay with ID.2 only on this platform, we will offer models from ŠKODA and from Cooper as well, with a pricing range of round about €25,000 and what we are calculating right now with a positive profitability.

In terms of bringing smaller cars, we haven't decided yet. It might be an opportunity for the future to bringing younger customers to the brand and motivating them to stay true to the brand, like we did years ago when we entered into Volkswagen brand with a Volkswagen Beatle or with the Volkswagen Golf and -- or the Volkswagen Polo. And therefore, we need a strategy. But first of all, we focus on this battery electric vehicles in this range of ID.2 with a very promising technology profile.

Rolf Woller

Thank you, Jose and we are coming over to Tim from Deutsche Bank.

Tim Rokossa

I would have 3 questions. The first one is on the China Corporation, the second one on stuff that primarily you, Oli but also you, Arno, said at the CMD. Firstly, when we think about the China corporation that you just announced -- I actually, in contrast to many on this call, I think this is a great thing. It's very un-VW-ish. It's very quick and capital efficient and it's a small price to stay relevant in that market. What I'm asking myself, though, is why do you limit this to China? I mean the tech element is one point. You may believe that you have superior tech or better tech relative for the European market but what you clearly miss is a competitive cost structure on your mass market brands.

When we look at what's still underachieved on the mass market side, it's just far from what you guys are capable of doing it seems right now. So why don't you use this platform for other platforms, actually, also for partnerships where you have guys that can produce more low cost and take that also into markets like Europe, maybe more from the cost than the tech angle? Secondly, Oli, you always said multiple times at the CMD that you want to become more agile and leaner and you also say that VW is more than some of their parts.

Now the downside to a large organization is very obvious, speed is one of them, focus is another. Why do you believe your job isn't a lot easier if VW was a lot smaller? Can we talk about real benefits between the different brands? In the end, we see that Audi spends almost as much money as BMW and Mercedes, for example. And finally, becoming more agile and focusing on comfortability and fostering entrepreneurship all sounds great and I'm sure it's the right thing to do for you guys. For us, it's very difficult to judge how you implement these ideas. Can you give us some examples of how you ensure accountability and how you would foster entrepreneurship?

Oliver Blume

Okay, Tim. Let me start with your first question on China cooperations. And I think you're totally right. That is a great opportunity to come to a better cost positioning. That's what we are aiming in the first step in China. And as you know, the ecosystems are different in between the Western and the Eastern world. And so we are building our partnerships in both regions. But in our framework agreement, we do have with Xpeng, there is the opportunity to go out of China. But first of all, we want to establish the China business with the showcase of the Volkswagen cars and then thinking ahead.

And as I mentioned before, there are much more beside of the platform components and technology business, it's up to mobility services, it's up to charging infrastructure. So the framework offers us a wide range of opportunities for the future. And I think that is totally the right approach for Volkswagen Group. On the one hand side, with our strong base, our strong experience and technology, building cars but having the right partnerships. We don't want and we can't do everything by our own. Everything we are doing comes from the customer perspective. And we want to offer our customers their demands in the different regions of the world. And therefore, especially these approaches when it comes to infotainment, what we did, for example, with ThunderSoft in China or autonomous driving in China with Horizon Robotics, or Arno mentioned before, the Mobileye approach for the Western world. And so picking up the right partners which are fitting perfectly together, where it is a win-win situation for both of us. And there, you're totally right. That's the idea behind, when we have opportunities to offer technologies worldwide, we will do so. Coming to our presentation at the Capital Markets Day to be more agile, be leaner to getting more speed and then focusing our business. It's all about entrepreneurship.

And for me, it is important building the guideline from the Volkswagen Group perspective as an investor. And firstly, I started with a top 10 plan and that's the first guideline on our operating and strategic action fields. And then I asked all the brands and all the operational organizations to give me their priorities as an entrepreneur. And then we agreed the priorities for each organization and now all brands and all organizations have their framework and can move into this framework as an entrepreneur. And so I think everybody has got the freedom to build the business.

But on the other side, having very clear targets and we presented the targets on the strategic level in terms of profit margins and therefore, we gave the method how to build the programs behind to achieve the strategic profit margin situation. And then everybody is entrepreneur, to build its program. And we will support with our experience how to drive forward the programs. And so first of all, I see big potential having started this performance programs in all 12 brands. It's the first time in history that Volkswagen Group starts with the same approach with a comparable ambition level in between the 12 brands and that will be a main lever for future profitability to bring the brand over 10% profit margin in the future.

On the other side, we have taken a lot of strategic decisions to improve our cost structure. Before we talked about the SSPs in terms of technology platforms. And there, we hardened our landscape of SSPs and being able now with 3 lead engineers, Volkswagen, Audi and Porsche offering 2 platform levels, where all our brands can pick their solutions for their segments. That's one example.

Next example is our battery cell approach, with around about 50% own development, own production and 50% working together with partners with a unified cell that will bring us in a unique cost positioning. And that is crucial, especially in terms of material costs. And there are many, many more examples how we want to bring Volkswagen Group in a better positioning on the one hand side, with an entrepreneur approach; and on the other side, by benefiting from our unique scale effect positioning of Volkswagen Brand with around about 10 million cars a year.

Tim Rokossa

And what's your leverage for these managers to actually make their target? Is it a substantial amount of their pay according to the targets that you agreed with them? Or do they not rather just get paid by the group results? Is it public naming and shaming [ph] within the organization and career trajectory? Or what's really the penalty should they not make their targets or the incentive to actually make it?

Oliver Blume

Yes, very important aspect. And for me, it is very important to also adapt the management's compensation on these targets. We will start next year to bring our management compensation more in the situation to be more accountable, to be more comparative to the competition. And what we are doing is not only defining a strategic goal, we have intermediate milestones. Arno and me, we will watch the progress every quarter. And when we have to speed up in one brand or in one organization, we will do so. And at the end of the year, we will measure. Very transparent also in between the brands and that's the advantage having started the program at the same time in all brands. That's a kind of competitiveness in between the brands. And then the management compensation will be linked directly to the performance of all the brands. That's important.

