Mercedes-Benz Group AG ($MBG)

Welcome to the Analyst Conference Call of Mercedes-Benz. At the request of our customers, this conference call will be recorded. A replay of the call will be available as an on-demand audio webcast in the Investor Relations section of the Mercedes-Benz website. [Operator Instructions] I would like to remind you that this teleconference is governed by the safe harbor wording included in our published results document. Please note that our presentation contains forward-looking statements which reflects management's current views with respect to future events. Such statements are subject to various risks and uncertainties. If any of these assumptions underlying these statements prove to be incorrect, actual results may differ materially from those expressed or implied. Forward-looking statements speak only to the date on which they are made. With that, I would now like to hand over to Christina Schenck, Head of Mercedes-Benz Investor Relations, Digital and Communications.

Good morning, ladies and gentlemen. This is Christina Schenck speaking. On behalf of Mercedes-Benz, I would like to welcome you both on the telephone and online to our Q1 results conference call. I'm very pleased to have with me today Harald Wilhelm, our CFO. To allow more time for your questions, Harald will give a brief introduction and walk you through our financials. We will then move directly into the Q&A session. The corresponding presentation is available on the Mercedes-Benz Investor Relations website. And with that, I will now hand over to Harald. .

Thanks a lot, Christina, and welcome, everyone. So very happy to take you through the highlights of the first quarter, which was another eventful quarter geopolitically and for us as well. Let me get started with the execution of our strategy before I move down to the financials and the outlook. Our product ramp-up is gaining momentum. As outlined, we're executing the most comprehensive renewal and expansion of our product portfolio. The new S-Class, you certainly didn't miss this one remains a cornerstone of our top-end strategy. And we didn't stop there. We also unveiled the new Mercedes Maybe S-class in China, particularly important and very successful in the Chinese market. In 2025, every second S-Class sold in China was Maybach. This was complemented by the new ES now offering an 800-volt system with fast-charging capabilities, more than 900 kilometers of range and steer by wire technology, which is really cool. We continued the S-Class story on the SUV side, presenting the new GLS in the U.S. alongside the GLE and the GLE Coupe. Last week, the all-new electric C-Class premiered in -- so following the GLC, which has seen very strong demand -- it is the second vehicle on our MBEA architecture in our first electric C-Class. And frankly, it looks pretty stunning. On the land side, the all-new BLE had its world premiere built on our new highly flexible vein architecture, it marks the beginning of a new area for the Vans division. And we will take this even further. Besides the upcoming VLS, we announced the Mercedes-Maybach VLS offering true luxury and expanding our top end portfolio further. And by the way, -- all of these vehicles come with MBS, our own operating system, featuring the latest entertainment stack, point-to-point -- assisted driving and much more. By the way, talking about MBS, as previously emphasized, MBS enables us to partner globally with the leading tech companies. Level 2++ is already on the road in China and is coming to the U.S. later this year. And we also go beyond as we work with robo taxi companies -- [indiscernible] partners. We are further strengthening also our local-for-local strategy. In China, the all-new GLC long-wheel based with China-specific entertainment and Level 2++ was unveiled at OterChina. GC is closing the bat white spot in our portfolio. And in the U.S., alongside the presentation of the new key products for this market, we announced investments of more than $7 billion until 2030. The U.S. is a strategic growth market for us where we are further strengthening our footprint. And with this, I would now turn to the financials on Page 4. Looking at the group KPIs. First, the group revenue developed broadly in line with the sales development at cars in the first quarter. The EBIT came in at a solid EUR 1.9 billion. EPS stands at EUR 49 and free cash flow, healthy at EUR 1.9 billion. That brings us to a strong net industrial liquidity of almost EUR 34 billion. Before, obviously, paying the [ 3.3 billion, ] which we did earlier this month. Looking at the car sales. We ended the quarter with 419 units in line with expectation. The sales development was impacted by China. If you look ex China, total sales increased by 5%. And top end sales, particularly resilient in China, maintaining a global sales share of 15%. Core and entry were lower due to China, while growing by 7% ex China. And the global best sales developed well, up 9%. In Europe alone, we recorded a growth of 34%. This is largely driven by the CLA and obviously, the remainder of the portfolio is currently ramping up with more yet to come. Looking at the car financials. The sales I explained