Volkswagen AG (VOW3) Earnings Call Transcript & Summary

Hello, everyone. Thank you for being with us. Most of you on this call probably know me. My name is Tim Rokossa, and I'm in charge of DB's Global Automotive Products and focus on the European part of it. It is my pleasure today to welcome Scott Keogh, President and CEO of Volkswagen Group of America. He's a very experienced automotive executive, started his career at another company that I know quite well, Mercedes-Benz, for about 12 years, and then started in 2006 at Audi, quickly climbing the ranks over there with a very interesting job now. As for logistics, Scott will do a short presentation, you will have to click the slides by yourself, and Scott will notify you when to do so. We will then start the Q&A session. Scott is the expert for North America on the ground, and there's tons of stuff to discuss. So let's really focus on these topics in this region to make the best use of this busy man's time. [Operator Instructions] And with that, I would say, Scott, it's a pleasure to have you here, over to you.

Thank you, Tim, very appreciate. Thank you for the introduction, and good morning and good afternoon to everyone across the states and across the world. As referenced, I'm Scott Keogh. To simplify my position, there's sort of 2 main responsibilities: one, of course, is the CEO of the North American region for the Volkswagen brand, so of course, that includes Canada, Mexico and the United States, all of the factories and the full business as an independent region; and of course, the second responsibility is responsibility for the group in America, which, of course, includes all of the various brands that you're well aware of. We are headquartered in Herndon, Virginia, not far from Dulles Airport, and that's where I currently am. If you follow the presentation, I would like to start a bit philosophically, and I apologize for that. I promise I'll get into the details. But I think I've always lived with, you have to try to figure out in life, not just what you're doing, but why exactly you are doing it. And I think at Volkswagen, it couldn't be any more simplified than Simon Sinek's mythical circles. And I think companies, as you know, when they're operating well, operate off of a why as opposed to just a what. And frankly, our why for Volkswagen is quite simple. There was a time when this brand mattered a lot in American society, to American consumers, to American dealers, and we did that with great advertising, great products that hit the soul of the market, great pricing that put a smile on people's face, and we moved America and Americans. I think, we've lost our way a little bit. And certainly, it was a combination of missing trends, certainly, it was a combination of not getting our act together on cost. And certainly, TDI did not help matters. But we want to actively and will get back to that sweet spot of mattering again to Americans. And we want to do this with our products, we want to do this with our advertising and obviously, we want to do with our employees and our dealer bodies. If you look simplistically at how we want to do that, I think no conversation about Volkswagen on anything can start without getting into the brand and discussing that. The second one is you're well aware of regionalization and the massive empowerment that's coming to the region, that's allowing us to get the pricing right, to get the cost right, and get the product fit to the market right. I think we're making good progress, so we're 70% there, but certainly, there's a ways to go, and we'll keep driving on those dynamics. I think the third one is quite pragmatic but frankly, you cannot get anything in this market unless you can get the nitty-gritty work of getting your operational house in order, I'll give you a strong update on that front. And then, of course, every brand needs a future. We want to own the future, and I think there's good opportunities here on that front. When looking at the brand, if you want to look at it quite clearly from my point of view, the first thing you very much need to do is you need to rebuild trust. No one buys anything for $20,000 or $30,000 or $45,000 if you don't have that trust. And I think a way of looking at it is in the last couple of years, we've sort of been operating, if you will, nearly 3 car companies. One is a normal car company that produces cars, sells those cars, handles the used cars and the service and the parts. The second one is managing all of the TDI scenarios. And then the third one, of course, is the monitorship. With regard to TDI, as you can imagine, the scale of this thing is nearly 1,000 incremental employees. If you can imagine, in terms of the titles, the visitors, the paperwork, nearly 2.6 million calls, 2.7 million documents, 416,000 buybacks. Obviously you've seen the storage lots from 36 to 5. The good news to report on this front is, I'm quite proud of the company, we fulfilled our obligations, and we're about 98%, 99% to finalizing that. We are down to a few thousand cars from nearly 500,000 vehicles left to be retailed or scrapped. So that will be a big anchor off of us to allow us to move quicker and faster on this front. The second one, of course, is the monitorship. And on the monitorship front, as you know, we are in our third year. We are heading towards closing this out. I think the very good news on this front, it is to put proper compliance, proper robust environmental departments in place, integrity in place and significantly stronger processes, whether it's ECMS on our product compliance, our QMS systems. And these are obviously the facilities that we have across this country from our test center in California to our engineering office in Auburn Hills, and it's made us a far, far, far more robust company with integrity on this part. The second part to anything you want to do as a brand is, frankly, you need to be liked and be less avoided. It's difficult to gain market share when either: a, you're not trusted; or b, you're actively avoided. So there's no debate. You can see quite clearly on Page 6 and the chart there of nearly the instant TDI happened, the avoidance of the Volkswagen brand, in essence, tripled against our competition. This takes a big chunk out of the market and obviously tough to compete when that happens. In our minds, we've been countering this and improving this, and I believe strongly, we will get this normalized. We've basically cut the number in half, you can see it making its moves on that front, and this is something we'll continue to do. One of the big plays to continue going that and become, again, a liked and trusted brand, which is a core essential, is, of course, Drive Bigger, which is our rallying cry and our marketing campaign. And to me, it's quite simple. Drive