And on the other side, I have already explained that I see this approach like in a sports team, that everybody is going to the gym right now making himself fitter and as fitter as everyone, as fitter is a whole group and so you can understand the whole group as a sports team. And every sports team is working like an entrepreneur. That's a kind of changing the mindset in the brand and one very important part of the 10-point program.

Tim Rokossa

Looking forward to see you, Arno and Ross being checked next year and from all going to the gym.

Oliver Blume

We do so.

Arno Antlitz

We do so. Tim, it was a really comprehensive answer already, let me give you a short add-on in terms of financial steering. You always referred to like we are a huge number of brands and how do we steer it. Look, with our setup which is unique in the industry, I think we made a major progress going forward. Look, it's we bundled the brands to Brand Group to strong brand group. And basically, we are managing from a group perspective, the Brand Group Core, Progressive Sports Trucks business. And in parallel, we have stand-alone platforms, like software, battery and mobility platform run [indiscernible]. So this is a very lean and comprehensive way of steering this group. And I don't want to like -- comment on what Oli already said but it's really very clear and very efficient way of seeing a company like us. And we as a group, we basically interact with the brand groups and they then organize themselves, Volkswagen, SEAT, ŠKODA, Volkswagen Commercial Services. So we really took a major step forward taking out complexity with this setup.

Oliver Blume

And being very, very concrete on the compensation issue. We have 2 parts of compensation. It's the short-term incentives and that's focused on cash flow and profitability targets and we are marking it against brand and brand group performance. First part. Furthermore, we have ESG targets and that is an important multiplier for our short-term incentives. On the other side -- and that shows our focus on the capital market, our long-term incentives and they are focusing on the shareholder value. And this one is measured against the group performance. And that fits perfectly together, making everybody fitter and then supporting the overall group performance and that will be very accountable for everybody in between the short term and the long term.

Rolf Woller

Thank you, Tim. And we are coming to the next question which is from Horst from Bank of America.

Horst Schneider

The first question that I have maybe some -- maybe one for Arno. When I look at the underlying margin in Q2, 8.5%, that is below the one from Q1, 9.3%. I know there were some one-offs also related to Russia but also in Q1, there were these employment bonus provisions. So therefore, I think there was 0.5% sequential operating margin decline. Can you maybe explain what triggered this decline? Was it on the cost side? Or what is it already on price and mix side? The other question that I have that relates again China but then also the link to Europe. What my take is now that basically the MEB platform is not strong enough for the Chinese market and therefore, you need a partner there. There's a saying that says if you make it in China on MEB, you make it elsewhere in the world. So if the MEB is now too weak for China, should we be concerned about the MEB success also in Europe? And in that context, when I look again at the CMD targets for Brand Group Core, it is basically the main division where you target operating margin increases and this part of the group seems to get now the biggest problems and that is on MEB.

I know you have got a 2027 target and in between a lot can happen. But should that mean now that we should expect basically some problems, let me put it that way, in '24 and '25 that we have with first some deterioration in margin before we see some improvement?

Arno Antlitz

Yes, Horst Arno here, thank you. Now if you look basically do a kind of an EBIT bridge of the first and the second quarter, it's really the topics you mentioned already. And you saw it from our EBIT bridge for the first half, price/mix still strong with €1 billion. Mix even turned slightly positive. Volume plus 4.1%. And on the product cost, there were like some smaller one-offs and we had the provision or the burden of €400 million from Russia and a slightly higher increase in fixed costs. So it was really no major changes on how we operate currently and also going forward for the full year. Now if you look at the full year, we expect these this effects really to stay. So no major effects.

Horst Schneider

But Arno, should that mean then, because you gave some guidance on volumes, of course, for H2, that now the performance that we saw in Q2 is the performance that we can also see in H2 in terms of profitability?

Arno Antlitz

Yes. I mean we gave the performance guidance of 7.5% to 8.5% and then we said that we want to have that -- basically reach that for the reported and not for like the underlying. So this is the one topic, so we have to basically improve. And also if you compare the performance, we expect a slightly positive for product cost for the full year. So there should be like a tailwind in the second half of the year. Fixed cost, basically, could more work with the run rate and volume, price, mix should stay the same. Perhaps, again -- because it's not 100% clear, one is deliveries and the other one is sales revenue. So we took down the delivery target mainly because of the run rate in China. And as you know, our China business is not in our operative business but it's in our basically activity business. So if you look at the sales revenue and the revenue trend, we are even above our guidance. So that should give us really confidence to meet the second half of the year.

Horst Schneider

It means -- again, sorry, Arno, for being so persistent on that. That means that H2 margin could be even stronger than H1 on operating margin if the guidance is still on reported, right? Because in H1, you have been below the 7.5% to 8.5% margin range, so that means that the H2 basically then should be clearly up, right? Also, I mean, underlying maybe then unchanged but reported up?

Arno Antlitz

Yes, you have to, because we want to be really meet the -- I mean, from today's perspective, if something major happens on the deliveries, on the exchange rate, that basically kind of nonperformance. But from today's perspective of where we stand today, we give to a guidance of 7.5% to 8.5% for the reported not for the underlying which implies that even a step-up in performance in reported in the second half of the year.

Horst Schneider

Okay.

Oliver Blume

Okay, Horst. And then let me come to your second question about BEV and especially on MEB. First of all, as we have announced today, is that we increased our BEVs 50% comparing to the previous year. That is positive. Could it be better? Yes, of course. And as you know, when I started the 10-point program, 1 of these 10 points and one of the important ones are the products. And for me, it's about the right product strategy. It is about design. It is about quality. It is about the right profit margin. And it was one of the first activities we launched last year to enter in our product strategy and especially into our technology profiles.

