Volkswagen AG (VOW3) Earnings Call Transcript & Summary

Good day, and welcome to the Volkswagen AG Live Audio Webcast Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Helen Beckermann. Please go ahead, ma'am.

Thank you. Ladies and gentlemen, we would like to welcome you to the Volkswagen conference call for investors and analysts on the results of the period January to September, based on our interim reports and our press release from this morning. For today's conference, I am delighted once again to have Herbert Diess with us, our CEO; to have Arno Antlitz with us, our CFO; and to have Christian Dahlheim, our Director of Group Sales with us; and for the first time today to welcome Murat Aksel, who is our Head of Group Purchasing. And yes, as usual, you will find the webcast on the Internet site from us. And following the presentations, we look forward to taking Q&A from you. And yes, we'll kick in and start off with Herbert for a few opening words.

Yes. Hello, everybody. In our last quarterly call in July, we said that we would see the biggest impact of the semiconductor crisis in the third quarter. And indeed, in addition to structural effects, the onetime events from the first half significantly burdened supplies. On top came COVID-related shutdowns at semiconductor processing plants, the back-end plants in Malaysia. This all slowed down the strong recovery that we had seen in the first 6 months of the year. We reacted by allocating, at least to a certain extent, chips to higher-margin models in order to mitigate the significant decline in deliveries across all passenger car brands. We raised prices and continued our cost-cutting efforts. And we also saw some positive effects. Our Financial Services division posted a record EBIT, mainly driven by higher prices for used cars. So against the backdrop of the strong first half and the countermeasures in Q3, all in all, we recorded a 20% increase in sales for the first 9 months to EUR 187 billion. Our operating profit before special items stood at EUR 14 billion, leading to an operating margin of 7.6%. As a result, we confirmed our margin guidance of between 6% and 7.5% for the year. We also achieved some important milestones in implementing our NEW AUTO strategy that we unveiled in July. We generated BEV record sales in Q3, which have doubled year-on-year. The MEB ramp-up is accelerating, especially in China. The planned acquisition of Europcar to build a leading mobility platform is progressing well and according to plan. In the first 9 months, the group delivered a total of 7 million vehicles to customers worldwide, a plus of around 7%. For all brand groups, year-to-date deliveries are still above the previous year, thanks to a very strong first half. The volume brand group increased deliveries by 3.8%, and the premium and sports groups deliveries rose more than 13%, respectively; and the truck and bus division raised deliveries by 53%. Looking only at Q3, all passenger car brands took a serious hit due to the semiconductor supply shortage, particularly affected by the volume brands, which with the lower-margin products, depend more on high volumes to drive earnings growth. As a result, Volkswagen passenger cars, ŠKODA, SEAT and Volkswagen commercial vehicles posted negative EBIT in Q3. These results underscore once again the need for further productivity and fixed cost improvements in the volume group in order to remain competitive. Premium and sport were also affected by the semiconductor shortage, but we are able to post robust results with an EBIT of EUR 3.9 billion for Audi, EUR 275 million for Bentley and EUR 3.4 billion for Porsche in the first 9 months. Trucks & Bus was also quite resilient with an EBIT of EUR 453 million for the first 9 months. Financial Services, as mentioned, posted a record EBIT of EUR 1.5 billion. The regions have been affected to different degrees by the semiconductor shortage. Year-to-date, we gained market share, particularly in North America and in Europe. In South America and Asia Pacific, the situation is more challenging. In Q3 alone, we lost some 600,000 vehicles that could not be delivered to customers compared to the second quarter. Thereof, 265,000 in Western Europe and 150,000 in China are clearly linked to the chip crisis. Customer demand is high. We have more than 1 million vehicles in our order bank in Western Europe alone, thereof 180,000 BEV. China was particularly hit by the lag of MQB chips from Japan. But here again, it's important to stress that decreasing deliveries are clearly a supply, not a demand issue. In the South, we will add Audi to the SAIC joint venture and we'll start a model offensive, particularly with highly attractive S series. Globally, we now expect deliveries to customers on prior year level compared with our earlier forecast, where we expected deliveries to be noticeably above prior year. Worldwide BEV deliveries more than doubled to 122,000 units in Q3. Volkswagen ID.4 and ID.3 models are our most popular BEVs. ID.3 already with more than 150,000 orders. Every second was a new customer for the Volkswagen brand. The Audi e-tron and the ŠKODA ENYAQ are also in high demand with order backlogs of about 30,000 each in Western Europe. And the Porsche Taycan has an order backlog of around 10,000. BEV share of total deliveries rose to more than 6% in Q3. Particularly in China, BEV sales accelerated significantly in Q3 and with 29,000 beds delivered just in 1 quarter compared with 18,300 in the first half. BEV run rate speeding up from month to month with more than 10,000 IDs in September. Our ID city showrooms have more in-store visits, more orders and a higher conversion rate than traditional sales channels. Currently, we have over 60 ID city showrooms in China. By the end of the year, we will expand our physical ID distribution network to around 170. We are still striving to meet our target of delivering 80,000 vehicles from the ID model family this year depending on the availability of semiconductors. In Europe, we have a market share of about 26% in BEV deliveries and our first clear market leader. In the U.S., our market share in the BEV market is about 8%, putting us in the #2 position. Our BEV market share is significantly higher than in the overall market. We also see continuously strong demand for PHEVs. Deliveries year-to-date doubled to 246,000 units. For our goal to deliver up to 1 million electrified models in 2021, BEV and PHEV, customer demand is clearly there. But due to the semiconductor shortage, we might see some delays. Some of the vehicles might only be delivered next year. The successful ramp-up of our BEV strategy demonstrates that our transformation is progressing with great momentum. With our NEW AUTO strategy, we now have a clear road map to tackle the transformation not only to BEVs, but to a fully connected, fully digital and vertically integrated mobility future. We have laid the foundation to tap into future profit pools with strong technology platforms, leveraging our scale. Over the past few months, we have further reduced complexity by setting up strong brand groups with more responsibility. The premium group has aligned the business plans of Audi, Bentley, Lamborghini and Ducati to lift synergies and maximize customer reach this going forward. The volume group has established a governance system to foster the collaboration between Volkswagen, Volkswagen light commercial vehicles, ŠKODA, SEAT and CUPRA. And at TRATON, we have replaced the complex governance structure with a lean management led by Scania CEO, Christian Levin. Regarding our core technology and enabling base initiatives, we have set ourselves ambitious targets that we will report on regularly. I will now share some highlights for the technology initiatives. Arno Antlitz will later talk about one of the most important base initiatives, financing the transformation. First, mechatronics. We have seen a further ramp-up of the MEB. In the U.S., pre-series production started at our Chattanooga plant preparing for the ID.4 SOP model will be launched in Q3 '22. In China, MEB production is speeding up with the ID.3 as the latest addition to the market. In Europe, our e-offensive is in full swing with the SOP of the CUPRA Born, the introduction of the ID.5 and the ENYAQ Coupé. Work has started on the SSP, which is designed to provide one single architecture for our entire BEV product portfolio from entry level to top of the range. Our biggest site in Wolfsburg, the SSP will form the platform at our biggest site in Wolfsburg. The SSP will form the platform for Trinity, our lighthouse BEV project, which will transfer the technology to the volume sector. Trinity also provides a historic chance to revolutionize the site and prepare Wolfsburg for the competition with Grünheide, including much faster R&D processes, much higher productivity in production, leaner and more agile management structures. The site has a real chance to become a benchmark when it comes to productivity and state-of-the-art production, and this will help the Volkswagen brand to further reduce fixed costs in Germany. Over the past few weeks, we have intensified the discussions around a shared vision for Wolfsburg 2030 with both the Management Board and Supervisory Board. The increased competitive pressure have underscored the necessity to include this joint venture in our next planning round. Therefore, we agreed yesterday to move the submission of our 5-year investment plan to the Supervisory Board to December 9, giving us a few more weeks to agree on a shared vision and road map for the transformation. Second, software. We have successfully rolled out over the year updates for all ID customers. ID software 2.3 offers new functions and optimizes existing ones. From now on, there will be a new customer experience every 12 weeks. This transition has been very smooth. Third, battery and charging. ŠKODA announced that we will set up several thousand charging points in the Czech Republic by 2025, together with the energy company, CEZ, and the Czech government. Volkswagen Group China is building battery -- building a battery system factory in Anhui. It will deliver over 150,000 battery systems a year for MEB models. SOP is scheduled for the second half of '23. E.ON and Volkswagen have launched fast chargers with storage battery to electric vehicles. Two electric vehicles can be charged simultaneously with up to 150 kilowatts, plug and play, no civil engineering work required. Fourth, mobility and services. The planned acquisition of Europcar to build a leading mobility platform is progressing well and according to plan. The proposed tender offer for the shares of Europcar Mobility Group has been filed with the French regulator, AMF, in September. We expect clearance of the offer document by the AMF in the start of the tender period in Q4. It is expected that the necessary merger control clearances will be receiving -- will be received by early next year. The closing of the transaction could then take place in the first quarter of '22. Argo AI started tests of its self-driving system with I.D. BUZZ AD prototypes in Munich. Germany now is one of the most progressive legislations for autonomous driving in the world. Volkswagen brand launched AutoAbo subscription models with ID.3 and ID.4, thus picking up the pace of its business model 2.0. So as you can see, we are managing the semiconductor shortage and are rigorously working on protecting short-term margins. At the same time, we are not losing sight of the transformation of the company. We are committed to implementing NEW AUTO. And with that, let me hand over to Arno.