Bigger, one, represents exactly what's happening in the U.S. society right now. It represents exactly what younger buyers are looking for in a brand. They expect a brand not just to sell things with a price associated with it, they're expecting a brand to have a purpose, they want to feel part of a tribe, they want to feel part of a community. I think the other reason this is highly engaging is, of course, it works for the dealer body and their communities. It works for our employees. And there's no better example that I can give that when the COVID crisis hit, with this rallying cry, one, we immediately worked with our partner down in Mexico, Faurecia, that makes the cloths for the seats in our vehicles, partnering with them, with our engineers, with our production experts to immediately start making masks that we shipped to Javits Center in New York City. Our dealers nearly immediately took the 7,000 service loaners, used those vehicles to bring meals into elderly communities and help out across the board. And this is what customers are expecting. And obviously we're going to continue to drive it. I think it will be multiplied as we bring the electric vehicles into the marketplace. So beyond the brand, if you look at it, if you want to simplify the Volkswagen story in the U.S., it's been one of great highs and, unfortunately, staggering lows. And you can really put it into 3 epics, if you will. There's, of course, the mythical Think Small epic, if you will. It sat on the Beetle. The Beetle was an iconic stunning vehicle that transformed the society, moved America, and of course, a lot of success then. The second one was very much driven off of the Jetta, focused on the driving characteristics and the drivers want it. And now of course, we're in the era of drive bigger, and this third wave of success, frankly. I think we're heading in the right direction. If you look at the pre-COVID success story since the TDI crisis, there's been incremental growth year in and year out as we build the building blocks. I think the other thing that's crucial is we're not sitting on one car. The Think Small era was overwhelmingly one vehicle, the Beetle. Drivers want it, was overwhelmingly to Jetta. I think if you look at our mix in our portfolio and how we have a stool that's far more stable, predicated currently on 3 products shortly to before. But of course, the Tiguan, the Atlas and, of course, still the Jetta in that segment. So rebounding nicely and, of course, a lot more rebounding to go out of the TDI crisis in 2015. When you look specifically at regionalization, in my mind, this is what it is set up to do and what it is in the process of doing. Obviously we want to localize R&D. So as I mentioned, we do have a design center in California. We have an engineering office in Auburn Hills. We have a test center in California. And of course, we have all of that expertise in the market. And I think the absolute prototypical example of that is the Atlas. It's a car that hit the sweet spot. It's a car that's at a very competitive price point. It's a vehicle that offers us the best contribution margins that we have by far. And I'll talk more about that in a second. Obviously that's enabled us to localize the supply base, which makes us far quicker and faster to the market. Of course, gives us a cost advantage, and you can see nearly 725 suppliers between the plant in Chattanooga, and of course, the plant in Puebla. And just to give you a sense of it, approximately 98% of the vehicles we sell in the United States come from our region. So of course, this includes the Jetta and the Tiguan coming out of Puebla, and of course, the Atlas coming out of Chattanooga. And I think one of the important things to get this regionalization right is to have the portfolio that absolutely nails the market demands. I think historically, we've taken European cars and said, "Let's make a European car work in the U.S. market." Generally, it had 2 challenges. The one challenge, of course, was the cost position; the second challenge, of course, would be market fit. So sometimes, you can get the holy grail, and you have a Beetle in the '60s, and you get that match, other times, you do not. And you're entering segments that are dramatically smaller. You're entering segments that have very critical price positions and difficult to be profitable. So while, yes, there was volume with these vehicles, but if volume does not have good margin, it doesn't make a lot of sense. So you see the difficult decisions that we've made, of course, with the Beetle and the SportWagen and the Golf Alltrack. The e-Golf, I think, is quite transparent. As you know, we'll be launching an all-new MEB product that will be stepping in more so obviously than the e-Golf. I think if you look at the products that are coming, as you know, the model year '21 Atlas, the 7-seater, is on the market. It's just launched as we headed into the crises. And then, of course, the all-new Atlas Cross Sport just launched into the marketplace in March and April. But this is attacking, in essence, the second biggest segment in the market, it's also hitting a segment that has good margins and a segment that has healthy growth. And I think if you look at the Atlas, it's done nothing but increase market share. The addition of the Cross Sport is giving us more market share gains as well. I mean to give you a sense of that car, to date this year, about 3.7 points of share with those vehicles, which, for Volkswagen, is relatively good. But if you look at when the car launched obviously in the middle, too. So the vehicle is progressing strongly on our front. Calendar year '21, and of course, these are in calendar years, is of course, we have the all-new ASUV, vehicle you know is the ID. CROZZ. We'll be showing this vehicle shortly. We've already shown the vehicles to the U.S. dealers. I'll give more updates on that front. But of course, we look forward to launching this transformative vehicle. The second one I want to highlight is, of course, another new compact SUV. We'll be announcing this vehicle at the end of this year as well, and this product will be built in Puebla. The reason this is crucial is, we will now have 3 products in the ASUV segment. As you know, this segment is nearly 4 million vehicles. It's a huge segment. It's the #1 segment in the United States. And if you go from where we were a few years ago with -- in essence, a European small Tiguan that sold nearly 40,000 units to today's Tiguan, that's selling nearly 100,000 units and then adding 2 more products, we see a massive opportunity. Obviously the product improvements, you see with the Jetta. And then the other point I want to make that ASUV will be imported, coming in late '20, coming in early '21, most of the volume hitting in '21. But of course, we are localizing that product in Chattanooga as we speak, and the localized product will come out of the plant in Chattanooga, middle to late of calendar year '22. And of course, aggressively continue to refresh and optimize our most profitable model, which, of course, is the Cross Sport. The third one I mentioned is operational excellence, and I think this is a no-brainer to many of you. But frankly, it's impossible to grow, it's impossible to do anything if you don't get your act together on this front. So of course, as you can see, hit the places in the market where the profit pools are. So we attack healthy segments with competitive products, and obviously you can see that with our SUV mix, about 15% of our products were SUVs in '16. Just on the ballpark of 50 -- just over 50 in calendar year '20. So this, of course, is the 2 Atlases and, of course, the Tiguan. You can see the contribution margin effects, of course, this is just directional. But in essence, you have a couple of things at play here. With the Cross Sport, of course, fully localized, basically a 100% U.S. car in a healthy segment, that's how we're able to get those contribution margins. The Jetta, frankly, is an excellent car. It has high market share. In fact, it's the best market share we have, nearly 8% to 9%, so significantly higher than our vehicles. But of course, you're attacking a segment that's extremely, extremely competitive. Now this is the good news of Puebla. We're able to get a car out the door at $19,000. We're able to get 8, 9 points of market share, but of course, the margins are tighter. The Tiguan, in my mind, is a hybrid product. Yes, it's in a very good segment. That version of the Tiguan is a hybrid car. It has a lot of the European cost and platforms. So while I think we've done a great job from Gen 1 Tiguan to Gen 2, again, double sales, much better contribution margins. We are actively working now on Gen 3, where we want to continue to tell this Atlas story, if we will, where we get a highly localized car, highly competitive and obviously strong margins on that front. Another one that looks quite simplistic and something we've put fanatical focus on is, of course, market intro timing. When we have the engineering here, when we can do the testing and the homologation here, we can hit the model year cycles that are so imperative and crucial. When you lease, of course, all you're doing is taking a bath when the car is delayed, because you're incentivizing that older car longer, and you're not taking advantage of the RV cycle with the new model year. We've had profound transformations on this front, and certainly, that's been one of the key contributors to our profitability, and certainly something we'll continue to get strong out. Vehicle logistics. Again, sounds like a given, but it's something we're in a dramatically better place in terms of the dwell times and the cycle times. Of course, the key thing is to keep these cars moving. From the plant, from our ports, getting them into the hands of the dealers. It's been in a historic Achilles heel of ours. One of the nice things about regionalization is we've been able to regionalize our logistics. So it's no longer someone passes the car, not my responsibility, someone passes the car, now we're looking at this from plant to dealership, and this has: a, lowered cost; b, lower dwell time; and increase the efficiency of getting these products out there. The other one that's crucial is having a healthy and proper go-to-market strategy. I think we're in the right direction here. We've dramatically brought our incentives down. Of course, this helps with profitability. I think if you look at our portfolio model and our residual values, of course, when you have the proper price, the market expects that price. You can go dramatically less on the incentives. The other thing that's crucial is, of course, managing the off-lease portfolio. And if you look at it now, our dealers buy back approximately 70% of the cars, which are good position. You have customers buying back a number of the cars directly, and a minimal amount of cars go off to auctions. And the pricing power you're able to hold, of course, between the spread of a dealer buying back the car and, of course, the car going to auction, and this has been a huge asset. We look at these vehicles as a 360-degree from when we put them into the market to when we get them in the hands of the dealers to, of course, when the dealer retails out of the car. One of the focuses and taking advantage of having a big network is to get them engaged in the used business. That protects our portfolio. And again, we're light years where we were, but the portfolio is healthy. You can see we're getting pricing above RV, which has historically never happened at Volkswagen. The second thing, the dealers are buying the cars. And of course, we're getting the incentive spend heading in the right direction on the market side. I know as there's a fair amount of questions in terms of COVID and how do we manage it, so I'll just give my simplified perspective on things. If you look at Slide #11, on this front is, of course, the 4 criteria that we were navigating on this front is, of course, a, number one, protect our people across the region. As of right now, the majority of the workforce is still working from home, except, of course, those in the highly, highly critical areas in our parts depots, in our distribution centers and, of course, in the factory in Chattanooga, which I'll reference again. The second one, of course, was protecting our liquidity, prioritizing the investments. I think we've done a good job on the cost saving front. We obviously have good job with efficient cash management. Liquidity is good in the region. I think we've managed that quite well. The third one, of course, is compete in this new normal. And this, of course, is a complex equation. But I think our thing quite simplistically was, when you see a crisis happen, to me, it's almost like a car accident. You have to hit the brakes extremely sharply and hit them early. Because if you don't, you'd never get that time back. So I think we made the right call on the plants when we closed them down. It kept our inventory under control, which was smart. I think we put the appropriate amount of stimulus into the marketplace to move the cars that we had on the ground. This was important for 2 reasons: one obviously to not have the inventory sitting; the second one, of course, was to keep the dealer body engaged and dialed in. The worst thing you want to have is a panicky dealer body that doesn't feel their manufacturer is with them and behind them. And it was crucial that we did that. And in essence, the machine kept moving. In essence, we gained a little bit of market share. And