There is a need for action in the MEB, to be clear. There are fields of improvement. And therefore, we defined a very clear program on short term, midterm and long term. Short term, for example, we launched this year the E3 update, for example, to improving the interior perception and to repair some design issues. And mid and long term, we entered in a lot of designs of the whole Volkswagen Group and improving them with a clear brand and product identity. Then we launched last year a quality program for all brands. The approach is different depending on the situation of all brands. But quality is one of the most important issues, being able to position our brands and our pricing level we are used to.

Talking about the competitiveness in the Chinese market. We will bring to the Chinese market a MEB update. And for example, you will see it next year. Firstly, in our new company, NEV company from Anhui region, where we bring new Volkswagen products and then bringing further products on this MEB update in terms of technology. Linking this to our partnership with Xpeng, for example, we can benefit also bringing components, technologies, software and combining it, for example, with the MEB of the future. Giving you one example. We know in the worldwide benchmark that Xpeng is leading in voice recognition. And that is an easy thing to combine it with our platform and offering in the Chinese market the best-class voice recognition. That's only one example.

And so that is our product strategy to improve our existing technology profiles in terms of range, charging times, infotainment offerings. And then for the future platforms in terms of SSP or we did it already for the PPE, what we will bring with the first product next year, we have defined technology profiles not focusing on the competition of today, focusing what we are expecting, what will be the competition in 5 years. And that, from my point of view, is the right approach to bring the right technology profile for our future products.

Horst Schneider

Just a small follow-up then. When -- I mean, when we talk about, again, CMD and midterm target especially for 2027, is it a smooth path to the 2027 target? Or is it a path, basically, that could be first down and then up? Or is it too early to make a statement on that?

Arno Antlitz

Arno here. No, it's -- of course, it's our ambition to have a smooth path. There's no plan that to fall down and then eventually rise in 2027 again. We gave you a guidance on the sales revenue already, 5% to 7% year-on-year. Of course, it's too early to give you a concrete outlook for 2024. But from our perspective, the industry will grow. We expect a 4% to 5% growth of the industry, specifically in U.S. and Europe. China perhaps a little bit lower. So 5% to 7% the sales increase year-on-year, what we communicated at the Capital Markets Day, would basically mean we grow in line with the industry. And we have strong products. We have great brands. We work on the competitiveness on the MEB step-by-step. No if there are no major incidents, like COVID crisis or whatever, again, you could -- should expect a smooth path from us.

Horst Schneider

Okay.

Oliver Blume

Horst, the first proof point is the results of the first half of this year. You know about all the cleanup we have done and all the challenging conditions we are moving. And delivering around about 9% of profit margin for us was an important proof point to show that we are not only focusing on mid- and long-term targets but also on short-term targets. And so I would underline what Arno said, we want to have a continuously improvement. And then with bringing more and more of the future-focused products, we will strengthen our positioning. And what is important as a message is we have this robust situation of Volkswagen Group because of our product portfolio in between the 4 brand groups: Core, Progressive, Sports and Luxury and Trucks and that will bring us in a very leveraged situation, a robust situation, with very strong brands and then supporting with the new products I explained before.

Rolf Woller

Thank you, Horst. And we are coming to the next question from Daniel Schwarz from Stifel. Daniel?

Daniel Schwarz

Yes. The first would be on the audit that you announced for the Shenyang plant, have you nominated an auditor for this and did the audit start already? And in your understanding, if the outcome is positive, would you expect MSCI to react right away and remove the ESG red flag? Second would be a follow-up on BEV. You said order in bank remained solid and you saw an uptick in orders recently. In that context, why did you reduce the output in Amden? And I think you also lowered leasing rates for the ID.4 a few weeks ago. Are you planning to go back to 2 shifts on -- potentially 3 shifts in the course of the year? And very quickly on the dividend payout ratio. With solid earnings but lower free cash flow in '23, is it fair to assume that the dividend payout ratio will not increase for the time being? So 30% is rather maximum for now.

Oliver Blume

Okay, Daniel. Thanks for your questions. Yes, as we announced, we want to do the audit in China. We make good, good progress. And therefore, it's also important to have the political agreements and we are moving forward with our activities. And what is very clear, we stay true to our values. And want to show very, very transparent, how’s the situation in Shenyang. And our aim is very clearly to exit from the red flag from MSCI and that is our aim to play with full transparency and showing the world how we are working there.

Talking about the situation of production planning in Germany and Europe; they're very clearly -- that underlines our new approach, value over volume. And we will link our production planning very much on the demand in the market which is strong product by product. But what we won't do is to build cars on stock and coming in the situation of a high incentive level. And therefore, we are deciding plant by plant to steer more market-driven than production-driven. And therefore, we are watching very deeply how the market will develop and then we decide month by month how we will drive then our production sites. And then I hand over to Arno to your further question.

Arno Antlitz

I think the third question was on the dividend side. We set our strategic target of at least 30% payout ratio and that remains fully in place. In terms of cash flow, as I said before, the situation is, yes, the cash flow -- we can't be pleased with the cash flow in the first half and specifically in Q2. But it's basically the reason for that is not that we have a weak gross cash flow. It's rather that flow -- that cash is tied up in inventories. And of course, this cash flow will improve over time once inventory go down again. So this gives us also the financial situation, the financial power to stick to our 30% -- at least 30% payout ratio.

Daniel Schwarz

Can I just ask for the first question. The audit, did it start already in China? Or have you audit up for this? Or is it still to come?

Oliver Blume

We haven't started yet but it's still to come. And we are in the political agreements and then we will announce soon what will be the next steps here.

Rolf Woller

And Daniel, maybe one technical comment because you asked if the red flag is immediately removed after potential positive outcome of the audit. I mean MSCI has its own methodology. They are reviewing their ratings frequently. But it is not guaranteed that according to their processes, it will be immediately removed. But we are also in constant exchange with MSCI and we'll make sure that they are always aware of the latest development and we'll have the latest information in order to make an informed judgment.

Oliver Blume

Totally clear. First, we have to do our homework and then it's up to them how to do it but the clear aim is to remove it.

