VW Group strategy 2030 NEW AUTO: Dr. Arno Antlitz

[Music] Ladies and gentlemen, a warm welcome from my side as well. Together we look positively to the changing world of mobility, a deciding factor in the future of our industry will be the fundamental shift in revenue pools. Our industry is in the middle of the shift from combustion engine cars to electric vehicles, or EVs. In 2030 we expect new car revenues from EVs to surpass those of ICE. Towards 2025 we expect the third revenue pool to emerge, the software-enabled business based on autonomous driving. This pool will increase significantly in the years to come. In 2030 it will almost be on par with EVs or ICE.

Against the backdrop of this development, our finance strategy is tailored towards a two-fold goal: firstly, prepare our company to capture a significant part of these revenue pools; secondly, safeguard and strengthen our financial foundation and the ability to generate cash flows on the way towards this new industry, at the same time providing sufficient flexibility to adapt if things develop in a different way.

So what are our priorities to financially steer the transformation? Looking at our ICE business, we intend to keep our ICE cars competitive and the corresponding cash flow stable, and continue to effectively reallocate our capital and resources towards electrification and software. Looking at EVs, we want to ensure the successful ramp-up of our battery electric platform in terms of customer satisfaction, product substance, low complexity, and cost, and to secure margins along the whole value chain, especially upstream towards cell manufacturing and raw materials.

Looking at software, we strive to establish a business model for a unified and powerful software stack that will be deployed throughout all our brands and millions of cars per year, and to establish a relevant mobility platform to enable us to tap into recurring revenue pools of software and mobility as a service.

When it comes to phasing out combustion engine cars, we are convinced our current toolkit MQB will deliver a clear competitive advantage. ICE margins will come under pressure towards 2025 and beyond. Headwinds will be the declining demand and the challenge of diminishing scale, rising costs of emission regulations like Euro 7, and tax disadvantages compared to EVs. To mitigate these headwinds, we strive to radically reduce complexity of our ICE. In Europe we intend to decrease our number of combustion engine models by 60 percent until 2030.

On top of that, our MQB will enable us to keep the scale we need. MQB product substance is still highly competitive, the initial investments have been made already. Therefore the phase-out requires only minimum additional structural funding, and MQB provides us with the flexibility to bundle production of ICE in multi-brand production plants to keep factory utilization at a competitive level.

Ladies and gentlemen, we are fully committed to transform our company towards electrification and digitalization. In our planning we increase the share of investments in these new technologies, and we will continue to do so. As a consequence, by 2025 we expect battery electric cars to amount to around 20 percent of our total sales. By 2030 we expect this proportion to increase to around 50 percent. And despite a slower start in 2021, we stick to the target of around six percent BEV share in 2021 and confirm that we are fully on track in terms of CO2 compliance in Europe.

We've launched five major work streams to finance these ambitious plans. The first stream focuses on intensive use of synergy families among our brands. However, we make no compromise when it comes to product substance. In the future we want to provide even more differentiation for our customers. An excellent example here is the ID.4 family: ID.4, Q4 e-tron, and Škoda Enyaq, great cars which target different customer segments and needs.

The second work stream involves intensified work on productivity in our plants. For the third stream we have just launched a working capital initiative. We are fully aware that we have huge potential here. The fourth stream involves a broad purchasing program that we have just launched, and we are well underway to reducing our overhead cost base. Concerning fixed cost base, we see a promising start of our initiative. We have reduced overhead expenses by around seven percent compared to 2019 so far, and we are well on track to achieving our 2023 target of around 10 percent reduction. And step by step we will provide additional proof points on the progress of other program elements.

We intend to capture even more group-wide synergies to optimize R&D spending and continue our strict cost discipline. On the other hand, in the years to come we need to keep combustion engine cars competitive, prepare for a significant EV ramp-up, and significantly invest in software. Therefore we foresee higher proportional R&D and CapEx in the next two to three years. With the phase-out of investments in combustion engine cars, we want to bring this combined ratio down to 12 percent in 2024 and down to 11 percent towards 2025 and beyond.