already. The ASP in the first quarter was lower, but slightly up compared to quarter 4. This also drives the revenue development -- the EBIT adjusted is at EUR 900 million, as expected, and the CFBIT adjusted stands at EUR 3.4 billion. Now let's have a look at the EBIT evolution, the EBIT bridge on the Page 7, a bit more in detail. In the quarter 1, cars delivered an EBIT adjusted of around EUR 900 million and the return on sales adjusted of 4.1%, well within our full year guidance range of 3% to 5%. What are the main puts and takes on the walk the volume structure and the net pricing is actually slightly negative. However, the bucket is lower overall, mainly due to the tariffs, product enhancements lower China contribution and a lower fixed cost capitalization. The FX, I think, is self-explanatory on the chart. On the industrial performance side, the underlying industrial performance is positive, driven by continued efficiency improvements that more than offset headwinds from raw mats and higher depreciation following our numerous product launches. However, on top, Q1 was impacted by several one-timers with negative items in the industrial performance on product-related measures and positive items largely in the other bucket. Overall, onetimers, however, will wash in Q1. Then on the SG&A and the R&D side, you see that were positive reflecting our further efficiencies and having left the funding peak behind us. Turning to the cash. Cars achieved a strong adjusted CFBIT of EUR 3.4 billion. How did we get there from the EUR 800 million of the EBIT. We generated significant working capital tailwind that reflects our continued effort to improve the working capital, including a favorable inventory structure and improved payables mainly related to the production ramp-up. A part of this should unwind over the course of 2026. We further see proceeds from net financial investments -- that's mainly due to the continued sale of our retail outlets in Germany. Depreciation exceeded investments as we have passed the investment peak. Total investments are lower in line with our plan as flagged in February. Overall, the level reflects our continued focus on investing in technology and competitive products on the R&D side while also demonstrating a highly disciplined total CapEx approach. These positive effects were partly offset by a negative other bucket, which cash outs related to restructuring charges of around EUR 800 million, dealer provisions as well as the adjustment for the BBAC and equity result. As a result, we recorded the EBIT of EUR 2.6 billion. Adjusting for the special items, it's at EUR 3.4 million. Looking on the van side. Sales volume came in at 80,000 units. In China, we saw a softer consumer demand for midsize vans. Excluding China, Vans were able to grow year-on-year despite a particularly competitive environment in the U.S. and Europe. E-van sales increased by almost 30%, lifting the global EV share to 8%. Revenue development is broadly flat. And on the EBIT, we have a look on the next page before quickly on the cash flow -- the main driver of the planned investments into the new than architecture, investments are expected to peak this year strategically preparing vans for the future. This, I think, is a good moment to remind you that this represents the largest product investment program in the history of our Vans business, it underpins a highly attractive and scalable product pipeline, including the all-new VLE, VLS and Velma. -- alongside a broad range of private and commercial derivatives built on a highly flexible modular architecture. At the same time, we are completely remodeling our global production footprint with investments in Victoria, Charleston and Jago, to enhance flexibility, efficiency and competitiveness. Working capital was a headwind driven by temporarily higher inventories as well as a higher value of stock on E vans. Now looking on the EBIT walk for Vans, Vans achieved an EBIT adjusted of EUR 450 million and once again, delivered a benchmark double-digit return on sales of 10.1%. Let me guide you through the buckets, the volume structure pricing is lower, reflecting a lighter product and market mix, negative net pricing partly offset by positive effects from an increased leasing portfolio. FX is a headwind, mainly driven by the Turkish lira, which was largely offset through pricing. Industrial performance is flattish. SG&A, R&D and others are a wash. Looking on the financial services side. We have migrated to the new setup, which is working well. and is enhancing our competitive offering in the market, which is also reflected in a higher penetration rate in the first quarter. At the same time, we continue to sharpen our focus on the core financial services business as evidenced by the signing of the -- at loan agreement and the divestment from Blacklane, both expected to complete later this year. New business volume declined by 4% to EUR 13.1 billion, reflecting sales development and adverse FX effects. The portfolio stood at EUR 130 billion at the end of Q1, broadly unchanged versus year-end 2025. Financial Services delivered a strong performance in Q1 with a return on equity of 13.3%. EBIT adjusted increased by 44% and