Rolf Woller

Thank you, Daniel. We are moving on to Henning Cosman from Barclays. Henning?

Henning Cosman

Thanks for confirming so explicitly that the guidance remains on reported EBIT, I think that's really positive. Perhaps gives me an opportunity, I know we've talked about it a bit but to come back on the partnership approach in China. I'm still getting lots of questions here from investors who still seem to be a bit confused. So in terms of what that means for the competitiveness and perhaps the risk of cannibalization with your own platforms and I don't mean so much near-term tax fixes, like voice control or things like that. But more when we talk about the platform itself will start of production in 2026 which coincides with the launch timing of SSP. Isn't that precisely the sort of proposition of VW to have a lot of scale on your own platforms? And how does that fit with the concept of this new partnership approach?

I think there's still a bit of confusion perhaps we can try one more time to clarify that. Or is it perhaps even something like an insurance policy for yourselves to put yourself on 2 pillars if, unlike your hope and your expectation, CARIAD, for example, is not able to come up with a competitive software solution, for example? Or otherwise in any of the other material parts of the VW own platform, is that perhaps behind it? If we could try one more time to clarify for those of us who are still a bit confused.

Oliver Blume

Yes, Henning. I'm very -- Oliver speaking, I'm very thankful for your question. I think that's important. And we have a clear product portfolio strategy for all our brands in the regions and especially in China. And what we want to do now with the Xpeng partnership is to tap into a white spot on our product portfolio. The Volkswagen product portfolio is in the lower A segment and we have main A segment and the lower B segment. That will be provided by Volkswagen platforms, MEB, MEB+ and in the future, SSP. And then we are tapping in the higher B segment now with the Xpeng approach with 2 products.

First of all, only 2 products to get into. And that offers us the opportunity and opens us to use modules, components, software from this platform also for other approaches. And we will pick the best technologies we have and combine it to our platform. That's more or less the idea. And once again said, everything we do comes from the customer perspective. And the customer perspective in China is totally different from all the other regions of the world. They are very much more tech-focused. There are a lot of applications. We offer there and the market are different to other regions of the world.

And so -- let us see as an opportunity to widen our product portfolio. We still will have the big scale effects in between our platforms because the very, very high percentage of our cars will be on our own platforms. But there, we have the opportunity to use technologies with this entry of this partnership of Xpeng. It's a support in improving our product offering coming from the customer perspective.

Rolf Woller

Thank you, Henning. And we are moving on to Stephen Reitman from Societe Generale.

Stephen Reitman

I've got 2 questions. I mean the first is I'd like your assessment really on the -- how happy you are with the flow of information and the degree of understanding that goes between Wolfsburg and the regions really. And obviously, you talk about Chinese customers have a different expectation of technology and the like but clearly, there wasn't well transmitted when the ID.3 was developed for global markets. And obviously, what is changing and how you getting people to sort of avoid the kind mistakes Volkswagen has made over many years, whether it was in the U.S. market with the SUVs or even the simple things putting in a couple of it in the cars many years ago?

My second question is really about the next building blocks. The group's success story. I think one of the sort of like caveats about the day on the 21st of June was the virtual equity stories was not so much was given about the individual brands. It was promised that more would come. You've now given us a timetable for this. And although you're going to give us an update on the core brands in October, the whole brand CMD is only going to be in H2 2024. Now I know you've done a lot in bringing -- moving things very, very fast but does it suggest that we're only going to get a brand CMD for the Progressive group later than that? I just wondered your thoughts about can we get this any quicker really, because I think that's what the market is really wanting to hear.

Oliver Blume

Yes, Stephen, let me start with your first question. We have, with some products, a worldwide approach where we can benefit from our scale effect. But more and more, what we see is the ecosystems worldwide are separating in between Eastern and Western world. And we have to respect the offerings for our customers in the different regions and making our product flexible is offering open source platforms and then connecting them with the applications and fulfilling the expectations of the local customers.

On the other side, beside of this worldwide products and adapting them to the regions, we have local approaches. And we have, for example, the products we will offer from our new NEV joint venture in the Anhui region are tailor-made for the Chinese market. That is one example. And when we go from China to the U.S., there also, decided with our Scout approach, how to tap into the biggest profit pool in the U.S. market, the upper rugged SUV market and the pickup market and we decided to bring the historical brand Scout into the market with a new technology approach, making this car electric but combining the heritage with future technologies.

And there, what we have seen last week there is very promising. We are already preparing the plant in South Carolina. We make very positive progress in terms of design. We have decided a lot of technological decisions. And these are 2 examples: the Anhui approach, focus tailor-made for China; and the approach of Scout in the U.S. And so the whole strategy is built by worldwide products, adapting them and on the other side, having local approaches. And then combining this with partnerships in the Western and in the Eastern world being able to fulfill the expectations of our customers. And then may I hand over to Arno to Rolf for the further planning, what we will offer in terms of Capital Markets Day.

Arno Antlitz

Rolf, perhaps you can answer that.

Rolf Woller

Yes. So Stephen, we made the poll at the CMD and we showed the results in the slide deck. And you saw that the China strategy was clearly at first place. So this is why we decided to make this the next CMD in April 2024. But you are 100% right. Yes, the brands are also key to the story. And this is why we have also now said that we, in autumn, will have the performance program of the Brand Volkswagen which is a crucial part of Brand Group Core and then we'll follow up with Brand Group Core in H2. Audi, as you can see from the results, so Brand Group Progressive was ranked number 5. So seen -- or 6, so seen least important actually by the audience. And this is why we -- so we are just following the will of our investors and analysts and this is explaining the ranking and the explanation to your question.

Stephen Reitman

I won't question on the action.

Rolf Woller

Thank you. The next question comes from Mike Tyndall from HSBC.

