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

Again, good morning, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on both, the telephone and the Internet, to our Q4 and full year results conference call. We are very happy to have with us today Ola Kallenius, our CEO, and Harald Wilhelm, our CFO. You probably all joined our presentation right before. Just as a quick reminder, in advance to our upcoming Q&A session, the respective presentation with all 2021 figures and the outlook for 2022 can be found on the Mercedes-Benz IR website. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioner by name. However, please also introduce yourself with your name and the name of the organization that you are representing before asking your question. A few practical points as always. Please ask your question in English. And as a matter of fairness, please limit the amount of questions to a maximum of 2 to give everybody on this call the opportunity to ask questions. Now before we start, the operator will again explain the procedure.

[Operator Instructions]

And we start with José Asumendi from JPMorgan.

José, JPMorgan. Ola and Harald, a couple of questions. Ola, can you talk a little bit from a strategic point of view how do you think about boosting the premium luxury end of the company? Especially, can you comment a little bit about how you plan to grow in a profitable way, that is, the G-Wagon and Maybach? And possibly maybe share some of your thoughts towards Maybach. And maybe how many cars you sold in 2021 as well as in the Maybach brand? And second half, can you speak a little bit around raw material headwinds, your ability to pass on price increases in this unprecedented environment? And your confidence, when we look at the upper end of the margin guidance for 2022, what are you assuming in terms of raw materials and price increases?

José, I'll start with the first one and then pass the other one over to Harald in a minute. If you look at what we have in the pipeline here in the next few years, to answer your first question, how many Maybach did we sell in 2021? It was 17,000. That was up from 10,000 the year before. So you can see that the new S-Class Maybach and also the GLS Maybach has -- they've really made a dent and found the liking of many Maybach fans around the world. But these cars are about to now get electric siblings. Specifically as far as Maybach is concerned, we have said and we presented it in Munich at the IAA, we're going to deliver a fully electric Maybach SUV with the experience that you would expect from a Maybach already next year. And we see this as a growth opportunity that is partly complementary and on top of what's already in that portfolio. For that ultimate luxury brand, we need to always be mindful that we keep scarcity alive as well, so we're not going to flood the market with this. I see good growth for AMG, both in the short but also in the medium term. Work is underway for the AMG EA platform. That will be an architecture for several all-electric AMGs coming in the second half of 2025 and forward. And the G has turned into a phenomenon over many years where we literally can't keep up with demand. It feels like it's the Birkin handbag of Mercedes, the ones that you want it, but you're not even sure you can get it. It's almost like you have to apply. So there is opportunity there, but I would like to broaden that to the overall upper end of our portfolio. And I'm sitting here right next to an EQE that is about to be launched in the market only in a couple or 3 months' time, and the SUVs that are coming on the EVA2 platform. So I feel we have a lot of momentum at the upper end of our platform, brand new E-Class coming next year and so on and so forth. What we also intend to do in the medium term is to be mindful about capital allocation and which models we go into the market with on the entry end of our portfolio. Don't want to give the big speech now, but we will meet later in this year, where we will give some more details on that. So whereas MMA replaces our current so-called compact models. This -- the portfolio will have a different profile in the mid- to longer term here so that we also think not just about the top end, which we want to grow, but also how we play it at the entry side of our business.

Well, hello José, and with regard to your second question, let me give you a bit of color on that. First, I mean, in 2021, obviously, we had a pretty significant lever on the pricing, as you could see on the bridge year-to-date, which we commented as well. I mean how could we get there? I mean, definitely, much tighter on discounts, but then already mean introducing price escalation in 2021, which favored 2021, which will also favor obviously 2022. We'll definitely continue to do so, I mean, in 2022, on all fronts. I mean be it price escalation, but also carry on, on the lower discount level. Let me remind you, all of that, you can only do if you have a very strong product substance, which is the case. On the raw material side and some commodities, I think the headwind is material. Well, as I know you will torture anyhow sooner or later, probably you could see that in the vicinity of around, I mean, 2 RoS point. So that's a material headwind. And therefore, I mean, you could say somehow between the lower end of the guidance bracket 11.5% and the higher end, probably that is a question of how much pricing we can command. Happy to take you through the other elements of the bridge if you want.

That's very kind. Very happy to hear them. Also happy to hand back also to the rest of the analysts. I'm sure they have questions. So how do you -- if you have any additional big buckets, happy to hear from you or happy to pass on to the audience.

Thank you, José. And we continue with Tim Rokossa from Deutsche Bank.