Thank you very much. Ladies and gentlemen, a warm welcome from my side as well. As Herbert said, we are looking back on a challenging quarter. In Q3, the semiconductor shortage hit the wholly automotive and supplier industry at its hardest. Also, our financial results were not spared from a significant impact. Due to a lack of chip supply, it wasn't possible for us to stick to our planned production programs in Q3. We produced about 800,000 cars less than 2020 third quarter. Against that challenge, we clearly displayed robustness of our business. We achieved an operating result of EUR 14.2 billion and a margin of 7.6% so far. Both figures almost on par with 2019, which was our best year in financial terms. However, looking at the third quarter alone, there was a substantial impact from the decrease in production compared to prior year's third quarter, with an effect on sales, operating result and margin. Especially in our volume brands, we also see the task we still have in terms of resilience. I will come back to this effect in more detail in a few moments. Looking at the year-to-date performance, we produced 6.1 million cars at similar level at last year, but 1.9 million cars below 2019. Sales came in at 6.5 million cars, slightly above last year, but also substantially below 2019. Despite this drop in sales, our sales revenue came in at around EUR 187 billion, on par with 2019. Here, we see the impact of a shift to higher-priced and higher-margin vehicles and the result of a very strong used car business, which is driving our sales revenue but not included in the sales figures. Cumulative operating profit before special items came in at EUR 14.2 billion, significantly above last year and only a notch below 2019. This corresponds to an operating margin of 7.6%. We reported an automotive cash flow of EUR 7.2 billion for the cumulative period and a clean net cash flow of EUR 12.4 billion. Whilst the premium and luxury brands performed robustly, the volume group delivered negative results in Q3 and a significant weaker cash flow. The reported net cash flow in Q3 slipped into the red at minus EUR 3 billion. This was mainly driven by 2 factors. The consequence of the chip shortage on operating cash and the completion of the Navistar deal, which had the biggest impact on the reported net cash flow. The payment of the acquisition price of EUR 3.1 billion netted against the cash balance taken out from Navistar -- taken over from Navistar of EUR 0.5 billion resulted in an overall negative cash flow impact of minus EUR 2.6 billion. Net liquidity came in at EUR 25.6 billion, slightly below the end of last year. However, this was a significant decrease of over EUR 9 billion versus H1, mainly driven by the negative impact of the Navistar consolidation of around EUR 6 billion in total. I already mentioned the minus EUR 2.6 billion effect on our cash flow. Another impact was minus EUR 3.3 billion related to the financial debt taken over as part of this transaction. In addition, we paid out the dividend to VW AG shareholders of EUR 2.4 billion. All in all, we still strive for a robust full year net liquidity of around EUR 20.5 billion, including M&A activities. Since Q3 was a quarter far from normal, let's have a closer look into the third quarter on group level. We produced about 800,000 vehicles less than 2020 and about 1 million vehicles less versus 2019. Since we are still selling a certain amount of vehicles from stock, we proportionally lost less vehicle sales than production. We saw a shift to higher-margin cars, optimized our pricing position and reduced our sales and marketing costs. These positive effects were partially offset by the very low production volume and the corresponding fixed cost effect. Although we made progress on this topic, the absolute amount of fixed cost was allocated to a significantly less cars produced, leading to a significant burden on our margin. At the end of the day, we achieved the face-saving 4.9% margin before special items in Q3, significantly below our strategic target. But in light of the shortage of the chips, the best we could achieve. Even though the visibility of the situation still remains difficult to forecast, we see the start of stabilization of the chip supply and expect improvement of our key financials in Q4. Coming to the performance of our divisions. Within the Automotive division, passenger cars delivered EUR 9.7 billion operative result before special items, driven by the strong performance of the premium and luxury brands. This was still a solid 7.5% operating margin. Commercial Vehicles came in at EUR 0.5 billion. This result was burdened by substantial restructuring costs at MAN of EUR 0.7 billion and the purchase price allocation amortization of around EUR 150 million related to the Navistar acquisition. We expect the payback of these restructuring measures to bring positive effects in the following months. Financial Services division doubled its results and contributed a very strong EUR 4.0 billion, benefiting especially from high used car demand, very good residual values and low risk costs. Moving to our passenger car EBIT bridge. The strong result before special items of EUR 9.7 billion for the passenger car business was driven by substantial positive volume price/mix effect of EUR 10 billion with premium being the key driver. The blocked exchange rates and derivatives came in at a positive EUR 2.4 billion versus last year. That was mainly driven by the fair value valuation of commodity derivatives of EUR 1.9 billion. Product cost deteriorated by minus EUR 0.4 billion, and we expect larger headwinds in the remainder of the year, for example, in relation to steel and magnesium. The position, fixed costs and others had a significant negative effect of EUR 3.2 billion versus 2020. Overhead costs were only slightly higher by EUR 0.1 billion. Development costs were higher by EUR 0.7 billion due to our continued BEV ramp-up and significant software investment into CARIAD. The third driver relates to a one-off effect of minus EUR 0.9 billion compared to last year. After special items, the result came in at EUR 9.5 billion. Coming to our brand group's performance. Within the volume group, Volkswagen came in