supported by continuing the positive trend in portfolio margin, improved cost efficiency, while at the same time, the cost of credit risk remained elevated, reflecting a weaker global economic outlook. So if we look at the group numbers, on the EBIT side, Cars, Vans Financial Services, I explained already. That results in a solid adjusted group EBIT of EUR 1.8 billion. We had some adjustments in the first quarter. Additional restructuring charges of EUR 175 million for our NLPP personnel cost reduction program and M&A adjustments, mainly related to Aon following its reclassification as assets held for sale. With this, the group EBIT book sits at EUR 1.9 billion. On the cash flow, current vans I covered already. Tax cash taxes are positive due to refund related to 2025. Interest paid is negative due to seasonality of coupon payments and higher interest environment. Interest income was positive with more than EUR 100 million. And on the free cash flow -- on the industrial side, altogether, this is at EUR 1.9 billion. The adjusted figure is significantly higher at EUR 2.8 billion, mainly due to the NLP cash outs of almost EUR 1 billion in the first quarter. On the nil bridge, Page 14. By the end of first quarter, the NIL increased to close to EUR 34 billion. That is a pretty comfortable level. Of this mill, we paid EUR 3.3 billion as a B to our shareholders last week. What's the status on our share buyback program, our EUR 2 billion program. It's in full execution. In Q1, share buybacks totaled EUR 470 million, in total, as of today, as we speak, we have bought back shares worth more than EUR 1 billion since inception of the program following the AGM, share buyback has accelerated significantly. And with regard to the DT stake, we continue to monitor market development and capitalize on opportunities as they emerge. Now turning to the outlook and the guidance, getting started with the divisional guidance for 2025. Please consider the disclaimer regarding forward-looking statements at the end of this presentation in relation to the outlook. Important to note, the war in the Middle East adds further uncertainty to an already high level of uncertainty in the global economic environment and automotive markets. The outlook assumes no prolonged conflict with respect to potential impacts on material, raw material and energy prices, inflation and sales strength. Assumptions are based on today's regulatory framework and on the U.S. EU tariff rate expected to be reduced to 0 now effective August 2026. On the car side, the sales guidance for 2026, we retain an overall constructive view with targeted growth ex China global sales volume is expected to remain at prior year level. Product transitioning is impacting the sales volume as expected, with sales in Q1 being the lowest and building momentum in H2. xEV share is unchanged. And with quarter 1, well within the guidance range, we continue to see adjusted return on sales between 3% to 5% as guided. Equally, PPE, R&D and CCR remain unchanged. On the van side, I can also get pretty short. The sales guidance and the xEV share are unchanged. We continue to see adjusted return on sales as guided between 8% and 10%, and no change to PPE, R&D and CCR and also on the financial services side, short and sweet, given the current interest rate volatility, we continue to see the full year guidance unchanged in the range of 10% to 12%. Looking at the group guidance, Page 16. It follows obviously the same premises as the second guidance in line with the unchanged divisional guidance, or group guidance remain unchanged. Equally on the free cash flow, industrial guidance, this remains unchanged before additional proceeds from major M&A activity. And now turning a bit more to the outlook for the remainder of the year, what's ahead. Well, the 2026 ramp-up is in full motion. We see strong demand for all new electric models in Europe if order intake has more than doubled compared to prior year's quarter, up by 107%. New models resonated well with our customers -- the order books for the new CLA, the GLB and the GLC are filled well into the second half of the year. CLA and GLC production are running at 3 shifts and additionally, an additional Saturday shifts for the GLC. The S-Class is now available to order in Europe. First deliveries are starting in second quarter in U.S. and China. This will follow in quarter 3. So we also reskinned completely our large SUV portfolio with the GLS, GLE, group, including AMG versions and the order books on these ones will open soon. On the VLA, the order book is open in Germany, the rest of Europe will follow soon. And with this, we are confident that we can build on that momentum as our model ramp-up continues in quarter 2 will build this momentum being built in H2. And last page, Page 18. Well, 1 of my personal highlights, the oral new Mercedes AMG GT Ford coupe which will be introduced in Los Angeles on May 19. You should really block this in your calendar. It will be our first model on AMG's electric high-performance architecture, AMG EA, this car will set new benchmarks and embody to AMG DNA. So very much looking forward to that one. Thank you for now. And with this, I hand back to Christina.