Yes. Why don't we stay with that topic then, Harald? And we do go through the bridge, indeed. Especially potentially, could you say something about the residual value impact that we saw last year and what you expect for this year, but also in the other items of the bridge, that would be great. And secondly, probably for Ola. You just said we're going to hear more about your software ambitions going forward. Some of your other fellow automakers that were trying to do Capital Markets Day on this really struggled to make the market exciting about the software story. And as you know, we've recently done a survey among your key investors, where one of the key findings was also that they don't really want you to spend a lot of money on software. Why do you think your ambitions can get the market more excited?

So we get started with the bridging items, Tim. Well, so let's run through the bridge shortly. I mean, full year '21, 13.1% to the bracket of 11.5% to 13%. The volume should be favorable. The pricing, as I just said before, should be favorable year-on-year. So these are the ones on the plus side. On the headwind side, I mean, we have the used cars. We have the raw materials commodity, as I just said before. The depreciation benefit, which we had in 2021 will be lower in 2022. The R&D will step up slightly, as we commented. And then you had a bucket in the other in 2021, which I commented on valuation items, charge point and sales-centric, which we'll not have again in 2022. That is, in essence, I mean, the bridge within -- I mean, the bracket 11.5% to 13%. Now to your question on the used cars, the benefit in 2021 on the used car side was really on the pricing situation of used cars being favorable. So the underlying business performance of used cars being good did not come from provision releases in 2021. How do we look at that for 2022? Probably, I mean, in some areas, in particular, we think about the U.S. Also one needs to assume some normalization of used car prices, i.e., coming down slightly, but that still means that we should see a decent contribution coming from used car in 2022.

Tim, to give you a full and comprehensive answer to that question, we probably would have to spend 3 or 4 hours together, which we will during this year. So we will give you a much more in-depth look at our software strategy, both in the vehicle, but also customer-facing, later in the year. But this morning, I just would like to give you a few highlights and maybe clarify something that I believe is a bit of a misconception. First and foremost, the most important thing is that the customers are excited by what we're doing, and that's what we're focusing on, creating a superior product. And the software is the intelligence of that product. Sometimes, I refer to it as the brain and central nervous system of the vehicle and will provide so much of the functionality. So to focus on this as a car company is absolutely the right thing to do. We also have to be mindful that when we talk about software in the vehicle, it shall not be confused with most of what most people think about when they step into the car, kind of the interface, the connected car and the telematics of the vehicle. That's a very important domain, but it's one domain of many. So when we do a software architecture for a vehicle, we look at every single function, drivetrain -- of course, autonomous drive, driving assistance, all the body functions, all the infotainment functions, all the communication, the intelligent cloud that sits behind this where we have our unique Mercedes me ID. So we have a one-to-one relationship with the customer and we build that relationship. Always think about it holistically. And now to the financial question then. So what can you do? Do you continue the path that we have been on for the last 20, 30 years that you purchase together a patchwork of software from different partners? Or do you take the destiny into your own hands and make sure that you have the core stack controlled by you that you can change it instantly? You don't have to go through a supplier and make a change request, negotiate that through purchasing and so on. And where you can add any one feature at any point in time that you think will increase value for the customer. So to have this control and to have the data in your cloud, protected cloud, being mindful about privacy, where the customer can choose what he or she wants us to do with that data for them, there are so many underlying strategic reasons that many carmakers and virtually every start-up goes into this route. Now when it comes to the spending, it is not for free to sew together the patchwork that we have done in the past. And if I look at our investment profile, and Harald has shown time and time again what our R&D and CapEx spend is looking like between now and 2025, we are not spending a lot more. It's probably about the same that we have spent in this domain in the past. So it's not a massive increase in onetime spend to go down this journey. And perhaps in the future, once you have laid the foundation, very much like a like an iOS in an Apple smartphone, and you then start working on evolutionary versions of this going into the future, maybe you can even control your spend in a more thoughtful way and focus solely your spend on what you think will add value to the customer. I know that's the 5-minute answer to something that really deserves 3 to 4 hours. And those 3 to 4 hours, you will get, Tim, later in the year.

It's super exciting to follow your journey overall.

Thank you, Tim. And we continue with Dorothee Cresswell from Exane.

I'm Dorothee Cresswell from Exane. I had 2 questions, just coming back to the model lineup. So the first is with regards to the top end. We briefly heard about those order books for the G-Wagon extending to 2024. We've also have been told that you're finding that the EQS sales aren't cannibalizing the S-Class to the extent that one might have expected. So can I ask you if you wanted to expand capacity, both in Graz in Austria and also in Sindelfingen. Could you do so? And how quickly could that happen? My second question relates to the bottom end of your lineup. I'm wondering you've got such strong progress now on emissions reduction and you have your electrification plans in place. So why do you still need to sell a car like the A-Class, which will inevitably be margin dilutive?