in my opinion, we're in a healthy situation in terms of stock. The other thing that is very good to see, going back to my previous slide, is the used car market obviously now is bouncing back. I don't want to say it's normalized, but the retail side of the used car business is good. The concern was, previously, of course, with auctions being shut down, you are having the vehicles returning. So I think the first thing we did, we reached out to our customers and leases, and we offered them extensions. So certainly, a good portion of that took that extension. It was a good story because they kept vehicles out of the auctions. But now as I look at it, auctions are opening up, pricing is good. And again, dealers are back to roughly buying 70% of our cars, which kept them out of the auction. So a good story on that front. In terms of the return, this is what's happening right now. The return is sort of predicated on 2 big levers. As you know, let's call it, Chattanooga, and let's call it Mexico. On the Chattanooga front, we returned to the plant approximately 2 weeks ago, put nearly 90-plus measures in place. I had a chance to drive down to the plant just 2 days after it opened, and I think the plant is getting up to speed. Obviously after being shut down for that amount of weeks, you want to make sure all systems are stable. The second thing you want to do, you want to continue to look after the workforce, but we anticipate that plant being fully up to speed, because if you look at our stocking levels, actually, we're quite low on the Atlas side of the equation. So that plant will be operating at, let's say, a 2.5 shift model, if you will, on that front, to get the vehicles basically full sprint to the end of the year. I think in my mind, in terms of the market, there was certainly some experts that said the market would be down somewhere to a tune of 70% to 80%. As you all know, it wasn't quite that severe. So it's going to be important to get these factories online. The second one, of course, is Mexico. And Mexico, of course, has the factory, and of course, it has the suppliers that feed the parts into Puebla and into Chattanooga as well. Chattanooga had about 2 weeks of stock and inventory on the ground, so that's keeping the plant running. And from what we can see right now, the supply base in the United States is stable-ish. We're able to feed the plant, and Mexico is getting online as we speak. We -- obviously with our purchasing team, have allocated the high priority parts. We're looking into these high-priority suppliers to make sure we keep them fed. Now of course, Mexico is in a different situation. There, we'll start to get the plant going next week. You have a mixture of state and, of course, federal requirements in terms of minimizing the amount of people in circulation, if you will. So it's operating on a sliding scale of 30%, 50% and then over 4 weeks, working its way up to 100%. We will need the cars in the U.S. The U.S. market is moving along relatively well in terms of catching up on those 8 to 10 weeks of being 0 production, as many of you know. But we're monitoring that. And to date, I would say we're in a good way. Everything's moving forward. But to be truthful, this is something we're monitoring literally hour-by-hour, supplier-by-supplier, to make sure we can continue to feed the market. The final piece is, of course, electrification, and there's 2 things on this front. I think a lot of people look at electrification as a compliance mechanism. And of course, you have the debate between car and the debates between EPA. I've always looked at it as a consumer proposition. It has to be led by the consumer. And in my mind, the consumer proposition needs to be the same as any proposition, which, of course, is we want to make a very, very cool car at a very attractive price, and this is a sweet spot of what Volkswagen has historically done well. The chart on the right, if you look at Page 12, basically gives you a sense of this is where the positioning of 4.24 million products sit in the U.S. So the ID.4 will be sitting right in that sweet spot. The average transaction price of those vehicles is around $34,000. So make no mistake. We want to throw a dart right in the sweet spot from the package, right in the sweet spot from the packaging, and obviously the pricing as well. And when I look at it, to me, the equation is quite simple, is MSRP range and can you get that where I can get the most amount of range for the lowest price with this great car? And that's the equation that we're running. I think we'll have an extremely, extremely competitive offering, a massive opportunity. To give you a sense of the dealer engagement, we had a meeting at Chattanooga at the end of last year. We showed them the car, 85%, 87% of our dealer body signed on for electrification. This includes the tiers, how we have them, those who will be selling more volume, those who will have less volume, but the support has been quite strong. And to me, it's a very simple story. It's like an F1 race, if you will. Historically, Volkswagen has come to the market when there's been 6 to 7 competitors, and we're the eighth or ninth competitor, and you have to try to get up the grid. Here, we have a product that's going to be right there in the first or second row, allowing us to compete right off the bat, and I see a massive opportunity for this product. The next chart discusses Electrify America. And as you know, this is the entity that came out of the diesel crisis. It's an entity that is building a huge network across the country. All of the fast chargers that you can see there, it's basically a combination of 150- and 350-kilowatt fast chargers, about 70% of them are 150, which, of course, is fantastic. And then, of course, there's the 350 as well. But this is going to be a powerful blanket that's going to be covering our vehicles in terms of that doubt factor between their home, where they'll be charging, and of course, here in Electrify America. And I think this will be a nice addition to a successful product that's well-priced and well-equipped. And then in closing. It's very clear where we've going to get to. Obviously breakeven in the market. Obviously we want to get in the front of electrification, which we will. We have the platform to do it. We have the factory to do. We have a product that's designed to do it. And of course, we don't want to build something that has waves, we want to build something that's sustainable, which is why we focus on the brand, regionalization, getting our act together and, of course, investing in the future of electrification. I apologize if I went on too long, but I am now finished with my presentation, and I look forward to the collective questions that come from that. Thank you very much.