Michael Tyndall

Mike Tyndall. It's a philosophical one. I guess what I'm trying to understand is, if I think about the largest EV maker in the world, they've got a very simple product plan. It's only a few products, whereas your strategy seems to involve nameplate proliferation. And I'm just wondering, is that because you see the world differently and you think you need to have more customization to win share? Because it feels like the penalty is that the capital invested just continues to go up. So, I'm just wondering if you can help me understand where do we end up in the long run in terms of the nameplates? Is there a period where we do see some consolidation? Or is multiple nameplates really the best way to win markets?

Oliver Blume

Yes, Mike, may I come to your question which is a very good one. First of all, we are a company to make a transformation coming from a traditional ICE manufacturer to a future BEV manufacturer. And because the different regions of the world are moving with the different speeds through the transformation, we need a balanced mix offering in between ICEs, hybrids and BEVs, with a clear focus for a strong ramp-up of fully electric cars in the future. But on the other side, we have still great opportunities with our ICE offerings to being able to finance this transformation. Now I see this as an opportunity.

When you look to the offering and number of cars, we have a different approach comparing with Tesla. We will have our scale effects by using platforms and offering these platforms to all our brands for their segments. But our customer structure is different than Tesla. We are offering very individualized cars which are linked to the brand identities and product identities of each brand. And that's a big strength of Volkswagen Group, having so many strong, strong brands and such a big customer base. And so we are -- have the approach to tailor-made our products for our customers, while offering this individualization that's set up by our customers, that is shown by the strong order intake we have already in this year. And that's a strategy we will do in the future as well.

And we don't want to compare with others who offer only single models. We are -- we have a big, big variety of a product portfolio. Looking to the future, the number of cars will reduce, that is a clear message, because of reducing the offering of ICE models. And that is the strategy driving the company through the transformation which we will have at least for the next 10 years. But step by step, we are reducing the product, benefiting from the scale effects of platforms but offering individual fantastic and exciting cars to our customers.

Arno Antlitz

Mike, let me add on what Oliver just said. And you mentioned already that we will reduce the model -- will increase the model efficiency by reducing models, specifically on ICE side. But since you started with saying a little bit philosophical, I would like to give also an add-on a little bit philosophical. We judge now our strategy versus competitors in a market which is rather small in terms of BEVs. But the market is increasing year-over-year, let's assume 70 million or 80 million cars. Eventually, we will have 20, 30, 50 and even more, million electric cars on the total market. And it might be also the case that our strategy will be even more powerful going forward when the whole electrical market is evolving. And so we are then there with great models with great brands. And we are convinced that even in the electrical world, if more and more models are -- more and more volume is there, there's a lot of room for differentiation.

Michael Tyndall

Yes. Just one quick follow-up. Is it -- would it be fair to assume that individualization, if I can say that word, actually drives higher loyalty? I mean if I get the car I want, am I more likely to come back?

Oliver Blume

Yes. I think people love brands, people love design and people love individualization to express themselves. And that's what we are mentioning more and more in China. 20 years ago, we have had a very low level of individualization in China. And now there's a big, big demand. And therefore, we think that is especially our positioning. And with individualization, you bring the product to a higher profit margin independent of the segment and you built a very loyal customer base. We have already millions of fans of our brands around the world. And we will widen up this also in the electric world. And so that's a strategy of Volkswagen Group. On the one hand side, scale effects, reducing the model range a bit but in between the models, having the opportunity of offering individualization.

Rolf Woller

Thanks, Mike. And we are coming to Justin [ph] from Federated Hermes. Justin, the floor is yours.

Unidentified Analyst

Very interesting listening to the various aspects of the business in terms of going forward. There are -- I'd be interested to understand a bit more about how you are mitigating the risks with the increase in the partnerships in China and the extension of the supply chain there, bearing in mind the issues around human rights that have been highlighted recently, particularly in China. Clearly, you're doing the audit in the Shenyang plant which we appreciate and we're looking forward to the outcome there. But I'd be interested to understand how you are managing and mitigating those risks with these partnerships and the extension of the supply chain that, that brings.

Oliver Blume

Yes, it's a very important issue. And all partnerships we are closing have very deep compliance part, where we are tapping in all these standards and values we are standing for. And so our partners have to ensure these compliance issues and have to assure the values we are driving our partnerships. And that is on the top of everything we are doing values respecting human rights but also all the environmental aspects play a big role for us. And therefore, we have built in all our brands now the ESG profile to improving there. And the social aspects play a big role. And not only in our partnerships, in the whole value chain where we work together, we are working with a clear framework of KPIs of criteria to work together. Thanks for your question. And that is for us the most important thing before having a partnership.

Rolf Woller

Thank you, Justin. And the last question comes from Philippe from Jefferies. Philippe, please.

Philippe Houchois

I just had a question. I'd love to have your comments on when you and other carmakers talk about an order book of several months, I'd love to know really how that order book is -- what it is made of in terms of end customers, how much is fleets, company cars, how much is daily rentals, how much as dealers. And really, what is the proportion of those orders that really have an end customer name attached to it versus, for example, a rebuilding what you think is an appropriate level of inventory in Europe or in North America.

Arno Antlitz

Philippe, can't give you the breakdown of basically that order book. But -- so of course, a huge amount of that is like end customers, some are private, some are fleets. So if you talk about an order, it's either like directed to the fleet -- and I'm talking about Europe. It's direct to the end customer or a fleet. And even if it were basically placed on a dealer, so the dealer is rather sure that he can sell this car. So it's really an individualized order book on individual cars. It's not just that we order cars in a factory. And this is also why we say this order book is for Europe, because for obvious reasons in China and U.S. is different, where you have a build-to-stock market where, yes, we build to stock. But in Europe, we have a build-to-order model and we are quite sure that, eventually, after -- behind every order, there will be a customer.

Philippe Houchois

And if I can go back to kind of an old issue of this model proliferation and building on to Mike's question earlier, have you really tested in a way what your market share would be, what your scale would be if you reduce 20%, 25% of the nameplates? I know Tesla's approach is extreme but I think like auto customers over the years have been kind of spoiled with never-ending choice, never-ending options. And it's nice to have the choice but it gets counterproductive. And so really, have you really done the work of stress testing? How much simpler your organization would be if you ran fewer models? Because I think the theme I'm getting from this 1.5-hour conference call, et cetera, is this [indiscernible] is just too big and complex to succeed at this stage. And I'm just wondering if you've thought about it seriously.