Thank you very much, Harald. Ladies and gentlemen, we will now move on to the Q&A session. I will identify each question of my name. However, before asking your question, please also state your name and the name of your organization that you represent. A few practical points. Please ask your question in English. And for reasons of fairness, please limit yourself to a maximum of 2 questions. Before we begin, the operator will briefly explain the procedure once again. .

[Operator Instructions].

We start the Q&A. And the first question goes to Tim from Deutsche Bank.

I think now you hear me. It's Tim from Deutsche Bank. Two questions, please. The first one, Harald, given there was quite a bit going on just for modeling and contextualizing your full year guidance. How should we think about onetime going forward. Is there anything material that you already have in your agenda that we should already think about in our modeling in the coming quarters with respect to cash and earnings. I'm also thinking about your restructuring program lots of outflows in Q1, obviously, some performance improvements impacts that you already see in Q1 as well on the -- where do we stand on that side? . And then secondly, you already quickly touched on this, but it is a big topic, obviously. How should we think about raw material inflation in the second half of the year? Is there anything that you're planning already? You said you start to see it a bit, but it's a bit uncertain. How should we think about this? .

Yes. Thanks a lot, Tim. So with regard to one-timer, as you mentioned then, number one, I would like to reemphasize that globally in the first quarter, I mean they are a wash as I outlined when going through the EBIT bridge, I mean, a bit before. When I look at the full year in terms of the outlook, obviously, as we guide also at the group level on an EBIT reported basis, everything which we have in mind, which we know is included in there. You could see a step-up in the restructuring provision for our personnel cost reduction program in the first quarter. I do not expect any further material addition in restructuring provisioning on the EBIT side nor any other material restructuring elements, otherwise, I mean, we would have included them, obviously, in the group guidance outlook. On the cash side, I think put it clear in the outlook as well on the free cash flow reported for the group that this is before material M&A. So what is in our mind here -- what is included in the guidance at this stage or minor M&A activities, smaller divestments in terms of our own retail divestment larger ones to come to the extent they close in 2026, obviously, would further support cash generation. What else comes to mind to closing is expected in 2026. However, that will not sit in free cash flow, but certainly will enhance the net cash position, and we would consider that obviously also in capital allocation. And your favorite ones on DT, no material divestment is assumed in the number. That's why this guidance is before material M&A cash flow. So in other words, I mean, if you take that guidance on the free cash flow, as outlined before, in terms of total cash generation, I would say there are some distinct opportunities to enhance cash generation further. And you know the capital allocation framework, what we are supposed to do with it. On the second question on the raw mats. Well, you can see in the first quarter bridge already in the industrial performance that we faced some raw mat headwinds, and we do expect raw mats to step up further in the remainder of the year, higher than what we anticipated at the beginning of the year also driven by the Middle East crisis and in the global macro situation. That is included, however, I mean, in the outlook for the full year in line with the 3% to 5% guidance, which we confirm here today.

Thank you, Tim. We move on to the next question, and it goes to Mike Tyndall from HSBC.

It's Mike Tyndall from HSBC. I guess first question, just around products, the new products specifically. And if I think about your -- the Capital Markets Day and the plan in terms of product cost savings, it feels like the big step is to come forward. And is that what we're going to see as these new products ramp I'm just trying to think about very strong order intake, how does that translate in terms of EBIT? And then I guess the second question, I guess on somebody who self-explained, but Q1 is arguably the toughest quarter in terms of FX and tariffs and you've hit the middle of the range is the reason we haven't seen an upgrade simply because a pretty uncertain world out there. Because it does feel like you're well set up for the rest of the year now.

Thanks, Mike. So number one, yes, on new products. We are very pleased to see the momentum, the order intake numbers are going up. I mentioned the BAF numbers in terms of order intake in Europe, 107% up obviously, you don't see that in sales yet. It's a good indicator for what is to come. That's what we have been working for so hard. That's what you had been waiting for. So patiently, that's what we want to bring to fruition in the course of 2026 and obviously beyond that. At the same time, we do know that, I mean, the EV vehicles carry higher variable cost than there are brothers and sisters on the eye side. That's why we engage into significant cost savings, I mean, over time, and that should help to improve the margins on these EV vehicles. I mean, over time, '27, '28. And during the CMD, we outlined that we see the possibility to go to a breakeven margin breakeven between ICE and EV towards the end of the decade, all costs, including CO2 being included, so we're exactly, I think, I mean, on that path. This is also a bit of an answer to your second question is obviously, as we're ramping up, I mean best in the second half of the year. the volume goes up, but there's a bit of a dilution coming along with. Then no quarter 1 is not the worst in terms of the tariff actually, quarter 1 on tariffs is slightly mitigated due to the APA refund claim, which we included in the books and records. So actually, in the quarter 1, tariff impact is around 100 bps, whereas we expect for the full year still 150 bps. So we'll have some headwind coming from the tariff side in the remainder of the year from higher raw mats as I answered Tim's question before. And the third, I would say, is the best dilution I just mentioned before. And then obviously, the depreciation which kicks in with the new models coming off the production line. So that's why in terms of the remainder of the year despite the momentum and some volume growth in H2, we see the guidance in the 3% to 5% corridor for now.

Thank you, Mike. We would move on to the next question, and it goes to José Asumendi from JPMorgan, sorry. José, I'm sorry, we cannot hear you. We will try again. Then let's move on to the next one, and I will hand over to Stephen Reitman from Bernstein. Stephen, over to you.

Two questions, please. First of all, on China, -- can you give us some idea of the timetable of the launch of the GLC Electric in terms of when you're going to be announcing the pricing on that vehicle. And obviously, it's very early days since sort of buying the full unveil of the laneways in China, but you can talk a little bit about the reaction you're seeing from your dealers and from any other relevant sources you can talk about? And secondly, on the EV demand -- are you noticing any impact? Are you seeing what feedback you're getting from the dealers about customer interest, maybe moving more towards BEV because of high fuel prices.