Thank you very much, Scott. No need to apologize. I think this was a super interesting and very enthusiastic presentation, which is sometimes not easy in these kind of formats. So thank you very much for that. Just to the audience, we have about 120 people dialed in, so please do continue to submit your questions. We already get a variety of questions coming. I will include them in my questions or simply just read them out loud. And Scott, we finished the previous presentation by Jim Farley and Jim Hackett actually from Ford, with the Ford-VW announcement that we did get earlier today. Can we get your perception, as a starter to the Q&A session, to that deal, please?

Yes. I mean, I know those executives quite well. Jim and I have been navigating the U.S. car business for a long time. Obviously, I think the announcement is exciting. If you land it specifically on the region, which I think, obviously, we are discussing, if you take the 3 pieces in my simplifying, obviously, we do not have a commercial vehicle business for Volkswagen in the United States. And obviously, we do not have a pickup in the U.S. market. So this is not something that's being looked at. It's not something, obviously, that's part of the arrangement, whether it's using our plants, looking at different platforms. The simple truth is, I think, we need to gain share in the segments that we're competing in and succeed in those segments as Volkswagen. The third piece of the puzzle, as you referenced, of course, is Argo, and in my mind, this is the opportunity. We'll have to see what transpires out of the autonomous. But I think you're all seeing in the industry, I think, people view this very similar to the airline business. There's going to be a number of extremely well-scaled partnerships that have the ability to invest and get the scale, much like Airbus and Boeing do. And clearly, this gives us the opportunity to do that, in partnership with Ford on that front. But specifically, on products in the region, there's nothing to announce at this time.