with a relatively weak operating margin year-to-date of 2.9%. Within that result, Q3 isolated was negative with minus 1.2%. This was mainly driven by a significant loss in production due to a lower availability of chips, but it also highlights a structural weakness in terms of resilience in the Volkswagen brand. The same held true for SEAT of Volkswagen Commercial Vehicles. Clearly, more needs to be done to improve the stability and resilience to achieve a competitive breakeven point, both on brand, on group level in taking fixed costs -- further fixed cost reduction and productivity measures. In relation to the Volkswagen brand, on the positive side, we expect North America and South America to achieve a consolidated breakeven this year despite semiconductors. And in relation to the full year, we now see a guidance for the brand of up to 3% as realistic. ŠKODA was also significantly negatively impacted by the chip issue. The operating margin in Q3 was negative at minus 2.4%. Due to the very solid first half of the year, the operating margin after 9 months came in at 6.8%. Within the premium group, Audi was also hit by the undersupply of chips and has lost a decent amount of sales in its core regions, Western Europe, U.S. and China. Year-to-date, the margin is at 9.6%. The margin of the third quarter was 7%, also lower than previous quarters. Bentley maintains its rock solid margin performance with an operating margin of 14.1%. Within that, Q3 was very impressive at 15.5% operating margin. Even Porsche was impacted by the chip shortage, however, not as much as Audi or the volume brands. The operating margin year-to-date is still 16%. In Q3, the margin was lower than the previous quarter at 11.9%. Looking at commercial vehicle business in more detail, get a mixed picture. Scania delivered an operating margin year-to-date of 10.7%. MAN delivered a margin year-to-date of a negative minus 3.5%, but this was mainly driven by restructuring costs of EUR 0.7 billion. Looking at our Chinese joint ventures after 9 months, the proportion of operating profit came in at around EUR 2 billion, significantly below 2020. Chip shortage caused significant effects here. As we expect an improvement in supply situation, Q3 should come in higher than Q3 in euro terms. The [ FAW ] China premium brands continued to perform better than volume. This leads to a higher proportion of operating profit from the Northern JV, [ FAW ] versus the South. We strive to catch up as much as we can. But due to the loss of volume, we now expect the proportionate operating result to be below the last year. Now looking at our full year guidance, following a strong H1, Q3 has been very challenging due to the chip shortage. Nevertheless, we have managed COVID and the semiconductor restrictions reasonably well so far. We now expect full year deliveries to be on prior year level and revenue noticeably higher than last year. The customer demand for our excellent product is high. The order bank is filled. The combination of a strong H1, a weaker third quarter combined with an expected catch-up in production and sales in Q4 still gives us enough confidence to strive for the upper end of our margin guidance of 6% to 7.5%. Due to the hard hit from semiconductors in Q3, we are now striving for a level of around EUR 15 billion for clean net cash flow. Moving on to our focus on product transformation and looking at our BEV ramp-up. Our BEV volume continued to ramp up significantly. We delivered nearly 300,000 BEVs year-to-date, of which 170,000 were produced on the MEB platform. Demand for BEV is very high, and we are still striving for a BEV share between 5% and 6% in 2021 with minimal technical spending. Focus on China, we know that there are critics about our BEV development in this region so far. However, we saw a substantial improvement in the run rate of the ID family in Q3. And the rollout of our new different retail formats is well underway, as Herbert already mentioned. Financing the transformation. We launched several programs. Looking at our fixed cost program, we managed to continue our progress and decrease this cost base by around 8% versus 2019, basically on par with H1. And we are absolutely committed to continue this disciplined approach. The sharpened focus will continue into Q4 as well as 2022 and 2023 and beyond. To safeguard our future, we have very ambitious transformation plans. For that reason, we have guided R&D of around 7% for the full year 2021. While this is still above our strategic target of 6%, it's a necessary reflection of the execution of our BEV strategy and of building up our software competence. Year-to-date, R&D spending came in at 7.5%, still above our 2021 target of 7%. However, in terms of CapEx, we showed industry discipline benchmark. The 9-month CapEx ratio came in at 3.9%, and that was well below 2020 figure. We put full focus on product and future technologies while keeping nonproduct-related and structural CapEx at the minimum. We are aiming to offset the higher R&D share this year. And for both ratios we combined are now striving to achieve 12%. Looking now at our brand cash flows. In July, we communicated cash flows per brand for the first time. The trend that was clearly visible in H1 continued in Q3. Premium brands remain dominant and are the key contributors to the robust cash flow generation. Our volume brands still have a way to go to achieve acceptable cash flow levels with Volkswagen brand having the biggest challenge. However, please take into account that they have been hit hardest in Q3 due to undersupply of semiconductors. And in addition, cash flow of Volkswagen brand was burdened by diesel outflows of EUR 0.5 billion. The impact of the acquisition of Navistar in July is shown -- is in the other line. Ladies and gentlemen, we have strong brands. At the same time, we will continue to shape our transformation with focus on technology, ramping our battery electric vehicles and developing and deploying a leading automotive software stack. We will continue to financially steer our transformation by focusing on synergies and building resilience by working hard on cost and efficiency to be less reliant on volumes and growth. Thank you very much so far.

