Mercedes-Benz Group AG (MBG) Earnings Call Transcript & Summary

[Presentation] Good afternoon, everybody, or good morning, and maybe good evening to those of you joining us from the Americas or Asia. Even though you cannot be physically here with us, we still have a lot to share with you. We want use to this Mercedes-Benz strategy event to give you an update on our way ahead. At Mercedes-Benz, we actually started the year quite well. Sales were initially strong. On the cost side, we also had a first indication that we were getting traction on the measures that we announced at the Capital Markets Day last year. The actions we have taken were really starting to have an effect. But then came COVID-19. It was like a Formula One driver who is forced to hit the brakes because the safety car was slowing everyone down on the racetrack. The entire industry was stuck. So just like a professional racing team, we used this time to prepare ourselves for the restart. We stayed very focused during that time as I think our Q2 results showed particularly on the cash flow side. And as the world has found ways to deal with COVID-19 and as car sales have begun to recover, we have been able to accelerate again. We've announced some very significant actions on structural costs in recent months such as selling the Hambach plant. We have also started some important partnerships, notably with NVIDIA on automated driving and with Farasis and CATL on battery sales. Finally, we've also been able to reach settlements on the diesel issue in the U.S., so some really important progress. At the same time, COVID-19 gave us more time to think deeply about our strategic cost. In recent years, we have done so many things right, design, product engineering, brand rejuvenation, sales growth. As a result, we put Mercedes back on top again with cars like this for example. But all in all, we struggled to turn volume success into profit growth. So we have had to ask ourselves, is our strategy focused enough and are we moving fast enough given the scale of the challenges? And we certainly have some significant challenges. Our fixed cost and breakeven point are too high. Our product complexity is excessive. Our profitability and cash flow have not been good enough. We have significant legacy assets and headcount that we need to address. And we need to accelerate technology development in electric drive and software. So there's lots to do, and we need to do it faster. That's why we have refocused our strategy and are going to step up our game. I'm convinced we need a strategy that focuses on our strengths, that ensure that we can win in electric and software, that avoids noncore activities. After all, strategy is also about choosing what not to do. Ultimately, we need a strategy that drives us into the future and creates financial value for our shareholders, and it starts with putting customers first, giving them products that build a bond, cars that they truly love. Talking of cars to love. My first Mercedes was a C-Class like this one, a blue C280 to be more precise. And I adored that car every single moment. Still, I'm ready to acknowledge there are arguably a few even more exciting cars in the long history of Mercedes-Benz. In fact, this incredible brand has built some of the most desirable cars seen in history. We now need to make sure that everything we build going forward generates the same feeling of desire. The desirability of our products with the star is the key to our future. That goes for every segment we choose to compete in, including the exciting dedicated electric cars that we're about to launch. That's why it was easy to define the core of our refocused strategy. We will build the world's most desirable cars. That's it. That's our statement of intent. That's what we want to deliver. And today, we would like to tell you how we're going to get there in detail. Let's get started. We will build the world's most desirable cars. It's that simple. We're a car company. We're proud to be a car company. That's what we need to focus on. Fewer diversions leverage our great brand and our strong technologies to build a bright and profitable future of this company. Today, we have invited you to a virtual event. So we will mix presentations with some films to keep it flowing. But let's get going. Let me start with giving you an overview of our strategy and our 6 strategic pillars. The first one, think and act like a luxury brand. That comes natural to us. That's our home turf. And we will talk about today how we're going to leverage our brand to build economic value. Second, focus on profitable growth. Sounds obvious, right? But there is a subtle course correction on this pillar compared to what we have been doing over the last few years, an important one. Harald is going to talk about that in a minute. Expand our customer base by growing our sub-brands. We have the strongest luxury automotive brand in the world with Mercedes-Benz, but we have some other gems that can help us grow horizontally like AMG, like Miba, the G and, of course, our exciting new brand, EQ. Embrace customers and grow recurrent revenues. Of course, we've got to give the customer the best experience. But we got to keep the customer in our ecosystem for life. And we have a new profit pool with digital recurrent values and recurrent revenues that we haven't had in the past. Lead in electric drive and car software. The auto industry is in transformation. There are 2 technical trends that dominate that transformation: electrification and software. And we're going to double down on these. Lower our cost base and improve our industrial footprint. There is, of course, some homework that we have to do here and now. But it's not just about immediately fixing our cost structure. This is part of our strategy. We're going to make this strategy to have a better cost base at a lower breakeven. This rests on a foundation, sustainability. Last year, we presented Ambition 2039, our path towards CO2-neutral mobility. Our whole business strategy has sustainability as a basis. But a plan is only as good as the people that execute it, and we have a highly qualified team at Mercedes-Benz, and they're eager to go. They're motivated to implement the strategy that we're going to talk about today. It's a big program. We have a lot to talk about, but we will also give you ample time for Q&A. And we'll divide the session into 2 pieces, where we talk about the first pillar first, then a Q&A and a Q&A at the end after technology and cost piece as well. But let me lead into the first pillar, think and act like a luxury brand. Of course, this starts with our brand promise, who we are, our history, our heritage, but also where we want to take the brand into the future. If I go back in history and I look at this car, Gullwing, when that hit the market, it was like a UFO landing on earth. It cost $8,000 back then. I think the most expensive or second most expensive luxury car was $4,000. So it was groundbreaking. And today we look upon the Gullwing as -- like an automotive icon, but this is our DNA. This is where we come from when we talk about thinking and acting like a luxury brand. The key though is modern luxury never stands still, it's always in movement. It always evolves. We have the ambition to be the company that defines what modern luxury looks like in each era. Here, the example is the new S-Class, a beauty, a technological marvel, something that is already a promise of the future. But here, today, we are very excited about the response that we have received from our customers around the world when we launched this vehicle only a couple of weeks ago. But of course, it doesn't stop there. We're looking into the future as well. And one thing is clear to us. Modern luxury goes hand-in-hand with sustainability, as I mentioned, Ambition 2039, the roads towards CO2-neutral mobility, electrification. We will time and time again define what luxuries of each era. That's our ambition. What does this mean in terms of growth and economic potential? All the studies that we're looking at, and I can look back in the last decades and now look forward to the next decade, says that wealth growth in terms of the customer groups that we are targeting, that wealth growth is unbroken. It's not just about China. China is very important. The economic wonder of China over the last decade has sparked a tremendous round of growth for us. And that will continue, but also markets that we would consider mature, like Europe or North America, the market comes towards us and our luxury positioning spells an opportunity. I would like you to hear from 2 of the key people in our team when it comes to shaping the luxury future of Mercedes-Benz. And it's Bettina Fetzer, Head of Marketing; and Gorden Wagener, our Chief Design Officer, I think most of you know him. Let's see what Bettina and Gorden has to say.

My name is Bettina Fetzer. I'm the Head of Marketing for Mercedes-Benz. So let's talk luxury. First of all, please let me explain what we mean when we talk about this L word, luxury. Especially here in Germany, it's tricky. For some, luxury is still defined as costly, wasteful and an unnecessary effort for the pure cycle of pleasure. Well, at Mercedes-Benz, we might be a very German company at times, but in this case, we share the international view of luxury as a state of great comfort, of elegance, especially when involving great expenses, well and ideally, great contribution margin. Premium in contrast is defined by its price quality ratio. It's all about comparing specs and selling tangibles. Well, it goes without saying that top-notch quality and technology are mandatory for Mercedes-Benz, but we aim for more. Luxury creates that irrational desire. It's tone-setting. It's long-lasting and iconic. And that's our heritage. That's our strong suit and our way forward. So what do we bring to the table? Number one, luxury brands build dreams. Well, I'd say, we're the one reason why generations of kids had posters of cars in their bedrooms. Now it's pictures of street dreams on their [ inside card ]. Number 2, luxury brands have heritage and vision. We invented the car, right? Number 3, luxury brands define status based on new values. We embrace that expectation from statement campaigns all the way to our Ambition 2039. Number 4, luxury brands use the power of scarcity. And there's a growing list of true collectibles from Mercedes-Benz. Last, but not least, Number 5, luxury brands have an aesthetics sell. And that's what my colleague, Gorden, our Master of Aesthetics, is proving over and over again with his team. Have a look.

My name is and I'm Chief Design Officer for Daimler AG and Mercedes-Benz. To me, desire is the crucial thing for luxury brands. And therefore, my vision is to create the most desired luxury holistically for all our brands, for Mercedes-Benz and its sub brands, not only along the product, but also along the entire customers experience. So luxury brands, of course, define what the luxury of today is about. But what's even more important is that they take the lead and define what the luxury of tomorrow will be. Luxury is about the extraordinary. We call that the X factor. We have to constantly surprise our customers. We have to come up with exceptional products that make them say, "It's beyond usual. It's beautiful. I really want it." So creation is the crucial factor for luxury companies. Creation has to be embedded throughout the entire organization using imagination and unconventional ideas to create the customer experience. So creativity has basically 2 dimensions, which go hand-in-hand. The first one is artistic creation. Creating objects of desire, shaping the brands' luxury identity and creating a story about the brand and our products to wake that must-have feeling. So the second aspect is the creation of economic value. And of course, that results from the first one. We have to take that creativity. We have to take these ideas and monetize them and make a business out of them. Our organization needs to focus on creating high-tech in a luxury shell to ignite and fulfill our customers' desire, and I mean this holistically. We need to spark off the X factor in key product areas and along the whole customer journey. Our engineering strength need to be further focused on creating visible and conceivable luxury, and of course, come up with extraordinary portfolio innovations, boost limited editions, launch brand-shaping show cars and kick-off creative collaborations. What's very crucial for luxury brands is to create halo products. And create, in our case, halo cars. And we created a lot of them like the Maybach 6, one of the most beautiful cars of all times. And of course, iconic cars in our portfolio, like the S-Class, like the SL, our sports cars, GT and we will keep on building that.

So our customers can afford to extraordinary aesthetics. And this goes beyond truly luxurious products. It is also about creating unique moments and providing them with an absolute seamless experience. Therefore, we will gradually shift all touch points to reflect our refocused brand promise. While some touch points will be able to rate faster like advertising websites, vehicle configurators or even our service, for example, others will require a longer transition. Let's have a look at a few examples. Starting with campaigns. We will shift from the sea of sameness of automotive photography to luxury world. You will see an increase in central-led brand campaigns to provide that creative friction that makes luxury timeless yet timely. As for cooperations, we will focus on creating forward-thinking and differentiating co-creation projects with the people and brands from the luxury world, and we will use this to complement our storytelling. The car shows, as we know them, will become less and less relevant for us. The future will lie into platforms that connect on and offline to combine physical and digital experience with unique [indiscernible] elements. It is about creating those fear-of-missing-out inducing experiences, those Instagrammable moments that turn customers into fans. Further, we want to move beyond the automotive world towards art, tech and culture. And when we're looking at our sales touch points, we have to move away from that one-size-fits-all dealerships. So for key cities, we will further develop our brand's basis where we can really bring Mercedes-Benz to life and deliver an extraordinary and surprising luxury while our more classic retail spaces will consequently need to focus on best-in-industry convenience, fully connecting the customers' online experience. So as Ola said, luxury is part of our soul. It's the essence of our brand. Very few other automotive brands have the same history and can credibly make the same claim to luxury. So it is really up to us to make the very most of that home field advantage, and that is exactly what we will do across our main brand, across our sub brands, along our entire product portfolio and at all touch points along the customer journey.

As you can see, we have some quite exciting stuff coming from Mercedes-Benz. And when we talk about this, and I think, yes, Bettina mentioned it, it's a holistic experience. It's not just about the product. Of course, the product is at the center stage of what's happening here. But equally important is the experience that we give customers at the point of sale but also in the digital world. And the digital world, next to being intuitive and convenient for our customers, needs to be beautiful. The aesthetic quality of the digital experience is just as important as the aesthetic quality of the car itself. So we will do this across all the touch points. Muhammad Ali once said "It ain't bragging if you can back it up." Of course, we have more than 130 years of technical excellence, technical substance. Like no other car, the new S-Class personifies this. So yes, of course, it is a timeless masterpiece of luxury, but it has so many technical innovations. I could go on all day speaking about this. Next-generation safety technologies. We will talk today about how we take autonomous drive to the next level. I could go on and on. A small feature that I'd like to mention, which I think is how our engineers think, being clever, putting the human at the center of things. 10-degree rear axle steering. What is that? Well, when you drive this car, and it's almost 5 meters, 30 long, if you're in a tight parking garage somewhere with this rear axle steering, it actually handles like an A-Class. So every little bit of this masterpiece has been thought through. So with substance, we build our luxury image. Let me sum this first pillar up in a nutshell. Luxury is who we are, and we will use it to grow economic value, pricing mix, customer loyalty. And speaking of growing economic value, I think that fits perfectly into this next pillar. And as I said, a subtle course correction or maybe a recalibration of how we have been thinking for the last few years. But I would like to hand over to Harald that is going to give us some more input on what profitable growth actually means for us today. Harald?