This may be a bit difficult for you considering we just had the announcement this morning, but we just did get a follow-up question from the audience. Would you be open for a broader corporation in the region? Is that something that you can talk about?

Yes. It's nothing I'll give specifics. But of course, like any agreement, we are always open for very smart opportunities. And a smart opportunity that works for both of us. And it makes sense. It's something we will obviously be looking at. So open, yes. Anything to announce? No.

Great. It's good to hear that you're making some progress on Mexico. 2 weeks ago, we hosted a call with Andreas Tostmann, the Head of Production and Logistics at VW brand, and he clearly said that that was still the key bottleneck. So it's good to hear that you're making progress on that side. In terms of demand, are you seeing any material differences in mass market versus premium in the U.S. right now?

Yes. It's funny. When the crisis started, there was a story line, certainly in March and April, that heavily went to the premium side falling off sharper than the mass side. And I think the reason that was, and I think people drew a lot of conclusions, of course, it's -- you shouldn't draw conclusions on 45 to 60 days on that front, was of course, the stimulated activity that came from the mass side, with the 0% and everything else. I think that drew in business. The other thing that you saw without a doubt, is you had a lot of distortion in those first 6 weeks, particularly on the pickup side of the equation. There was a lot of aggression there, and there was a lot of -- that business basically held flat as other segments were going down by 30%. So that drove obviously as a total, the mainstream and the mass out. If you look at it specifically last month in May, the premium market bounced back, and so I do not see dramatic, dramatic swings over the remainder of the year. I think they'll both be within a few percentage points. And I think one of them was strategy. I think the mass brands jumped out right off the bat, all of them. I think premium watched and waited and then jumped in a little bit last month, and the market is normalizing. So I don't see dramatic swings, Tim.