If we look at the top end here, specifically, the S-Class in the EQS are built on the same line in our Sindelfingen plant, the new Factory 56 that we opened in 2020. So we have more or less full flexibility between these 2 vehicles in that plant. In a stellar year of the S-Class in the past, we sold maybe 100,000 S-Classes around the world. That's usually what the banner year for the S-Class meant. Now entering a sibling car, an all-electric sibling car to this, we're looking to go beyond that. And we have a capability to, in the plant in Sindelfingen, build significantly more than 100,000. I think it's important both for this vehicle, as is for the G and I'll get to the G in a second, that you don't flood the market, but that you actually find -- strike exact right balance between scarcity, but at the same time, not having delivery times that are too long. So if I look into these next 2 to 3 years, I think we feel comfortable with the flexibility that we have in Sindelfingen, in that plant, to be able to serve both customers that want the S-Class and the EQS while being mindful about scarcity. So that one feels good. The G, in a jokingly way, I refer to it as the Hermes Birkin handbag, the car that you can't get. And indeed, we have been overwhelmed, especially since we had the updated product, of the demand on the G. And the short answer is that we can expand capacity in Graz, and we did about 40,000 units there last year, and we will expand capacity in Graz. But here, we should be very careful because that Birkin handbag lives off of the desirability factor as well. To have delivery times that go 2 or 3 years into the future is clearly too long. We will not go overboard with regard to expansion on the G. We have some quite exciting ideas how you can do different editions of the G that will keep that car very attractive. And a lot of people that are contacting me are asking about the electric G that is due in a couple of years' time. I think that electric G, that will also add impetus to this franchise inside our luxury side of the business.

And A-Class?

A-Class. As I said before, 2024 is the start of MMA. So the next-generation compact vehicles. Compact is probably the wrong word because the -- maybe we should call them entry Mercedes because there's not a car there that is shorter than 4.5 meters, probably a little bit longer than that. And I've already indicated to you that the lineup going forward, so 2024 forward, vis-a-vis some of the expansion that we have done in this segment in the past, that we will be more selective with the positions that we put on this platform. Those vehicles coming, and today is too early for a full preview, but they will be a marvel of technology with the appropriate level of pizzazz and luxury for that segment. So when we look at the entry level of our business, we're also thinking about how can we create more value on the entry side. Let's leave it at that and then give you more details as we get closer to the launch of those vehicles.

Thank you, Ola. And we continue with Philippe Houchois from Jefferies.

Yes. I have 2 questions. The first one will be on China. If you can comment about what you see on the ground in terms of some pressure from the local brands, either on the appeal of the software offers as well as a bit of a move towards more luxury vehicles? And then just wondering, since one of your competitors assumed control of the joint venture in China, whether that would make sense? So you -- if you are thinking about it? Of course, I don't expect you to give me a full answer if you are, but any general comments about how you see your position in China going forward? And then for Harald, maybe, I know you're telling us that we will have less of a tailwind on the depreciation in '22. But are we still thinking at a situation where, broadly, CapEx and D&A balance out and there's no big funding need as you continue to transition? Or a funding need that might be below $1 billion. whereas I think some of the U.S. names in particular was trying to see a much wider gap between CapEx and D&A.? So if you can reassure us on this, that would be great.

Yes. Thank you for those questions. Next to China being the most important and the biggest market, it is developing itself into the ecosystem for innovation. And the software side of it, with very technology-oriented customer in this market particularly, has so much dynamism that, on the R&D side and on the tech side, you just have to be in China. In the fall of last year, we opened up our brand new R&D tech center and the piece of that tech center that we're growing the fastest is software. Also electrification, but is software and everything and anything that is associated with the intelligent connected vehicle. And there is no doubt that you have also capable and ambitious new entrants into the Chinese market. So what we need to do is to make sure that we're on the forefront of technology. What is more difficult to replicate in terms of our market position is that we feel that we're the perfect blend between technology and luxury. We have the brand pedigree. We have the right feel, when you drive a Mercedes, when you look at it. And it just -- everything feels right it is right. It is smooth, it is quiet. All of those almost intangibles that the customers learn to appreciate once you're in the Mercedes family. So we will marry these 2 things, and that goes very much for the Chinese market as well. But the technology and innovation competition is increasing, and it is our goal to be in the midst of that and at the forefront of what's going on in that domain. I think it's a very good sign that a couple or 3 years back that the Chinese decision-makers said that they would open up markets even more. And now we can see the first steps also in terms of how the relationships are with joint ventures and what have you. You mentioned one. So this opening up of the market is a good step, and it's an encouraging step. We have a very, very strong relationship with our joint venture partner in such a successful working together here, especially in the last 10 years. What we will do in the future, we will see. Should we change anything there, we will of course let you know. But one thing is absolutely clear is that we have together decided to continue to invest in our production capability, of course; in our marketing and sales network, in our innovation capability, but also build the already growing supply base in China for China, but also in China for the world.