Thank you, Ola. Well, moving towards a luxury brand and product sounds like margins should go up. So let's switch gears and talk about how we want to focus on profitable growth. Let's talk how we want to execute that in the marketplace. In that respect, we took some very important decisions recently. And I would call them the P3. What is it? Number one, profit first; number two, pricing power; number three, portfolio focus. What is profit first about? Obviously, when it comes to market access and penetration, it is about trade-off every day, every second, every minute about trade-off between volume, price and profit. We now have decided in favor of profit first. When it comes to pricing power, well, let's be very clear. Mercedes-Benz enjoys a healthy pricing in the marketplace, but we want to be even more disciplined in each and every segment and each and every market. And third, portfolio focus is capital is scarce. So where do we allocate it to? Well, the answer, I think, from what you heard on the first pillar is obvious, it is more into the higher-end luxury segment and not into each and every. Now let's talk about the profitability first a bit more in detail. We had fantastic growth. We had strong growth at Mercedes over the last years and the decade with great achievements, great successes. But maybe we meant a bit too far to cover each and every space in each and every segment, in particular when compact comes to mind. And also we wanted to be in each and every market, and yes, somehow for the benefit of volume, maybe for the benefit of, yes, we want to be the #1 in each and every market. We will now drive the markets by contribution margin rather than unit sales. But let's be clear, volume matters in that industry. We are not giving up on ambition to grow, but we will drive it by absolute contribution margin and by the quality of the contribution margin, i.e., the contribution margin ratio. How do we do that? We now set clear targets to each markets and products with regards to these contribution margin objectives in terms, again, absolute and ratio. We will monitor the achievement. In this respect, the matter of fact that we are now at the same time reshaping our industrial capacity, i.e., making it also a bit more scarce, allows us to be more selective and allocate these precious slots to the higher-margin products. You could see already, I mean, over the last months and 12 months that we decided on some important portfolio decisions when smart comes to mind. We'll not take existing products further out of the portfolio, but we want to leverage them. We want to move them upwards in terms of their margin contribution, and there's a lot you can optimize in the detail. And we want to raise the bar in terms of their contribution to extract the maximum out of the existing portfolio. This is a journey. This doesn't happen from today to tomorrow. It is also a culture change, but that started now. Second, let's talk about pricing power and channel mix. I explained before that we are driving the markets now by the contribution margin objectives. And obviously, one element, which is key in this respect, is to be extremely disciplined when it comes to pricing and discounts. And what we heard before in terms of moving the products towards luxury end, the substance of the product is key. These products are great already today and even more so tomorrow. But the notion of adding luxury to it gives us the extra lever in terms of the pricing power, which is going to translate also into higher margins and profitability moving forward. And we want to do that not only when the car comes into service at the start of the production, but throughout the whole life cycle up until the very end, i.e., the end of production. When talking life cycle, it also means having a more holistic perspective about residual values. It's not just about, I mean, when the car comes into the lease. No. We will take a more broader view in terms of the residuals. What does it mean? The way they come into the market to improve -- I mean, the cost of the ownership to make customers happy, but in particular also to work more diligently on the way when they come out and they go into the secondhand market, i.e., churning them in, but also on the way out is key to improve the cost of ownership and convey the true intrinsic value of our products. So it's all about being more selective on channels. And maybe I leave the floor at this stage to my colleague, Axel Harries, Head of Sales and Product Management, as he's in charge of doing that. So let's listen to Axel how he's going to do that from now on.

My name is Axel Harris, and I'm Head of Sales and Product Management at Mercedes-Benz. We are now taking a range of important measures that will see us shift some of the commercial priorities in our business. Together with our international sales organizations, we are going to rebalance the trade-offs between volume, pricing and margin. We are going to focus strongly on our pricing power based on a strong product substance, and we are going to grow in the most profitable parts of our relevant segments. This will require some adoptions in our approach for our international sales organizations. How will we steer our worldwide sales organization operationally? We will incentivize the markets, harvesting growth potentials mainly on sales contribution growth, thereby encouraging our sales entities and dealers to target the upper end of each segment. We will also work with our regions and country organizations towards a favorable channel mix. My organization's job is to drive profitable growth, thereby, carefully balancing supply and demand. How do we do that? We manage what we call the Triangle with the clear end-to-end responsibility. This triangle contains sales, production program and resulting stock levels. In doing so, we will deliver what we promise to our customers around the world while continuously optimizing net assets based on a crystal clear and transparent data management system.

Thank you, Axel. And now we want to talk about the third pillar of profitable growth, portfolio focus. We do expect higher growth rates and the premium in the luxury segment. You could hear that before from Axel and Bettina, that the wealth growth in these areas is significant and that's why exactly we want to tap into that. So it's about growth, but it is also about margin in these segments, which are higher. So what do we need to do? We target these segments. At the same time, we do know that capital is scarce. We'll talk about it later. We put constraint on capital. So capital inside the company needs to compete. And obviously, the ones with higher growth potential and higher margins have the better chance to make it. So that's how we're going to allocate in favor of these segments. And again, the more constrained, scarce industrial capabilities will allow and support that prioritization. The new S-Class is a perfect example in this respect. And the EQS will be the iconic sibling coming up next year in the electric world. So let me wrap it up on focus on profitable growth. We will pursue higher portfolio profitability. We will shift gears. We'll steer by contribution margin. We will move existing portfolio margin up over time, and we will allocate capital to more profitable and luxury products. And with this, I hand back over to Ola.

Thank you, Harald. I'm really excited about what this pillar 2 can do for our profitability. And that leads into the third pillar that we want to talk about today, expand our customer base by growing our sub brands. But before we go into those sub brands, let's talk about our master brand. Of course, everybody knows Mercedes-Benz. It is the original luxury brand in the car world, and it's an incredible asset. In the latest inter-brand ranking, it was branded the most valuable car brand in the luxury segment, in fact. But there are some other gems here in the portfolio that can, together with this master brand, Mercedes-Benz, lead to even more profitable growth. Let's have a look at those. AMG, G and Maybach. I would almost say that AMG is like a poster child for this. Only 10 years ago, we were down at somewhere between 10,000 and 20,000 units. It was the best kept secret in the auto industry. And here we are 10 years later, and we have grown this brand significantly. But even an icon like the G, I mean it's doubled its sales since really introduced the new version of the G only a couple of years ago. And there is the Maybach brand. This is one with tremendous potential. And I think that we have some great ideas in our back pocket to grow this brand as well. Where do they compete? Where are the opportunities? You can clearly see Maybach. It has a very strong position in China, and it's growing in North America, but there's so much more to have. And I think with the right product strategy here, we can build upon the success for Maybach. G, we could almost not believe it when we installed additional capacity for the G in our planting guts. We came to the border of that capacity almost immediately. And now we're capacity-constrained. We want this product to be rare though. So we're not going to go overboard here. But it's unbelievable what's happened with G. And maybe with new models and then an adjusted industrial strategy, you can do things with G to take that to the next level. And of course, AMG, as successful as it has been, it's not in the leading position everywhere. We have some other German friends that we want to challenge and also gain market share on in the performance segment. What is a brand all about? It's about lighting a fire, something that people can gather around. It's like a tribe. You want to be part of that tribe. The brands stand for something distinct. And of course, Mercedes-Benz has that tribe. But for each and every one of these sub brands, it's almost like a tribe within the tribe, and that's what we're going to unlock. Here, we have a great opportunity for horizontal growth, not growing by adding more cars in the compact segment, but actually finding more customer groups to come in under the umbrella of the Mercedes-Benz master brand. So here, you have the logic. Mercedes-Benz sits on top. We have AMG for performance luxury. Maybach stands for sophisticated luxury. G, of course, it's adventure. And then the exciting new EQ brand, which stands for progressive technology, a glimpse of the future. And of course, behind the scenes, Mercedes me, as our digital brand, is also growing in importance to have this great switch between the digital world and the physical world. Where are these brands now in terms of their maturity? AMG, I called it the best kept secret in the auto industry. It's not a secret anymore. Everybody who's seen the performance seen and who buys cars in this segment, they know about AMG. G has been around for more than 40 years. It stands in its own logic. I mean, it's -- you can't even use marketing segmentation to describe it. But it is also for people that look for this adventure. It's the benchmark in that category. The relaunch of Maybach some years ago has led to a growing awareness of Maybach, but it still has a few steps to go up in terms of establishing its position in the market, even if we're talking about a brand that is more than 100 years old. And of course, EQ, super exciting, the electric future of Mercedes-Benz. Well, let's start with AMG. I have a tremendous emotional connection to this brand. I had a great fortune of spending almost 4 years in the AMG team. And as I mentioned, incredible sales growth, but potential to do more and to challenge primarily some of those German friends. And not to forget, it's not just about the high-octane audience here with AMG. AMG is going electric, too. The first power hybrids are just around the corner, using the logic from Formula One. And stay tuned, there will be a lot more electric stuff coming [Audio Gap] [Presentation]

So let's talk about AMG and Formula One. AMG was founded as a Motorsport brand. The founders of AMG, Aufrecht and Melcher, the A and the M in AMG, I mean they only built the road cars to be able to finance their racing. This is very similar to the strategy of other racing legends or performance car brands whether they're from Italy or from the U.K.. In the past, the passion was about racing. And Formula One as the pinnacle of motor sports, that's the highest form of performance. We will use the technology development in Formula One for performance, hybrids and going into other exciting technologies in the future and put that into our AMG cars. Project ONE. I mean, it's crazy, isn't it? With Project One, we're taking a Formula One powertrain and putting it on the road. So it just comes natural to us to leverage Formula One even more for AMG going forward. Now going from the world of performance to the world of sophisticated luxury, look at this beautiful GLS Maybach here. Well, Maybach, you could really call him the wingman of Gottlieb Daimler. He was the engineering genius next to the original startup entrepreneur of the auto industry. And for decades on end, this brand was dormant, and it's been in these last 20 years that we have taken it back into the limelight. Strong fan base in China, very high margins, and we have so much more that we can do with this brand, but not in an inflationary way. We have to be very cautious here. We're talking about the higher end of sophisticated luxury. And by the way, Maybach is going electric as well. Let's have a look at this film. [Presentation]

Cannot wait for that Maybach EV. It's going to be a great, great car. Well, from the world of sophisticated luxury to adventure, and the G stands for our adventure like no other car, let me give you a personal anecdote on this one. This car is built in Graz in Austria. Next to Graz, there's mountain called the Schöckl. If you want to be a true member of the G family, you have to be able to master that mountain and go up the mountain. So I did that once, you come to the top. At the top, you get an Austrian schnapps, didn't taste great, but that was not on my mind after I had gone through this obstacle course and was quite sweaty. At the top, you get the plaque, and you're part of the G family, but that's not the best part. A professional driver takes you down the hill at up to 70 kilometers an hour, and that's when you can really see what this car can do. Well, the G is for adventures, but it can also be for urban adventurers. This has created such a loyal fan base around the world. It's unbelievable, maybe the most loyal fan base of any of our sub brands at this stage. But of course, we have more plans for the G as well. And as was the case with Maybach, G is also going to go electric. Let's have a look at this film. [Presentation]

Are you excited? I'm excited. But I'm equally excited about this next sub brand, EQ, which is our youngest sub brand to be paired with the legendary Mercedes-Benz brand. In the last months or a couple of years or so, when I've walked around in design, and I've seen how the new S-Class has come to life, and next to it, the sibling car, the EQS, I've been thinking to myself, and I have the lucky position in my job that I get to drive the S-Class as my business car. So I've been longing for this S-Class, looking at it. I can't wait to get into the new S-Class. And then you look at the other one, you go like, this one or that one? Well, from Mercedes-Benz now, we're going to have the best of all worlds. And the new EQS is based on the first truly dedicated EV platform for Mercedes. And it's going to deliver phenomenal performance and be able to compete in the very high end of the EV market. And we think that also the margins, the contribution margin at that end of the market also for EVs can be quite attractive from the word go. So let's have a look at what we're going to do with EQ. [Presentation]

Are you ready? I certainly am. Let's talk about the business rationale about this strategy with the sub brands. I was talking about growing horizontally, not going deeper vertically, but growing horizontally with that strong master brand and these 4 tribes we think that we can capture more customers and more profit pools for Mercedes-Benz. So it's very, very simple as a business logic. We will seek substantial EBIT growth via our sub brands. If you want to unlock that EBIT growth, it's hugely important that you get this next pillar in the strategy right, embracing customers and growing recurring revenues. Some people talk about owning the customer. For me, it's more being a caretaker of the customer and making sure that the experience for the customer, of course of the product, that it's just right. So let's dig into this. I found an interesting quote by Scott Galloway. He is a professor at NYU in New York. And I think he really hit the nail on the head talking about lifelong relationships with the customer. I think it went something like this. "Being single, of course, many of us know what that means, while it has its moments, it can be exhaustive and expensive. If you have a monogamous relationship with the customer, then it's a lifelong way of growing economic value with that customer. And if, of course, it will pay into the value of your company." So that lifelong relationship and a loyalty, that's what we're after with this strategic pillar of embracing the customer. So what are the building blocks of this? It's 2 things really. It's the part where we embrace the customer, and it's also the opportunity to grow recurring revenues. Of course, the physical touch points need to match the product. It's a given, but also going more towards direct sales, and in the future, reshaping the way retail is done and what the footprint of that looks like. It's so obvious. We have already started on this in a few test markets and we will continue. Use data to get to know your customer better and serve the customer in a more intelligent way. When we talk about growing recurring revenues, I mean, we have been doing this for decades, right? It's called aftersales, service and aftersales. Our car park is going to grow. So there is tremendous, tremendous profitable growth potential in aftersales, but there's a new profit pool through digital services. And with the digital service, it's like we add another layer of experience for the customer, but also another layer in terms of getting out economic value of the customer relationship. If we look at some of these numbers, I think they're quite powerful. People are willing to pay more if the experience is better. We have an aggressive target in terms of going into direct sales and online sales, simplifying the process really and taking cost out of the whole marketing and sales and retail function. If we know our customer better, we can serve our customer better. So by better understanding what the customer wants through the digital touch points that we have, we can get to better leads and also drive sales. Service and parts business. Yes, it's a physical business. You keep your car fresh and make sure it's always in perfect condition. But also here, data and intelligent use of data is going to drive even more profit here. And then last, but not least, we have given ourselves a very ambitious target that by 2025, purely on the digital side of the customer experience, we're targeting EUR 1 billion of EBIT. Now my colleague, Britta, she knows more about this than I do. So let's hear from Britta, our Head of Marketing and Sales for Mercedes-Benz.

My name is Britta Seeger, and I'm Mercedes-Benz Board Member for Sales and Marketing. We mean it when we say we want to embrace customers. Embrace is a strong word and even an emotional word, but we chose it deliberately. We want the fact and databased way of understanding and supporting our customers, but we want them to feel emotional about Mercedes-Benz. Let me give you some examples. For our customers, a personal relationship remains an essential part of their Mercedes experience. However, as customers' behavior is changing, we are lifting their experience at the point of retail with the new brand architecture already implemented at 250 dealerships worldwide. We are establishing an exciting mix of different stationary and temporary retail formats, thus reducing permanent retail space needed and reducing tied up capital significantly. We are increasingly offering data-powered digital touch points so that our customers can always interact with Mercedes-Benz regardless of the time, place or channel they are using. We have laid the ground work to leverage data-driven and digital solutions even further to own the customer relationship. This will allow us to provide an outstanding Mercedes of service experience to our customers while driving retention and revenue per customer, and hence, accelerating growth of recurring revenue. We are today able to deliver over-the-air updates and sell upgrades and new features over the life cycle of the car. The growing number of connected cars provides for additional huge business opportunity, more than 5 million connected vehicles as of now growing to more than 20 million cars by 2025. Assuming a triple-digit annual payment value per paying customer and use of our services over an extended part of lifetime of our vehicles leads us to a target of EUR 1 billion of EBIT by 2025. Additionally, we are going to take our data-driven approach to a new level zone with Salesforce. We have just entered into a partnership with Salesforce that will take our customer relationship to a next level. If we truly embrace customers, that will build long-lasting relationships. And long-lasting relationships will be the foundation for loyalty, repeated sales, customer services business and ongoing sales of digital services. We don't just want a one-off brief fleeting moment when we sell a car, we want our customers to stay with us for a long time, ideally for life. And that's why we build cars for every moment in light.

