Dr. Ing. h.c. F. Porsche AG (P911) Earnings Call Transcript & Summary

Hello, and welcome to our Analysts and Investors Update on the first half of 2024. My name is Björn Scheib; and with me is our CEO and Chairman of the Executive Board, Oliver Blume; and our CFO and Deputy Chairman of the Executive Board, Lutz Meschke. Today, we would like to give you a brief insight of our business performance of the first half of 2024. All materials such as the investors deck of our half year financial report are available in the Investors section of the Porsche website. Before we begin, let me remind you that any forward-looking statements we make during this statement are subject to the risks and uncertainties mentioned in the safe harbor statement included in the Porsche materials. This intro will also be governed by this language. With that said, I'd like to hand it over to Oli.

Good morning, and a very warm welcome to all of you listening. Great to have you here. Together with my colleague, Lutz Meschke, I would like to give an overview of Porsche AG's performance of the first half of this year. We are currently running the largest model advances in our history, and this in a very challenging environment. Never before we have renewed our product portfolio so comprehensively in such a short time: Panamera, Taycan, Macan, and just a few weeks ago, the world premiere of our icon, the 911, all fully updated. And with the Cayenne in addition, together, that's 5 of 6 series new in such a short time span. This year, Panamera, Taycan and 911 have already made a well-received start in the market, all on time. The Macan is following in September. With all these model changes, we are launching the strongest product range ever. We cut the average age of our product portfolio in half, from 3 years to currently 1.5, and we will keep them fresh and attractive for years to come with further innovations. This clearly shows we are implementing what we have announced, we deliver. And we see that our course is paying off. After business development was rather subdued in the first quarter, as expected, it picked up in the second quarter. All in all, this leads to a robust first half of 2024. However, it is currently becoming apparent that a significantly supply shortage for aluminum parts will affect our planning. We adjusted the forecast accordingly on Monday evening. Lutz will explain the details to you in a moment. As always, there are 2 things we are absolutely focused on, quality and delighted customers. We have recently been able to improve quality yet again. Claims per car are down on an all-time record level, and that's in spite of great technological complexities. The feedback from our customers shows us that we are on right track. In the U.S.A., we recently scored first place in the Luxury segment in the quality study of J.D. Power, and what's best to reflect Chinese customer satisfaction, Porsche is #1 in NCBS dealer satisfaction. And in addition, we ranked also #1 in several categories of J.D. Power brand model level in the Luxury segment. And of course, we continue to work high speed on improving even more. With innovations in terms of performance and driving experience, we are setting standards and supporting our claim to technological leadership. The new 911 Carrera GTS is the first one with a lightweight performance hybrid. The newly developed innovative drivetrain ensures significantly improved driving performance. The media and customer response has been extremely positive. And the other innovations are also very well received, the Panamera with the Porsche Active Ride suspension, the enormous performance boost in the new Taycan, together with significant higher range and shorter charging time. With a fully electric Macan, we are raising digitalization to a next level. The augmented head-up display and the navigation charging planner are best-in-class examples, or our new HD matrix LED headlight that first came with the new Cayenne, just to name a few. Our product strategy is designed to allow for more than 80% of our new cars fully electrified in 2030. Depending on the demand of our customers and the development of electric mobility in the regions of the world, positive remark is that we are already flexibly invested in our drivetrain offers for all our segments, ICE, Hybrid and BEV for the 2-door sports cars, sports limousines and SUVs. Our production sites, Zuffenhausen and Leipzig, are set up accordingly flexible. Both plants produce vehicles with all 3 drivetrains. However, it is clear that many product launches in such a short time frame, an extremely complex task, especially in a volatile environment, both economically and politically. And one thing has become more and more evident, the transformation of the automotive industry towards fully electric vehicles has clearly lost momentum and speed. The ramp-up curve is much flatter than originally assumed. As always, we are monitoring customer interest very closely, and we are adjusting our range in production accordingly, where necessary. This is particularly important in view of the fundamental change in the Chinese market. We assume that market conditions there will remain difficult in the medium term, particularly in the luxury segment. The implementation of a value-oriented and brand appropriated growth strategy will be one of the principal tasks of the new CEO of Porsche China, Alexander Pollich. Beyond this, his focus will be on an even more intensive collaboration with the local dealer partners as well as the further optimization of the internal processes and structures. We are strengthening our brand without joining the current pricing and incentive dynamic of the market, accepting lower volumes. The current residual values of our products are a positive indication. At the same time, it pays off that we have worked intensively on balancing our sales in different parts of the world. The China share of our worldwide deliveries was recently 19% in the first half of this year. And we were able to compensate for this well with a strong development in other regions. This proves our increased independence from the Chinese market and the robustness of our business model. We continue to consistently adhere to our value over volume approach. In line with this principle, we will continue to produce high-quality vehicles with attractive features and a profitable cost structure, in China and in all other regions worldwide. The demand for our individualized vehicles is greater than ever. Since the IPO, we have been able to increase sales per week resulting from [ integralization ] by over 13%, despite the increasing product substance with each new model generation. We will continue to make very targeted investment in innovation, digitalization and sustainability to inspire our customers with our new vehicles to further charge the Porsche brand. Our ambition is always to become even better, even in view of the challenging macroeconomic environment and the changing framework conditions. This is why we are also reviewing and prioritizing our cost structure and scope of development. We keep on focusing on our long-term ambition of more than 20% group return on sales. To regularly reflect on and optimize our actions is a very important part of the Porsche DNA. It is a reason why Porsche is so robustly positioned today and has successfully mastered various challenges in the recent years: the Coronavirus pandemic, for example, the semiconductor shortages or the consequences of the war in Ukraine. We will retain this robustness for the future with the aim of further increasing our own resilience and being able to counter future uncertainties in the markets even better. Our focus is on the stringent implementation of our Porsche strategy, which we are also sharpening and readjusting in some areas. In doing so, we are also taking account of the challenging framework conditions and market as well as our customers and their needs. With Strategy 2030 Plus, the company is further being systematically developed and new accents can be set. We have defined our strengths as a modern luxury brand for all elements of the strategy. Quality standards are also to be strengthened. Together with our Road to 20, it forms the foundation. We are also responding to the increased relevance of the topics of car IT, artificial intelligence and culture. In our software strategy, our customers benefit from the new partnerships with the aim of creating leading technology architectures. This will enable us to bring the best solutions to our vehicles faster and at lower cost. We are also acting in the best interest of our strong brand, which will inspire with its iconic products. The partnerships fit seamlessly into our existing software strategy, products and cooperations. This will strengthen our technology profile and our competitiveness. So let me briefly summarize. Our business development is proceeding according to plan despite all challenging environment. We launched our new products on time with positive feedback from the media and good response in the market. We have a high ramp-up quality and positive external quality assessments of Porsche products. In terms of sales, the dip in China can almost be compensated and the financial result in Q2 is in the accepted range. With the largest product advances Porsche's history, we are putting our sales in pole position in the endurance race of transformation. Numerous technological highlights underline our innovative strength. We want to inspire our customers worldwide. This makes us confident regarding the return to our midterm profitability range of 17% to 19% in 2025. And now I hand over to Lutz Meschke to tell you the figures in detail. Lutz, it's up to you.

