On March 13th, at 09:00 am CET, Volkswagen Group started the Annual Media Conference 2024.
The event was broadcast from the Drive Forum in Berlin, where Mr. Oliver Blume (CEO of Volkswagen Group) and Mr. Arno Antlitz (CFO & COO of Volkswagen Group) conducted the proceedings, presenting the sales and financial results of the VW Group in 2023, as well as the outlook for 2024 and beyond.
For reference, the Volkswagen Group consists of 3 strategic organizational brand groups:
- Core: Volkswagen, Volkswagen Commercial Vehicles, Skoda, SEAT and Cupra
- Progressive: Audi, Lamborghini, Bentley and Ducati
- Luxury: Porsche
And further 5 brands/business units, namely:
- TRATON (Scania, MAN, Navistar, VW Truck&Bus
- CARIAD
- Volkwagen Group Technology
- Volkswagen Financial Services
- MOIA
Some key moments of 2023:
- Volkswagen Group successfully introduced new models in all segments to the market last year, such as the new VW Tiguan, the ID.Buzz, the Bentley Bentayga, the Porsche 911 Dakar, the VW ID.7, the Cupra DarkRebel, and the Lamborghini Revuelto, among others.
- Volkswagen Group, with all its brands, was able to deliver 9.24 million vehicles worldwide in 2023, marking an increase of 12% compared to the previous year. The growth was most noticeable in Europe and North America. Despite the challenging market conditions in China, the company also experienced growth in the region.
- The revenue in 2023 was EUR 322.3 bn, which is an increase of 15% in comparison to 2022, the operating profit reached EUR 22.6 bn, net profit reached EUR 17.9 bn and net cash flow of EUR 10.7 bn.
These positive achievements are the result of the systematic implementation of capital management practices, despite the challenging conditions of volatile markets. The restructuring of the VW Group was key to achieving these results, emphasizing ten targets:
- Planning Round (Strategic planning and capital allocation, Plant allocation, Product strategy, Performance programs)
- Products (Design identity for the brand, Quality programs)
- Chinese market (3.2 million vehicles built, with an increase of 23% of EVs. Audi reached a record revenue in the country
- North American market (Big growth potential, with the rebranding of the brand Scout for EV SUVs for the US in a plant in North Carolina, and the battery cell plant in St. Thomas in Ontario, Canada)
- CARIAD (the software company with a new leadership team)
- Platform / Technology investments (VW responsible for A0 and A segments architecture, Audi for B and C architecture, and Porsche for D-segment vehicles’ architecture)
- Battery / Charging Energy development (Partnership with PowerCo, building up the plants in Salzgitter (Germany), Valencia (Spain) and St. Thomas (Canada); and the expansion of the charging infrastructure).
- Mobility solutions (New partnerships and autonomous driving investment)
- Sustainability (over 800 sustainability initiatives across all brands, with CO2 reduction of 34% including in the plants in Europe and adoption of recycled materials)
- Capital Markets Strategies (New leadership team)
Financial Results:
- The net cash flow increased by 123%, reaching EUR 10.7 billion, despite a slight decrease in net liquidity, which decreased from EUR 43.0 billion in 2022 to EUR 40.3 billion in 2023.
- The Commercial Vehicles division was able to double operating margins worldwide, generating results of EUR 3.7 billion between January and December. The Financial Services division experienced a slight decrease, but it was within expectations.
Regarding the Passenger Cars division, the operating result remained stable, with a decrease of around 2% (from EUR 15 billion to EUR 14.7 billion). Despite the significant positive results from the mix/price strategy, exchange rates, product costs, and fixed costs were decisive factors in the final result for passenger cars in 2023.
- In terms of the investments of the VW Group in 2023, a total of 13.5% of revenue was used as follows: 5.4% (or EUR 14.4 billion) in CAPEX and 8.1% (EUR 21.8 billion) in R&D.
Outlook for 2024 and beyond:
The Top Ten Program remains a target to the company, involving all the brands within the Volkswagen Group and its partners, such as PowerCo (battery partner).
The Top Ten program is a short / medium-term strategy, and will lead to the Strategy 2035 plan in the long-term.
In 2024, the Volkswagen Group will premier over 30 new models, a record for the company. Some of those models have already been announced, as the Cupra Tavascan, the new Skoda Octavia, the ID.Buzz, the VW ID.7 Pro, the Porsche Macan 4 Electric, and the Audi Q6 e-tron. The models for 2024 include ICE models, Plug-in Hybrids, and of course, full electric vehicles in the European, North American and Chinese markets.
The Volkswagen Group emphasizes its strategy of “Value over Volume” in the future, as well as the regional strategies:
- In Europe, the plan is to continue the great presence in Europe, with the 23 plants already in the region
- Continue being the leader foreign company in the Chinese market and reinforce the “In China, for China” plan to develop and produce vehicles in China for its own market. Until the end of the year, VW China Technology Company will have 3,000 professionals working in the area. Partners in China: Gotion (Battery cells), Horizon Robotics (ADAS), and ThunderSoft (Smart Cockpit), and XPENG (with VW), and further expansion of cooperation between SAIC and Audi.