Thanks, Stephen. Yes, on the timetable, the GLC long wheel base is expected to hit China market in quarter 3, the turn probably quarter 3, quarter if my memory is correct. And we set, I mean the pricing at the right moment of time, I would say, not too early, not too late. And I think as you could see also, I mean, in other products, we'll have a view that this is competitive. However, obviously protecting in the brand and the product premium. The reaction, the feedback from dealers on the GLC, on the EV product line, what is to come this year, but also, as you know, from time to time, you show a bit the jewelries, which are yet to come. Also beyond the 2026 is very encouraging. . The tech motion, which we kicked off with the CLA in terms of MBS in terms of Level 2++ now in CLA on the road in China with Level 2++ I think is gaining a good momentum in support of the entire product lineup, I mean, to come. And that's why we are hopeful that the long wheel base, which was revealed last week and during the auto show will pick up momentum once it's going to be launched in the China market. Your second question in terms of the EV demand, I would say for Europe, definitely, we see that very recently with the Middle East crisis, the fuel price spike the dependencies, I mean, on fuel, there is definitely a favorable momentum picking up. Well, I mean, I cannot tell you how sustainable that is going to be in case the contract settles. But clearly, the product in itself, I think, are considered as very attractive through Mercedes and that is supported, I would say, by the current macro and geopolitical circumstances.

Okay. I'll try 1 more time with Jose. Jose, are you online? Not the case, then let's move on to Christian Frenes from Goldman Sachs. .

One moment. Sorry. Here's the operator speaking, Jose, we can hear you, but not really well. Unfortunately, we can understand you. So maybe you could try dialing in 1 more time, and then we will. Unfortunately, we cannot understand you are very sorry. Something seems wrong with your line. Very sorry. Please try dialing in. Thank you. So we are into next questio.

Yes. Let's move on to Christian. Christian, over to you.

Two quick questions, please. Harald, you mentioned has had a 100 basis point headwind in Q1. And I think you mentioned 150 basis points headwind for the full year. So just a cadence of this, I suppose, should Q2 be the peak tariff headwind then? And then with the reduction in the second half, could you just clarify, please? And then the second question in your cars profit bridge, you -- there seems to be -- the other was obviously a benefit. You called that out. You said it was a wash. Your other operating income and expense talks about EUR 350 million gain from a settlement from claims against suppliers. Could you just elaborate what that's about, please? .

Yes. Thanks, Christian. So I would say probably the quarters to come should run at around 150 bps dilution from the tariffs. -- well, I mean, obviously, it depends a bit on the sales from the imports, I mean, into the U.S., but globally, I would say, take it as a kind of a 150 bps per quarter to come, I would say, and that gives you not exactly maybe 150 bps, I mean, for the full year, but in the vicinity of -- to your second question, I mean in the bridge here, as I explained, I mean, in the other bucket, -- we have some support in the industrial performance with some negatives. So all in all, I mean, they are a bush. So what is in the other bucket? Yes, we have included in the quarter 1 profit, the claim towards suppliers, which we have been discussing and settling but you will understand that I will not outline any particular supplier relationships. So please understand. .

Thank you, Christian. We will then move on to Patrick Hummel from UBS. .

I'd like to first ask about China. I mean your sales performance, obviously, in Q1 wasn't great, but listening to you, it sounds like it was more in line with your plans because you were not pushing too hard. Is it fair to say that Q1 according to your playbook at least, is going to be the weakest quarter for China, and we should see not just sales picking up. And bearing in mind, we're talking about also EV sales picking up in the second half. Is it still fair to assume that also the profitability should improve despite the dilutive impact of EVs versus ice cards, just to get a better handle on what you expect from China for the remainder of this year? And my second question you booked this booking on Athlon, about EUR 300 million. That asset in itself is worth more than EUR 1 billion, I think, then you marked EUR 2 billion worth of shares as held for sale. That gets me to EUR 3 billion M&A or potentially even more. And in the plan you presented with the full year, you talked about EUR 2 billion. I just wonder whether if you execute all the transactions, if that has any impact on cash returns or you would stick to basically the framework you presented? And any further proceeds would just give you some buffer maybe for 2027 or so. .