Thank you, Oli. Now let's talk about our operating performance and business model. Our Q2 results are illustrating our robust business model, which can compensate a regional weaker sales mix and lower China sales with strong product portfolio, better product availability and strong mix. Our second quarter was better than Q1 in terms of group revenue, in terms of group operating profit and in terms of group return on sales. Our return on sales for Q2 was 17.0%. In addition, we have been boldly forging ahead with our product offensive. With the new Panamera, Taycan, Macan and 911, we are putting ourselves in a strong position for the years ahead to exploit our structural growth potential. The associated transitions are complex and have temporarily led to gaps in the range in individual markets and model series. At the same time, we are conscious that the adoption of transformation and demand in global markets is developing quite differently. Thus, we have already started to take action. Throughout our entire history, Porsche has proven to be agile, flexible and willing, and able to recalibrate and reprioritize projects and products, all focusing and increasing our flexibility and resilience by fulfilling the Porsche brand promise to our customers. But now to the H1 results. In the first half of 2024, we were able to achieve a more balanced sales structure in our sales regions and compensate for challenges in individual markets. Our attractive product portfolio, in combination with a very robust demand from our loyal customer base, gives us stability. This is a foundation to consistently pursue our strategy of value-oriented sales in the future. In the past 6 months, we sold over 151,900 vehicles. This corresponds to a decline of 11% to the previous year. After Q1 being impacted by the ramp-up of the new Taycan and Panamera as well as customer-related delays in North America, we sold overall 81,300 vehicles at the end of the second quarter. Overall, sales of the 718 and our icon, the 911, remain continuously robust, and the order intake for the new 911, especially the T-Hybrid GTS, is experiencing quite strong customer demand. First Carrera deliveries are planned after the summer break and GTS starts at the end of 2024. After initiation of the changeover in 2023, the Cayenne is fully available in all our sales regions, which is also reflected in a strong sales increase of 13.7% in H1 compared to the previous year. As mentioned, Panamera and Taycan sales reflect the run out and ramp-up phase. Because of the model changeover in many markets and the strong previous year period, Macan sales were also lower. In North America, we sold strong 40,500 vehicles in the second half of 2024, following customs-related delays in the delivery of some vehicles in Q1. Despite the ongoing tense economic situation in the Chinese market and lower demand in the luxury segment, we keep focusing on our value over volume strategy with value-oriented sales and customer satisfaction. With a share of 20% from China sales in H1, 80% of our global sales are coming from Europe, North America and our market region, Overseas and Emerging Markets. We have a more balanced sales footprint than ever and Porsche is in the position to deal with the current China exposure. And we will work to further increase our resilience and to be able to counter future uncertainties in markets even better. This means also to start the necessary initiatives to recalibrate and align our China ecosystem with the current demand environment. And as said, we will initiate incremental initiatives to further increase our resilience and to be able to counter future uncertainties in markets even better. Let's now turn to the financials. Group revenue in the first 6 months was EUR 19.5 billion, a decline by 4.8%. This development is reflecting the lower vehicle availability due to the changeovers. On the other hand, we benefited from a better product mix and pricing, leading to an under proportional decline of group revenues compared to our vehicle sales. Group operating profit was EUR 3.1 billion at a margin of 15.7% for the first half of 2024, benefiting from a strong operating margin of 17% in Q2. The earnings per preferred share for the first 6 months amounted to EUR 2.37. Let's now talk about our customer demand. The mix and quality of our orders and order book demonstrates that our customers appreciate our exclusive product offering and very much make use of the opportunity to personalize their vehicle. We are seeing sustained robust interest in our vehicles, a situation that will become more apparent as the supply restrictions that affected us are expected to be easing. Overall, in all regions except China, order intake stays robust with a strong mix and pricing. As mentioned, demand for the new 911 is satisfying and above expectations. Also, the demand for the all-electric Macan remains high, unchanged. The first vehicles will be handed over to customers in September. For the rest of the year, we will have to closely monitor our potential retaliatory measures on Chinese car imports and the potential effect for the demand for our products. Pricing, again, was positive, benefiting from the price increases last year, new models and a higher degree of individualization. Despite a significant lower share of sales to China, the average sales price on retail in Q2 was EUR 122,000 per vehicle. Automotive revenues per wholesales was EUR 117,000 per vehicle in Q2. Automotive revenues amounted to EUR 17.7 billion year-to-date. The Automotive segment's operating profit in the first 6 months of 2024 was at EUR 2.9 billion. The operating return on sales for Automotive was 16.4% in H1, supported by a better product supply, especially with the Cayenne in Q2. Cost of goods sold remained elevated due to the continued supplier cost inflation and higher launch costs, which were mainly caused by expensed R&D in connection with the product portfolio. The first half, we also booked slightly higher sales and marketing expenses, resulting from our digitalization strategy and an increase in brand and customer relations services. Porsche is committed to continue to inspire its customers with desirable and high-performance vehicles in the luxury segment and to further advance its strategy of value-creating growth. This is the foundation for our consistent stellar financial performance in the future. Thus, we spent EUR 2.5 billion on CapEx and research and development in the first half. Let's now focus on our R&D this quarter. After the exceptional high R&D ratio at the beginning of the year, the R&D ratio in Q2 '24 was at 6.0%. Capitalized R&D amounted to around EUR 0.3 billion in Q2, a ratio of 57%. Depreciation and amortization of capitalized development costs amounted to around EUR 240 million. Thus, the expense of R&D in Q2 was around EUR 100 million higher than last year, equaling 5.1% of Automotive revenues. Automotive EBITDA in the first half of 2024 was EUR 4.3 billion, corresponding to an Automotive EBITDA margin of 24.1%. Financial Services revenue amounted to EUR 1.9 billion