Thank you very much, Arno. And may we please begin the Q&A session now.

[Operator Instructions] We will now take our first question from George Galliers from Goldman Sachs.

I had 2 questions really around software and autonomous driving. The first one is with respect to the first autonomous vehicle, the ID. BUZZ. Is it correct that the autonomous systems on this vehicle are largely leveraged from Argo AI? And to the extent Argo AI goes public in the next 12 to 18 months, would Volkswagen be happy to see its ownership diluted in any potential transaction? Or would you maybe see an opportunity to increase your position and influence there? And the second one with respect to software more broadly. Your commitment to software is very clear, and I would argue very exciting. However, many investors are asking how to appraise whether Volkswagen has the technical competency in-house to develop class-leading software. What assurances, other than the scale of investment, can you give that Volkswagen will be leaders in software? And are there any near-term milestones that investors can evaluate that is the -- what is the first deliverable from CARIAD, for example? Or do investors need to wait until mid-decade for the rollout of Artemis and Trinity for validation?

Okay, George. ID. BUZZ, yes, you're right. ID. BUZZ AI is driven by Argo technology. The first prototypes are now hitting German roads, where we will, let's say, test the fleet starting in Munich, later in Hamburg. And over the next years, we will come into operations. First of all, we are happy with our investment into Argo. I think the combination between Ford and Volkswagen, we have a totally coherent set of interests. We have a minor investment from Lyft in the company, which allows us to be also closer to our customers, to the platforms. So I think we have the right investment structure, and we can afford the financing, which is still to come, and it's going -- it's still a long way until we really get the investment back, but we are confident that we can self-finance together with Ford. The -- your question regarding our software, in-house competencies and milestones. Yes, you probably underestimated already through recent years, we purchased quite exciting in-house software competencies. Now for instance, we own in [ Boholm ] a group of 800 engineers coming from Nokia and then shifting to BlackBerry, which do the communication for our vehicles. They are state-of-the-art, very competent team. We've just recently purchased from HELLA, a group of image recognition for autonomous driving, which is world-class state-of-the-art. We're building up our group of hardware competencies, people joining from Intel, Apple, around the world. This is organic growth. And there will be still a few -- we had 3 acquisitions only last year, which was wireless, which is basically the -- how to bring software into the car and diconium, which is mostly based on active development. And we combined all the resources we had in Porsche, Audi and Volkswagen into one group, which still needs, I accept, some consolidation, no, because it's, I think, 16 different companies. We have to really find a new company identity, bring them together. And there are still a few acquisitions to do, yes. There are still a few acquisitions to come. But then I'm sure that we have all the competencies to do to have the software competence we need to continuously deploy software into the car, which is basically the reason why we are integrating that because you then have full responsibility about what happens to the car, and you're directly facing the customer and you have to do that in-house because if you're not doing it in-house, you just -- you won't become fast enough. So this is where we are. What are the milestones? We decided that CARIAD would take all the electric electronics platform for our ID family, which we call software 1.1, and is working on the next generation for Audi, Porsche, our PPE platform, which we call 1.2. So the milestones, 1.1 are -- we currently already -- the updates of the cars, which are working quite well, it's the first time in volume that we update big fleets of cars. And so far, it's going really well. Customers are happy. They perceive it as really an enhancement and improvement of the in-car experience. And every 12 months, those over-the-air updates will occur and show how competent we are already in performing updates and enhancing product specifications over the year. So this is going well. Next milestones for the PPE, for sure, are the launches. The launches are going to happen next year. And they are -- it's -- they are well underway to -- for sure, it's a challenging task, but the first car will be Porsche Macan, electric Macan. And then Audi and Porsche will deliver on this new platform their cars, which will once again demonstrate the next phase of software capabilities. And then the big step towards, let's say, really leveraging scale is in software 2.0 being launched with Artemis and then rolled out through the whole product lineup starting in '26. This is a big challenge. This is also where most of the in-sourcing will happen, and then we will have full competencies also on own autonomous driving stack, our own configuration of the core operation system of the software stack. This is the full stack. Why we decided to combined or, let's say, hand over all 3 software systems to CARIAD because with each and every step and technical improvement, we are learning, we are getting better. We are training the team and we get more focused on deploying. If we would have only started with 2.0, it would be a long way to go, a lot of theoretical tasks happening. You need the day-to-day business. And that is why we think I'm also spending now more time with the CARIAD team. And actually, with the recent hirings, I get a good feeling about the competencies about what's still to do and about their commitment and yes and really a different style of working in CARIAD, which I think we are fully on the right way and the management team is getting stronger by the week. So this is what -- it's probably a bit lengthy answer to your question, but should be okay. George.