Well, and your question on the depreciation, maybe twofold. Number one, the comment I just made before on the depreciation in '22 compared to '21, remember, end of 2020, beginning of '21, we had to revisit the depreciation schedules as we're using our assets for longer. And I mean, therefore, I mean, had to adjust the depreciation schedule. That has a favorable impact for 2021. I think at the point in time, Steffen, correct me what I think we said it's about EUR 800 million of a benefit or a tailwind in 2021 and much less pronounced value in 2022, even less than half of it. And that's what I was referring to in the EBIT walk before. Globally, and thanks that you're making the point, I think we continue the effort on investment scrutiny to prioritize our investments, in particular, on the PPE side, allowing investments, for sure, on the R&D side globally in line with the objective to reduce it compared to 2019 referenced by 20%. That also applies, I would say, globally for 2022. Maybe R&D and CapEx growing slightly, as we said, maybe a little burden on the cash flow, maybe a little benefit on the working capital. But you could see it in the cash conversion guidance of 0.8:1 on the car side that we should stay on course in terms of the cash conversion. On the van side, differently, is here, we're stepping up the investments for the van EA. We commented earlier today, but also the life cycle extension of the current combustion platform. So here, the cash conversion is running at a lower end. But if you take again the automotive altogether, it doesn't change the profile.

Can I add maybe a comment to that last one, just you understand the van business and perhaps the difference between the van business and the car business that usually, the development cycles in the light commercial van business are longer. And what we're doing now with the decisions that we made last year, it's almost like we're doing 2 things at the same time. We're creating a completely new van electric architecture to cover all mid- and large positions into the future, whereas we're doing everything that we would have done anyway to keep the combustion versions of those attractive premium vans fresh. So we are making a conscious decision here to transform the van business significantly and then create a different footprint for this business 2025 and forward.

And the next gentleman in line is George Galliers from Goldman Sachs.

George Galliers from Goldman Sachs. So I think that the strategy and the pivot towards luxury is becoming increasingly clear to investors. And maybe following on from some of the questions you've already had around the high-margin cars or high-price point cars and the low-price point cars. If I do some simple calculations and look at the implied revenue per unit for Mercedes by dividing the top line by the consolidated wholesales, it looks like 2021 was above EUR 60,000, which is around EUR 10,000 more than Mercedes historically and also some of your premium peers in Germany, but still short, of course, you are close to the 3-figure mark. Based on your reevaluation of the portfolio, do you think it's possible to close that gap to Porsche with time? My second question was on mobility and the bridge there. Your guidance would seem to imply more than a EUR 1 billion reduction in EBIT at mobility. Are the right buckets to think about here, the absence of trucks, residual values in used car prices, nonrepeat of COVID provisions and interest rates? And if those are the correct buckets, could you give rough percentage breakdown of the EUR 1 billion plus by bucket?

Maybe I'll start with the first one. You jump in, Harald, as you see fit. I think since today is kind of a result 2021 and guidance 2022, that it would be a little bit premature to give you the medium-term effect of what this portfolio adjustment would mean in terms of average revenue per unit. So I don't want to just throw out a number here. And we all know that 2021 in terms of the structure with semiconductor constraints and so on was a little bit of an unusual year. But it shows the direction that the company is going into. I think that's the important message. So if you would take the historical average of Mercedes over the last 10, 20 years and you look at what we want to grow into in the next 10 years, the answer to your question, clearly, we want it to be a different structure and a higher structure. And that is a function of both our ambition to grow the upper end of our portfolio, and as I said, be more selective on the entry side of the portfolio. So without wanting to toss out any numbers here today for the mid- to longer term, that direction is very deliberate. And it's that combination of the first and second and third pillar in the strategy that we presented in the fall of 2020, thinking at like a luxury brand, profitable growth and capture more horizontal growth through those very strong brands, AMG Maybach, but also the G.

George, and on mobility, I think globally, your math seem to be roughly okay within the 16 to 18 bracket, which we gave today. What are the key elements of the walk? Onetimer in 2021 on the provision release, low single digit, as I mentioned. Then a smaller portion of truck, leaving the books, and the impact to the run rate of what left, I mean, obviously, in 2021. So I mean, you're right. However, the portfolio, all in all, of the trucks, I mean, is rather, I mean, a moderate one in terms of the contribution here. So leases definitely mean with the 2 big buckets, which is a cost of credit risk on the one side and on the interest rate margin on the other side. I think we said in the past that, per quarter, you should think about something like EUR 150 million run rate in terms of need for new provisioning for new business. So that's what I would have in mind for 2022, not on a year-on-year, but in the absolute. So I hope that helps you. And then the remainder is the interest rate margin, which was very favorable, as basically the customer side was locked in, in 2021. The refinancing side was favorable and probably that is just swapping to the other side in 2022. So a reminder, again, residual value is not in mobility, it's on the industrial side. So we're really talking, I mean, the cost of credit risk here. And the interest rate margin as the 2 biggest building blocks, moving items between '21 and '22.