in the first 6 months. The operating profit of the Financial Services segment was EUR 129 million. Unchanged, the result is mainly driven by the valuation of interest rate hedging transactions and derivatives outside hedge accounting in the context of regular refinancing activities. The reversals in loan loss provisions were lower than in the same period of the previous year. Unchanged, the credit quality of our book is still very, very strong. Our Financial Services penetration rate at the end of Q2 '24 was 35.6%, which was 530 basis points lower than last year. This development reflects that we pass on the market terms in our offers. Furthermore, we earned an automotive net cash flow of EUR 1.1 billion in H1 '24. In Q2 alone, we accounted for EUR 1.0 billion. The net cash flow was mainly driven by the following factors: a cash flow from operating activities of EUR 1.8 billion, an increase in working capital. The main outflows were due to temporary higher inventories, 300 million of new products. At the end of the quarter, the market launch of the Macan and the ongoing challenges in the supply chain led to this change. Our cash flow from investing activities reflects our continued spending for the development of our brand and ecosystem. And last, our Automotive net liquidity was at EUR 6.1 billion at the end of the second quarter after this year's dividend payment of EUR 2.1 billion in early June. Let's move on to the outlook for 2024. Porsche inspires its customers with new vehicles and exciting digital customer experience. With focus on the changing demand patterns in our key markets, another asset is our strong product portfolio and the established flexibility between platforms and drivetrains. Based on our performance culture, we will continue to resolutely push ahead with our strategy and invest in our product, brand and innovation. Spending into our ecosystem today will be the revenues and earnings of tomorrow. At the moment, we are looking forward to the upcoming product launches, the new Macan Electric and 911. These strong new products already create amazing feedback and earn exceptional customer research. As also said before, these model changeovers will require additional tasks and hard work by our teams. Model changeovers require additional attention in our production facilities, yet we are well prepared with our industry-leading most flexible production sites, Leipzig and Zuffenhausen. These reshaped changeovers will result in temporary lower output, lower product supply and higher temporary inventory. This will have an impact in the second half of the year, especially Q3. As already discussed, we have made very good progress in the industrialization of the supply chain for the 911. Regarding the 911 Carrera and GTS introduction, we again fully focused on quality and ramp-up production accordingly. First, GTS deliveries will take place in Q4 '24 and will consistently increase in the course of H1 2025. The growing order book and waiting list shows that our loyal customers understand and value our quality-focused ramp-up. Now let's come to sales and pricing based on the scheduled product introductions. We had expected a continuously improving product availability, and we were very well on track for the second half of 2024, which we had expected to also reflect in our sales and pricing. However, as we informed you on Monday evening, various of our suppliers are currently affected by a significant supply shortage with regard to special aluminum alloys. The supply shortage is a result of the flooding of production facility of an important European aluminum supplier, who has informed its customers of a force majeure event, affected our lightweight body components made of aluminum which are used in all vehicle series manufactured by Porsche. Despite immediate countermeasures, it is becoming apparent that the impending supply shortage will lead to impairment in production, which will not be fully compensated for in the further course of the year. Now I give you an outlook on the revenues. We have a very strong order book, and we were well on track to deliver on our outlook. But against the background of the flooding of the aluminum plant, we have decided to adjust our forecast for the financial year. We now expect our full year revenue target between EUR 39 billion to EUR 40 billion. Still, we will have to continuously monitor our demand patterns, our supply chain and developments in the different world regions and actively adapt our production capacities, if required. Here, we will remain attentive and consistently focused on the value-oriented development in the Chinese market. This also holds especially true for potential tariffs on Chinese car inputs and the potential effect for the demand for our products. On the cost side, the supply chain, labor and SG&A will remain to be a considerable burden. In addition, the introduction of the new product will be accompanied by temporary higher launches and higher D&A on capitalized R&D and CapEx than in H1. In the remainder of the year, we will also continue with a stringent but flexible execution of our strategy and continue our investments in our ecosystem to boost the quality of customer service and ultimately that of the Porsche brand. Based on the outlined situation, Porsche AG Group now forecasts a group operating profit in the range of 14% to 15% for the full year 2024, as published in the combined management report, due to countermeasures initiated. Our forecast for the Automotive segment is an EBITDA margin between 23% and 24% and a net cash flow margin in the range of 7.0% to 8.5%. This range includes our continued investments in the upcoming product portfolio, digitalization, brand and other strategic projects and partnerships. Let me also share a couple of thoughts on our disciplined capital allocation strategy. As you know from our IPO deck, our targeted spendings for product innovation and our ecosystem will stay elevated at around this year's level in the midterm. It is well understood that with respect to the slower BEV transformation in the Western world and the modest luxury demand in China, we will refocus and recalibrate our budgets and projects. Let me summarize. Porsche is exclusive; Porsche is individual. Our brand fascinates people all over the world and across generations. Going forward, our strategy stays focused on further strengthening the Porsche brand. Throughout our entire history, Porsche has proven to be agile and flexible. We have shown more than once, with respect to our budgets and spendings, that we see challenges as an opportunity to become even better. We have already proven several times that this is in our DNA: always focus to increase our flexibility and resilience whilst fulfilling the Porsche brand promise to our customers. This will provide us with a more resilient foundation for the years to come. At the same time, we are pushing ahead with our ambitious Road to 20 programme. With this, we want to further expand our long-term return target, in a systematic manner. Thank you very much for your attention.