Britta was talking about customer relationship management, and the best company in the world to develop software solutions for customer relationship management is Salesforce, founded by its charismatic leader, Marc Benioff. And we like to work with the best. Marc sent me this video. Maybe it's not as polished to some of the other videos that we've been looking at today, but it's very authentic. Over to Marc.

I'm Marc Benioff. I'm the Chairman and CEO of Salesforce. And I'll tell you, we both agree on one thing. And that is, in this new world, the highest value is always trust. And that's why Salesforce and Daimler and Mercedes, well, we can really come together in ways that are totally unique. Look, I want to be honest with you, there's only one car I would put my mother into, and I do every single night. It's this one. It's this S-Class. This beautiful machine, this hybrid. And this is not her only one. She also has the new plug-in as well. And I'll tell you, these are important cars for me because it gives me the ability to know that my mom is coming home safe every single night. Ola, you and I also agree on something else, that nothing is more important than customer success. And that's why we're working so hard on building Customer 360 with Daimler, the idea that sales and service, marketing, analytics, platform, that the entire car ecosystem is all united around a single source of truth. This is so important in today's world, so that everybody knows exactly, exactly what's happening with every single customer and every single product. Again, it all gets back to trust. And why is that? It's because of this. When I get in my Mercedes, I want to know. It's the best, highest quality car in the world. And we all know that today, it absolutely is. Ola, thanks for your great leadership, and I'm looking forward to seeing you soon.

Well, we are really looking forward to taking customer relationship management to the next level with Salesforce. If we want to sum up this fourth pillar, it's very simple. We have one of the world's most valuable customer bases, and we intend to make the most of it. We have now seen the first 4 pillars of this strategy, and we're coming to the first Q&A session. So we'll go through this Q&A session and then continue with the last 2 pillars. Let's have your questions.

Thank you, Ola, and hello, ladies and gentlemen, also from my side. I'm Steffen Hoffmann, Head of Investor Relations, and I'm very happy to have Ola and Harald here on stage to our first Q&A session. In this Q&A session, you will have the chance to raise questions concerning the topics that we just presented: Think and act like a luxury brand, focus on profitable growth, expand customer base by growing sub brands and embrace customers and grow recurrent revenues. Please focus on these fields. Questions regarding the remaining topics, especially on electrification, software and our industrial strategy, including cost, can be addressed in the second Q&A session later on. Now before we start, a few practical points. In case you want to ask a question to our management team, you will have to dial in individually by telephone and register. The dial-in numbers have been shared within our final invite that we sent out last Thursday. I will identify the questioner by name, but please also introduce yourself with your name and the name of the organization that you are representing before asking your question. Please ask your question in English and try to speak loud and clear so that everyone can understand your question properly. And as a matter of fairness, please just limit yourself to one question. Last, but not least, please be aware to mute the live stream while raising your question and listening to the regarding answers. Now before we start, the operator will again explain the procedure for dialing in.

[Operator Instructions] And we start with Arndt Ellinghorst from Bernstein.

Obviously, we could ask a million questions on the brand message and the implications and whether Mercedes is trying to be a d****** or a [indiscernible] and what that would imply for your volumes. But I want to limit my question really to one on pricing. I think we all agree it's the holy grail to premium and profitability, not just in autos, but in many industries, really. And the auto industry has been really quite bad at price realization. Can you give a bit more color how much of a price improvement -- net price improvement you're shooting for? I think you're offering around 10% to 15% incentives across markets and segments. And how will you do it? How will you change your pricing strategies moving forward? That will be my question.

So Harald?

Well, thanks, Arndt, for that question. Well, I mean, I think you will understand that we'll not lay out basically the attempt in terms of what we go for in terms of year-on-year pricing increase and improvement. Definitely, we have an objective in this respect. But what we were presenting before and what we will do moving forward is to even stronger couple the product substance and the luxury notion with it, and both together will allow us to position the products in the marketplace, yielding incremental revenues and pricing. That is what we decided to do. That's where we're putting our emphasis in terms of marketing, but also on the product substance and hence also into the investments moving forward. That is our key message here today.

If you add to that maybe...

And Harald if I may add, we see very different pricing strategies in the market. Some companies, some brands enter with a lower price and then they sell up. Others offer a fully specked product and then they have to offer more discounts. Would you intend to change your pricing strategy or is it really just about brand value, better product and trying to lower your discounts?

I think on a tactical level, if I add to what Harald said, Arndt, it's very much about finding the right sweet spot between volume and price and which channels you use, managing the residual values and then gradually grow your pricing power. Already today, we have the premium vis-à-vis our main competitors. But here and there, already on a tactical level, we can improve that. And by adjusting your capacity that you have in your production to, I would call it, a better equilibrium on demand and supply, we can grow that price premium. So product substance is key, but it's not just product substance, it's also market steering. And market steering, we can start making adjustments already now.

Okay. Thank you very much. So the next question goes to Tim Rokossa from Deutsche Bank.

Yes. Tim Rokossa from Deutsche Bank. I would like to go into pretty much the same direction as Arndt, I guess, and that is to really understand what you mean by this focus on luxury and profitability. I think you're pushing absolutely the right button. See, I'm a big fan of you becoming more luxury-focused. But 1/3 of your sales is A and B-Class and you build the capacity to produce these vehicles. So now you need the volume. Just to really understand in concrete terms, how do you incentivize your troops to focus on profitability when it comes to the really hard choice? Is their contribution margin target that no one is allowed to undershoot? Are you really cutting back capacity on the lower margin segments? Or how should we envision this?

Maybe I'll start, Tim, with products strategy, and I'll let Harald fill in. In terms of product strategy, I think you hit the nail on the head here. We have had a tremendous expansion of the, what we call, compact cars, A, B, GLA, CLA and so on and so forth. This isn't good for us. It has rejuvenated our brand, and it's built a stronger and bigger market position, but this is not where the main thrust should go. We should not start by expanding this portfolio further and go down and become a competitor of the volume makers. That is not our goal. Inside what we define as the compact segment, there are more profitable portfolio positions, and there are less profitable portfolio positions. So don't chase volume on these. For the cars that we have already in the market now, where the capital has been spent, with intelligent market steering, of course, we will grab as much share as we can while respecting and protecting price premium. But going forward, when we allocate capital to new architectures, we will be even more choosy. And positions in the portfolio that don't meet our minimum margin requirements, we want to allocate capital to them. So it doesn't mean we're stepping out of the compact segment per se because some of these positions are very attractive to us, but we will be much more choosy when it comes to capital allocation going forward.

And in terms of the market steering, Tim, it's really -- yes, you said, I mean, being condemned to chase the volume out there to fill up factories and to fund the fixed cost. We're taking a significant adjustment to these, and we'll talk about that later. So let's take that just for granted for a second, which means we can be much more selective when it comes to how we want to tap the market, and here is clearly a shift from focus on unit sales to contribution margin. It doesn't mean that it didn't exist before. But if we look into our day-by-day operation, probably it was more on sales, and it will be more on the contribution margin. And with the existing portfolio, I think there is more you can extract, I mean in -- within each and every category, you have some which are at the lower end, you have some at the higher end. We clearly define the threshold, please, you will understand that we're not disclosing the threshold, under which we don't want to see these anymore, but we'll gear, we will shift them up within the existing portfolio. And then when it comes to new product decisions, Ola mentioned already.

So if we envision this, you talk to your sales managers at the beginning of the year, do you incentivize them in a way that they make more money at the year-end bonus if they sell 2 S-Classes over 20 A and B-Classes. Is that how we should envision that?

That's a very simplistic way of putting this, Tim, but you could can say, yes, sales contribution comes first. Pricing is the second priority, and volume is the third priority. But it's definitely absolute contribution margin and contribution margin quality, i.e., ratio. As I mean, we are clear. We'll not step down. We don't want to step down in volume, but it's really mean driving the quality of that contribution margin as well as the absolute.

So thank you then. I'd like to invite Stephen Reitman from Societe Generale for the next question.

Again, my question is, how do -- what are the quick wins you think you can do in terms of this new strategy? How long do you think it takes to turn this around before we actually see some concrete results?

Well, if we talk about these 4 pillars, of course, we have to marry this up with the 2 pillars, and especially the cost in the industrial chapter that we're going to talk about later on. But there are some quick wins. When managing sales channels and doing this what I would call the tactical market steering, we can start now. And we have already been addressing some of the fixed costs already in the capacity. But we'll get into that later on. So it's not something that we wait for, and then we wake up in 2025 and this whole strategy starts. But for the product architecture and future product decisions where we make decisions now about how to allocate capital for architectures that are coming into the market, '24, '25 and then going to the end of the decade, of course, those are decisions that we make now that will yield results at a later date.

And maybe if I can add, very recently, I mean, you just saw this morning, the Q3 numbers, let's read the numbers just for a second. The retail numbers been running ahead of the wholesale, the group sale, right? I mean -- so in the third quarter, the retail is up compared to previous year by 3%. I mean, the wholesale is slightly behind. What does it mean? I think it's good for the stock at the dealers. It's good for the stock at our end. Probably you will see in the Q3, I mean a healthy pricing. And I think we can see in the course of the Q3 resilience, which have been bouncing back significantly, and particularly, if I look at the U.S., isn't that a healthy evolution?

So then I would ask the next one in the queue, which is Patrick Hummel from UBS. Patrick, your floor.

Can you hear me well?

Yes. Yes, we do.

Okay. Perfect. It's Patrick from UBS. Yes. One question about the brands strategy and also tying it into valuation here. The growth in AMG and G and Maybach, I guess, for as long as you don't crystallize that value separately in reporting and maybe even thinking about the big topic of spinning out businesses, which doesn't seem to be on the agenda, you're unlike to get a certain type of multiple for that business. I think where you get very, very high multiples is if you can convince the market that you're the best-positioned company for a 0-emissions future and a very tech- and software-oriented brands that need the way here and closes the gap to the leaders in that space. We didn't hear much about that yet. To be honest, I mean, AMG, G and Maybach, as much as I appreciate you, going to offer electric versions here as well, that sounds a little bit like old luxury to me. Is that criticism unfair? And why not focusing more on that tech aspect in the product strategy? And if I can, in that regard, EQ now seems to stand for being the tech brands in your portfolio rather than the EV brand, which I think was the initial idea to have it as the EV sub brand in the portfolio. So is it now fair to assume that EQ is just another sub brand with a slightly different niche in terms of the customers you're targeting to attract here? And is that relatively expensive venture to build that sub brand without having a unique standing in the group as being the only electric brand in the group.

Well, Patrick, when I presented this particular pillar, I was talking about tribes. What these sub brands stand for, they stand for an opportunity for horizontal growth under the banner of Mercedes-Benz so they address very specific clientele: AMG, G, Maybach and EQ. Every one of those customer groups, if you would ask them, are interested in high-tech. So there is no hierarch here in terms of does it have less or more tech content? They all have this fundamental technological substance that you get with the Mercedes-Benz. But they represent different customer experiences and what the brands stand for. So there's not old and new in this group. It will be new and new. And in that regard, it's only natural that you also take AMG, G and Maybach down the electric path. I think you perhaps misunderstood a little bit that EQ does not stand for EV. It's an EV-only brand. There are no ifs or buts about that. But of course, the digital experience and when we launch the EQS next year, you will see even yet another level of that digital experience materialize in that card that I think will excite many customers that are seeking this so you like these 4 fires. Now can we get the multiple of a luxury brand like Hermes or LVMH? When I look across and see their multiperson compared to ours, you could get envious, and I'm very realistic about this. However, we have hidden potential in the company. If I would pull out a G or an AMG and stand-alone disclose it, the amount of cash flow that each one of these brands produce that would be equal or more than some other stand-alone performance brands that have spectacular market caps. So I hope over time, with this focus on Mercedes-Benz and the sub brands as more in the luxury field that we can gradually build that multiple, but at the same time, I'm, of course, realistic.

So then I'd like to -- I'd like George Galliers from Goldman Sachs to ask the next question, please.

I was wondering if you could give us some indication on what percentage of your total sales you think your sub brands Maybach, G and AMG could constitute as a percentage of your total sales mix as we think about the mid part of the decade?

We tend to be, George, a little bit careful with forward-looking numbers. But if we take a baseline this year, and I think the COVID year is maybe an anomaly, but I go to 2019 where we're worth at about 2.3 million units, and we're looking at a growth perspective going up to 2025. So we'll certainly be targeting a higher number than that in that time frame in spite of this unusual dip due to COVID. So the only one where we subliminally revealed our ambition in the film was Maybach. We think we can at least double Maybach. And there will be healthy growth on AMG. G is one that we have to handle with care because it's so precious, long waiting times and so on. We're currently capacity-constrained. You should not just resolve that in an instant and flood the market. So there, it's a little bit more careful, but, of course, we have tremendous margins on the G. So even a smaller number can yield quite a bit of sales contribution. So where that then sits as if today EUR 130 -- 170 to 2 million, we are less than 10%. It's probably going to then be more than 10% in 2025.

But EQ?

Well, EQ is a whole different story. EQ Is hundreds of thousands. Yes, we have made a very clear decision with Ambition 2039 that we're going to go electric and we're going to go CO2-neutral in the longer-term for Mercedes-Benz brand. So EQ will have a whole product offensive and there, we are going to go relatively quickly from tens of thousands to hundreds of thousands in the next 5 to 10 years.

So the next colleague in line is José Asumendi from JPMorgan.