Arno Antlitz

No, it doesn't -- I mean, I think what we don't want to like leave is the impression that we don't work on complexity. Both in terms of model complexity, we will significantly reduce number of models. We have a plan where we increase model efficiency which is basically the opposite of model complexity, significantly until 2030. And also the offer complexity of our BEVs is significantly, significantly lower than of our ICE cars. If you order ID.3, ID.4, I think you need 5 to 6 to 7 clicks and you are done which is significantly more efficient than if you compare it with ICE cars. So we argue for both directions. First and foremost, we'll reduce complexity specifically in the ICE side, we'll reduced -- of models, we'll reduce offer complexity significantly on the BEV side. But at the same time, what I just mentioned is there might be a case and that case might be too early, when the BEV market is significantly higher than today that our strength of the width of some of the most fascinating brands and the breadth of -- from a ŠKODA to a Volkswagen to Audi to a Porsche and also the models will be much more relevant than today when the electrical market is rather small. So we argue for both, we accept and we realize that we have to and we will reduce complexity both on the model and offer side. But at the same time, our time might come with an increasing overall BEV market.

Oliver Blume

And so going in one more detail from the technical side to understand a bit more how we are reducing costs with our approach with the SSP in the future, our only electric platform on different performance levels for sure, using this SSP approach, the same backbone of modules and components. That's first of all. Then when we come to the brands, we have approach what carryover effect we do have in between the different models. For example, using the same dashboard, using same consults, using door panels and something like that. And therefore, we have a clear strategy, you need a lot of discipline of carryover effects on the one hand side, as high as possible. On the other side, to differentiate the product. That's the secret behind how to do it. And then the offerings Arno talked before, a bit different in between the segments. As high as you are, as high as are the individualization in between the segments. And so we are balancing quite well in between the expected profit margins, what we have to do. Now that's more or less to explain what is our technical approach to reduce our material costs.

Arno Antlitz

Justin, because is utmost important, I would like to add on another element. Our production and individualization strategy. Back then, every brand built its own car but we moved basically to a strategy where we bundle the cars on the same platforms in the same factory. Let's take the ID.2 All ID.2 cars based from CUPRA, from Volkswagen, from ŠKODA will have this -- will share the same platform, will share common parts, will be built all in material, the -- and the same is for other cars. So it will be, from our perspective, a very good compromise between reducing complexity, building all cars on the same line and some differentiation in front of the customer which gives us a competitive edge.

Rolf Woller

Thank you, Philippe. And sorry for mixing up your name sometimes in between. We have come to the end of the Q&A session. Thanks for a very, very vivid and interesting Q&A session. So we are now heading to a small break and will start in 5, 7 minutes actually with the press Q&A.

Arno Antlitz

Sorry, Philippe.

Oliver Blume

Okay. Thank you very much for your good questions. It was a good discussion.

Arno Antlitz

Yes. Thanks all for my side. Great discussion.

Sebastian Rudolph

So, good morning. Again, this is Sebastian and welcome to our media Q&A. Oliver and Arno sitting next to me. And we can, right, always start. [Operator Instructions] And the first one appears is from Hamburg, Christian [ph].

Unidentified Analyst

Can you hear me?

Sebastian Rudolph

Yes, we can hear you.

Unidentified Analyst

Yes, perfect. I have 2 questions. First is could you give a little bit more insight on the BEV order situation in Europe? I mean, you have talked about -- a lot about that the market is not moving as fast as you will have expected it to move. So what's your order intake? And what should it be like to utilize your capacities better? Maybe you can give some figures on that. And the second question is connected to that, I mean, in Germany, government incentives to buy electric cards have been reduced. And then given the reluctance of customers, maybe what are you asking for? Does Germany need a new program, a new incentive program? What do you expect the politics to do?

Oliver Blume

Yes, Christian Miskin. Thanks for your questions. Oliver Blume speaking. First of all, we still have a strong order bank of 200,000 EVs. We have a good proof point in this year being able to increase 50% of our BEV deliveries world worldwide. In Europe, the situation is because some countries reduced or exit from their support for battery electric vehicles and on the other side, we have inflation effect and pricing effects because of higher material costs. In terms of Volkswagen Group, besides of the still strong order bank, we have seen during the last weeks, a slightly positive development of our order bank. So we have to watch very deeply during the next weeks how it will develop. And at the end, everything depends of the right product offering we have in the market to drive further on our ramp-up of BEVs, not only in Europe but also in China, in North America. In terms of support for the ramp-up curve of electromobility in Germany, there are 3 important factors. First of all, product, that's our responsibility, right pricing, right technology profile, attractive design.

Then secondly, the charging infrastructure. And that's partly our responsibility. As Volkswagen Group, we are planning to increase the charging points worldwide up to 2025 to 45,000 charging points. But on the other side, we need support from energy suppliers, for example, from the mineral industry but also from the government and the communities to improve the charging -- local charging infrastructure, especially in the cities.

And then thirdly, to increase the source of renewable energies. And there, the German government has got an ambitious target. But it's important to execute step-by-step. And improving this in these 3 factors are important and that would be the biggest support we can get. What I think, especially in Germany for the commercial use, there, it would be helpful a support especially for the electric vehicles, they are driving around a lot in cities and in towns. And yes, that's about your question on incentives.

Sebastian Rudolph

Then we go from Christian to Victoria, Reuters. Victoria Waldersee, please.