Yes. Thanks, Patrick. Our first question on China and China sales. I would say, yes, China sales first quarter evolution, I mean, was roughly in line with what we did expect. We said at the beginning of the year, in the full year outlook, as you remember that we do expect China sales to be lower in '26s '25 what was, I mean, in the year-on-year as well. I mean elements. Remember that the banking commissions have come down, mean significantly. That has, I mean, a particular impact. I mean, also, I mean, on our side, you could also see that, I mean, we adjusted in terms of go-to-market strategy. We did investment on MSAP. We did negotiate and discuss and settle with dealers in the first quarter. So that, I mean had some temporary impact, I mean, in the first quarter. But consciously, as we were trying to protect as well profitability at our end as well as main profitability on the dealer side, in that time, I mean, at the expense of volume. But consciously, yes, this is, I think, mainly important point. . Now as you say, exactly, I mean, as we're building the momentum for H2 with all of the products, I mean to come, 1 man I emphasize, I mean the S-Class Mabthera GLE localized -- so really cool product, the GLD, GLC, I mean, electric, the C Class to come. I think there's a fair expectation, this to create volume momentum. Therefore, from today's point of view, I would say, quarter 1, I mean, should be the lowest in terms of the sales. Well, I mean, we're not outlining, I would say, the profit by region. But globally, I would say that should also have, I mean, a supportive effect in terms of margin generation in the second half of the year. On China, however, as you can see also in the first quarter in terms of China contribution applies to China BBC result. It's a tough competitive in market environment, and that's where next to the product momentum, we are taking a lot of actions in terms of localization, in terms of sourcing, in terms of cost effort to mitigate the market situation. Second question in terms of M&A, well, I mean, on the Alon side, you referred to the EBIT side of things, I would say. I mean, the gain included at the group level of EUR 300 million. That is basically as we moved Atlan as an asset all for sale. The intercompany margin, which has been stored at the group level during the period hold, Adlon gets now released as the asset gets divested. So that's a bit more, I would say, mechanical side of things, accounting side of things, I mean, on the EBIT in your question refers more to the cash side. Well, I mean, is there a potential to do more of a EUR 2 billion of cash generation from M&A. I would say, yes. I think you could count Alon for maybe up to EUR 1 billion or so. However, it will not hit free cash flow on the industrial side as it sits on financial services. But clearly, it adds to the net cash position. And I said it before, I confirm, and we would consider, obviously, this amount also in the capital allocation framework, i.e., considered as cash generated. Next to the other assets, India on retail as well as any potential move on DT stake. So yes, next to the underlying industrial free cash flow, which we confirmed as per the guidance today, I think there is a decent cash upside from M&A.

Thank you, Patrick. We will try 1 more time to connect Jose. Jose, can you hear us. Okay. It doesn't work, unfortunately. Okay. Then we move on to Horst Schneider, Bank of America. Over to you.

The first question that I have relates to EBIT bridge for in cast for 2026. I really liked the details you provided when you released the full year '25 results and to what extent the various drivers will impact '26. I want to come back on that. Could you maybe repeat again what drives now EBIT in cars in '26. I have here in my notes, minus 0.5% from structure pricing, minus 1% FX, minus 0.5% material effect plus 2% efficiency gains. I think you said already that the raw material may have a more negative effect. Maybe you can update us on these drivers for 2026. That's number one. . Number two, I was surprised in Q1 that you had such a positive impact from the trade payables, while inventories were also moving down. So I wonder why that was and should we expect going forward some reversal of this trade payable effect? And I'm also not aware if you have provided the guidance for working capital for the full year because I'm thinking, as you rightly say, you're going to increase sales should lead to an increase of inventories but also trade payables. I'm not sure about the trade-off. To what extent working capital will be a positive driver in 2026 or not?