- In North America, Volkswagen has great investments for the future:
- Canada: St. Thomas Battery Cell Factory
- Mexico: Silao engine plant, Puebla and San Jose Chiapas car plants.
- USA: Hearndon (HQ), Chattanooga car plant, South Caroline Scout Motors EV SUV plant, Seattle Could Computing Center, and CARIAD in the Silicon Valley.
- In South America, the intention is to continue a strong presence in the area
- In India, the third biggest single market in the world, Skoda will continue being very active.
- ASEAN region: CKD vehicles are presently produced in the area, and there’s great potential for growth as well.
For the next few years, the VW Group will also undergo a change in its architecture, transitioning from a hardware-defined vehicle to a software-defined vehicle (SDV). The development of these new architectures is already underway by CARIAD. AI also plays a role in this matter, not only in the vehicle itself but also in the development process.
Another area in which the VW Group intends to invest is in the improvement of batteries. VW plans to experiment with new materials and technologies that can enhance range, quality, and prices to better meet market demands.
In the financial field, the outlook for 2024 is as follows:
- For investments (CAPEX/R&D), the plan is to invest EUR 170 billion between 2025 and 2029, with a peak investment of 13.5% to 14.5% of revenue in 2024. In 2023, the CAPEX and R&D investments were EUR 14.4 billion and EUR 21.8 billion, respectively, corresponding to 13.5% of revenue.
- For 2024, the VW Group expects to increase sales revenue by up to 5%. Automotive investment, as mentioned above, is expected to remain similar to 2023, ranging from 13.5% to 14.5%.
- Despite maintaining a similar operating margin of 7.0% to 7.5% in 2024, the net cash flow will decrease from EUR 10.7 billion to EUR 4.5 billion to EUR 6.5 billion. The net liquidity, however, will remain in the range of EUR 49 billion to EUR 41 billion, similar to the EUR 40.3 billion in 2023.
Q&A Session
1. European market
VW is confident that the demand in Europe will pick up again in the coming months. What are the reasons for this optimism? What is the company’s strategy to grow the sales of EVs considering that the E-mobility incentives have been axed in Europe and considering next year’s when the CO2 fleet targets are reduced?
- CEO Oliver Blume: It’s true that Europe is a volatile market, but we see stabilization in the EV market in the region. We are also pushing forward with new products entering the market this year, with over 30 models across all our brands. We intend to achieve growth through product innovation. Additionally, conditions to enable electromobility must be created in Europe, with OEMs, local communities, the federal government, and everyone cooperating to develop the electromobility infrastructure.
Regarding the subsidies, the bonuses, if you want to create incentives in the smaller segments, you have to get the funding.
2. Affordable EV
In order to grow e-mobility, it is necessary to make the vehicles more affordable to clients, vehicles costing around EUR 20,000.00. Are there any plans for that? Any plans of cooperation with Renault?
- CEO Oliver Blume: As for more economic EVs, we have Skoda, VW and Cupra vehicles in the range of EUR 25,000.00 and we see it as strategically correct for entry level. We definitely want to enable new customers to enter the EV market.
We don’t rule out any partnerships, but we have nothing concrete at this point. Over the course of the year we will see what decisions we will take.
- CFO & COO Arno Antlitz: Presently, we still have some segments within VW where no EVs are present, and we want to expand it in the future and popularize the electrification. We are presently investing in the ID.2 family coming from Spain, with the price around EUR 25,000.00. In a small segment, below the ID.2, it is very difficult to be profitable, but we consider a cooperation with other companies to achieve it. It is a very competitive segment, with a lot of companies already in this area. It is important that we achieve the “Road to 6.5” performance program targets (the so-called Accelerate Forward program, that means sustainably reaching a return on sales of 6.5% to safeguard investments in future technologies and jobs, and to be able to achieve it, VW plans to improve earnings by around EUR 10 bn in 2026).
3. Investment
What are your biggest individual investment packages for 2024? What will be the impact of SSP development in the following years?
- CFO & COO Arno Antlitz: We have projects that will run from 3 to 4 years and that are included in the EUR 180 bn investment plan, of which EUR 130 bn will go into electrification, EVs, and digitalization, and the remaining amount will go in the next 1 – 2 years in the ICE projects.
These EUR 180 bn correspond to around 2% of our profits, and 9% of this amount will go into the renovation of our vehicles, in expanding our model range, in the modification of our plants for e-mobility. Around 1%, approximately EUR 15 bn, will be used in the improvement of the present platforms in software and hardware. Further EUR 15 bn will be destined to the battery strategy, and additional EUR 15 bn for the investment in specific regions, such as North America and India in order to improve our position in the market.