José, JPMorgan. I was wondering if you could speak a bit more about this opportunity to monetize software across your connected fleet. And you gave some figures there, and you quantified even the triple-digit figure there. Can you maybe just give us some practical examples, please, on your connected fleet, which kind of services are you able to monetize at the moment now? And without revealing too much around the future, which functionalities or services do you plan to add in the coming years that will contribute to that substantial EBIT number?

Well, José, it really started to take off when we launched the first generation of MBUX in 2018 with the first generation for us with over-the-air downloadability. In that context, not only did we reshape the way we offered our options. So we were able to upsell a lot of the digital content already at the point of sale, and we could see a significant uplift in spend per unit from our customers just buying the different versions of command. But beyond that, we also launched our App store. If I take some obvious examples, live traffic or you can have office in the car, it's things like that. And we can gradually add more and more use cases in the future, and that's something we're going to talk about in the next chapter, we believe also driving assistance on autonomous ride can add to this revenue stream, because we're going to make that downloadable as well in our project, in our partnership with NVIDIA. So the target is in 2025, and it's not an exact science, but we have to put a stake in the ground for the organization internally to shoot for something, is to seek overall EUR 1 billion EBIT in that domain. And today, it is a low-ish triple-digit million euro number. So pretty significant potential. But who knows, maybe can take off even more.

So for this first Q&A section, we have 2 more possibilities for questions. Rest assured that in the second Q&A section, you can ask all your questions on software, on electrification and on the industrial strategy. Next one in the line is Henning Cosman from HSBC.

I was just going to ask you about the scarcity element again as to where you draw the line? Are you aiming for waitlists? Can you even maybe give us volume target for certain models? And I mean, I think, Harald, you said at some point that, that doesn't mean pulling out from sort of bread and butter premium, if you allow me to call it that per se. But does the scarcity element also imply that you need to pull out from certain models or segments there?

Well, let's differentiate again. I mean 2 issues. The one is existing portfolio, the other one is investments into future. From the existing portfolio, I think we're looking to the portfolio right now, I don't see elements where we would say, go. Are there variants in sight? I mean, a way where you could say, maybe a different version, a different tactical of these in selective market would make more sense in terms of making use of the industrial capacity. Definitely, we believe, I mean, there is room for that. So it's really been maximizing the potential out of the existing product portfolio. And again, on the -- on future investments, how do we look into that? We clearly we want to earn our cost of capital on these. We want to make sure there are premium and luxury margins in terms of the future investments coming back. And third, it needs to fit as well into the investment limits we gave ourselves about which we're going to talk a bit later. So that's how we're going to steer, I mean, current and the future portfolio. In terms of specific scarcity that you're addressing, that is a careful tool to apply. On a G, scarcity works. On upper end vehicles, scarcity works. We just launched the AMG GT Black Series. It was sold out like this. And of course, when a new S-Class, even if it is, for us, a volume luxury product in the upper segment, you would expect with such a big fan base for the S-Class that there will be long waiting times. But you have to be careful with this. You shouldn't create this kind of artificial line outside the fashion store that you have seen with some brands that will just irritate customers. So here and there, yes, the scarcity will be applied intelligently, but it's not a business model per se.

So the last question in the first section goes to Horst Schneider from Bank of America.

Yes. First, just a quick follow-up that -- related to your premium market growth assumption. Do I understand it right that you aim to grow less than the premium market in the future just because you pull out of certain segments? And the other question -- sorry, I've got 2 relates to S-Class and EQS. Ola, since you mentioned the S-Class effect, how should we think about that? It will be a strong effect next year, and there's then potentially dilution by the EQS as of 2022.

If I start with that second question, S-Class and EQS, for many years to come, we will have a market situation where electric will grow, but high-tech electrified combustion engines and long-range plug-in hybrids, we'll be selling for many years. In this twilight zone market, leading eventually to a completely emission-free market, we have decided to cover our bases, especially on the upper end. So yes, you have sibling vehicles here. And it would be far too optimistic to say that EQS is 100% incremental. Some of the customers that maybe would go for S, maybe goes for an EQS, you will have substitution as well. But the sum of both is what we have based our business case on. So we think that the S-Class business case is very robust in spite of expecting some cannibalization from the EQS, and the EQS will have a healthy margin from the start. So that's how we're going to play it. But growing less, I think, that's maybe a misunderstanding. You have a chart from Harald in his presentation, where we think the right-hand side of the chart as the highest growth rate. So we are targeting growth, but I can only come back to Pillar 2. We're not chasing volume. We're targeting profitable growth, and we'll take care of profit before we look at the headline number in terms of units sold.

Sorry, just a quick follow-up. So the EQS is basically an S-Class, which is fully electrified, it's the same type of vehicle, right? It's not smaller or anything different?

Well, it's not smaller. And it will be, I believe, in the luxury sedan class, perhaps the only limousine, where you can sit properly in the back and you will have all the bells and whistles that you would expect from a Mercedes. But when you look at it, it's a very different proposition. Form follows function. It has a completely different style. Everything. So I talked about the gullwing. When it came to the world in the '50s, it felt like a UFO had landed on earth. EQS is a little bit like that. So it's something completely different. And that's why we also believe it will appeal to a new crowd, maybe a crowd that's not yet looked at the Mercedes-Benz brand. So even if they're technical equals with 2 different propulsion systems, they are also 2 different propositions in the way they are styled.

So thank you, Ola. Thank you, Harald. Thank you, ladies and gentlemen, for your questions and for your discipline with -- within this first Q&A session. Now let's continue with the next pillar, lead in electric drive and car software.

We have just talked about our commercial strategy. Now let's talk technology. And let's start with our ambition to lead in electric drive. Today, we want to share our plans on how we're going to do that. Let's start from the top. With Ambition 2039, we have made a very clear commitment that within the next couple of decades, we're going to take our fleet towards carbon neutrality. Already in 2022, our production worldwide, it's going to be carbon neutral. And we, just a couple of weeks ago, opened our new plant here in Sindelfingen in Factory 56, which is the factory of the future, really, carbon-neutral from the start. With regard to our product portfolio, we're not going to wait until 2039, obviously. In 2030, at the midway point, minimum 50% of our fleet is targeted to be xEV and, of course, taking it in the decade after that, all the way to carbon neutrality. But we're approaching this in a holistic way. We also want to take our partners with us. So we are encouraging and driving our suppliers to follow our path towards this carbon neutrality. And when it comes to setting targets for societal responsibility, of course, ecology is key, but we will have all of the ESG targets in mind in our sustainable business strategy. If we look at what the challenges are, contribution margins, cost, what are the answers to these challenges, the transformation that we're in? Well, it's about leveraging technology and scale the technology to take the cost down. And we are on the path to doing this to gradually improve the margins of electric vehicles to eventually meet the ones that we have had in the past on combustion vehicles. It's also about an intelligent modular strategy and a simplified platform strategy, which will also unlock potential in terms of, at the same time, investing into this, but also saving on CapEx. And of course, we have put together a clear plan for the transformation of our legacy assets. This is a transformation that will be going on for many years. So we have to have a plan now to gradually, over the next 10 years or more, move from a combustion-based world to an electrified world. To be a little bit more concrete, I was talking about cost. The most expensive piece of the e-drive train is the battery. We look at sales. We look at modules. We look at the whole system. By the middle of this decade, we're convinced that we can take the cost on the system-level significantly below EUR 100 per kilowatt hours. And that's one of the building blocks to improve those margins. And through a simplified modulo strategy, we will be able to scale better across different models in our portfolio. We have -- in the recent months, we have sign up some very strong partnerships on the battery side with CATL and with Farasis. This goes beyond the regular kind of supplier-customer relationship. Here we do co-R&D. We have made sure that we have our supply secured well beyond 2025. So this goes deeper. Those are real partnerships. In the end, if this transformation of mobility is going to work, we're going to have to have just as a healthy business as we have a healthy ecology through lowering CO2. So we've got to get those margins up. And we will target very strong margins on our products for all new architectures coming in end of '24, 25 and forward. But already now, on the first dedicated electric architecture, where EQS is going to be the first car who'll run it, we have pretty solid profit margins already on those vehicles. So to talk more about what we're going to do on the technological side. I would like to welcome Markus Schäfer, our COO and Head of R&D. Markus, the stage is yours.

Thank you, Ola. So today, I want to talk about our electric strategy in detail. So I'm going to tell you about our technology plans and why we believe that we will lead in electric. We are going to do it the Mercedes way, bringing true luxury experience to the world of electric cars. So I'm going to break it down actually in 3 parts: So the first one is our product plan. We have an exciting road map with dedicated EV platforms and exceptional electric products. We have not shared these plans until today. Second, our ambitious targets in range and efficiency, and I'm going to share with you our technology path in batteries, in the e-motors and our work on total system efficiency. And third, our approach to charging a critical part of the journey to EV adoption. We have some very focused plans, and then I'm going to finish with a very special film. It will tell you about an external ordinary project we're working on at Mercedes-Benz and that we're going to reveal to the world for the first time today. So let me start with a key point. We already compete today at the top end of the car market, but we want to concentrate even more on the upper end and focus on luxury. That is a key strategic advantage. So we are going to enhance and develop this with electric drive. We are not just going to make electric cars. We're going to make the most luxurious and most desirable cars in the world. So the concept is a luxury we experience. We are going to massively accelerate our EV product introductions. Many of these products are already in launch, a comprehensive range of dedicated EV products and best-in-class PHEV 2. Our product plan is highly flexible, but one thing is absolutely clear, our destination. Our destination, 100% EV. So talking about timing, there are quite some variables, external, governmental and, most importantly, requirements coming from our customers. This means we have to stay flexible. We expect an xEV share of over 50% globally by 2030. We will have the ability long term, of course, to go to 100%, if necessary. Our strategy, capital disciplined and intelligent approach. So we can deal with any scenario. We have directed and redirected product development towards electric powertrains and platforms. We have to cut development spending on ice powertrain and drastically reduce our combustion engine offering. We will have highly competitive engines, but a much reduced base offer. This is a very important move. It will save us a lot of money and gives us the opportunity to focus on electric drive. We are fully committed to dedicated electric cars. However, many customers are still reluctant to make the shift. Infrastructure still has to be built out in most regions on the globe. In the meantime, PHEVs are a great product in many markets. Our PHEVs offer emissions-free running in cities. Look at these models. Some of them have WLTP ranges of more than 100 kilometers or even more. These are very compelling products. They are finding great market success at present, and they're helping us to meet the 2020 and 2021 European CO2 targets. Our PHEVs are an important part of the transition to full electric. We will build them and sell them as long there's good, profitable customer demand. But more important, we will accelerate our introduction of dedicated EV platforms starting next year. So today, we have some major announcements for you. You already saw in the pillar presented by Ola. We were about to launch a range of EQ products on our dedicated architecture, wonderful high-end luxury products starting with EQS. I'm now going to tell you more about the technology and the platform behind them. At Mercedes-Benz, we call them EVA or EVA. Today, I can announce our second dedicated electric platform. This platform is designed for compact and medium-sized cars. We call this platform architecture MMA, or Modular Mercedes Architecture (sic) [ Mercedes-Benz Modular Architecture ]. So these 2 platforms will cover nearly all our bases, luxury Sedans and Big SUVs with EVA and compact and midsized with MMA. So to tell you some key facts, high commonality and modularity, a significant sale, a superb technology, so we can make them leap to electric with very focused and controlled CapEx and development spending. And as you can see from this slide, we are working on something special. We are not going to fully open our books today, but there were some clues in the earlier film of AMG. So let's now talk about the EVA architecture in more detail. This dedicated platform has been in development for the last 4 years. It means substantial, technical effort at Mercedes-Benz. Some key points about the platform. It's a dedicated electric skateboard. It features the latest Mercedes e-drive technology with a true luxury car experience with exceptional quietness. It will offer great range and performance, and we have big plans for these products. As you can see from the slides, there are at least 4 distinct products, 2 Sedans, 2 SUVs, and maybe some more surprises to come after that. To support our confidence in these products, we're tooling up to build the platform on 3 contents: Europe, China and the U.S. So you can get a sense of our sales ambition from that. The first car, the EQS, will be on sale in 2021 with a range of even more than 700 kilometers. Currently, final testing is just underway. To give you some impressions of the work and great effort that has gone into this car, have a look at this film. [Presentation]

Now let's talk about MMA, our platform for compact cars and midsized cars. This is what we call electric-first architecture. We are really proud of this architecture. We have designed a dedicated electric skateboard. This skateboard lays the foundation for everything with a successful and highly competitive EV needs, best battery location, optimized weight, Aerodynamics and great electronic and thermodynamic optimization. A fully competitive electric platform with no compromises. We can fit a nice engine in the front of the platform if we need to for as long as the market demands it. This is a great economic equation, controlling investment spending and keeping the flexibility on the markets. The product has very ambitious technical targets, an exceptional range, high-speed 800-volt charging and driving. Great software capabilities, of course, over-the-air update capability and a true luxury experience. We can't wait to bring these cars to the market. So now let's turn to some details of our road map for electric vehicles. The key point is our engineers are extremely focused on range and efficiency. We are looking at every possible detail and going beyond conventional engineering boundaries to unlock the range. Our electric products so far have been conversion designs. And while we are proud of them, the design of these products puts limits on efficiency and range. So we are going a whole new level with our products, and we are studying every possible area to improve range. To deliver on range, we need excellence in every relevant technology. So let's talk about first electric motors. This is a rather technical slide, but it's so important. We are a combustion engine company by tradition. We are now making the leap to be an electric engine company. It's a mistake to think that electric motors are a commodity. That's absolutely wrong. They are competitive advanced motors. So we are going for a vertically-integrated technology strategy in this area. So next-generation of electrical drive units are developed in-house and have outstanding efficiency with highly efficient status and rotors, 2 gears, silicon carbide inverter, the highest quality 800-volt architecture and much more. That's really exceptional, and it will help drive our efficiency. So now let's turn to battery technology. Battery technology is at the very heart of every EV design. To understand range and efficiency, you need to understand battery cells and battery chemistry intimately. And at Mercedes-Benz, that's a claim we can make. We have intensively worked on our battery R&D and sourcing strategy. We are taking ownership and responsibility for research and development in-house. This includes significant team of specialists here in Stuttgart. We have chemists and engineers working on the next-generation of chemistries, silicon anodes, 0 cobalt cathodes, 2 approaches for electrolytes and optimization of electrolytes as well as new solid-state electrolytes and all sorts of ideas for higher performance of chemistries. You can see that here. Then on cell design and architecture, we're also engaged in intensive development efforts. We are looking at performance and, of course, at massive cost reduction of overall cost, as Ola showed, significantly below EUR 100 per kilowatt hour. So we are confident on where we are versus our competitors. We certainly think we are pursuing the right goals. But we don't just do it in-house. So we also want to tap into the widest possible pool of talent and expertise globally. So we have dedicated partnerships, especially focusing on R&D and securing raw materials and capacities of material for the future, notably, CATL and Farasis. With CATL, we have a very special and close partnership. We announced this in August. Farasis is a Chinese supplier with North American connections. We are really excited by the potential of Farasis. They will be a key supplier for us in the future. We are so convinced by their future that we are actually shareholders. And we are also looking beyond the big cell producers for ideas and innovations. We are constantly searching the horizon for new breakthroughs. And this fast-moving, highly volatile technology environment, is it likely that one company or one group is going to pioneer battery breakthrough, a breakthrough that is proprietary and that will remain exclusive to them for a significant period? Yes, of course, it's possible. However, we believe in a globally integrated network of researchers and companies and institutes and universities, sharing ideas and areas of progress. We exactly tapping into that. We also invest where we see the greatest chance of a radical breakthrough. For example, Sila Nanotechnologies. We have a significant shareholding also with Sila and are working on the next generation of anode technologies. For those of you who don't know Sila, it was founded by Gene Berdichevsky. And for those of you that don't know Gene, he was one of the first 10 employees at a certain Californian company that is now a rather significant EV producer. To tell us more about Sila Connection, here is a short message from Gene.