So hello, and welcome to all of you to Porsche's first half results. Before we start, raw materials such as the investor deck or the half year financial report are available on the Investors section of our Porsche website. And before we begin, let me just remind you that any forward-looking statement we give during this call and in our statements are subject to the risks and uncertainties mentioned in the safe harbor statement included in our Porsche materials. With this now, let's move on to the Q&A session.

And the first in the row will be Tim and second will be George.

First of all, great to see these Q2 results. It's just a real shame they got overshadowed by what we got yesterday as well. So I have 2 questions, please. The first one would be exactly on that. We spoke about this in length already. But the announcement yesterday just made the urgency of managing your supply chain better even more clear. Premium stock requires premium execution and delivery, and that what we got yesterday and over the last few quarters is simply not that with respect to that. Investors are starting to develop serious doubts about your operational execution power. So what will you do to really improve this in the short term? And in light of you are you confirming the 17% to 19% target for next year? Can we expect that, that will be less of an issue going forward once you are through this major renewal phase? Second question is, obviously, we noticed today that your BEV share is now quite low in Q2. The market demand just doesn't seem to be as strong for BEV products. How shall we think about flexibility regarding drivetrains for you going forward? Can you move between powertrains? Will we see your ICE models for longer than expected?

Okay, Tim. Let me start and a good morning to all of you. And let me be very clear about the supply chain issue. We are not happy at all about it. We have already implemented during the last year, an extended program with a risk radar and production readiness team. We'll be better there. And we have a clear ambition also to solve this issue. Generally spoken, I'm already 30 years in the industry and the supplier issues at Porsche are not worse, not better than in the industry. And we're mentioning that the daily problems, especially, have increased since the crisis years in the supply chain. What makes Porsche so special? And why we have to be better than others comparing in the market? We have a high percentage of preordered cars, very exclusive cars. And that brings us in the situation that we are not able to compensate like others. They build to stock, for example, to change in between an automatic to manual drive. It's not so easy for us because our cars are very specific. And we have a high-end technology and especially specification. That's the case when we talk about aluminum. We have a very deep growing depth in terms of our parts, side panel, fenders, and therefore, the specification is so, so special and that makes us so strong to find alternatives. And on the other side, we have a very high variety and the complexity that you have on specific parts on the [indiscernible] side positive for margin on the other side and not so easy to handle. Then we have lower volume than others. And therefore, we have much more thinner source. And sometimes, we have a demand which is much higher than planned as a positive, especially for special editions. And there, sometimes we have to struggle to bring the volume. But being very clearly, we want to be better and we have to be better than the competition because of our special conditions. And in the specific case of aluminum, we never stopped now to fight and being able to compensate it during the year, but up to now, the situation is like it is. Coming to the 17% to 19%, and maybe Lutz later can add how we want to do it. It's very clear. We -- as you know us, after the IPO, we stand for promise and deliver. Last year with our overall record year, this year, '24, the expected product year. And for the next year, we will keep our ambition and the long-term ambition we state to our Road to 20. And especially in this year, everything in spite of renewal of 4 of 6 model ranges, we have some less volume. We are able to compensate. We have some high expenditures because of the new model launches. And we have the compensation of the China market enter the supply chain issues. And therefore, we came to this ambition we announced. And after next year, we will speed up again, and maybe, Lutz, you can add a bit details how we're going to do it.

Tim, it's a very good question, how we want to reach the 17% to 19%, but let me start with the first quarter. We addressed in the first quarter that we will see a much stronger second quarter, and I think we delivered. We were well on track to reach our forecast for '24 with a margin between 15% and 17%. But against the -- yes, the supply chain constraints with our aluminum supplier in Switzerland, we were obliged to adapt our forecast to 14% to 15%. But coming back to the situation in the second quarter and the situation in the second half of this year. Despite the 4 model changeovers, the weak demand situation in China and the expected mix situation when it comes to the 911, high share of base against a lower share of DTS, we would have been able to reach, yes, the promised return on sales for '24. And that makes us very confident to reach in midterm return on sales between 17% and 19% because in the upcoming years, we will have a full range of models in place. When it comes to the 911, we will see a much higher share of the GTS, and starting in the second half of '25, also the Turbo, and then therefore, obviously, entire renewed model range with a strong mix. And also with the restructured cost basis, we should be able to reach a return on sales between 17% and 19%. That remains our clear ambition for the future. And it's important to emphasize that we already addressed the restructuring of our cost bases that we have put in place, also operational measures already in '24. And therefore, we are convinced that we will see lower research and development cost rate in the second half of this year, and we will see additional impact also in research and development cost savings in '25. And the upcoming years, we have to adapt also our sales structure in China, of course, due to the ongoing weakness in China. We have to rescale our wholesale structure and also our retail structure, and lead also to cost savings in our sales costs in the future. We will be able to be very profitable also in the case that we are selling 250,000 to 300,000 cars a year. That's a clear target when it comes to the restructuring of our cost basis, and we are well on track to reach it. And of course, when it comes to BEV share, we don't know exactly what will happen in the upcoming years, but it's clear that the speed towards electromobility in the U.S. and Europe is lower than expected. And in China, the speed is high, but is not existing a real luxury segment. Therefore, we have to reflect when it comes to the development of new products. And therefore, we already addressed also some, yes, new combustion engine cars when it comes to future projects. And as already addressed, we are also very flexible when it comes to our production plans in the direction of combustion and some plug-ins and BEVs in one production line.