Thank you, Harald. Thank you, Ola. And the next question goes to Horst Schneider from Bank of America.

Two, please, as well. The first one, again, on minimum net liquidity. I think we discussed that now for some time in the call. So could you specify again, Harald, what is now the minimum net liquidity, excluding trucks, I think what's including trucks at something like EUR 10 billion? And in that context, I still want to understand what is now the use of cash going forward. I know that's probably going to be a topic for the CMD. But now since the asset prices are getting substantially smaller, I don't know if you maybe would consider that as an opportunity to get a little bit more active in the future. The second question, again, on the EBIT bridge, on some items you have not yet commented on. So when we think, for example, about industrial performance ex raw mat, could you provide some guidance for 2022? And also, could you give some comment on SG&A and the impact of foreign exchange rates?

Yes, Horst. On the nil, yes, we're pleased that we're ending the year with EUR 21 billion after the spin. And I'm not sitting here saying that EUR 21 billion is nil, is the bare minimum you need to have. It's a comfortable position to be in. I think we stressed the point, I mean, today that capital allocation matters to us. I think the spin in itself is a demonstration of it. The divi of EUR 5, EUR 4.30, as a reference is another demonstration to it. When I think about -- I mean, the use of the cash, definitely our priority is to support, enable the strategy execution on the luxury side, on the EV side, on the software side. That is covered by the forecast, that is covered by the plan. However, we're still in an environment, I think, of pretty high level of uncertainty surrounding us, not to speak about today's events geopolitically. So having a solid caution here, I think, is a good thing to have. We're happy also that the consideration on the side of the rating agencies is moving or had been moving in the right direction and hopefully continues to move into the right direction. So let me say, clearly, I think capital allocation is really addressed by what we did, what we announced today with the divi. We give priority to the strategy execution. We keep the flexibility, and we certainly will continue to think in terms of what is in the right balance sheet size and structure mean moving forward. I mean, for today, I think I would leave it here. Your second question in terms of industrial performance 2022. Well, we said that, in 2021, next to the raw material, we're facing significant interruption cost. It now depends, I mean, how the semi situation is -- will develop in the course of 2022. I would assume that in the first half, I mean, it remains pretty bumpy in terms of volatility. And therefore, I mean, in the second half, we could come back more to the efficiency targets we gave ourselves, I mean, already in the past, which have been impacted and hampered by the semi constraints and the volatility, I mean, over there. I think that is the key one. At the same time, we will fight -- continue to fight, I mean, the raw material evolution by commercial efficiency and procurement efficiency. What else on SG&A, on fixed cost, we'll carry on with the effort, I mean, to reduce. Here. I mean, the avenue is clear, more than 20% reduction between '19 and 2025. So I think we should not see, I mean, any material movement, maybe neither up and down for 2022, as we brought it already down by 16%, as we said. So that doesn't mean that the remainder is a walk in the park, in particular. I mean, with the escalation, cost escalation, in all places, you have to fight it on top of it in that multiyear. So that's a pretty fundamental task, but each and every area, function is addressing that.

In the context of this efficiency stuff, is it then fair to assume that H2 margin is going to be stronger than H1? Also because volume growth is picking up and the processes are normalizing?

Well, I would not go now into guidance by quarter. I think we said on the first quarter, basically, I mean, we should see the sales at Level 4. Price/mix continued, raw mat kicking in. So if we have done more volume, I mean, in second -- or second quarter -- starting second quarter or second half of the year, yes, maybe you could make the point somehow, but let's talk about when we're getting there.

Thank you, Harald. And we continue with Henning Cosman from HSBC.

Harald, you already started to get into it just now on the indicators of change. You have the fixed cost updated now at minus 16% versus the 20% target. If I add the R&D and CapEx together, it's already down minus 18% versus the target of 20%. You also had that 1% variable cost per year target, which you didn't get into now. But I'm basically asking myself, are you about to increase now? I think you're just in a sort of, in passing, said 20% or more. So are you -- is the direction of travel rather that you're about to increase the targets for the savings? Or is it more that we should think about it in a way that we've seen most of the savings, and the further contributions to earnings growth are rather going to come from other areas? That's the first question. And then the second question, I know Ola, you already went into it a little bit and you said it's a 3-, 4-hour conversation. But Harald got me intrigued when he said the gold mine that's leveraging data. So I just wanted to ask a question on that. There was a media article a few weeks ago that had suggested you might have to share up to 40% of profits with your technology partner. I think when you discussed it now, Ola, you said your priority is customer happiness and that you don't want change requests that are difficult to implement. So can I just ask you about the emphasis where you're going with your software? Is it more so that you can sell more and higher priced cars and make your customers happier? Or is the emphasis more that you want access to the future revenue pools, monetizing over their updates across the various domains. And I think in the past, you've mentioned a EUR 1 billion EBIT number that you could have incrementally from these areas. Is it possible to update us on that at all?