Victoria Waldersee

I have 2 questions. One just relating to the news yesterday about the Exxon Volkswagen partnership. Could you just clarify what platform the 2 new models that you're jointly developing will be on, because the Chinese release from Exxon said they would be on the G9 platform but that wasn't mentioned in the Volkswagen release. So just to clarify that. And a second question, just a broader one. I wonder if you could speak in a bit more detail about the value over volume strategy as you move into the battery electric space. I feel like we're seeing the 2 strategies emerge of gaining share by cutting prices or holding on to profit margins and financial robustness you say you're more on the value over volume side but you are still targeting 25,000 to the 20,000 new vehicle. So evidently, you do still want to keep hold of that mass market. Could you just give us some specific examples of strategic decisions which prove the value over volume approach, that would be really helpful.

Oliver Blume

Okay. Victoria, may I start with your first question on Xpeng and the platform approach. First of all, I think before also with the investors, our idea behind to do this and the big opportunities we have, sharing modules, components. And we reduce the G9 platform, all the technical details we will detail during the next weeks. And then deciding clearly using the best available technologies Xpeng will offer and combining it with our platform approach.

And to say it again, very clearly, that is only a part of our platform -- on our product strategy. We have 4 Volkswagen -- 4 segments. It's the lower A segment, the main A segment and the lower B segment, we are providing with our own technology. And for the upper B segment, we will go for the G9 platform from Xpeng and defining during the next week, very clearly which part of modules or components, we will use and combining it with Volkswagen technology. What is very clear when we are using these kinds of technology, at the end, it has to be and it will be 100% focus on in terms of driving ability, in terms of design and in terms of touch and feel of the cars. And then may I hand over to Arno for the value of our volume approach.

Arno Antlitz

Victoria, on the value over volume, as I said in the Capital Markets Day, we will focus really on the value and margin of our business. And that means that we will display pricing discipline, both on the ICE and the BEV side. And so we rely on strong products. We have fascinating brands. And we have also the technology which is getting better and better every day. We invest into technology in our platforms in Europe. In China, we mentioned already, we improved the platforms there with Horizon Robotics and driving existing functions, in entertainment. So we have all the ingredients from our perspective we need to explicit strong pricing going forward.

On the other hand, there's also an additional flexibility we have, although we are absolutely committed to ramp up our battery electric vehicles, we have also strong combustion engine cars which have great margin and great cash flows. So this gives us an additional flexibility on that topic.

Sebastian Rudolph

The next question goes to Patricia Nielsen [ph] from Financial Times. [Operator Instructions] With this, Patricia, please.

Unidentified Analyst

I want to start by asking on deliveries, you've revised down your goal for deliveries. At the same time, you're saying supply chain issues are easing. Can you give a little bit more detail as to what's driven this? And then I have 2 more questions and they're related to China. And one, some observers have made the comment that Volkswagen partnering with Xpeng here is an admission that the company can't make it on its own in China. And I would love to get your comments on that. And secondly, I'm wondering how is it impacting your long-running relationships with [indiscernible] to partner with one of their rivals at the moment?

Arno Antlitz

Patricia, I will take the question on deliveries. Look, we had a slightly mixed picture on deliveries in the first half of the year. On average, they were like plus 13%, with a really strong growth in Europe, 25%, plus 25%; a strong growth in North America, plus 14%; and in China, slightly below previous year. And based on that run rate, I would say, we slightly changed our outlook. It used to be 9.5 million vehicles, now we moved it to the range of 9 million to 9.5 million vehicles based on the run rate in China. But what you have to take into account is that the cars that we sell in China, we account for them only at the proportionate result basically on equity. So they are not in our sales and not in our margin. So this is the reason why our sales was up 18% and our margin was very strong -- or underlying margin was very strong with 8.9%. And although we took slightly down the deliveries outlook in line with our value over volume approach, we fully confirm our outlook for sales and we fully confirm our margin target.

Oliver Blume

And Patricia, let me come to your China question. And listen, for us, is very important to fulfill the expectation of the Chinese customers. And therefore, in our China strategy 2030, we agreed finally, beside of the Shanghai Motor Show and was worked out in the months before, is to offer more solutions developed in China for China. And we have our own product portfolio with MEB+ and in the future versus SSP, for example. And then picking partner solutions to hit directly in the Chinese ecosystem and to fulfill the expectations. And the cooperation with Xpeng is to speed up in technology solutions and to widen our product portfolio and to tap into our white spots where we haven't got a product offering today.

And in terms of cooperation and future strategy with our long-term joint ventures, FAW and SAIC, we built also a clear, clear strategy and agreed it with them during the last month. With FAW, for example, there, we have the Audi approach with a new PPE factory, where we will bring starting next year new Audi products high battery level. And with SAIC, for example, we cited the Audi Corporation also with sharing modules and components. And so I think for all of us, it's positive to get approaches from partners, technology from partners, to make our solutions better and then having a better offer for our customers. It is well thought and fitting well together in between partnerships like FAW and SAIC and the new partnerships we are getting and having a clear strategy behind and everything sort from the customer perspective.

Sebastian Rudolph

We have 3 more on the list, starting with Monica Raymond from Bloomberg. Monica, the floor is yours.

Monica Raymond

I guess my first question centers on the recent trip that you and the Board took to North America. I was wondering if you could provide some color on that trip, specifically on where the Scout brand is and where specifically North America fits in the performance programs and in the savings efforts that are currently going on across the Volkswagen brands. Additionally, you mentioned that during this trip in North America that some decisions were taken regarding technological advancements or technological decisions, I was wondering if you could also elaborate on that, please.

Oliver Blume

Yes. Monica, May I start with the Scout approach and maybe Arno can add a bit on our performance program in North America. First of all, we had a very good Scout presentation. For me personally, first time being in South Carolina, close to Columbia and being able to be on our construction site there, making very good progress. We are getting full support from the authorities there. And we had the opportunity to talk with the governor of South Carolina. They are very proud to have Scout in South Carolina. And we are getting a lot of applications of people who want to work with us. And we think with the Scout approach, for us, we are tapping in a white spot for Volkswagen Group. And the biggest profit pool we do have in North America, the rugged SUV segment and the pickups are 30% of the market. And therefore, we see big opportunities. And using this historical heritage brand of Scout and bringing it to the future, while combining the heritage of Scout with modern technology and you will mention it when you will see the design approach, that there are still something in from the heritage Scout but with a very modern interpretation.