And we are already in a great positioning being invested flexibly. In our segments, we are offering in all our segments, combustion engine, hybrids and BEV. We will access the markets that's very clear to adapt. And our flexibility is already paying off. Only the recent example with a very strong order intake of 911 and some Macan, and that shows that our customers are prepared to go for both. But we will carefully track the market, as Lutz mentioned, especially Europe, North America has slowed down a bit, in China, strong demand, but there we will look also how the luxury segment will develop.

Very fine,. So next one in the row will be George. And after George, we have Patrick from UBS.

The first question I had was with respect to China where you recently announced the management change. Obviously, it's a very challenging market at the moment, and you seem to be focusing on price, which is costing you volume. Do you plan to continue to prioritize price over volume in China following the management changes? And is it -- yes, is it fair to expect lower volumes from Porsche in coming years versus recent peak until the Chinese market recovers or improves? And maybe just as an aside to that, I don't know if you can confirm whether you made any dealer payments in China in Q2 or indeed plan to in the second half? The second question followed up from Tim's question with respect to actual electric vehicle demand. As you mentioned, we are seeing some softening of demand, and you stressed the importance of flexibility. But if we look at the low end of your range, namely the 718 and the Macan, you're not offering your customers flexibility anymore in Europe as your new products are BEV only. Is that something you're potentially looking to address? And if yes, will that require incremental CapEx above existing plans? And maybe just related to this, given your pilot plant in Chile and recent noise coming out of the EU, do you think e-fuels actually may now play a much bigger role in the future than was previously assumed?

Thank you, George, for your questions, and may I start with China. First of all, the overall market situation, you know about the real estate crisis where many of our customers are affected. The whole luxury segment is under pressure also when you talk to Ferrari and [ allium and ash ] from France. And what we are mentioning in the market, it's a high dynamic in terms of pricing incentives, discounts and dealer compensations. And we have there a very clear decisioning not to follow the general market environment in terms of pricing discounts, and we follow and also in the future our approach, value over volume. Positively spoken, we have in the first half of this year a worldwide market share of 19%, comparing to the all-time high, 33%. It slowed down. On the other hand, we were able to compensate it and to reduce the dependency on China. So we have implemented during the last month, a very structured program. And we feel us now on the bottom line with opportunities to improve but everything very clearly linked to value over volume. We don't care and we don't fight volume in China. Our program is on product improvements for our segment, to improve our organization, to have the right levers in terms of marketing in the market, especially on social media. We have a expanded dealer program, then we are assessing the dealer network and the customer community. That's our plan. And to ramping up everything, we decided to make a change. And sometimes it's like in sports, to have changed the coach and bringing some fresh ideas to the market. But we think that it will work. I've been in China last weekend also with a very positive meeting with the dealers. And we decided to pay incentives, but very closely linked to performance. We won't go for an incentive model without a performance agreement. And that's what we agreed. And now we think we are in a good pace to stabilize or, in some cases, to ramp up a bit. And positively spoken, we were able to compensate the situation. And so then, there you are right, in Europe, we are not offering the Macan combustion engine anymore and 718. We think we have a great offer with the electric versions and for us, it's more the caring how we go to the higher product ranges. And these are the entry -- have been over many years, the entry ranges for our customers. And if we are able to move them via ranges, for example, combustion engine, Cayenne, many, many of the customers who started with the Macan will go to a Cayenne. And in 718, the same who wants to buy a combustion engine, through those sports cars, we will lead them to 911. And so we think the strategy is fine. And further on, we will think in which segments could be useful to expand the combustion engines or hybrids. And in terms very quickly about the [indiscernible] consideration, that is the direction we have always proposed in the past. On the one hand side, focus on electromobility, but being more open for technologies, and therefore, our investment to synthetic fuels goes completely to the right direction. We think there will be a very strong direction towards electromobility. But if it's possible to make a mix in between synthetic fuels and combustion engines, on combustion -- tradition combustion fuels, in the ramp up phase, it's very positive for climate protection. And then we will see in 2035, if the volume -- production volume of e-fuels is enough for being able to change. But for us, very clear, we stay to a very mixed product portfolio.

Yes. As Oli mentioned, it's key to stay flexible when it comes to the mix of drivetrains. And therefore, we clearly addressed it not only when it comes to our production plans, but also when it comes to future development project, as I already addressed, we are thinking in the direction to be very flexible in the future, also in the direction of examining the possibility of using multi traction platforms. And therefore, we are quite confident that we can offer also in future a very good mix between combustion engine cars, plug-ins, and BEVs. And yes, we already addressed the prolongation of the cycle plan for the Cayenne and Panamera towards the mid of the' '30s, and we will invest also in new platforms, not only when it comes to hardware, but also when it comes to software. You will see then also a new infotainment system is in the car and then for -- yes, I think we will lay a very good foundation to stay flexible.

Very good. So the next one, as discussed will be Patrick. And after this, it will be José.