So now it's on. So thanks, Horst remind us the EBIT walk at '25, '26 as outlined during the ARC and the CMD I think you picked up on most of the elements, but for the benefit of everybody, I mean if you depart from 2025, we said at the point in time, tariffs and FX is a minus 1% structure and pricing is a minus 0.5%, raw mats is a minus 0.5%. Efficiency is a 2%, and the depreciation is an 0.7% at's pretty precise now. . Looking at it from a Q1 perspective, i.e., based on the quarter 1 performance. I mean I will not make an update of each and every item, I would say. But globally, I mean, I would say tariffs maybe is a bit better. I mean, as we included the IPA refund in the quarter 1, as commented in a bit earlier, structure and pricing, I would roughly see in the same vicinity, raw mats, maybe a bit more headwind, I mean, to come efficiencies, I think, I mean, we are on track. We're also on track in the first quarter. I hope the explanation I gave you in terms of reading material for the bridge help what sits inside is in sync with the 2% for the full year. And the depreciation is also, I think, in the same order of magnitude as outlined during the ARC. So which means, all in all, I would say, probably a bit more raw mats headwind, a bit less of a headwind, I mean, on the tariffs and then some puts and takes. But that's why all in all, we confirm the 3% to 5%. Point number two, on the trade payables, I mean in the first quarter, I mean, on working capital, what is in there. In the first quarter, we increased inventory from the end of the year 2025, which is usually, I mean, the low point in terms of inventory. You get ready, obviously, to support the product ramp-up, the new products coming. So that's why inventory went up in the first quarter. However, the inventory is on the structure and the mix lighter has improved also in the cost efficiencies have an impact on the inventory. That's why you don't see in the cash flow chart. I mean such a burden on the inventory side. So it's rather in light or wash whereas on the trade payables, you see, I mean, a more important amount. I mean that is a function, I mean, of the production ramp-up, which is favorable, I mean, on the payable side. But Obviously, then, I mean, if you move throughout the year, you then will deliver, I mean these vehicles as per the sales expectation and then come back down again in terms of the inventory towards the year-end towards our inventory targets, we did not set out any specific guide on working capital. That's all included in the free cash flow guidance in the CCRs of the division and the cash flow of the group. But clearly, I mean, we have, I mean, very tight and stringent working capital targets for all of the 3 elements. I mean the DIO, the DSO and DPO, but next to it, I mean we are also working on further improvements on all of the elements. In particular here, you see a benefit kicking in the first quarter. On the payable side, which should also last and be therefore permanent. So in a nutshell, a part of the payables will be temporary, a part will be permanent. I hope that helps.

No, that helps a lot. Just a small follow-up on raw materials. Is the increase in raw materials not impacting also our suppliers so that it will be more difficult to cut the material costs as much as you want. I think it's an industry phenomenon. It's not just a fact you, but your view on that would be interesting.

Well, with different contractual arrangements. Some are -- I mean, fixed prices, obviously, and on some, I mean you have more floating -- that's when all in all, I mean, we included a risk assessment in terms of raw material evolution 2026. And that is included, I mean, in the outlook, as I pointed out, I mean, before.

Thank you, Horst. We will now move on to Henning Cosman from Barclays.

I wanted to come back on the operating free cash flow. I know we talked about the working capital out. I think we're bouncing around a little bit whether there could be upside to the operating free cash flow guidance. So I understand that is offset from the -- we think of the above EUR 4 billion and some of the payable effect in Q1 being sustainable now and the momentum that you hope to generate in the second half, which we prepared to maybe statement as a bit of upside above $4 billion is obviously all and it anyway, but any sort of additional color if you could, would be great. And in a related sort of question also ultimately, free cash flow, I suppose you've called out quite prominently the investment in the U.S. in the press release, at least perhaps not so much in March now. I'm just wondering if there's anything incremental there? Anything at all to do with continued hope for more favorable tariff treatment eventually, is there still anything ongoing in terms of lateral accommodations with the U.S. administration. But separately from that, even is there anything incremental in terms of CapEx of investment plan that you're calling out for the U.S.

Thanks, Henning. I had some difficulties, frankly, to understand some elements of the question. But from a voice over. But the first one, if we get it right, was on the free cash flow side of things. The operational free cash flow side, the M&A side of things I commented already, I mean, before, I would say, I think on the operational free cash flow, has a good start of the year, as outlined before, supported by working capital yes, some element will reverse. I mean, in the course of the year, -- on the other side, well, I mean, you have EUR 1 billion of NLPP cash out sitting in the first quarter, which should not repeat in the remainder of the year. So a large chunk of cash out on the restructuring program, I mean, that is behind us. So obviously, that will help the cash generation in the remainder of the year. And then I mean we'll focus on all of the other levers, I mean, in terms of efficiencies anyhow, but also then on the attempt to manage the inventory to target, which is always a bit more towards the year-end. So I mean in quarter 2, quarter 3, we are in the ramp-up mode. I mean, for the new products. So you will see some seasonality, obviously, here in the cash generation. As you can see also in previous years, but probably more emphasized more supported, I mean, given the high number of product launches, I mean, we're doing. But yes, I mean, I would say based on the quarter 1 cash flow, therefore, with the elements I outlined on working capital on NLPP I think we feel good with the guidance of slightly below. And you know what the corridor is of slightly below compared to the EUR 5.4 billion, which we printed in 2025. Your second question in terms of further investments in the U.S. and impact -- I mean a favorable impact, I mean, on tariffs or deals well, I mean, we think we had our important event with the GLS and the GLE reveal in the U.S., in Tuscaloosa, Alabama in March. We celebrated at that moment in time the EUR 50 million vehicle coming off the line in the U.S., I think we could witness I mean, with a lot of stakeholders being present during that event that we are considered as a very good corporate citizen. I mean over there. We continue to entertain, I think, therefore, constructive, I mean dialogue, but I would not speculate about, I mean, any link between the investment and the tariffs at this juncture. We are committed to continue to invest in the U.S. as outlined with the EUR 7 billion investment for 2026. I don't think I mean there is any particular thing, I mean, to mention, that is a more mid- to long-term strategic statement. I mean have been doing -- and very clearly, I mean, we see the potential for further localization in the U.S., in particular, in the SUV core segment, but that is not, I think, for 2026, that is a bit more in the midterm. I hope that answered the questions to the extent I got them.