Thank you, Herbert. And thanks, George. Maybe Emma now, if we can take the next person in the line, please.

We will now take our next question from Patrick Hummel from UBS.

Yes. It's Patrick from UBS. I would have 2 questions for Herbert, please. The first one is regarding your BEV execution. I mean this year, we could probably say things are going pretty well because you're doubling your BEV sales. But I know you like to benchmark yourself against Tesla. And the fact is that Tesla is growing much more than you are in absolute terms. They will grow from 500,000 cars last year to 900,000 this year. They're gapping away in terms of their gross margins. They seem to have a structurally better access to chips. They seem to have a structurally better access to batteries. So I'm just wondering, how do you think about that going forward? Will we just see a constantly widening gap despite your nice growth rates that you undoubtedly deliver and decent products? But what can you actually do to reverse that trend over the next 12 to 24 months? And specifically, in regards to battery supply, how confident do you feel that you have enough really secured to meet probably the demand that's exceeding expectations? And my second question relates to the upcoming planning round. Can you just give us a feel what is really your priority? Is it about safeguarding the profitability over the next 5 years and we'll just get an updated 5-year investment budget? Or will you also try to pin things down to get more granular on the auto -- NEW AUTO 2030 strategy? And against that backdrop, GM, a couple of weeks ago, did a very precise Capital Markets Day in terms of the growth initiatives, the business plan, the margin potential, et cetera, while your NEW AUTO strategy for the time being is relatively weak. So will we, with that upcoming planning round, get a little bit more granularity how you really think about your business model 10 years from now?

Okay. Patrick, yes, quite comprehensive questions. Yes, the gap to Tesla. Yes, we would have been closer if we wouldn't have been hit by the semiconductor supply. So we have really strong demand for our EVs. The lead times are higher than for the ICEs. We don't have to spend incentives. There's a challenge in China now where we have to probably redo our retail formats, but we have a higher share on the EV side than we have on the ICE side. So the strategy basically is working. And the effect of the strategy should increase over time because now ŠKODA is only coming to the market. SEAT is only getting the new models being launched in China should really materialize early next year. And we have been preparing 2 sites in China. Our capacities here in Europe will increase with the additional MEB plant to come to produce electric cars later Hanover in '23, and we're just starting production next year in America. So I think capacity-wise, and that's true for assembly plants and batteries, we are ready to, let's say, stay in the game with Tesla. So we have very competent cars. We have a much higher differentiation. We have top premium cars, sports cars, volume cars. We are strong in China, Europe and the United States. So from there, that should really work out well and we should achieve similar scale than Tesla. 70% of the parts of MEB are basically the same for ŠKODA, Audi, Volkswagen. And so worldwide later, Ford will join. So that should work out well. Semiconductors really hits us stronger than Tesla. You're absolutely right. Know that we have less in-house competencies, and our electrics -- electronics network is less consolidated than Tesla. Now Tesla already is in the next phase of architecture. We will get there, but this will still take a little bit of time. And until then, Murat just has to make sure that we get all the semiconductors we need. We'll probably report later on it. But we are, let's say, always prioritizing our EV sales. So yes, I think there's no -- currently, I don't see that the gap would widen further. Getting into next years, we should really be able to catch up and make some ground. Then the planning around the priority clearly is get the financial figures right, enough cash flows, margins. We're strongly optimizing our R&D and also our investment budget. So the focus is really to generate the resources to be able to further invest in the NEW AUTO strategy. You will see more, let's say, a more detailed disclosure of where we're going to invest, in which steps, how much, in the different platforms, I would say, early next year. Early next year, we should be ready to talk more in detail about batteries, about the next steps in software and the SSP platform. So this -- and then we are going also to talk more about the new profit pools and revenue pools step by step. So we will elaborate on the strategy. I think you already can see where we are going, but more detail to come early next year.

And can I just ask here about the -- can I just ask regarding the battery supply part of my first question? Is there any bottleneck you would potentially see in terms of your growth next year? Because it seems things are starting to get really tight.

No. We don't see -- I hand over probably to Murat.

Patrick, this is Murat. I'm responding to purchasing, so the leading shortage also next year will be semiconductors and not batteries or not battery systems or cells.

Go ahead, Emma. Yes, we can kick off the next question.

We'll now take our next question from Tim Rokossa from Deutsche Bank.