First one, you're telling us basically that the EBIT margin will grow by 350 basis points in 2025 over '24, if I take the midpoint of your guidance range. And I just want to dissect that a little bit because you're kind of deemphasizing the volume aspect of it, which is probably the right thing to do. If I look at your costs, year-to-date, they're actually up year-over-year. D&A is probably going to go up next year as well, and there's not that much you can do about it because of amortization of previous R&D spend. You still enjoy this year quite some FX tailwinds. I'm not sure for how long they last. So how should we get to that 18% or 17% to 19% quarter next year? Is it solely driven by price mix and a little bit of here and there on the cost front? It just feels still like a huge stretch to make that 350 basis point jump in the operating margin without a meaningful volume support. And my second question relates to the situation at VARTA. Can you give us an idea what your maximum financial commitment will be? There was already a confirmation, I think, on your end that you would be ready to invest in a joint venture that's producing the batteries you need. But the parent company is also in financial distress. And I'm just wondering if you can give us an idea how much that could cost Porsche in the end, the maximum amount of cash that you would be ready to provide? And the talks are ongoing. Is there still execution risk that could potentially endanger the battery volumes that you need for the GTS starting Q4?

Yes. Patrick, thank you for your questions. Let me start with the actually 2024. We delivered in the second quarter. We clearly addressed it, and we were good on track to reach our forecast towards 15% to 17% return on sales in 2024. Despite 4 model changeovers with the slow ramp downs and slow ramp-ups, despite the situation that we see still a very, very weak Chinese market, and despite the fact that we will see, yes, mix when it comes to the 911 which is not so promising because we have to rely in the first 5, 6 months on the base model, it's the opposite of our usual behavior when it comes to the 911, And despite all these facts, we would have been able to reach our ambition for '24. That means the corridor of 15% to 17%. In the upcoming years, you will see completely a different situation. We will have completely renewed model range in place. When it comes to the 911, we will have a much better mix with a high share of GTS and then second half also the Turbo will be in the market. When it comes to the 911, we addressed a huge cost saving program. You will see a lower development costs in '25 compared to '24. You will see also entire reduced cost structure, starting with the fixed cost over the sales cost up to the development cost, as I already mentioned. And therefore, we laid a very good foundation to reach our ambition in the upcoming years. Of course, you are right, the DNA will increase this year. You will see, yes, an amount of about EUR 500 million in addition to the 2023 figures, but you will see a similar figure then in '25. There'll be no further impact when it comes to D&A. And together with all the positive impacts from our restructuring programs, also the downsizing, resizing of the Chinese sales structure, yes, it's -- we are clearly on track to reach our ambition between 17% and 19% return on sales in the future.

And let me come to VARTA. And I will start with the technical and process issues. And no doubt, we were struggling to ramp up the production line. That's not a rocket science. It's kind of production management. And therefore, we are a very experienced team from Porsche also in VARTA, led by my colleague from production, [ Heinrich Reinhold ]. And now we are convinced that we will be able to come into the market as we planned since many, many months with a 911 hybrid and positive issue there that we have a very, very strong order intake for the GTS, and we are looking very much forward to ramp up. And then on the other side, yes, secondly, we already invested in a second production line at VARTA to have, at the end, more and more volume, more security, and that will be capitalized during the next months also. And then maybe the commercial aspects of the VARTA.

Part of the commercial aspect. Of course, we already invested in the second production line. We are the owner of the production line, of course, the also significant IP. And therefore, the amount in cash will be very limited when it comes to the establishment of a new joint venture for the [ Vifor ] company. And therefore, when it comes to the financial, it will not create a huge burden for Porsche.

Understood.

Patrick, only one annotation. You know our conservative hedging policy within Porsche. So therefore, to the degree you should never expect that this company is maneuvering on spot rates but with a very conservative hedging policy. So to this degree, you also see us prepared on that side. Now the next question from this will be José. And after José, it's Stephen from Bernstein.

A couple of questions, please. Lutz, maybe a bit of an [indiscernible] question. Can you help us a little bit with the second quarter revenues? What was the impact as of price mix and currency, maybe from a directional perspective, positive or negative, what you saw in the second quarter there? And then only in respect of remaining flexible, I'd love to hear some examples of how flexible is the production footprint. We have a decline in sales in China. And I'm pretty sure you're looking at your production footprint and adjusting it to this new structural lower sales, at least for the time being. So can you give us some examples of the time plans of flexibilities [ virtualized ]. And then second, if I may add, on Macan, I understand that you want to remain flexible. Is there an opportunity to maybe reconsider the powertrain options for Macan? Maybe not now, but we consider a little bit the powertrain options maybe in the next 2 years if the demand actually turns out to be stronger when it comes to combustion engine?

José to the degree, the revenue was the majority price and mix and taking a look at the line of people queued up for Q&A, let's park discussions on line items with IR and leave the more strategic questions with Lutz and Oli, which will now take questions 2 and 3.

José, I will take the second question about the flexibility, and our robustness is shown already when you look to our worldwide volume shares. China is now on the same level like all our overseas markets. And our business is pacing on 4 pillars, very well balanced and will be North America, Europe, China and overseas. And that brings us in this flexible situation being able, for example, to compensate the current crisis in China. On the other side, our investment is also flexible in between the segments, being able to offer to our customers in each of our 3 segments, through the sports cars, limousines and SUVs, a combustion engine, hybrid and fully electric offer. And also, our plants are completely flexible, being able to build all these 3 options. In terms of powertrains, that's right. We are assessing the market. And we will check where we have the best opportunity to add maybe the additional combustion engine or an additional car concept. And there, as you know, we have a very advanced platform for Cayenne and Panamera where we have a lot of opportunities. And there we are aiming more for higher segments instead of going lower down. And so I think we are very well prepared for the next years with the products to come, with a new Cayenne, with a new Panamera, with a new Macan, with a new 911, with a new Taycan, 5 of 6 and next year, 718, everything in market, and that will help us for the next years. And then now we are going to decide through the end of the decade how we will go further on, especially with combustion engines and hybrids.

Next one in the row will be Stephen of Bernstein, and thereafter we take Horst of Bank of America.