These figures include CapEx for one Gigafactory in our books and one percent R&D per year for software and CARIAD. In line with scale effects from higher sales and production volume, we expect higher EV margins over time. We will lower proportionate R&D thanks to shared platforms. At the same time we strive to achieve battery cost savings, increased economies of scale, and lower factory costs through our electric vehicles. Combining these levers should lead to a margin parity of ICE and EVs within the next two to three years.

To reflect our sharpened strategy, we are also raising our ambition level for operating return on sales for 2025. We are increasing the original range of seven to eight percent in 2025 to eight to nine percent. We will take this ambition as the foundation of our planning around Round 70 in November. Of course higher profits and optimized working capital should lead to even stronger cash flow. We will update our cash flow guidance too in November.

Ladies and gentlemen, we intend to tightly financially steer the transformation of our company. Step by step we will complement the steering of individual brand performance with focus and transparency along key platforms as value drivers. Volkswagen AG is a bundle of some of the most fascinating, powerful, and valuable brands in our industry. We are proud of our brands and we are certain that strong individual brands will remain a key differentiating factor going forward.

We will strive to even better position our brands in the future and work hard on cost and efficiency. To strengthen cooperation and synergies, we redefined our brand groups: Volume, Premium, and Sport. In these brand groups our teams will work even closer together for the good of our customers.

In China we want to keep our leading market position. We are enlarging our current JV network alongside our two strong partners. With FAW and SAIC we are setting up two new pure EV joint ventures: Volkswagen Anhui and an Audi-FAW NEV company.

At the same time, unified technology and scale will be the driving force in our industry. This means that we need to shift our focus towards value drivers like EV platforms, a unified software stack, battery, energy, charging, and mobility solutions. We want to install industry-leading platforms across strong brands to capture even more synergies in the future. Our internal decision-making and capital allocation will be geared towards that goal. As a consequence, our financial steering in the future will integrate brands and value drivers.

When it comes to setup of these platforms, we apply three guiding principles. First, where suitable, we intend to structure these platforms in separate entities that could operate in a standalone capacity. This will enable us to plan and steer units individually and to capture the full scale advantage throughout the group. CARIAD is a good example, others will follow. Second, we want to secure scale and know-how along these value drivers, either by organic growth or through partnerships and cooperations. Our goal is to keep the balance sheet as lean as possible. And third, when it makes strategic sense for us, we will also use the opportunities to grow third-party business, like the cooperation with Ford on our MEB platform or possibly later in software.

One example of a clear value driver is our software company CARIAD. With CARIAD we are fully committed to developing the leading automotive software stack in the industry. We are moving towards a synergistic business model. Most of the software-related R&D costs of the brands have been shifted to CARIAD, which will be reported as a standalone entity in the future. The CARIAD business model foresees a significant upfront investment phase of about 2 to 2.5 billion euros per year. In the income phase, CARIAD will receive license fees paid by the brands or paid by potential third parties for the software use, and this already started with the rollout of the ID family architecture.

Thomas will give you examples from battery, energy, and charging, our third platform. The fourth platform is a group-wide mobility platform enabling our customers to access a broad variety of mobility offerings, like mobility on demand, individual rental, and subscription models. We intend to integrate this platform within our financial services business, either together with a partner or as organic enlargement of our current competencies.

Ladies and gentlemen, we have a clear plan how to create value. We will scale our EV platforms, we are committed to developing a leading automotive software stack, and we will continue to invest in autonomous driving and mobility services. During this transition our traditional business will help to generate the profits and cash flows to do so. Based on these unique opportunities we strive to be a leader in the transformation of our industry. We will preserve our natural resources, and we will achieve this with integrity and based on our values. I am delighted to be part of this journey. Thank you very much.