I'm Gene Berdichevsky, Co-Founder and CEO of Sila Nano. At Sila, we design and manufacture next-generation battery materials to dramatically improve energy storage, and our goal is to accelerate the electric vehicle revolution. At Sila, we're working on a family of new materials that will more than double the performance of lithium-ion batteries over the state-of-the-art today. Our materials drop into existing battery manufacturing processes. The same factories and the same production lines in those factories. We've already developed a new silicon anode that replaces the graphite entirely and improves the battery performance by 20% now, with up to 50% improvement possible in the years to come. At the same time, by improving the anode, we're enabling improvements in other pieces of the battery, the cathode and electrolyte. Once the anode is integrated, new cathodes can be used that eliminate the use of scarce nickel and cobalt, and electrolytes can be advanced to improve cycle life and reliability. Modern electric cars have already given us a taste of what's possible. But future electric vehicles with advanced lithium-ion batteries will give us twice the range, 3x the recharge speed and 10x the longevity. The most innovative period of energy storage development is just beginning. And we, at Sila, are proud to be partnered with Daimler, who share our belief that battery chemistry is the foundational technology in which the best cars of the 21st century will be built.

Thank you, Gene. So we think we are on the right path with battery cell research and development. So now let's talk about cell production. There's still some debate about making our outsourced cell production in-house in the future. Mercedes-Benz, we do not think that it's a good use of our capital to get into cell production. There are companies with a different background and perhaps a lower cost of capital with scale of economies. They are keen and willing to produce cells and do so very well. We have to understand cell architecture and chemistry. We think it is the optimal approach to get into partnerships with these companies on development. If we were in a different route, it could cost us billions of capital, distract us from our core activities and leave us at risk in the event of a technology leap. Our strategy loses almost nothing in speed and technology, but it's much more financially intelligent. So we will come back with more details on technology in a second with a film. Well, let's turn now to charging. This is really important. This is why we thought in-depth about it. First, we are creating our own software, accessed by MBUX or your smartphone. It gives you a super easy access to a huge number of charging stations via Mercedes me. You can access 80% of public infrastructure, some 350,000 charging stations across the globe. In the Mercedes EV, you can use voice activation to ask the car to navigate to a destination. It will work out the route and charging stations on that route. It will tell you when and where to stop. It can even tell you if the charging stall is occupied in advance before you get there. There is absolutely no gap in this technology versus our Californian competitor. None. Finally, let's talk about charging speed. With the EQS, we will be able to offer highly competitive charging speeds, up to 200-kilowatt for significant periods. This means customers will be able to add up to 250 kilometers of range in just 15 minutes. And we have plans to go beyond that. So finally, let's turn to something that I mentioned earlier, something really exciting my team is working on. Today, we want to share with you our plans to go really beyond to seek new frontiers with range and efficiency, to find a new way of working, to speed up product development and technology advancement. We have set up a group of our engineers to an ordinary test, extraordinary task. We've build the longest range and highest efficiency electric car the world has ever seen. This is a serious project, chasing next-generation technologies. We intend to incorporate the learnings into the next generation of serious production cars. We're going to show a short film to explain the project. [Presentation]

That was our explanation on how to lead an electric drive. So back to you, Ola, with our ambition to lead in car software. Thank you.

Thank you, Markus. How exciting is that? The EQS. I can't wait to drive that prototype. And I'm particularly excited about that some of my old colleagues in Brixworth at HPP from the Formula 1 side are also involved in this project And what I learned there is how dedication to one cause can unlock so much speed in the development process. So to have some of those colleagues on board here, love that. Now next to electrification. There is another technology that we need to take a leading position in for transformation. It's car software. That's a very bold ambition for an automotive maker to say. But we are serious about this. Let's talk about this in more detail. It's not like we're starting from scratch. Of course, we've been working with software for decades and done software in-house, work with suppliers. And especially in recent years, we have made huge strides in this area. When we introduced MBUX a couple of years ago, our customers really woke up and said, "Wow, this is new. This is something really special. Something different from Mercedes." And not just them. Other people in the automotive world has also paid attention as MBUX has proliferated through our portfolio. In terms of software for automated driving, well, that's something that we have worked on for, I would say, more than 20 years now, and we have taken that to the next level with the new S-Class. And in the world of electrification, it's not just about the battery chemistry and all the things that you need to get right, the efficiency of your electric motor and so on. It's also about the battery management system and making that whole drivetrain work together in harmony to get the best performance, but also the best efficiency. So we have taken big steps in recent years on this. If I start with MBUX and the digital experience in the car. And here, I really want to come back to the S-Class again. I could speak about this for hours. There are so many features that are focused on you as the driver, as the passenger in this car, it's mind-boggling. One of my favorite ones is with this biometric recognition, with the camera that you have inside the car, if you step into the car, the car knows you. And every single setting for the seat to your favorite radio station, everything just goes into Ola mode. Perfect. Set up the way like a tailor-made suit the way I want it. If my wife steps into the car, she has her profile. The car recognizes her, moves the seat forward, puts all of her preferences into the vehicle. What temperature does she want to have and so on and so forth. So when we do digital development in the car, it's not technology for the sake of technology. It's human-centered innovation, what really matters to the customer, what gives the customer an even better experience, what gives the customer time back in the vehicle. That's what it's all about when you use technology to improve the customer experience. Let's listen to somebody who knows a lot about that customer experience in the digital world. Georges Massing, he is Head of our Digital Vehicle Development. Georges?

I'm Georges Massing, Vice President, Digital Vehicle and Mobility at Mercedes-Benz. MBUX has been a major focus for us, and we are now taking it to the next level with the new S-Class. It's the brain and the spinal cord of our cars and features dozens of remarkable features, from face recognition and 3D display to augmented reality navigation and over-the-air update. Here are some of my personal MBUX highlights: Number one, if you're driving one of our EQ models, MBUX shows you the fastest route with the shortest charging time. You can easily find and access charging stations of numerous providers also beyond national borders and benefit from an integrated payment function. Number two, MBUX can guide you to restaurants according to your personal taste, and it even works for really picky passengers. You can ask for multilevel stuff like, "Hey, Mercedes, find me a restaurant close by that is vegan-friendly, but also serves sushi and has great ratings." Number three, you can now control your smart home devices via your car, to turn off the light, turn up the heating or even check whether somebody's currently in your house. Number four, in the new S-Class, every seat has its own MBUX screen, and you can easily share content in between them. Number five is actually not a feature. It's an attitude. It's the way MBUX engage in a natural conversation with you. Check it out. "hey, Mercedes. What's your favorite Mercedes-Benz expense model?"

As an artificial intelligence, I don't tend to subjective statements. Well, except when it comes to the G-Class.

Possibility are endless.

In my view, quite convincing. Thank you, Georges. Now let's move over to the second topic, automated driving. As I said, we have been working on automated driving functions and driving assistance for more than 20 years. We are, if not the inventor, one of the inventors of this technology. And with the new S-Class and, of course, with the sibling EQS, we aim to take this to the next level. We have prepared this vehicle to go for Level 3 certification to start with in Germany next year. We now have the legal framework to do this, and we have the technology and board to actually make a car that drives on its own. The new S-Class is also prepared for Level 4 valet parking, so an interaction between infrastructure-based sensoring and also the vehicle. So the S-Class is really a vehicle of a new era when it comes to automated driving. And another feature that I think is really cool and I would love to hear from you when you have driven it is augmented reality head-up display. It's so large and so sophisticated that some of the engineers joked that they designed the whole car around this specific feature. But literally -- if you do navigation, it literally paints the navigation arrow on to the road so in a very natural way, you know exactly what's going on. It also has safety features that if somebody is coming fast next to you and before you move over to overtake a car, it warrants you also in your indirect vision in ways that we have never seen before. And clearly, this is based upon over-the-air downloadable technologies. So the car learns. And these systems, these sophisticated systems, they get better over time. To be able to do this in a safe way, you have to have an extremely comprehensive set of sensors. Of course, you need the computing power on board, but you also need high-precision, high-definition map and a perfect positioning system. Lidar, for the first time in one of our vehicles to create the redundancy to get the safety that you need to introduce autonomous drive. So it's all thought through. All the sensors around the car, the computing power, the intelligent algorithms and, of course, the HD map. There's nobody better to talk about this than Michael Hafner, who heads up our Autonomous Drive Development. Let's listen to what Michael has to say.

I'm Michael Hafner, and I'm Head of Autonomous Technology at Mercedes-Benz. With the new S-Class, we are taking driver assistance and automated driving to a new level, and we will aim to deploy true Level 3 capability next year. Our software teams have always programmed the algorithms in-house, so we can build on a deep software competence in this area and are well prepared for the next automation levels. We have big plans for the next steps on autonomous driving with our partnership with NVIDIA. I'm at the wheel of our new S-Class. With this car, we plan to launch the first Level 3 autonomous vehicle in the second half of next year. By that, we will allow our customers to enjoy side activities, while the car drives intense traffic or in traffic jams on highways. Here we go, running autonomously now. Initially, that will be possible in Germany and up to speed to 60 kilometers an hour. This is regulated by law. However, as regulations and technology will develop further, we plan to add more markets and to allow higher speeds. The technology of this car is exceptional. For us, safety will never be compromised in such a system. That is why we consider a couple of first-time innovations necessary to really build an overall safe Level 3 system. Some examples of those innovations are Lidars or HD maps, in combination with high-precision positioning systems or road condition sensors. Of course, we have built in all of those into the new S-Class. And we will not stop at Level 3. The S-Class is even ready for the first Level 4 use case for end customers. We have prepared the S-Class for an infrastructure-based, automated parking, where customers can leave the car at drop-off zones and respective parking garage. Where regulations allow, the vehicle will then be automatically steered to its designated parking lot, all driverless. As you can see, we are allowed to be entering the era of autonomous driving with the new S-Class as early as next year.

Thanks, Michael. Now let's talk about our ambition to lead in car software. And I think there is a very big question that is coming towards the auto industry that each OEM has to face in going forward. What is the operating system of your car? And are you going to do it yourself and own that operating system? Or are you going to let somebody else do it for you? Both paths are possible. At Mercedes, we have made a very clear decision. Since we're talking about literally the brain and the central nervous system of the car, we have decided to be the master of this new operating system. What is the rationale for what we call MBOS, the Mercedes-Benz Operating System? Well, I would point out 3 things that drove our decision to do this: The first thing is we want to control the interface vis-à-vis customer, and the customer needs to be part of our technical ecosystem, not something that we would like to outsource to somebody else. The second reason is once you have a comprehensive operating system with all the tentacles in the vehicle, is speed of execution. If you want to change something, you want to give the customer a new feature and you want to update the car over-the-air and quickly respond to abilities that technology unlocks for you. If you have this in-house, you can do that so much faster. And third, that sets us up for a new profit pool. We call it digital recurrent revenues. Some of these features that we will add to the car, we can sell that to the customer. The car can turn into a subscription. And the whole logic of the car not reaching its peak technical capability at the point of sale, but actually getting better over time, we think we can control that customer experience and that journey, if you will, better if we have a Mercedes-Benz OS, of which we are the architects. Does that mean that we have to do everything by ourselves? No, it doesn't. Maybe that would be a little bit too much. And we need to eat this elephant one spoon at a time. This picture is a huge simplification of what that new MBOS and architecture looks like. If I start in the middle, what are we talking about? Well, we're talking about the obvious things that happens in a vehicle. The drivetrain, how do you control your drivetrain? Autonomous drive, whether it's as an assistant or the car drives by itself, incredibly important domain. Infotainment, that's the thing that we naturally all think about when we talk about connected car because we interact with it immediately when we step into the car but, of course, it goes beyond that. body control, the seating, all the other actuators in the vehicle that makes the car function. And of course, communications in the future or already today, the -- some of the intelligence is in the cloud. You have your Mercedes BID, and in the cloud, you can get information on to the vehicle. We can store your profile in the cloud for your data, so you can transfer it from one vehicle to another vehicle. And the full integration of this is, of course, done by us. But if we look at the left-hand side here, on the software side, it's like a layer cake. You have an infrastructure layer just above the chipsets the engine, if you will, that drives this. Some of that we will do in-house. We will use standards. And of course, we will work with partners. The same goes for the middle layer, which is the conduit between that infrastructure and the applications. Once you get into the applications, that's when you're in actually driving or autonomous drive or how does the infotainment system work? What's the experience of that? That's where it more and more moves towards us and where we want to do a lot of the software coding ourselves, but also work with very strong partners, like on the autonomous side with NVIDIA that I'm going to get to in a minute. And the front end layer, I think that's a no-brainer. That needs to be 100% in-house. When we talk about a digital luxury experience, it's about the aesthetics, but it's also about how intuitive this system is. You should be able to step into the car and just kind of learn it. You don't need an explainer. Everything needs to be there where it needs to be and where you intuitively find it. On the hardware side, we come from a world with many, many ECUs. In a sophisticated vehicle like the new S-Class, that could be up to maybe even 100 ECUs if you load it up with all the options of the vehicle. That is starting to get too complex. We have to simplify that and we will do that by putting together high-performance computers inside the car, consolidating these ECUs into fewer computers that drive the functionality of the domains that I'm talking about. Who's going to do it? Can we take the mechanical engineers that we need to make these beautiful vehicles and retrain them? Yes, some of them, I'm sure we can. But we have, in the last years, already built a very, very competent software team that we have spread around the world to be able to tap into the best talent in the right places. In Germany, I mean, the core of our engineering is in and around -- is significant, that's where we have some of the architects, of course, of this new software system. But we have built up new entities, like in Berlin, company we called the Ambition that is growing fast. And a lot of people are coming to us because they're excited about writing the software for the vehicle of the future. Seattle is another example, cloud computing capital of the world. It was natural for us to put our cloud team in Seattle, but in Asia, in Beijing, in Bangalore, also in Tel Aviv, kind of the second Silicon Valley. We have a comprehensive software team around the world that works together to make this plan come through. And I think one thing we should remember in this context is it's not about how many software developers you have. You need to have the right people. Very often, small teams with the right people can be much more powerful than if you have very big teams and it leads to bureaucracy. But who am I to talk about that? Let's hear from Sajjad Khan. Sajjad Khan heads up these areas, and he is an expert in the field of software and digital development. So let's hear it from Sajjad.