Steve Reitman here. First one, I'd also maybe just like to build upon Tim's question about premium valuation and premium execution and the disconnect that we've seen there. Obviously, it's very unfortunate what happened in Switzerland with the flooding of the aluminum alloy supplier. What lessons have been learned taken away from this and can be applied in your logistics and your purchasing to avoid future cluster risk to avoid maybe this recurring in the future? My second question is about Macan Electric. And if you could talk a little bit about the order book. Now when you launched the Macan Electric, you launched in 2 additions, the Macan 4 and the Macan Turbo, which were all significantly priced above the price of the Macan ICE, which was exactly what you've been telling us you were going to do. You said that first customer deliveries are starting in September. You subsequently now introduced 2 further editions, a more cheap Macan electric and sort of Macan 4S priced between Macan 4 and the Turbo. Could you tell us why this has happened now? Normally, one would expect the sort of cheaper or fill models to come after the first deliveries have started of the models, but you're already expanding the range and bringing cheaper options in even before the first vehicle has been delivered. So could you talk a little bit about the order book? I noticed you haven't actually introduced these 2 extra models on your China configurator yet. So when will that happen? And we'll also see some, I assume, cheaper models coming in for the China market as well, given the state of demand for BEVs overall?

Yes, Stephen, let me start with our supply chain. And as I already mentioned, we are not happy with this, and we are -- have already implemented a complete program to improve this situation. Because we know the whole supply chain is under pressure right now for all manufacturers for all the same, but we are in this specific situation that we have the high percentage reordered cars, not being able to be flexible in switching volume, as I mentioned, some in Automotive and manual or different car concepts. We have the high-end technology. Others sometimes have with special specification for our aluminum, in this case because of the [ drawing debt ]. Then we have the high complexity of specific parts. We have lower volumes than others with more single-sourced. And there, I wanted to go a bit deeper with our measures. We are working there with a specific risk radar. And one important lessons learned of this case is not touching only the first-tier suppliers, also touching second-, third- and fourth-tier suppliers where we are in a single-source situation. You remember, for example, the transistor issue in the U.S. in the beginning of the year, where we are dependent on a first-tier supplier of a seat supplier. And we didn't have this in mind. And in the case of aluminum, that is a second tier. And so we will expand our risk radar, especially in this area. And very clearly spoken, we have to be better than others because our challenges and our ambitions in our product portfolio is completely different comparing to others in the market.

And Stephen, please understand that we cannot give details about upcoming derivatives due to competition reasons.

Very good. So the next in the road then will be Horst and the next after will be Mike from HSBC. And gentlemen, with respect to the time, please focus on 1 or 2 questions or with specific focus on the operation of business and the strategy.

It's Horst from Bank of America. I have got 2 questions, please. I want to touch upon the press articles that we have seen recently. There's some interesting points were mentioned. So one of that is basically the restructuring program. And Lutz, you were also talking about that already in a few bits. Can you maybe outline more details of that restructuring? So basically, what you had to do exactly? How much does it cost? Are there any one-offs that we should expect for 2025? When are the benefits to come through? And how big are the benefits in the end? That's question #1. Question #2 is basically on this bucket. I think you also talked about that here and there already that you want to do basically less, but you want to achieve more margin. So basically, what the press article was saying that you aimed just for 250,000 units add, but still then a 20% operating margin. That's your Road to 20. So I just want to get -- maybe you can share some general thoughts on that, less units added but higher margin, is that something more for the midterm? Or that is something we should expect already in '25 and '26 of which would imply basically a change to your midterm targets regarding revenue growth? And just the last one on that, is the 80% BEV target now for 2030 off because you stress all the time, your flexibility on BEV versus ICE?

Horst, thank you very much for your question. As discussed earlier, Lutz and Oli gave some hints with respect that this company has it in the DNA to adapt, to recalibrate and to refocus. And to a certain degree, they also gave a certain hint with respect that the company is focusing to the degree that we want to get more exclusive, more innovative. And finally, to serve our customers with the best product, which gives the foundation for future profitability, cash flow generation and thus value add. Please understand that at the same time, you're relating to press speculations. And the course and the nature of this company is usually not to discuss regulation. We are more living up to working giving clear guidelines, but please understand on today's call, we would refrain from commenting on press speculation.

But you can comment on this restructuring, right?

Of course, already -- you will see the effects already in the second half of 2024 when it comes to research and development costs. You will see a lower amount compared to the first half year, and you will see for the entire year 2025, again, a lower research and development cost situation compared to '24. And you will see also the impact of our restructuring when it comes to the sales region, China, when it comes to the wholesale organization and also when it comes to the retail situation. And therefore, we are clearly addressed beyond our fixed costs program, which is part of our DNA, of course, significant impact when it comes to research and development and sales costs. And as already mentioned, despite all the challenges in '24 with the model changeovers, with the weak sales situation in China, the mix for the 911 in the second half of the year, we were very well on track to reach our ambition of a margin between 15% and 17%. And this entire new model range in place in '25, the addressed cost program and of course, a very good mix, better mix when it comes to the 911 compared to '24, we are very, very confident that we see a stronger year 2025 and even, yes, very, very promising situation when it comes to midterm.

And Horst, let me add. We have read a lot of wrong information and speculations in the press during the last phase. Okay, but that's not the issue. To your question, 250,000 units a year, it is more for us a strategic concept to bring our company in a situation being profitable in our ambition with this volume level, and that shows that we are very focused on value over volume. If it will be more, it will be more profitable. But all the activities we are doing right now is moving the company in terms of the cost structure for this direction and then being able more flexible. And what we see today with our product portfolio will be above this 250,000, but that's more a thinking model we are ready to go. And touching your last point, the 80% of BEV share, we are prepared in 2030 to do so. But at the end, the market will decide. Our customers will decide, and we will be also prepared for other shares between combustion engine hybrids and BEVs, but we stay to this ambition. But at the end, the market will tell us the truth.