I'd like to add on a little bit to what Patrick just asked. And Herbert, that is really about your priorities when it comes to the planning round. There's only so much you can do in a given day. When we look out to Stellantis, you like to benchmark your firm to Tesla. But the more traditional guys in Stellantis, they will make 10% EBIT margin this year and a harder hit on the volume side than you are. That's a number that you would probably not even achieve with Audi. So if we suggest something a little bit more controversial here, why don't you focus a little bit less on optimizing your financial cost? That seems to be very difficult for you. It's running constantly, the issues with the labor unions, which is also quite annoying to some of your shareholders to read about this on an almost weekly basis. Why don't you focus more on NEW AUTO? Go really full speed ahead, try to increase your volume on that side, try to increase the quality of the vehicles, really start to roll out that issue while maintaining the margins and the free cash flow generation potential that you have today anyway? Really means focusing on one thing, you have less struggle with the unions. Why isn't that prioritization, which also seems to be more rewarded by the stock market when we look at the multiples of strong growth versus just the traditional strength of an automaker, something that you want to make your priority as well? And then secondly, and this is perhaps now for Arno and probably Christian, if he is on the line as well. How should we think about the Q4 development? Can you walk us through a couple of the bridge items? What's there with respect to raw material headwind, the volume bonds? How much will production be up? Do you already have more chips available now than you had, let's say, a month ago?

Yes. Tim, I think we are fully focused on the NEW AUTO strategy now. But -- and I know -- I'm focusing a lot on CARIAD and software development. I think we spent now -- in the new planning round, we will spend much more than half of our investment into the new world. Arno might elaborate on that a little bit longer. So there is full focus on the new world. But in the new world requires, let's say, core competencies in -- when it comes to manufacturing, productivity, fixed cost because we will maintain a big part of our world. So we will maintain the plants. We will maintain our sales structures. So it's worthwhile to keep on improving the existing structure. No where it -- we wouldn't invest as much anymore in, let's say, the run-out of ICE engines or plants. But the plans we are going to use and the structures, the overheads, we have to work on because we will need those in the new world as well. And there's also some work to do to be competitive with the kinds of Tesla. Now that is why we can't just focus on doing the new cars. And yes, this is it. The other question was Q4, Arno?

Q4, I'll give a little bit of a general guidance. And then Murat is on the phone as well, he can walk us through more like on the chip side. In terms of production, we think from a level wise, more on Q1 and 2 roughly, in terms of FX and head-up tailwinds. We expect a little bit more headwind in terms of raw materials. On the other hand, our mix and pricing opportunities and also the reduction of incentives, they really come through now. And so this gives us the -- basically confident that we stick to our guidance of 6% to 7.5% on the upper end. And so this should be more the general theme. Fixed cost work, you have seen so far we are well underway. In terms of CapEx and R&D, we guided for 12% with R&D. Due to the upfront investment into CARIAD, slightly higher, but we do very well on CapEx. I mean we spent so far almost only 4% in CapEx, which is significantly below '20 and '19. So that should also give us a little bit room on the differentiation side. So all in all, we are quite confident that we can achieve the margin of -- keeping them in a margin guidance of 6% to 7.5% in the upper end. I would hand over to Murat. He can a little bit more elaborate on the production side and supply side.

Yes. Thank you, Arno and Tim. And ladies and gentlemen, as you all know, on top to the structural shortage we have between supply and demand on the semiconductors in all industries, there were 3 events, which mentioned also by Herbert, which caused the really low production in Q3. Two of them happened in the February, March timeframe, which was the winter storm and the fire in Japan at a supplier. As this happened in the front-end process, I mean, the process takes a couple of months, it hit us in the third quarter. And on top to this also, the Delta variant of COVID in Southeast Asia, where a lot of back-end processes happen, hit also in the third quarter. This led to a very low production in the Volkswagen Group overall. Since 3 weeks since we moved into the fourth quarter, we do week-over-week already an improvement. We are forecasting that we will achieve until the end of this quarter the level which we had in Q1 and Q2, where we had only, in parenthesis obviously, the structural shortage. And if there is no additional event coming, we believe that over '22, we will keep this run rate in the first month. And over time, we will produce probably even 5% more than we had in the Q1 and Q2 of this year. But this is a improvement month-over-month. We do see this already. But again, the shortfall, the structural shortfall will be with us almost through all '22.

Okay. We'll pass over to Christian, yes.

And you asked for quick additions -- Christian on the volumes. I think as Arno has already mentioned, we expect Q4 to be clearly better than Q3, while not as good as Q1 and Q2, if you take the delivery numbers. Again, the full pricing effects and technical effects that Arno Antlitz have mentioned will, of course, then be fully baked in the Q4 deliveries.

Okay. Thank you, Christian. May we take the next caller, please?

We will now take our next question from Stephen Reitman from Societe Generale.

Looking at your BEV progression, you've obviously mentioned the number of vehicles you've lost in the third quarter because of the semiconductor shortage. Could you make some more specific figure for what you think that 122,000 might have been if you had a more normalized supply of semiconductors? Secondly, looking at China, the model that Volkswagen has had has been, obviously, for a long time, selling very successful European models in China. But I think the reaction to the ID family has been a bit slower than you anticipated. And you mentioned some changes to the retail strategy you're planning there. Do you think there's fundamentally a difference in consumer perception and tastes for models in China that is different from -- that may be impacting the reception of the ID family in China? And third, you mentioned about the extension of Audi to the Southern joint venture, the SAIC, and making SUVs there. Could you give us some idea about which SUVs you're planning to make there under the Audi brand?