My name is Sajjad Khan. I'm member of the Board at Mercedes-Benz AG responsible for software and advanced technologies. My vision of the MBOS is that MBOS will be coming in 2024 and the major 5 criterias for this MBOS, that goes like that: Number one, it's going to last up to 2035 and 2040. So first launch in 2024, and it's going to last another 10 to 15 years. Second point, it will have the over-the-air capabilities in such a way that we can also have a more profit and the revenue down the road by flashing the software over-the-air in the vehicles in different domains of the MBOS. Number third, it would be a very data-driven MBOS. That means we will have a complete closed loop of a software in such a way that the system would be learning automatically on its own from the field cars and giving the data back to the new cars which are coming. Plus, the field cars will also get updated. That's the number three. Number fourth would be, down the road, we should need less and less money to develop the software further because there will be a more automated process on that. And the last one is the MBOs would not only be car-oriented, instead, I call it car-to-cloud-to-IoT. And the IoT, I mean, smart home, smart charging places and all that. Operating system is extremely important for any OEM who would like to develop the cars of either today and the future because the software is running within the vehicle just like the blood runs in our body. So it has to have some kind of a control from the OEM perspective to make sure that you can drive every kind of, not only the functionalities, but the different business models also through that software. That's why it is important that the OEMs have a full control on that one. And if you would like to spend also less money down the road on the engineering of different components, you have to have that operating system. Otherwise, you have a distributed system, and you cannot connect them together properly, and you're always fighting in the interfaces and all those kind of things. A German OEM can be extremely and definitely competitive on the software if they work the way we, at Mercedes, are working. We have digital global organization. We are working in Seattle. We have an organization in Tel Aviv. We have an organization in Beijing. We have an organization in Stuttgart as well as in Bangalore. We take the talent and the whole talent they bring together the product in the shape of 3 major pillars: car software, cloud software as well as the IoT software. If we can do all these 3 things together, there shall be no doubt in the minds of anyone why a German OEM or a Mercedes would not be successful. But the name of the game would be to execute the right vision at the right time with the right people in the given time. For the software development team, I think it is very important from our perspective that we should not talk about the big numbers, whether someone has a 5,000 software team people, or there are 10,000 or 20,000. It doesn't matter. It really does not matter. What matters is in the software development. One great software developer is equivalent to 30 just-okay software developers. Recurring revenues through MBOS as well as together with what we are doing with the NVIDIA are going to be generated in such a way that we will be planning from the day 1 the hardware in our vehicles in such a way that they will have the headroom to have over-the-air capabilities of having a scalable feature set to be built in our vehicles. That means we will have a set of features available at the launch of the vehicle when the customer is going to get it; technology going to develop down the road; and over-the-air, we will be selling more and more features and also can create some profit for our company on.

Sajjad mentioned it. Teaming up with other players to make this vision come true is important. And when we team up with somebody, we want to team up with the best. Earlier this summer, we announced a new strategic partnership with NVIDIA with regard to autonomous drive. And of course, this is not something that just came out of the blue. I know Jensen Huang, who is the founder and CEO of NVIDIA for many years, and we have worked successfully with NVIDIA, for instance, on introducing the first generation of MBUX. So these are 2 organizations that are driven by excellence and by innovation that know each other. And when we spoke earlier this year, we said, let's take it to the next level and really go for it with regard to autonomous drive. And the computing power and the chipsets that NVIDIA has in the pipeline for the future and their software skills, paired with our more than 20-year experience in developing driving assistance systems and automated drive systems, I think it's really 1 plus 1 becoming 3. So I'm very excited about this relationship with NVIDIA, and also be able to enhance the customer experience and download new technology during the ownership of the vehicle over-the-air. Let's hear it directly from Jensen, the CEO and Founder of NVIDIA. Jensen?

Thanks for the opportunity to talk about the exciting work that NVIDIA and Mercedes-Benz are doing together. It's been a privilege to partner with Ola and our friends at Mercedes. Their excellence, attention to craft in detail and their extreme standards of including the best, so that Mercedes customers get the best. We bring together the ultimate and high luxury and high tech. Our partnership started several years ago with the development of the MBUX, the industry's most advanced infotainment system. And last month, we raised the bar again with the new S-Class. At the core of our 2024 partnership is a shared vision that future cars will also be state-of-the-art computers. The cars we're working on will have a super smart artificial intelligence computer brain, supercomputers trained to write its AI software. NVIDIA is renowned for our work in artificial intelligence. The breakthroughs are nothing short of science fiction. NVIDIA AI is transforming cloud services, health care, manufacturing and robotics today, but perhaps our most significant contribution will be autonomous transportation. Future cars will be highly autonomous and be far safer and magical to drive. Your car will always be alert and aware of you, your passengers and your surroundings. You will talk naturally to Mercedes. She will almost feel like someone who is in the car with you all the time. The 2024 Mercedes has a keen computer brain that is powerful and programmable. Thousands of software engineers at NVIDIA and Mercedes-Benz will continue to teach her new skills and update her software over-the-air. It's an incredible change in car ownership that your Mercedes will continue to benefit from billions of dollars of R&D and get better over time. Let me give you a peek into our development. This is drive sim our virtual reality world simulator. Hey, Mercedes, please pick me up. It is photorealistic with physically modeled surface materials and obeys the laws of physics. Drive sim lets us create infinite variabilities of time of day, road, weather and traffic conditions. We can create specific challenging scenarios and repeatedly test our development until it passes. Our engineers can easily launch a simulation and test their software. Once it passes the simulation, we OTA the software into the real test cars. When test cars pass validation, the new software is updated to the fleet. The entire fleet gets better. The entire fleet will have the same powerful AI computer brain with 1 architecture across the fleet. Software upgrades will benefit all cars in the installed base. The 2024 Mercedes is purposefully designed with computing power to spare. There will be room to offer new functionality and services over time. This is a big idea with 1 architecture across the fleet and compute to spare in every car. Mercedes-Benz can revolutionize their business model. Mercedes can offer features as software and services. In a short time, Mercedes will have millions of NVIDIA powered cars in their fleet. This fleet will be a connected installed base that can be offered valuable new features for years. Not just at the time of purchase. Mercedes installed base will be enormously valuable, tens of millions of cars and thousands of dollars of software opportunities over their life. NVIDIA is thrilled to be on this journey with Mercedes to invent this amazing future.

Well, that's quite exciting. So let's sum up what pillar 5 is all about. The auto industry is in transformation, 2 technological trends are the most important, electrification and car software, and we're doubling down on both. I believe this is crucial for our future success. If we now go further and we go to our final pillar, let's talk about industrial strategy and talk about cost. We have some homework to do in this area. We know this and as I mentioned at the beginning, it's not just about fixing this, that or the other in the short term. This is actually part of our strategy to really be excited about cost and also make the necessary structural changes that we have to do to put our cost structure in our breakeven into the right place. Some of those decisions we've already made, but there is more to come. Harald is going to talk about this. But before we ask Harald to come back here onto the stage, some of you might know, Harald is from Bavaria. But he has moved to another place in Germany called Swabia, where Stuttgart is. And the Swabians are very famous for many things, but in particular, for one thing. I hope you enjoy this movie. [Presentation]

Wonderful. And that cab driver was certainly right about 1 thing. This company has a lot of great people, not just in Swabia. And together as a team jointly, I'm looking forward to taking it to the next level also in terms of financial performance. But first, let's take a look at our challenges. What can we do better? What did we learn? We are clear about our challenges. We do know that our cost base and our capacity grew at a pace more recently higher than the top line. That applies to the pre COVID to 2018 and 2019. We do know that the cost of electrification of transformation in terms of investment but also in terms of product cost is going to put further stress on the margin evolution. And now we got a reset via COVID-19 on the top line, on sales and revenues. What does it mean? Our breakeven point definitely got too high. If we were to be, for the sake of the argument, in 2020, at a sales of around 2 million units, this means that pre COVID-19 measures, probably we would be just around breakeven. This means we would be at a breakeven level, which is almost 1 million units higher than about 10 years ago. That is unacceptable. And why it makes us just too exposed, not resilient enough. That's why we took action. We took action in various respect. Let's have a look. The actions are threefold. First, we stepped up significantly the short-term measures in terms of cost reduction and cash preservation as a reaction to COVID-19. But that's short term. But we also took the time throughout the last weeks and months to resize the level of ambition for our sustainable cost measures and capacity adjustments to lower the breakeven point on a sustainable basis. And what are they? Take CapEx and R&D down to a lower level; definitely reduce the fixed cost; reduce the variable cost, the internal and the external; and to adjust the industrial capacity and footprint. And there is a third element. And maybe this could even be the most important one. It is about performance culture. Let me give you 2 elements to underpin what I mean by it. With too much use to run in a performance improvement program from some period of time in rainy conditions, then the sun comes out, and we release, I mean the pressure, and so cost comes back. We now want to put improvement as continuous improvement into our DNA. And what is a very important lever in this respect to measure performance in terms of net year-on-year actuals improvement. So you will not be surprised, therefore, that all of the targets I'm going to show you in a second will be referenced against 2019 actuals. Now let's have a look from concept to reality. Well, you know well the Q2 numbers, that was a brutal one in terms of the sales drop around 30%. We could not keep up to a breakeven completely, but close to, thanks to the measures. And we could keep -- or we could make the cash flow positive even in probably the worst quarter ever. I'd like to give you a few elements and indicators in terms of what is moving, the indicators of change. First, when headcount started to turn. For quite a long period of time, the actual headcount of Mercedes is coming down in the year. Second, the speed at which we could sign up exit packages really accelerated. So if you take the 2 together, it means basically almost 5,000 exits done and committed. If we look on the fixed cost evolution, more than 10% down year-on-year. And if you look at the external spend in the general procurement area, I would call that what you see on the chart, or roughly close to a 30% down. So something is really moving. But that's not good enough as we need to go beyond that, and we will. How? Let's have a look. Let's have a look into the investments into CapEx and R&D. I just told you before, we will reference it compared to 2019 actuals. That was definitely a peak level of EUR 15 billion of investment in CapEx and R&D. And now we'll take it down over the years to come by more than 20% until 2025. That is a remarkable number in a period of transformation, in a period of investment into new technology, as you heard from my colleagues before. So can we do it? Yes, we believe we can do it. And why as a strategy on platforms on electric first, you heard before, in terms of portfolio reduction and focus, you heard in the first 2 chapters, and in terms of taking complexity out in the vehicle will allow us to go there. That will further be supported by a fundamental transformation in powertrain, i.e., take today's combustion investment down brutally, and at the same time, standardizing the EV architectures to a much higher level tomorrow than we're doing today. The other key element, obviously, is that we are rationalizing our industrial footprint. You can see it was a divestment from our plant in France in Hambach and other main measures in that respect. So all of these objectives have now been sized year by year. They have been cascaded, I mean to the teams in charge. So they have a very clear envelope. Is it easy? No, not at all, but it forces good discipline in terms of capital allocation. Let's have a look as well what we're doing on the fixed cost. In essence, same approach. We depart from the 2019 actuals, and some of you will say or will ask me, what is the fixed cost? It is a comprehensive set. It is obviously fixed cost and overheads, but it's also fixed cost and manufacturing, in sales and marketing, the whole 9 yards. To give you an idea of the order of magnitude, we're talking EUR 14 billion in 2019 actuals. And we will take that number down by more than 20%. I just showed to you before the run rate, I mean, in 2020 already. So I think we are on a good path in that direction. How can we get to this ambitious level of target? Well, we will extend the personnel cost measures. We decided and announced at the beginning of the year, which are now supported by some further short-term measures but we'll take them up to 2025 in terms of attrition, in terms of early retirement, the whole set. The adjustments of production footprint, I mean, obviously, is also taking fixed cost out. And we're doing a real structural change in marketing and sales by moving much more to digital sales, online sales and a direct sales approach. And obviously, we want to take the tailwind we now got in 2020 from COVID-19 forward into next year, into the years thereafter, in terms of all of, I mean, the spend you can have, be it on travel, on consulting, on facility management and so forth. We'll not stop here. We'll also attack hard at the variable cost, both internal and external. And why? We do know that the CO2 burden goes the other way around. We talked about that a year ago, about the 1% ROS dilution. So we have to fight by variable cost reduction. And the target we set ourselves here is not less ambitious than just a minus 1% net down year-on-year. And that applies to material costs. So what we buy, it applies also to our variable manufacturing cost, and it also applies to the variable sales cost. So this is just to give you, I mean, the key targets on where we are going in terms of sizing, resizing, adjusting our cost base and our industrial footprint. There's a whole program, which you see here on the chart, and how we attack it in a holistic manner across, I mean, in the company. And now please listen to my colleagues to give you more elements on this as this is not something, Ola and myself are just, I mean, putting on top of the company, this is a joint commitment. This is team sport. We're going to deliver that together.