It's more realistic, of course, to reach a volume of more than 300,000 cars in the upcoming years. But as Oliver mentioned, we want to be prepared also for a situation maybe if China comes further down, yes, to be highly profitable also in a situation when it comes to a sales figure between 250,000 and 300,000 cars. It's a program which is completely linked to our strategic ambitions.

Very good. And now the last 2 in the row will be Mike of HSBC and then Anthony of ODDO. And taking a look at the time, gentlemen, please focus on 1 or 2 questions.

Mike Tyndall at HSBC. Just a couple of ones from me. Can we talk a bit about the China adjustment that you're referring to? I mean I think about the growth of high net worth individuals in China, there is still a fairly bright outlook for that. So curious to know to what degree the change is driven by the competitive market dynamic, whereby you think longer-term opportunity for you in that market is now smaller. What are the parameters that you're working with to decide what the right size in China is? And then the second question, on suppliers. Just with your risk radar, I wonder if you're willing to share just how much of your supply chain is indeed single source. And also, I guess, the question around this specific incident, from what I can gather, the supplier in question is going to make an insurance claim. Can you not access some sort of compensation from that supplier as a consequence?

Mike, let me start with China. We know about the market situation. Luxury segment is under pressure for the whole automotive industry. And we think we have now touched the bottom line of China last, last weekend with our team, with our dealer partners. And also our dealer partners say, segments could come back, but nobody knows when and how. And so as Lutz mentioned before, we are preparing our company to stay on this level. And maybe it could be done, we will decrease more. But now in our planning, we are basing on this bottom line we have reached already and having already been able to compensate with other regions of the world. Then what we have to watch in China is how on the battery electric segment, luxury will develop. Today, we don't know. Luxury segment for electric cars does not exist. So we will now launch some balloons or some intents to check how it works. We can do it with Taycan and with the Macan, and then we will have the proof points in the further months to come. So what we do, beside of this, preparing our organization, preparing the dealer organization, preparing our products for the market. And if the luxury segment in electromobility won't come, we will be prepared for the combustion engines and for the hybrids, which will play a role in the future as well in the Chinese market. We have strong profit margins. That's on China. And talking about our supply chain and our single sourcing. Our intention is to having more and more double sourcing where it makes sense. It's always a question of investments or at least have a flexibility to have other suppliers in mind could be able to compensate. And one positive example was how we were able to move from single sourcing in Ukraine to more countries when it came to the cable situation we got from Ukraine. And in terms of our compensation, in this case, it's not possible about flooding. We are focusing more in terms of compensating and having solutions with other suppliers during this year. The situation today is like it is, probability is over 50%, but we will fight every day to improve the situation.

Of course, from the risk management side, we already addressed a program to avoid single sourcing and cluster risk. It's not only about single sourcing, it's also about delivering all our model range. And we already clearly addressed it 1 year ago. It's already addressed clearly for the Tier 1 supplier, but it's not that easy for the subsequent Tier 2, Tier 3 and Tier 4 suppliers. But we have to do if we have to dive in the entire supply chain in order to avoid such situations in the future. When it comes to insurance compensation, of course, we have an insurance policy. And it's clearly agreed and quite easy to calculate how much will be as a compensation when a force majeure happens in your own production plants, and it's quite easy. But when it happens within your supplier chain, then you have to talk about allocation. And the policy is not that clear, as Oliver mentioned, when it comes to force majeure in your own production plant. But it will be a very limited amount.

Now in the row will be Anthony.

My first one is if you could provide a bit more granularity into the sequencing of the second half, specifically how you expect Q3 to develop relative to volumes, mix and return on sales? And then my second question is just a clarification on a previous question. It wasn't completely clear for me whether you have issued or are intending to issue compensation to Chinese dealers, and if so, if we can have a sense of the magnitude. And then I have a third question if we have the time.

Anthony, to this degree, we would recommend that we have the discussion at the IR level. The company gave with respect to the sequencing in the course of the year, the beginning of the year a certain road map. This stays intact. And then we would take the last question with respect to the compensation of Chinese dealers.

Yes, Anthony, as I mentioned before, we have a very dynamic situation in terms of pricing, in terms of incentives, in terms of discounts and also in terms of compensation of dealers. And we decided very clearly, and that's a core of our brand, first of all, to stay value over volume, not to follow this war of incentive discounts and pricing. And with our dealers and we respect the situation because of the slowdown volume that they need a bit of support, but we don't do it in terms of general payment. When we give a compensation, it's very closely linked to performance. And what we agreed with our dealer partners, the so-called balanced scorecard with different performance factors. And the first payment, we have done very linked to the performance in the Q2. And further steps, we will agree also with performance data in the future. And the performance data is not only focused on volume, it's focused on other issues in terms of how it's a showroom qualification and so on, and then to activate also the market potential. And on the other side, we will assess the dealer network to improve the network and also to improve the performance dealer by dealer. And there, I can say from my experience from last, last weekend, very transparent, very open and very trustful conversation with our dealers. And at the end, there was a handshake to attack now, to ramp up, and everybody is clearly committed to fight the situation.

So ladies and gentlemen, thank you very much for participating. Oli, Lutz, thank you very much for taking the time. An obviously quite eventful week for Porsche, but we are pretty grateful for all your interest and sharing your views but also paying attention to the fundamentals of this company. IR, as always, stays at your disposal with any open questions that should remain. For all of you who are starting the summer break now, have a restful and relaxing summer holidays. We all look forward to see you back home healthy, and stay prepared for a couple of interesting events from the IR side in the second half of this year where we give you the chance with respect to experiencing not only our new products, but also to explore, in particular, some interesting visits to reach #5 with Icons of Porsche at the end of October. Gentlemen, ladies, have a restful and joyful afternoon, morning or evening, wherever you're located. Bye-bye.

Thank you.

Thank you. Bye.