Henning, on the target side, the target for fixed cost reduction and the targets for investment reduction of more than 20% between '19 and 2025 stay intact and stay valid. And I think that is also a very important part of, I think, I mean, the success we could do so far is each and every area has a clear long-term perspective, I mean, where to go, adopt priorities, resources, means in line with these objectives. If you then come in and you step up, I mean, the challenge just in that journey, I think you're not getting sustainable results. So I think the numbers where we could get it to on fixed costs as well as on the investment side so far, I mean, basically support that. However, I mean, if one or the other is running ahead of the curve, I mean, we cash it in. We call that, I mean, the run rate, but we're not changing the targets for 2025. Again, on fixed cost, even if we're down by 16%, you might say 4% more to go and then you're done well, and you indeed make it sustainable. You need to fight the escalation. And if escalation is running at 1%, 2% or 3%, I mean, just do the math, it's quite a lot of cost you need to take out, I mean, to offset that. And on the investment side, I really want to make the point. We -- since we announced the 20% down between '19 and '25 on the investment side, we sneaked in a few new very important decisions, right, to go 100% electric and also the software side of things and that needs to be accommodated. And that is a real challenge, I mean, to deliver all of that portfolio until 2025 at the same time taking the envelope down. So I can tell you, the colleagues are really sweating and doing a great job to prioritize efforts. So at this juncture, I think there is really no point, I mean, to think about heightened target. But rest assured, we keep a pace on it. And it just means all in all, that now, I mean, this fundamentally lower cost base in terms of invest as well as in terms of, I mean, fixed cost allows us really to grab, I mean, the margin of the vehicles we want to grab. And this is what is behind the results. You can see in 2021. This is what is behind, I mean, the guidance also for 2022. We can be really selective and, therefore, say it, opportunistic.

So trying to get back to the software issue. Let me start by, first of all, high level, answering your question. We're seeking both: excited, happy customers that make our attractive, as such, more desirable; but also revenue pools, profit pools through digital content in the vehicle that can also then be recurring, where updates to the car in different domains or new functions and features of the car can be downloaded over the air. So our goal is to achieve both. But let's just walk this back again and look at it, what it means from a technical strategy point of view. And bear with me here for at least a few minutes, and I'll give you then the 6 minutes of the 3 hours. There are 4 plus 1 domains that we're mainly talking about. Drivetrain. So everything that is in and around how you use that battery, battery management, range, life, how the power is delivered, everything that goes into how the vehicle drives and also drives the efficiency of the vehicle, hugely important domain. It's a domain that we solely program ourselves and is one integral part of the overall software stack. Second piece is driving assistance and autonomous drive. For this particular domain, we have decided to go into a strategic partnership with NVIDIA. Why did we select NVIDIA? Because we felt they had the strongest technology in the future for this domain with their upcoming chipsets and the joint forces of our software capabilities. So in that particular domain, we have 2 parties that are investing into it, not the old model where you do some yourself, you order something from a supplier, you pay for it and then you do what you do with it. Here, we actually have a fruitful strategic partnership where we're both investing into it and both parties will reap benefits of that investment. So that's a hugely exciting domain which I think has a lot of profit potential going into the future. The third domain is infotainment or connected car, whatever you want to call it, everything that you interact with, with your head unit and everything else. There, we have an already quite advanced position. And now we really want to take control of our destiny in that one. So you could say that we're doing it ourselves, but being proprietary doesn't mean that you're closed. We're open, which means we will be able to, in a seamless, natural, intuitive way, integrate all the ecosystems that you're used to from your smartphone world. So you may enter in and out of these worlds without disruption to you, but still the customer interface, the unique Mercedes me ID sits with us. When you talk to the vehicle, you say, "Hey, Mercedes," you're then indirectly talking to the cloud and the back end of Mercedes and you're in our ecosystem as our valued customer with your data that we will leverage for your benefit, if you choose to. And there is economic value and opportunity in that domain as well. There is no doubt about it. And another important thing is that also means your car will be a digital tailor-made suit. We get to know you how you use the car, what your preferences are. It guides us in our further development effort of where we need to take the car because we learn the behavior of what people like and how they like to use the car. And then it comes to the body electronics, everything else in the car. So every electronic tentacle and every actuator that is fitted to that tentacle all the way down to the hot stone massage in your beautiful S-Class seat. When you tie all those things together and you have your tailor-made digital suit in our cloud and you then add the plus 1, the communications module that gives you access to the vehicle and makes the vehicle intelligent real-time and ultimately can speak to every other vehicle, we're looking at the future of individual mobility, is more exciting than it has ever been in 136 years. And we just fundamentally believe that if you want to be an innovative car company, you need to understand this technology, you need to be the architect of that software stack. You need to own the core IP of that software stack. You need to also know how to program software. You don't have to write every single line of code yourself. That would be impossible in the time line that we are seeking. So next to one partnership that we have made public in one domain, we have other partnerships going on in the background as well, where very competent players are helping us create this software stack. But we remain the architect. We own it. We understand the digital footprint of the vehicle. And last piece on this, it's not just software. Hardware and software go hand-in-hand. It's hugely important what processing power, what chipsets and what infrastructure layer software you use to pull all this together so that you avoid the past, which was an American quilt of dozens and dozens of different elements that we have tied together in a successful way, that has worked. But now we're entering into a new era where that software and the hardware configuration of your car is much more close together. It will also give us an opportunity to consolidate some of the hardware in the car into fewer but more powerful computers, if we use that word, that can do multiple things. So I can only come back to what I say, being passive in the future of the vehicle, we don't think it's the right thing to do. I think you need to be active, understand it, be an architect of it. And we're doing this within a very reasonable R&D and CapEx walk between now and 2025 and beyond. So we're not putting our short- to midterm financial ability at risk by doing this, in our view.