My name is Markus Schäfer, Head of R&D and COO. Mercedes-Benz is a luxury brand, and we have always wanted to offer products and options that would really fulfill our customers' desires and serve the individual taste. But if you look at the product range and our option count, we have come to the conclusion that our complexity now additionally combined with EV drives has become excessive. We need to reset. There's a considerable cost that comes from complexity. Complexity adds cost in product development, in procurement, in manufacturing certification and in distribution. We have got to address that. So we decided for a turnaround and launched a number of initiatives to reduce our complexity on our current and future products without a detrimental impact to the customer experience. That's the key. With our electric first strategy, we are going to reduce our platforms substantially, and we are going to reduce our number of combustion engines very dramatically. We will drop our transmission count and eliminate manual gearboxes. We will ensure our combustion drive trends are highly competitive. But from now on, we will shift our development resources towards electric drive. We will also move fast to a more modular, more overarching component strategy. And we are going to reduce our huge variety of options significantly. This will make development and production much easier but still give the customers the kind of choice one would expect from a luxury brand. And we will make ordering a car much easier and much more simple. Complexity reduction is a really powerful tool as it allows us to lower engineering hours, lower development and homologation cost and space. It will really help speed up things on the development side. It will simplify the whole process, and it will allow us to cut our like-for-like R&D spending significantly, and we can do it without affecting the Mercedes-Benz luxury experience. It's a complicated task, but we are well on our way. We have to do it, and we will do it.

My name is Jörg Burzer, and I'm the Mercedes-Benz Board Member for Production. I've been in the role for just over a year, and we are now in the process of deploying a new approach for manufacturing. We have reviewed our footprint and our production system, and it's clear that there is room for improvement. There is so much we can do. There is so much opportunity. The first thing to explain is that we are going to reduce our technical production capacity significantly. But we are still going to be able to meet market demand by increasing efficiency, and capacity utilization. We are selling the Hamburg plant, concentrating production of certain models in fewer sites and have further adjustments planned. This is going to both raise our capacity utilization and lower our breakeven point. Second, we are going to substantially improve our production efficiency. And we'll reduce average hour per vehicle from 36 to 30 hours. Remember, these figures are for luxury cars. So they are ambitious. We are doing it already. The new S-Class that we just launched as 25% lower direct labor hours compared to its predecessor. And we are also going to improve our ramp-up speed. Ramp up speed is a key driver of profitability for our plant. Third, we are going to take down the capital intensity of our manufacturing. Fourth, we're going to cut our other fixed costs in manufacturing, all the other stuff on top of the fixed asset depreciation, logistics, facility spending, G&A costs and even the size of the management team, where we can be much leaner. There's lots we can do here. Finally, we will significantly reduce our complexity in the product, in the plants, in the whole network. This is going to really help. I tell you, ultimately, we are going to raise our game in manufacturing. We're going to get serious about [indiscernible]. We have a lot of work to do, but the opportunity is clear, really clear.

My name is Gunnar Guethenke. I am head of Procurement and Supplier Quality at Mercedes-Benz. We spend about EUR 40 billion on purchasing each year. So procurement is one of our most important cost levels, and we are going to step up our efforts in this area, but we will do it in a smart way. We have launched a new purchasing program called [ PACE ], partnership and cost efficiency. This is all about selecting strategic suppliers who will work closely with Mercedes-Benz so we can achieve the best performance. The majority of our suppliers have signed up for this program and have agreed cost savings for the next 4 years. We have agreed to join technical optimization in a more intense partnership based on a much closer collaboration and going even beyond [ PACE ], we are building some really deep reaching partnerships on the battery side with [indiscernible]. Our overall initiative is to achieve significant annual cost reduction each year, an absolute like-for-like real terms. Ultimately, we need to drive down our purchasing costs and ensure we are really competitive. We can do it in an intelligent way. That's a win-win for both Mercedes-Benz and for our suppliers. There's lots to do, but I'm confident with our strong team, we are on a promising path.

My name is Frank Deiß, and I am Head of Mercedes-Benz Drive Systems and of our Powertrain Product Organization. We are at a really important historical moment as a company as well as an. industry. We are going to need to transition to electric drive. And I can tell you, it is underway. So for a company like Mercedes-Benz, with a long history of combustion engine development, we have a lot of work to do. So we need to support the introduction of new technologies and need to ramp up production of batteries and e-motors. And on the other hand, we need to plan for the ramping down production of combustion engines and manage our industrial footprint and capacity, and that's not an easy task, but we are going to do it. We have set up a new organization that we call Mercedes-Benz drive systems. It has a new steering model that gives us a profit and loss responsibility for powertrain and allows us to think like a supplier to Mercedes-Benz. That allows us to think clearly about where to invest, what we want to do going forward and how to optimize our investments. It also gives us a structure that allows us to focus on efficiency, including lowering our fixed costs. Within that structure, we are going to work with partners for some activities, manage the ramp down of production of certain components and ensure our people and our company develop the expertise and production network to build the cars of the future. It's challenging, but it's incredibly important.

So we talk about brand and product strategy, commercial strategy, technology, cost, investments. I'm pretty sure you're pretty impatient now what all of that means in terms of numbers. So thanks to bear with us until that point in time. Let's have a look. We said before, our breakeven point is too high. So with everything you heard before, we want to make sure that this company in adverse, rainy, stormy conditions can deliver an adequate profitability. What does it mean? Working on the margin, taking the fixed cost down by 20% compared to 2019, the investments, and that should translate into profitability mid- to high single-digit under these conditions. Mid- to high single digit, I think, is seen by you and the market as 6% to 8%. Is that what we're going to shoot for? No. I think you heard the ambition of the team, we want to grow and we want to grow in the right spot. We want to grow the margin, therefore, we want to achieve profitable growth. And what does it mean, therefore, in half sunny conditions? We should capture this incremental profitable margin, but retain the same level of ambition on the cost side, i.e., the same, more than 20%, the same more than 20% investment reduction. And then I think it's pretty obvious that, that should yield higher margins -- high single digit margins, call it, 8% to 10%. And definitely, our ambition is more to be under the sun than under the rain or even, I mean, the half cloudy, and that means if we go higher, call it, 2.5 million units that should translate into double-digit margin, which I think we all read like 10 plus. But we focus not only on the margin, we entered into the journey in terms of cash focus since the beginning of this year, you see some traction. And that means these margins, we want to convert into cash at a rate of 0.7 to 0.9 on a sustainable basis, which obviously, in one or the other year, it could be even above. But on a sustainable basis, this is where we want to go. So that is the financial framework we elaborated, but you see it's clearly more than just the financial framework it is a very comprehensive set. And with this, I hand back over to Ola.

Harald, thank you. That's a good ambition. Now let's try to summarize this 6-pillar strategy and how we're going to build economic value and create a future profitable growth. Think and act like a luxury brand; leverage the brand to improve pricing mix, loyalty; focus on profitable growth; target those positions in our portfolio, which will deliver the strongest profit potential; expand customer base by growing sub-brands. And I think there's substantial EBIT growth in that horizontal strategy, embrace customers and grow recurrent revenues. That's a whole new revenue stream with the digital side that we can add to the traditional profit pools that we have; lead in electric drive and car software. We have to do this to be a winner in transformation, and we will leverage our technological skill to get ahead. And of course, as we have seen in this last pillar, lower the cost base and improve the industrial footprint. Do the homework and then stay disciplined. With all those things coming together, I think we have a strategy that can take us through this decade. And I'm very excited to execute this strategy with rest of the Mercedes-Benz team. And I think we're now ready for the second Q&A, and I would like to ask Harald and Markus to join me here on stage to take your questions. Thank you.

Thank you, Ola, and welcome back for the second Q&A session for today's event. Besides our CEO, Ola Källenius; and our CFO, Harald Wilhelm, we have now also Markus Schäfer, the COO, here on stage. Now you can raise questions regarding electrification, software and our industrial strategy. And in case any questions was left on the first 4 pillars, we'll of course answer them here. As a reminder, I will repeat the practical points from the first Q&A session. In case you want to ask a question to our management team, you will have to dial in individually by telephone and register. The dial-in numbers have been shared within our final invite we sent out last Thursday. I will identify the questioner by name, but please also introduce yourself with your name and the name of the organization that you are representing before asking your question. Please ask your question in English and try to speak loud and clear so that everyone can understand your questions properly. And as a matter of fairness, please just limit yourself to one question. Last but not least, please be aware to mute the live stream while raising your question and listening to the regarding answers. Now before we finally start, the operator will again explain the procedure for dialing in.

[Operator Instructions]

We start with Patrick Hummel from UBS.

Yes. So Patrick again from UBS. Two questions, please, if I may. First of all, I wanted to follow-up on your comments about the EV platform strategy and the MMA platform specifically. You didn't mention a time line for it. When will we see the first vehicles running from that platform? And is it fair to assume that this is going to be the only platform for all non-luxury product in your entire portfolio, i.e., will it ultimately also replace MSA, and over which time frame is that? And my second question is regarding the financial outlook. You talked about the 2025 road map, you gave the key building blocks that help us to frame it, which is great. There is still a guidance out there from last year from the CMD that was focusing more on the near to medium-term 2021, 2022. Looking at your slide, it looks like a fairly smooth trajectory to 2025, but are you willing to give a bit more color to what seems to be the new normal now in terms of run rate for activity for volumes, what that would translate into 2021 and 2022, also including maybe an updated view on the supply -- on the CO2 compliance side.

So the first one would go to Markus?

Well, maybe I'll take the first part. So the MMA platform, of course, will deliver luxury cars, absolutely. Starting in '24, it will be the successor platform of the current platform MFA. So maybe I'll just hand over, Ola.

On the financial profiling, yes. And we talked about that last year, if you go back to the charts, however, there's a material difference, the top line evolution. And when here, we have to face reality, the reality of COVID in 2020. And this is exactly which caused us to go back and to sharpen our ambition, the one we explained before, in terms of going higher on fixed cost reduction, in terms of going further, in terms of the CapEx reduction and also going beyond the period of 2022 until 2025. I think today, it's not a point in time to talk what is commercial assumptions to be taken for 2021, 2022. And therefore, what could be the all-in margin in this time horizon. But I think today, I mean, what we want to give you is really the perspective in terms of what is the strategy. And therefore -- and what is the financial metric and ambition to manage throughout 2021 and 2022 and maybe it was what you already could see a bit at the Q2 give you an idea in terms of the level of energy, how we want to drive that. So it's not about setting ourselves a target for 2025. We can grab, I mean, these opportunities, these objectives earlier, I mean, definitely we want to do that. But I think to talk about 2021 and 2022, probably the time will be a bit for later in the year or early next year when it comes to the formal guidance. On the CO2...

Okay. Maybe, if I can. Yes, CO2 compliance cost?

Yes. CO2 compliance. As I mentioned, when we had the capital markets event in the fall of last year, we were looking at almost a herculean task, but we had all the technologies in the pipeline to get there. And I look at the numbers of xEVs growing rapidly every month by month. And now we're within striking distance, we are extremely focused on meeting these CO2 targets, and it is possible this year, but we also have to deliver a big fourth quarter on the xEV side. So stay tuned.

The next question goes to Tim Rokossa from Deutsche Bank.

First of all, just statement, I think it is fantastic that you're committing to these numbers as absolute savings targets and that you're giving us margin targets for a bad year, a good year and a normal year, and not just as through the cycle margin, which was never really achieved at least on the upper end. So thank you for that. And then 2 questions on the electrification strategy, really. The first one is, when do we see the majority of drivetrain investments, R&D and CapEx going into electric? Are we already at that point in time? Or if not, when will we be there? And then secondly, Ola to you specifically, because I know you're a big fan electric cars. We discussed about this a couple of times. They are quiet. They are comfortable. They still have great performance. So all that fits the Mercedes DNA. And with that in mind, the public criticism about PHEVs, why do we not see a BEV-first strategy for Mercedes? Why do we only talk about electrified vehicles? Are you committing to a BEV target by 2030 or even 2025 already?

Investment, do you want to go on Markus?

Let me start with the investment. So Harald, you showed that investment overall is peaking out if we look at CapEx at the moment and our spendings and our funding . So our commitment is to reduce our CapEx and R&D fundings. So we are peaking at the moment. So we are -- when it comes to combustion engines, we are at our final target picture. So over time, we developed our final target picture of combustion engines, which we call the fame family consisting of 4 engines. And they invested, they are out in the market, just recently launched the 4-cylinder gasoline engine. So these are high-tech engines. They are electrified 48 volts, they are plug in. So we peaked out there. Now the majority of the investment on powertrain is switching now to electrification, switching to batteries actually and switching to electric drivetrain. That's the majority of the investment from now on.

So Tim, on that second question, you're right, I'm a BEV fan. And electric first means BEV first. So the platform strategy and the technology strategy that Markus presented is very much a BEV first strategy. But for the next years, minimum 5 to perhaps 10 years, the plug-in hybrid in many markets where the infrastructure is not yet available or where the customer is not yet ready to take that ultimate step, the plug-in hybrid will play an important role. How do you combat some of that criticism that you have seen early on here? I think the answer was on one of the slides that Markus showed, it's longer range. The first generation plug-ins were a little bit shortish on range. Now we're introducing a whole raft of vehicles that have a WLTP of around 100 kilometers, so you can literally drive Monday through Friday, emission-free back and forth to work or whatever you're doing. So that technology will be in the market and will capture, for us, an interesting profitable segment of the market. But it's not our mindset. Our mindset is electric first and BEV first. That's what we're going for.

So we continue with Philippe Houchois from Jefferies.

I have 2 questions, if I may. The first one, I'm listening to your presentation, very interesting, very convincing. But I'm kind of wondering, what is the future of the Mercedes brand? I hear you talk about the sub-brands, [ no G ], et cetera. And EQC is the next brand. But if we look at a world where we move to eventually close to 100% electric, does the Mercedes brand die a gradual slow death or was the future [ idea do change ]? And I'm kind of trying to understand how you see a transition from EQC to Mercedes brand if the 2 effectively cover the same aspirations but with a different powertrain? That's my first question. Should I go with a second? Or do you want to answer first?

Go with second, even though we try to stay brief. Just go ahead.