Yes. First of all, we always are China-specific. Now our cars are having different interiors, different style elements, also different software functionalities for China because we have different ecosystems there, which we fully adopt into it. So far, knowing after being 35 years in China, we find that there are some Chinese preferences, but many of those are really worldwide and relatively tied into the customer segments. For instance, many of our cars for China are longer, they have more length because we have a better seating comfort in the back because people love to transport and have their parents in the car. So there are some preferences. When it comes to style, we also adopt. We have bigger screens in our Chinese cars. Very often, we are a bit more colorful in China, though the cars are really adopted. You're referring probably to now the new Chinese startups for the electric world, which are design-wise, not so different, I would say. So we're driving those cars relatively often. Probably some of the software features have to be China-specific now. You need karaoke functions, for instance, in the car, where we are trying to catch up with local customer demand and learning. That is why we increased our software competencies in China. We have now CARIAD is about 800, 900 people working in China on the ground to adopt more to the Chinese necessities. The other thing is that our ID fleet, which has quite sophisticated lane keeping and ACC functions in the car, which are really working well in Europe. They are depending on our maps in Europe, and we have different maps in China, which will take us a few months more to adopt those functions to China. So this should be specific. But we think we have all the ingredients and all the knowledge to really satisfy the Chinese customer demand. If we look into the new car buyers and ID buyers, yes, they are younger. It's a different generation to come. They are probably less biased towards Western brands, yes. They are more open to Chinese brands. This is, for us, for sure, a challenge. Now we are a well-established Chinese brand for over 35 years. So we have to reinvent ourselves, which is why we need new retail formats and new sales force, new salespeople there, and we are adopting. We think it's a -- we can do it. As we are adopting and as we are learning, sales are really picking up. The models are -- the Chinese models are always codesigned with our Chinese joint venture partners. So we have strong Chinese teams coming to Germany when it comes to platform design and also the interior designs. So I think we are listening to the markets. But yes, I agree, we have to probably do even more, but there's no structural handicap we are having.

And the volume with the Audi BEVs?

Audi is -- yes, sorry. Audi decided some 2 years ago to have also a 2-partner strategy in China and is now with SAIC, with our SAIC-Volkswagen joint venture. They are launching 4 new cars, which is a set of cars, which is not doubling up the offerings in the North. It's really different cars, partially on Volkswagen platforms, partially on Audi platforms. I think it's an attractive set of cars, and they are testing out new retail formats. So this will be complementary and should increase our volumes and also profit pools in China. Audi is doing really well. We had a fantastic 2020 and '21. And Audi is really strongly recovering. And we think that a even wider product portfolio can really work in the South. It's SUVs based on -- 2 SUVs based on Volkswagen platforms. And I think it's a coupé sedan based on an Audi platform there and an electric car based on the Volkswagen platform. So you can imagine how the cars are looking. One is P size. One is A size from the SUVs and the electric cars and A size SUV. So 3 SUVs, one coupé sedan, I would call it.

And the sequential development of your BEVs?

Sorry, can you repeat, Stephen, please?

Just on the sequential development of your BEV sales. If you hadn't had the semiconductor issues, you doubled basically between -- from Q2, from Q1, your sales would be the...

There would not be any reason not to achieve those 1 million cars, which we announced for the year. Now we have strong demand. We have an order bank for, I would say, on average 6 months. The order intake, I've learned today, is close to 20% EVs now in Europe, which is stunningly high. It's much more than our demand. Batteries, we are fine. So it's chip shortage.

Okay. Emma, can we take the next person on the call, please.

We will now take our next question from Horst Schneider from Bank of America.

It's Horst here from Bank of America. I have got 2 rather brief ones. The first one is related to Porsche. Herbert, I listened today to the media call and the last comment that you made. My take was from that, that you denied that a Porsche IPO could happen. So therefore, given the press speculations that we had again recently, can you maybe give an update if that is the case that you consider just this battery IPO, but no Porsche IPO? Number one. Number two, looking at your bridge, Arno, it strikes me that you are not backing out any more price/mix as you did in Q1 and Q2. I mean the suspicion is that always from the outside that you want to hide something. So therefore, can you maybe clarify what was the price/mix in Q3? When I back out the numbers, then I get to the conclusion that the price/mix impact was rather small in Q3. And my question would be why was that the case? And should that continue to be the case also in Q4 and going forward? Is that slowing down now? Or it's just a temporary effect that we had in Q3?

Yes, to your first question, Horst. Our statement, it's -- we are always continuously reviewing our portfolio of brands and investments, and I can't say more about this. Second question, Arno?

Yes, the price/mix, that wasn't deliberately done. As you see, the magnitude is still high. Of course, we had a slightly negative volume effect in Q3, but we can deliver the price/mix effect in the future. But from the quality of the business, price/mix and margin is even stronger coming through since we are very disciplined on the incentive side. And we decided on a second price step some weeks ago, and that second price step will only come through in the fourth quarter. So you shouldn't be worried that price/mix is deteriorating. It's actually the other way around. And we even promised to be more disciplined also into 2023 and beyond. So we have really stringent plans to keeping that pricing discipline throughout the planning round.

Okay. Arno, so it was positive Q3 and it gets stronger again thereafter, right? Do I get that right?

The pricing effect will get stronger in Q4 due to the pricing, which comes through, Mr. Dahlheim, I think, in the next month, no?

Maybe I can just add an explanation. Absolutely, the reason there is a lag is due to the very high order bank we have. So the cars we're delivering now are the cars that have been ordered 6 months ago. If you order a car, the cars that are delivered now have the price effect that we repriced in March. The price effect now from October, well, you will only see beginning of 2022 but -- because it takes time to deliver the cars. It's just because of the extremely high order bank we have, you have an almost 6 months delay in.

Thanks, Horst. Thank you, Christian. Emma, can we take the next person, please?

We will now take our next question from Dorothee Cresswell from Exane.

I have another one around BEVs in China. I wondered whether you could elaborate a bit on how you're finding the pricing environment for BEVs in the Chinese mass market and also whether you've had to adjust any of your own pricing in response. And then I have another question just around magnesium and aluminum. Could you tell us whether you share some people's concerns around the risk of significant shortages as we look to 2022?

Okay. I think Christian, in relation to pricing in China, we would pass that one to you. And Murat will follow then on the raw materials, magnesium.

The pricing in China is -- we didn't have to adjust our pricings through the launches. So the -- our prices are according to the market segmentation in China. And -- but we didn't have to adjust through the launch.