And the EUR 1 billion profit ambition for 2030, is...

That stands, that stands. As we presented in that, I think it was Pillar 4, if I'm not mistaking, is over-the-air capabilities, of course, given. We have that today already. I don't know how many millions of over-the-air updates that we've already did. If you drive a Mercedes and you drove it on the 14th of February, just a little fun thing, you got a Happy Valentine's greeting from us as well. I know that's just a little Easter egg that maybe will not change the stock price of Mercedes, but just to demonstrate that over-the-air capability is there today. We have already now in triple-digit million euro out of that EUR 1 billion is in our numbers in 2022. We are walking towards EUR 1 billion in 2025.

Thanks a lot, Ola. We still have close to 10 minutes and quite a few colleagues in the queue. [Operator Instructions] Stephen Reitman would be the next gentleman from Societe Generale.

My question is on the guidance about CO2 emissions. And you said at prior year level. I understand that's regarding Europe. I guess you plan to sell a lot more BEVs and PHEVs in Europe as well. So implying having at prior year levels suggest that you're also selling quite a few of your larger, probably more profitable cars about AMGs and Maybachs and G-Wagons and S-Classes as well. Is that a correct assumption? And secondly, going to the EQS, when can we expect some meaningful numbers showing up income sales figures? You did mention a while back that the order intake was -- in Europe was weighing at similar levels of the S-Class. So when could we expect to see some kind of numbers coming through that we can actually measure?

I'm going to start from the back, answering your CO2 emissions question. We are poised to ramp and start production of electric vehicles in China and the United States this year. So even though we significantly improved our footprint on electric vehicles, but also on the electrified long-range plug-in hybrids, which is mainly but not only European phenomenon. This really is a year where, in our important markets in China and in the United States, we're starting to move the needle. So that's why you have maybe an overproportionate amount of that growth on the electrified vehicle side outside of Europe. I also mentioned that we reached a share of electrified vehicles in Europe to somewhere between 35% and 40%. In some markets, actually already above 50%, much quicker than we had originally anticipated, which shows how attractive these vehicles are. So balancing that out, that is why we're guiding at around the same level for the EU number in 2022. But there is no doubt in my mind where this is going, and it's going for growth. And 2022 will be a significant year. But -- whereas we're thinking about 2022, we're preparing for '23, '24 and '25, where we want these numbers to increase even more. So numbers across the world in terms of our CO2 footprint will go down and that will be the case for Europe as well. And yes, it's right. As you also mentioned, and it's part of this growth story on the top end that we're looking at growing our top end business with the AMGs, with the Maybachs and with the Gs more than 10% this year. So we want to be an overproportional growth on the upper end. And maybe last piece there. We're also introducing Formula 1 inspired and derived hybrid performance, plug-in hybrid system for our AMG cars. Now you have seen the first vehicle. I think it's no secret that of the new ones that are coming up based upon the platforms that we have already introduced are also going to be hybrid. So on the performance side as well, we're going to lower our CO2 emissions footprint. With regard to the EQS and the S-Class, I mentioned that a banner year on the S-Class in the past was maybe 100,000 units. We have a capability to make more in Factory 56 in Sindelfingen, whereas we have had in some stages, almost similar order intake in some markets. We still believe that the S-Class will be, by far and away, the dominant volume in that plant and that this first full year of EQS sales will start making a dent, but not so much in terms of cannibalization, the S-Class. So we think it can be a nice chunk on top of the S-Class. But to leave no doubt, it is the S-Classes, by far and away, the dominant part of that number.