When we do talk about localization, and I fully agree when one tracks the history of Volkswagen in North America, it's somewhat of a rollercoaster ride over many decades now, with specifically the 1970s being quite difficult and then -- on late 1970s, and then picking up again and then again, being difficult. It's absolutely the right choice to have a local product for the local market rather than having someone deciding in Volkswagen what's right? However, this is very Volkswagen mass market, Volkswagen brand issue right now. Can -- do you ever consider to really also localize premium vehicles other than the Q5 that's obviously being manufactured in Mexico?

Scott, for you or for me?

Look, this is something that we will continue to discuss with the Audi colleagues. And if something makes sense, we will look at it. So absolutely nothing to announce right now. But as you know, the Q5 is the #1 selling Audi globally. It's localized just a few years ago in San José Chapa, as you know. So certainly, nothing urgently right now, but it's something we'll obviously look at as it makes sense.

I actually drive one myself. So I'm a big fan, for my family. When we think about the...

Great car.

Yes. Absolutely. When we think about profitability of the EVs, we do have a question from the audience, how can you sell an SUV with a $6,000 battery for USD 34,000? Now I take it from your slide, that was the average transaction price for that segment. Did you want to indicate that, that would also be the average transaction price for that vehicle? And how do we think about economics of it?

Yes. I think, look, the intent of the slide is $34,000 is the average transaction price of the segment. I think if you wanted to give a strategic direction of where we wanted to get to, somewhere in that terrain. Now of course, I think the earlier vehicles will be heavily equipped as everything averages out. That's a strategic target. It's not a declared price. I think the second thing, of course, as you know, is Volkswagen, or all brands, have 200,000 units of the federal incentives at $7,500 as a group, because they measure that as a group, we still have a very significant number of that left. So certainly, $7,500 goes a long way. If you combine that with a state of New Jersey, which is $5,000, or combine it with other states of $2,500 to $3,000, I think it can put you in a very competitive position. With regards to profitability, the answer to profitability of course, is scale. One of the upside benefits of the MEB is it's a large global platform that is being heavily scaled. And I think that gives us the position as Volkswagen as something purely as a region we could never do. This is one of the upsides of having the power and scaling effects of the group. So now, we can make money on these vehicles, and that is certainly the intent here and across the globe as well.

A big topic for the success of electrification anywhere globally is the infrastructure. And you're already [ explained ] America being very important for this, and something that is quite positive that came out of the diesel crisis for you to have this kicked off in the U.S. Now when we compare the number of your stations to the supercharger network of Tesla, it's about half as many, slightly more than that. What are the plans for Electrify America going forward?

Yes. As you know, the total settlement agreement was approximately $2 billion. It comes in 4 tranches, if you will, and we are approximately nearly complete, don't quote me on exactly with the second tranche. So obviously, there is a lot more investment to go. And it is scaling dramatically. Now there's been a slight -- obviously slowdown on the construction side with COVID, but they're closing that gap rapidly, by the way. So no, our intent is to grow. Electrify America will grow. And I think over time, we will, without a doubt, have either the largest or one of the largest charging networks available. And I think it's particularly good, as you say, in the number of the quantity, which, of course, is crucial. But I think it's also the fact that this is basically a 100% supercharged network, as I referenced. So I think that is a great story. The other one that's very important to reference. I think, yes, it offers dramatic peace of mind to have this network behind you of Electrify America. But of course, once you start to own and operate an electric vehicle, the huge amount of the heavy lifting is in the home. But you need this sort of mental peace of mind that is out there. That's what the network gives you, and that's what this one will give you. So I view it as a competitive advantage. It's not even halfway towards minimally what it will be. And of course, where there's opportunity, there'll be continued investment.

Fantastic. If we combine this maybe, the change from the technology side and then COVID-19, and think about the strategic consequences of this crisis, will it change the way that you're selling cars? Do you, for example, notice a material pickup in online sales that you have in your channels?