Yes. Okay. Great. And the second one is just in your discussion about impressive cost cutting exercise, very convincing, et cetera. I'm just looking at -- you're looking at a transition where you prioritize cost with the growth clearly, has there be any part of the discussion in your team about that such absolute size matter, do you get -- does Mercedes as a brand, assuming that it grows more slowly in volume, but better profitability, that scale size become an issue at some point for the business itself? [indiscernible].

So let me start with the first one, and I try to illustrate it on one of the slides you don't have to worry about the Mercedes-Benz brand. It's not going away anytime soon. The 3 pointed stars, one of the most recognized brand symbols in the world through any industry. So the master brand always sits on top. The sub-brands, they end up being tribes and electrification will go through all of those. What the world then looks like in 2030, our initial target is equal, greater than 50% xEV with a heavy bias towards the BEVs, obviously. Should that grow quicker? That might influence how we develop the sub-brand strategy. But at this stage, for the next 10 years, I think we have a relatively clear sub-brand strategy and the master brand will always sit on top.

With regard to your second question, we very clearly discussed that we define the product portfolio for the years to come, the 5 to 10 years to come. We sized the level of investment for R&D and CapEx in that respect. And we gave ourselves an envelope, where we said within a certain range of volume, we want to stay within these costs and investment objectives, i.e., not grow the cost base and the capacity each time you add a unit to it. This is a joint discussion we had, and that's what we want to do.

But make no mistake, we are a growth company. The luxury segment is a growth segment. So we will grow, but we will not chase pockets of volume that are subpar margin. That's what this, I call it, course correction is all about. We have, in the luxury segment, we have critical mass. We have some cooperations also behind the scenes to create greater purchasing volumes for non-differentiating technologies. And where it is necessary and fits our purpose, we will also seek other partnerships and cooperations. So size does matter, but it's that extra, whatever, 100,000, 200,000 units that you maybe sell-through a sales channel that is not as profitable that doesn't make sense. That's what we're trimming off here.

We continue with Horst Schneider from Bank of America.

I like your comparison with the weather. So cloudy and sunny in your slide. With that regard, I just realized it was already very this summer. So I'm just surprised, I asked myself, how sunny was the quarter for you, maybe you want to want to make a statement on that. So when I look, for example, at your slide where you talk about the reduction of fixed costs by 12%. I mean, that is a big chunk that you want to achieve only by 2025. So it seems to me that a large part of the savings could be already upfront. So it would be great if you could make a statement on Q3 if it was really such a great quarter, and what sunny means in an Q3 context? And the last one is on this 2022 target you said in November last year, is the 6% margin target off? Or is it still on?

Well, thanks, as maybe we wrap up 2025 in the third quarter 2020 already. What -- I mean, frankly, what I like about the third quarter somehow, you can see already the strategy where we want to go. You can see the motion we embarked on from the COVID cost and cash preservation measures and now the longer-term transformation measures. I mean, it's a first of glimpse, but what does it mean? Well, you saw the sales numbers, I mean, this morning. For me, basically, Q3 sales numbers, I mean, exactly this in an endorsement, but the gross in premium and luxury is definitely at a higher pace than in the mass -- the volume market. That's what you see with the numbers, right? If I then look a bit further into it, again, I see that retail has been running ahead of the wholesale, which means I think somehow we manage diligently the supply. What does that mean? I mean, the mix should be good, the pricing should be good. The working capital should be good. Definitely, we continue on the cost side with the actions we engaged, trying to push, I mean, to Q3 and certainly further into Q4. What does it mean in terms of margin? Probably, I'm as impatient as you are to see that the numbers printed on the paper. Well, this is not a Q3 disclosure. But I expect to be okay with it or say, happy, and I hope you as well. And what does it mean in terms of cash? Well, I mentioned already working capital, so we should have a good conversion of these margin into cash, boosted by working capital, we also cashed in the third quarter, the dividend from China, the full year '19 dividend, by the way, more than EUR 1 billion. So I expect a pretty solid cash number, to be frank with you. And in the other divisions, which is not -- I mean, the zoom of today, but it should be a similar pattern. So I think, yes, Q3 somehow gives us, I mean, the punch, the boost that we are embarking on the right journey. And definitely, with this tailwind, we want to take it into the remainder of the year and into '21 and then '22. And about the margin for '21, '22, we talked about last year, I think I commented on that before. The top line, different assumption today, but not for today to talk about it, as we still need to work first on the '20 and 2021 first. But definitely, on cost and investment, we are more ambitious than that. But I think give us some credit for the Q2. Bear with us for the Q3 should come soon.

Horst, let me add one aspect to what Harald is saying, and I don't want to diminish any of that enthusiasm that I fully endorse and would like to underline. But you have to also see in a year like COVID, which is an unusual year, where we have taken some extreme cash preservation actions. And we have also had the ability through short time working, especially in Germany to take some cost, let's say, onetime cost out of the system. The bigger picture of reducing fixed cost by 20% in a sustained manner to 2025 still requires quite a bit of heavy lifting. So don't want to reduce the enthusiasm, but still put just a little bit of a word of caution in there.

So the next gentleman in line is Angus Tweedie from Citi Group.

I just wanted to come back to your reduction in variable costs that you're highlighting. Can you perhaps discuss some of the assumptions around that and whether or not you need to deliver volume targets for your net 1% per annum saving?

Well, there are different approaches to this topic here. But let me start first with a material cost with a big chunk of our cost north of EUR 40 billion, actually. So the head of purchasing, Gunnar, was explaining before, we have a very, very focused program with our suppliers, targeting reduction of our material cost. How do we do this? With partnership, scaling, bundling, cooperations. But we do work also on the R&D side. So we have our contribution on the R&D side going into larger modules, larger modules designed for manufacturing. So it's a continuous improvement process with significant outputs that we're doing with the supply base. Secondly, our personnel cost. We mentioned before, we're going to reduce the hours per vehicle. So again, this is designed for manufacturing. This is reducing waste in the production process. So we are reducing hours per vehicle. The engineering part coming from R&D is providing lower EHPV engineering minutes, so both contributes to lower personnel cost overall per vehicle. So these are 2 examples how we reduce variable cost.

Okay. And one follow-up, and it's probably more on the fixed cost side. Can I just ask, when you're retraining employees, from probably the ICE engine to the EV side of things. Will these be captured in your fixed cost guidance today? Or will that come through as a restructuring cost?

If you want to be formal about that, the training cost per se is not the restructuring cost. What's in the restructuring cost is if we have termination packages or other things like that. But Markus has already created 1 unit, which is Mercedes-Benz drive systems, where the people working on combustion engines and EV drive trends are locking arms and are already migrating back and forth between those 2 areas.

And we continue with Harald Hendrikse from Morgan Stanley.

Also, Harald at Morgan Stanley. My question is a little bit the other way. I mean, a lot of what you said makes a huge amount of sense, the luxury, the pricing, getting away from the volume. [Audio Gap]

Tom Narayan from RBC, please.

It's Tom Narayan, RBC. Question on your margin targets for 2025 versus today. Given your views on battery pricing, will EVs contribute positively to the higher-margin targets? Or are the fixed and variable cost savings you guys laid out today offsetting margin dilution from electrification early on costs associated with electrification, namely [indiscernible], BEVS, plug-in hybrids are likely to be margin dilutes?

Well, we're going to work on all of the levers. It's clear that in the first place, now as we speak margins on xEVs are lower than on ICE. But as Markus has explained it before, I mean, the cost of, in particular, on battery will come down, architecture will also allow to lower the cost of the vehicle moving forward if we think about 2025 and beyond that. Being conscious of that challenge, we, therefore, engage into margin improvement of the whole portfolio altogether, including the ICE, including the best and take that radical approach in terms of, I mean, the fixed cost, but also in terms of the investment. So it's -- I mean, working on all of the levers at the same time, under the conditions we outlined, therefore, we believe we can meet these margin objectives by 2025, but not only in 2025. I think that's what we tried to convey before, the journey started. It started actually this year, got boosted with, I mean, COVID. We saw it in Q2. Really, when we want to do the maximum as early as we can and not just wait for 2025, but really be in control of that and drive it as hard as we can on the journey between now and 2025.

Okay. If I may, just one quick follow-up. But if you'd indulge me, I have a very long-term question. How do you see autonomous playing out? I imagine you guys see there'll be a role for private car ownership. But in the weird event that there isn't, let's say, autonomous robotaxis are ubiquitous, is this perhaps where a Mercedes-Benz software and autonomous could play a role? Or do you just not even envision that ever happening?

Something that we take for granted is individual self-determined mobility, which was the gift to society from our founding fathers. And perhaps COVID-19 has reminded us of how important that individual self-determined mobility actually is. So we are strong believers that this private use case and the private market is something that will exist for a long, long time. So how does autonomous play into this? I see 3 fields. One field, which is our home turf. We presented it today is to enhance the driving experience for the private use case, up to even now functions where we have, in some cases, the car driving itself and with the NVIDIA project, adding more functionality over the next years to that. So that just makes our product better and updatable. One, that's our main thrust. The second is the robot taxi. We were hugely enthusiastic as an industry about this a couple of years ago. Maybe we have gone through a little bit of a sobering phase now how sophisticated that technical problem was, but it will be solved. And then when it comes to deployment, for us, as Mercedes-Benz, we said maybe we are not the first company to have hundreds of thousands of Mercedes-Benz as kind of a public transportation tool. It's not our main market. So we shifted our full autonomy activities to a business case that we felt in the medium-term is stronger, which is truck hub to hub with an initial focus on North America. And it's so obvious, if you could replace the cost of the driver with a computer on the interstate on the highway in North America, the driver cost being the highest part of cents per mile in the U.S., that could be a fantastic business case, and that's what we're working on right now and keeping this robo taxi thing in the back of our mind, but for us as a company that's moving to the right.

So we have time for 2 more questions. Next one would go to George Galliers from Goldman Sachs.

Harald, I was wondering if you could just help clarify for the fixed cost reduction, you very helpfully provided a EUR 14 billion base. Could you just clarify what the base is for the CapEx and R&D reductions? And what overlap is between the 2 objectives?

Well, I mean, the base in terms of CapEx and R&D 2019, we're talking about roughly EUR 15 billion in 2019, which we will take down, as you can see from the charts. And I mean, as we speak, I'm not really aware of any overlap between the 2. You cannot read the fixed cost from the books and records, but we'll find a way and mean to keep you posted on the journey where we are, where we stand against that objective. But -- and as of today, we're going, I mean, full steam on both. Maybe 1 clarification item, CapEx and R&D reduction targets are cash targets. So more than 20% of cash reduction on these. The EBIT impact is a lower one as at the same time, depreciation from existing assets capitalized is coming up. But we can take that, I think, later in detail. What matters here, I think, is a cash perspective.

And within the R&D question, obviously, the 40% reduction in variants of combustion engine is likely to be well received by investors. Can you give some indication of what percentage of your CapEx and R&D combustion engine took up in 2019?

Normally, we don't provide the details of the breakdown, but on the path to -- from 2020 to 2025, it is a reduction in excess of EUR 1 billion on that one.

I mean, we split, I think, for 2019, I mean, the CapEx and the R&D and the facts and figures. In terms of the profile, moving forward, the CapEx reduction is higher than the R&D reduction, which is obvious as we continue to invest into our platforms.

So we remain with 1 question. The last one would go to Arndt Ellinghorst from Bernstein.

Yes. Harald and Ola, I think it's very clear. We can all see that you're very pumped right now. So let me ask you the following, and am I missing something in the following assessment. Volumes are coming back stronger than expected. Inventories are low. Hence, pricing and residuals better and you're close to coming down. You also see some improving regional and product mix. The S-Class is coming in. So is it really reasonable to assume that Mercedes will be more profitable next year than in the second half this year? I'm not expecting a guidance here. But tell me where I'm wrong in that sequential really high-level picture on your near-term profitability path.

I'm not sure you can see our body language.

You just won't let go, Arndt, will you? But I will pass this one to Harald.

I know. Come on.

[indiscernible]

Yes. The only thing I would like to add, I think Harald has kind of said it all. And the only thing I would like to add is also a little bit of a caution, Arndt. And as you know, that we have some of the cash preservation and cost-cutting in this year is a onetime issue, which is associated with COVID. So that the short time working, if we're back into somewhat of a normal market or better market next year, we can take that cost benefit. And of course, we have pushed some projects, less essential projects, but still things we need to do in the next year to the right. So some of the costs will come back. And once we turn back on the marketing machine, that has been largely down in 2020, there will be some costs associated with that well. That should not come across as a negative ambition for '21, we will have a high ambition for '21. But let's get back to this question at a later time when we do the guidance for next year.

I will not enter into competition with Ola, but one thing you missed out in your margin is a good -- is a solid margin starting on the EQS next year as well.

No, that's all good. I'm just saying the level of profitability you will be at in the second half will still not be your target profitability. I'm more asking whether you would expect a more sequential improvement as you're approaching '21, '22, '23, '24 and so on. That's more the direction of my question.

No, we understand. We'll, unfortunately, leave you hanging a little bit, Arndt, but we will get back to you in a not-too-distant future.

So ladies and gentlemen, thank you for your questions and for virtually being with us today. We hope you enjoyed this Mercedes-Benz strategy update event. Also a big thank you to the Mercedes management for their presentations and for answering all of your questions. Now Investor Relations remains at your disposal to answer any further questions you may have. We look forward to talking to you soon. Ola, the stage is yours. We are keen to hear your final message.

Thank you, Steffen. It's been a long day with a lot of content. So I'm not going to make another big speech. I'd just like to mention 2 things. Message #1 is about gratitude. Thank you to everyone who joined us today during this presentation and the Q&A sessions. We appreciate the constructive discussion and feedback, and we're looking to -- looking forward to continuing that on several locations in the coming weeks and months. But also a big thanks to our team behind the scenes who helped prepare this day, the setup, the presentations, the videos. It's been an enormous amount of work to make that happen. Thank you. Message number 2 is about tenacity. Because we know the work has only just begun. During the preparation of this day, I said to our management team several times, folks were making some very bold claim here and I'm a realist. I like talking about things that actually happen and turning our strategy into action and into sustainable results will take determination, perseverance and tenacity. And my point is we are very persistent. We are persistent. We are fully determined, and we are 100% tenacious because we know this company has an incredible future that is our mission. We will make it happen. Thank you.