Thanks, Ola. And we continue with Tom Narayan from RBC.

Tom Narayan, RBC. Just a quick one, Ola, on autonomous in Level 4. In the past, I think you've said that Mercedes will be focused on private car when it comes to Level 4. I know this is a faraway question, but it's become really hot after Elon's comments and also CES this year. Just curious if you've changed your view on that. If maybe robotaxi or fleet -- the fleet model might actually become more interesting to Mercedes in the future?

You can't just answer autonomous drive questions black and white when you think about the different shades of gray here. So many things are happening at the same time. The Level 2 envelope, whether you would like to call it, Level 2+ or whatever name you give it, you will see in the next years much more sophisticated Level 2+ systems. We have one of the most sophisticated in the market right now, but we are working on functionality that goes way beyond what we have on the road today in that domain. To you as a driver in the future, that will feel like Level 4. So a car that drives autonomously, but where you really need to draw a line is whether the responsibility resides with the driver if the responsibility resides with the car. That is a fundamental dividing line technologically, safety-wise and also from a product liability point of view. That is why we have chosen to cross that line as the very first manufacturer with a real product in the market, with the S-Class and also coming up with the EQS, with Level 3 on the highway because you have a more controlled environment up to certain speeds in the regulations that they wrote in Germany was to start with up to 60 kilometers an hour. So kind of in heavy traffic, traffic jam type of situations. But I'm sure that over the years, as technology gets more sophisticated and technology can do more, that will also change to go up to higher. So we will build both of these paths. Our pivot towards individual mobility goes hand-in-hand with our strategy. So what we didn't say was, should we build 500,000 Mercedes and compete with the ride-hailers in Greater San Francisco and be the almost replacement of public transport as a robotaxi? When we made our pivot, we thought that, that is not the natural place for Mercedes in the market to start with. And also the deployment of capital in such a robotaxi versus ride-hailer, who wins that battle, could be quite a capital-intensive one. If and when that comes to fruition, and it's -- there is an upper end of that, the most luxurious end of that, we are not closed in our minds towards that. But to be the mass market adopter of robotaxis now, fighting the ride-hailers, we think is not the right use of capital at this point in time. The technology ultimately for Level 4 private use, that is interesting. And that is certainly something that we will have our eyes on as we build our Level 2+ capabilities and expand the envelope of Level 3. More to come.

And we now welcome Daniel Roeska taking over from -- Daniel from Bernstein.

Daniel Roeska from Bernstein. I'll then do just one and maybe more on the strategic side as we're nearing the end of the call. Ola, you talked a lot about luxury ambition and the positioning today, and we'll talk more about this in the course of the year. But you also just announced you're strengthening the Supervisory Board in that area. Do you feel you have the capabilities in place for your journey to a more luxury positioning for Mercedes-Benz? Or which capability areas, be it organic, inorganic, are you weighing to kind of round out that capability set to fortify the luxury positioning?

There are so many aspects to being and developing even further into a luxury company. But let me just mention a couple of them. Our design team, our brand management team, our marketing team, our communications teams, I think, are second to none. The fact that we add a very experienced, very highly regarded player like Marco Gobbetti to our Supervisory Board, which will be proposed in the Annual Shareholders Meeting at the end of April, that an individual of that caliber also wants to play a part and be a sparring partner on this journey. We're very excited about that. So very much looking forward to working with Marco and the experience that he has had. We have a strong team, and we have naturally in our DNA as the original luxury brand, an understanding of what Mercedes means. I'm the first to admit that, for decades on end or 100 years plus, we have not started with the luxury when we first draw the first drawing on a piece of paper. We are engineers. We are innovators. We're technology people. We spend hours and hours and hours talking technology, and it's almost like luxury comes natural on the side. With this pivot of unearthing the true core of the Mercedes brand even more, it's interesting to see how the product meetings get a new atmosphere where it's not just this, it happens automatically, but it's more of a conscious process. And that means that we're also changing the way we work inside the company on this, not just how we seek advice from the outside. And I have to admit, I'm very excited about this. This is fun.

Thanks a lot, Ola. Thanks a lot Harald. We've passed 11:15. So sorry, need to close the queue. Thanks to all of you on the call for your questions and for being with us today. Now IR remains, as always, at your disposal for any further questions. Have a great morning, great afternoon, great evening, wherever you are in the world, and stay safe. And we look forward to talking to you soon. Thank you, and goodbye.