Yes. I think a couple of things. And of course, anything here would be premature. I don't want to draw -- I know a lot of people like to get these trend studies out immediately and draw these huge 10-year proclamations after 60, 90 days. But a couple of things that I believe. I think the first thing, without a doubt, as you referenced, we have all been collectively pushing for ease at the dealership for digitization of the transaction at the dealership for a long time. It is something before COVID, we were working aggressively on ID.4, and it's something we will have when we launch ID.4. But what it proved, honestly, is also the flexibility of the network, something that was probably going to take 3 to 4 years to get the full network on every car up to speed is now happening in a matter of months. And dealers saw quite clearly, the world did not end because they heavily digitized. So I think there's a massive opportunity and something we'll continue to explore. I think some of the other things, just while you raised it, that came out of COVID, is I think dealers got a very hard look at their structures. I think a lot of companies got hard look at their structures in terms of, what resources do I need? Where is the best place to spend these resources in terms of running the business? And I think what you saw a lot of them is they got extremely lean, yet we're still keeping the business running quite well. So I think it's given dealers a good look at their cost, and it's given them a good look at the opportunities of digitization. I think the other thing it's done, of course, is a look at the, let's say, personally owned vehicle. I think as many of you know, the trend of the last 7 to 8 years is no one wants a car anymore, and no one wants a car anymore, everything is going to be hyper-utilized, shared. And I think people do want a car, they do want their cocoon. They want to know where it's been. And I think that's an opportunity and an upside for us. The other thing is electrification. And I think we've seen a number of different trends on this front. I think there's one argument that gets made that says, with difficult economic times, will people view this as a luxury that's not necessary? Frankly, I view it the other way. I think people have seen a few things. I think one thing they've seen is what exactly clean air looks like. And I think that's been embraced. I think the second thing that people have seen is what happens when a society is unprepared. And I think the next thing that could be potentially unprepared, of course, is the challenges with the environment. People want to engage and get prepared. So frankly, I see the movement towards electrification, never mind more tactical things of -- okay, I'm not going to a gas station. I'm charging this car in my home and so on and so forth. So I see trends to electrification coming out of COVID. But again, these are just early pulses and signals that are coming. They're not defining since it's still early. But to directly answer your question, digitization, I've seen it embraced quite strongly, and it's something we're going to press that advantage across the Volkswagen network.

It's interesting that you bring up the second part of what would have been my next question. We do notice a trend in all the mobility data we track globally towards individual mobility away from public transport. And as a matter of fact, in every country globally where the lockdown is ending, people avoid public transport, but immediately jump into their own cars or simply take a bike or walk. Is that something that you have collected as anecdotal evidence or your interpretation? Or do you already see this with the customers coming back to the stores and in your discussion with the dealers?

I would see definitely as anecdotal and the research that we had get in and certainly with conversation with dealers as well. Do I have the data at my fingertips that says 4.2% of our sales increase came from first-time buyers, who -- we don't have that. But certainly, anecdotal from dealerships and then I would say, quite an obvious trend that's popping out of this thing. So yes.

Fantastic. That would really fix one of the narrative that investors always had about autos over the last 4, 5 years. We have about 1 minute left or 30 seconds. So I'd like to close it with one question that is interesting for you with your sales background, specifically, Scott. There's one client asking if there will be an Audi Allroad on the A6 platform available in the U.S.? Maybe you can just take the order directly, if the answer is yes.

Yes. The A6 Allroad is on the market, whoever asked the question. So it just was released. In fact, that's the vehicle I took down to Chattanooga for a 9-hour drive each way. And yes, I can promise you, I didn't -- for the most part, I stuck to the speed limit but phenomenal vehicle. And yes, it's on the market, and a very cool product. The RS6 Avant is coming as well. So if you want to go a little bit quicker, the RS6 will be coming in a few months to the States as well, which has sort of been the holy grail of -- let's say, forbidden fruit from Europe. So we're excited to have that car come as well.

Very nice. I will pass on those details to the client who raised that question. Thank you very much, Scott. We've come to an end. We need to get you on the next meeting. So thank you very much for your time, and this very interactive and entertaining discussion. Thank you.

Thank you, Tim. Thank you very much.