No, that's great. And just to confirm, no more annual payouts this year in the cash flow probably around another EUR 1 billion or so in 2027, yes.

I mean we did already in 2025 for memory. So a couple of hundred million, EUR 300 million or so, I think, in 2025, cash outs and then now EUR 1 billion first quarter, we will still have some cash out, I mean, in 2026, the remainder, but obviously, much lower than the EUR 1 billion in the first quarter. And then from today's point of view, we should be done with that. And obviously, the benefit kicking in, in terms of, I mean, the people have come off the payroll to a large extent by the end of the year, I mean throughout, I mean, quarter 1. And obviously, that will create, I mean run rate benefit and moving forward. I mean, that's why we did invest into it. .

Thank you very much, Henning. We'll move on to [ Stuart Pearson from OX Cap Analytics. .]

Yes. [ Stuart Pearson from OxCap Analytics. ] So -- just following up just very quickly to check my understanding was right on the IEPA refund. Just from what you said, I guess, it sounds like you're suggesting that was around 50 basis points support in cars in the quarter. So just check if that's correct and where that would sit in the bridge, I guess, in structure that maybe just clarify on that. And then the second one, just a slightly bigger picture. Just coming back to the U.S., but more on the demand side. I know coming into this year, it's a market you talked about growth, and I think it's targeted to grow there to 400,000 retails by the end of the decade. But I think the retail a bit tougher than that in Q1. So just wondering what you're thinking on the U.S. opportunity. I guess you'll have a bit more supply both GL and maybe that all SUV a little bit later on. So is that still a significant growth market that you're excited about? What are you seeing in April there? That would be interesting. And then the third one, just on Financial Services. Obviously, a very strong quarter. Notice credit losses came down there a little bit. Is there a sort of a bit of help from residual values improving a little bit in the U.S. just coming out of the end of that normalization process. So just any color on that strong financial services performance would be great. .

Yes. Thanks, Stuart. So yes, I mean in the first quarter, I mean that refund following, I mean, the Supreme Court ruling and has been included, I mean in the first quarter results. And that mitigated I mean the tariff impact that sits in cars, but it is also in Vans that makes basically, as just commented, I mean the cars dilution limited, I mean to 100 basis points, I mean, in the first quarter, I think we don't spell out, I mean, the detailed amounts please withstand -- in terms of the U.S. market, very clearly, we see that is a very important market. You see that also as a market with good growth opportunities. And when I say that, it means I'm not assuming the entire U.S. owner market to grow massively. But clearly, we have an attack plan to grab share in areas where we are, in particular, strong such as, I mean, the top end, U.S. market, we enjoy a top end vehicle share of 30% -- and if you look at the product pipeline, I mean, to come, I mean, with the new S-Class, with GLS now, the new GLS and the GLE, which we revealed and many more products. I guess, why we're doing the AMG event in Los Angeles in May. I think we can really create I mean a good buzz and that's what we want to do despite the tariff challenge. So -- this is a distinct decision that I mean we're not holding back. We are in a tech mode, I mean, for the U.S. market. But based on great products, which are, I mean, in the pipeline. And the third point on Financial Services. Yes, I think a good quarter. But I would say it should also be decent quarters ahead. What's driving the improvement towards I mean, the 13% in the fourth quarter, definitely, it is the interest margin improvement. We talked about the acquisition margin improvement in the last numerous quarters and said, I mean, it will come through. So you need to be a bit patient. I mean, here you go. So that has definitely been the biggest lever in the profitability improvement. Number two, the efficiencies, which we continue to drive the new structure as a significant cost savings and efficiencies, which we are able to pull off. Third, on cost of credit risk, we stepped up given the macro challenges. So it's a headwind, but that has been nicely digested in the quarter as we update, obviously, that model based on the macro parameter each and every closing. And your point on the residual values, that sits on the industrial side, so that doesn't impact the financial services.

Thank you very much, Stuart. Looking at the time, I think we are at the end of our call. Thank you all very much for your questions and for being with us today. And thank you very much, of course, to Harald for answering all of the questions. Now Investor Relations remains at your disposal to answer any further questions you may have. And to all of you, have a great morning, a great afternoon and a great evening. Thank you, and goodbye.