Some of the most important projects that will be investing are related to batteries, such as the plants in Salzgitter, Valencia and St Thomas in Canada, but also our JVs in China. We are also making investments in the ID.2 family.
(CFO & COO Arno Antlitz) In the next 2 – 3 years will be still investing in ICEs in order to keep being competitive, offering also Plug-in Hybrids, Hybrids, the Tiguan with 100 km of range, and after that we can invest more in the electrification.
(CEO Oliver Blume) The SSP Platform (the EV platform replacing MEB) will allow us to live synergies withing the VW Group. VW does the A0 entry cars, Audi does the mid-range, Porsche does the sporty range, but they will have a lot of standardization with the SSP platform. Lamborghini, and other brands from the VW Group will also be using the SSP, it’s a great opportunity. This electrified platform will be used everywhere in the VW Group as the basis for vehicles in the future, but still allowing for different configurations for each market and each brand of VW.
4. CARIAD
Question about CARIAD, you are working on the SDV (Software Defined Vehicle). When are the first SDVs expected to arrive in the market? Will the development be done exclusively by VW, or with partners? Will you sell this system to other companies in a later point?
- CEO Oliver Blume: In 2028 we will have the SDVs developed for VW and Audi. We already have defined products and teams to work with it. We have to join forces with partners, and we are gearing to enter in partnerships with big tech companies. We have seen previously that some big tech companies have tried to move into the automotive sector, and we have seen automotive companies moving towards software companies and this trend doesn’t seem to have turn out very successful, so we believe that partnerships will bring more satisfactory results. We know that AI will have the utmost significance in the field as well, and could be that we could move from Software Defined Vehicle to an AI Defined Vehicle in the future.
Whether this will be sold to other companies or entities in the future, this remains to be seen.
5. eFuel
Some brands in VW such as Porsche is committed to eFuels, but there has been some criticism to it. Is it the correct path?
- CEO Oliver Blume: E-mobility is our utmost priority in the VW Group, but of course ICEs are still in our plans in this transitional period. We take environmental protection seriously, and we must consider the transportation in other parts of the world, areas where it is mostly made using ICEs. Bringing emissions down is necessary, and the use if eFuels makes it possible, but it only makes sense in areas where sustainable and renewable sources for it are available in abundance. That wouldn’t make much sense In Europe, and that’s why Porsche set this pilot project in Chile. This makes sense in the Middle East, in Australia, but the eFuels technology still lacks investment.
6. Capacity
With the “Value over Volume” strategy, could it be that VW will be using less than its present capacity in its plants in Germany and China?
- CEO Oliver Blume: We definitely don’t want to inject a high volume of vehicles in the market and sell them with discounts. We are also looking at sales volumes and we are planning realistically to identify our capacity plans to reach the market. We are observing how the markets are developing and in the case of Europe, specifically where VW has 25% of the market, we are seeing the possibility of selling 14 million vehicles in the near future, instead of 16 million, and not expecting to bounce back from that. We also are seeing the possibility of not using night shifts in our European plants for the sake of our employees, and this allow us to make adjustments and labor organization.
7. EV sales in Europe
Do you think that the slowdown in the growth of EV sales in Europe and in the US is a sign of the limits of the potential for EVs? Or maybe this is a cyclical phenomenon?
- CEO Oliver Blume: We consider it a cyclical development. We are convinced that e-mobility is the future and it is our strategy. We still depend on charging infrastructure in order to further develop the EV in the US and European markets. We need political support and political decisions that enable this change to happen.
8. Chinese cars
Regarding the European Commission’s plans to tax Chinese cars in the Europe, do you think there could be some retribution in the Chinese market for VW cars?
- CEO Oliver Blume: First of all, we are in favor of a fair world trade. Economic operators must follow the same rules. If we adopt protectionist actions on one side, there will definitely be an answer. Competition is a very beneficial to us, we raise the bar and the benefit is for the clients. It’s not only for Europe and China, duties and taxes should be reasonable and balanced. We do not support protectionism.
9. 800V technology
VW already has the 800V technology in the Porsche Taycan, but this technology is not yet widespread in the group. Why is that?
- CEO Oliver Blume: The 800V technology was a pioneering decision to use with Porsche, and I can say that we had a difficult time to team up with partners. At the time, we didn’t have suppliers to work with in the MEB platform and the 800V technology. We now believe that the 800V is the future, and allows you to reduce the charging time and the weight of the car.
10. Future of ICE
Regarding the European Commission and the ICEs within Volkswagen, how do these fit VW’s plans, considering the end of ICEs in 2035?
- CEO Oliver Blume: VW Group is prepared for the 2035 plan. As mentioned before, we will be investing large amounts in ICEs in the next years develop and improve of these vehicles, also outside of Europe. E-mobility is the best thing to work on in the interest of environmental protection to which we are committed to. We are flexible and open to adapt to the decisions of the European Commission and we are on our way to comply with the 2035 plan.