And there, we had a lot of details to discuss in terms of which technology we want to use, what will be the construction of this car which will be -- what will be the offering we will bring to the market, what will be the positioning of this car in this pickup and rugged SUV segment. And for me, it was very promising what the team around Scott Kiel presented there. We hired the designer, for example, for Scout and he brought a lot of new ideas how to optimize our design approach. So yes, I'm looking very much forward to ramping up this new brand to the market and bringing us in a better positioning in North America. And maybe Arno can add something in terms of performance program.

Arno Antlitz

Yes, Monica. We really agreed that we leave it to the Brand Volkswagen to communicate their elements and, yes, size of the performance program and the topics per region. But I would like to give you a little bit of flavor. As I said before, it's like 1/3 is on the volumes -- on the mix and volume side and on the price side and 2/3 on the cost side and that's basically roughly true also for the U.S. So we have a chance to really have even better mixes. Atlas cross-border doing very well.

On the cost side, it's the classical topic -- fixed cost, productivity in the plants. And there's an additional element that comes on top to the normal cost work, it's the synergies we can draw in the regions. We have not only been in the U.S., we have also been in Mexico and Canada is also part of the region and there's an additional element of that working closer together. We are sourcing departments in both countries. And in working closer together in the regions, there is an additional element on that. But again, as I said, I really want to leave it -- or we really want to leave it to the brand to communicate their program in more detail.

Sebastian Rudolph

The next question goes to Dow Jones News and Markus Klausen. Markus, please.

Markus Klausen

You've already addressed the issue of margin development in the analyst call. I have one further question regarding this, given the trend in the second quarter. Are you considering additional measures to support the return beyond those foundry already planned and also in view of the price war particularly in China? And second question belongs to the price development. We talked about the difficult situation in China, can you comment on the price development in Europe?

Arno Antlitz

Yes. Markus, concerning the margin trend, what we communicated on the Capital Market Day already is that we have launched a performance program in all brands, not only Brand Volkswagen but performance programs in all brands to make the group much more robust going forward. But what we expected and what's now happening is that competition is intensifying in the third and fourth quarter. The whole industry is able to produce more cars, the available of chips increases. And on the other hand, our customers are more cautious and the result of that is a more intensified competition. So what we agreed on in the Group Board and also in the brands that we need and we will achieve first results of these improvement programs in the second half of 2023 already. So there are no additional measures on top of the programs. but we will put a lot of focus in our group and in the brands to get the first results even this year to make us more resilient in an intensified competition.

Sebastian Rudolph

The last question for this call goes to Christian Miskin [ph]. We started with you and you got the last one. Please go ahead.

Unidentified Analyst

Yes. Thank you. I really feel honored to start and make the last question again. It's just a short follow-up. I mean, Arno, I'd just -- you just stressed that it's important to stay flexible in the production of BEV and internal combustion engines. I mean, the actual problems with capacity utilization -- maybe I'm wrong but you can correct me, is affecting -- in the first line is affecting plants that have already completely converted to electric cars like [indiscernible], for example and on the way going there. Looking back, was it a mistake to transform complete factories as a whole to BEV? And are you maybe overthinking the strategy, staying more flexible in the future in the years to come?

Oliver Blume

Yes. This is 2 factories and [indiscernible], this was a starting point to bringing quickly volume to the market. And what we are doing there right now is -- especially the value over volume approach and you will see in the future as well, very focused on the market demands and then steering our factories. For all the other factories, it will go step by step, because we are going now through the transformation, like in Wolfsburg but all the Eastern Europe factories are -- in Western Europe and Spain, we have a plan over the next 10 years when we will get into with BEV models. And up to which schedule, we will have the ICEs.

And that's important, as I mentioned in the investors call, to have this flexible mix during the transformation, still offering ICEs which brings us in the financial positioning of being able to finance the transformation to BEV, then offer hybrids and having a strong ramp-up for electric cars. And this will go step by step and plant by plant.

Arno Antlitz

Mr. Miskin [ph], let me add specifically to your question. In order to competitive -- to be competitive in the future, we are working really on the cost side and on efficiency side also for our BEV cars. And that wouldn't be possible if you have like a mixed line with combustion engine and BEVs that would bring complexity that would add inefficiencies. So we are convinced that the way we are going forward, like having 100% MEB platform, 100% electric platform with the MEB, having 100% MEB factories which are really then designed to the needs of an electric platform, will give us also the cost base to be very competitive in the market.

Sebastian Rudolph

We go the extra mile. We go into overtime, because Lutz Miya [ph] sneaked in and we will give him the chance to ask a question from Capital Lutz.

Unidentified Analyst

So it's a very short one, adding to the last statement. Since you're reducing in the moment the production lines in [indiscernible] and in the same time, you're planning to add MEB line in Wolfsburg, are you sticking to that plan, also to the time schedule? Does it still make sense? Or can we -- or will we see maybe considerations to change that?

Oliver Blume

Yes, we are right now in our so-called [indiscernible] where we plan for the next years which product we want to produce in which plant. What we have done in [indiscernible], for example, is a temporary effect. And that shows very clearly, again, our focus, value over volume. And what we don't do is to produce any more cars for stock. We will balance it quite well, what is the demand in the market, while focusing on our profit margins. And that has nothing to do with the product strategy. This is clear. We stay to our product strategy in Zwickau and [indiscernible], what we defined while adding new battery platforms now to all the other factories.

Sebastian Rudolph

And with this, I say thank you to Oliver and Arno and also to all of you for asking questions. Always good to have you. And for those who have not enjoyed holidays yet, I hope they come soon to [indiscernible]. Take care. See you soon. Bye-bye.

Oliver Blume

Goodbye and thanks for your question. Have a good vacation.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you very much for participating. You may now disconnect.

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Volkswagen AG (VWAGY) H1 2023 Earnings Call Transcript