Yes, on material availability. First of all, let me say that all materials are really tight and short. It starts really with steel products, plastics, granulates. And obviously, we are observing and monitoring the situation of magnesium, aluminum very closely. Until the rest of the year, the semiconductor will stay the leading shortage. We cannot forecast right now if the shortage on magnesium and aluminum, which will happen definitely according to planning, will be bigger than the semiconductor shortage. We are observing this, and we are taking countermeasures already today to overcome this. So for the moment, I would say, semiconductor shortage is still the leading shortage in the market. On top, probably you have seen also that additional things happening, all the transportation and logistics are tight. So if something happens in the supply chain, materials get shipped late. And also, we are seeing more and more in the supply base, financial stress, obviously, because of the disruptions in the supply chain. And you have seen probably also that one exhaust supplier had yesterday, 2 days ago, a cyber attack. These are all elements which are playing to the game. We are observing all of this. Bottom line, semiconductor shortage is the leading shortage.

Thank you, Dorothee. Thank you, Murat. Can we take the next person, please, in the queue?

The next question will come from José Asumendi from JPMorgan.

José from JPMorgan. I have 3 topics, please, for Herbert. And so the first one would be the -- what are your top 3 priorities when running the group? And in your discussions with the unions, do you think they have the same sense of urgency as you when you're trying to accelerate this industrial change, specifically in Germany? Second, can you provide a little bit more specific milestones on the battery ramp-up across Europe? And if you could give us an update on which plants or locations have been agreed so far? And then third topic, please. I would love to hear any comments if you give giga casting any merits in terms of the industrial footprint or allowing you potentially, if you will implement it, to achieve any cost savings. And also, if I may ask, if possible, I'd love to hear what was the reaction from your management team when you brought in Elon in the offsite.

Interesting questions. Yes. Sense of urgency, I -- actually, we basically -- we triggered a discussion here in Wolfsburg. I think it's the right time, and it's coming. And the sense of urgency will increase because the recent achievements of Tesla are sending a clear message. Now Tesla is a competitor, which we have to take seriously. And I would say also, the unions see that the most sold model in Europe in September was Tesla Model 3 and not anymore the Volkswagen Golf. And the unions perceive that Grünheide is about 200 kilometers from here, a very modern plant, state-of-the-art with high automation and probably shorter lead times in manufacturing. So I think it's -- the picture is getting clearer and clearer. And as we will launch a model here in Wolfsburg, which will be in direct competition with some Tesla models as well, it's called Trinity, no. We have to use that model and that manufacturing plant and our R&D efforts to really transform and modernize Wolfsburg and make sure that we can face and compete against Tesla. I think that idea, which we basically brought into this game 1.5 years ago when we started, when we allocated this product to Wolfsburg now is getting into the minds of the people. And it's -- people are taking it more and more seriously. And this pressure will increase once Grünheide starts its launches. You have to see that Tesla still is constrained by the supply to Europe because all cars for Europe are currently imported. Imported means there's a 10% import tax on the cars from the U.S. and from Shanghai basically. So the competitiveness of Tesla will increase when -- once the launches in Grünheide happen, and we will see those cars driven around here. So I think the sense of urgency will grow. We made a case now also in Supervisory Board level in our -- and I think it's a shared view that we need a new vision for Wolfsburg, converting Wolfsburg in a competitive side, which can sustain competition against a very modern Grünheide site. And there are already quite good ideas where our branch data is working on how to not only refurbish, but I would say, rebuild the plant. We are -- we already decided to do a new R&D center to stream up our R&D facilities, and we are working to streamline our head -- overheads here in Wolfsburg. We -- and in the next few weeks, we will work together with the union representatives on a shared vision for 2030 for Wolfsburg, and then we're going to implement that plan. So a sense of urgency, I would say, I had probably earlier a stronger sense of urgency, but the Works Council is getting into the game and up to speed now that I'm confident that we can really end up with a shared view and a shared plan because we have to change a lot here. Gear casting, yes, we are considering now in this new architecture, big casting plants. We have some facilities. Most of our casting facilities are in Kassel, so not too far away from here. Whether we would integrate really giga presses in the plants, that's not yet decided. The cost advantage is some, if you would do an entirely new plant and supply chain. You might consider if you have established supply chains, it's probably not as much as an advantage as it probably looks on paper. So we are considering. Decision not yet made. Elon had a nice appearance in our meeting in Alpbach. It depends. Some people said it was very interesting because Elon is always interesting to talk to and the hidden messages between the lines. And for me, it's always fascinating to talk to him. Some people may have perceived it as too detailed as Elon is very vertical in all details. But I think everyone took the message that Tesla is very focused, very vertical, very thought through, very aggressive, very fast. And I think we took it serious. We took competition serious over there. I don't know. I'm looking into the faces of my colleagues. What would you say? Generally, yes, no. It was probably a bit lengthy. We talked over an hour, so I enjoyed it. Yes. Okay?

Thanks, Herbert. Thanks, José. And if we could then take the next person. And if I could request you to stick to one question, we still have 4 people in the line. It might get a bit difficult with the time management.

We will now take our next question from Henning Cosman from HSBC.

I'll just ask one question about free cash flow then maybe to Arno. It looks like the market took it a bit badly today that the free cash flow guidance was reduced even just with the signage. I'm kind of wondering whether that was really necessary if you could sort of talk us through the working capital effects that you're expecting the fourth quarter. And with a cash flow performance of EUR 12.4 billion after 9 months, isn't that actually quite easy to achieve and exceed the EUR 15 billion? Could you just share what your concerns are, why you found it necessary to make the change in the signage?

No, it's a very good point. I mean let's start with the overall figure, EUR 15 billion, about EUR 15 billion free cash flow is still, from our point of view, is a really significant number. What we see currently is that we are significantly understocked. And although we expect a better supply with chips and production in Q4, as my colleague mentioned, it might be difficult for the last cars we produced in end of November and beginning of December to put them through the whole line, on the ships into the markets and get them out to the customers. So it's basically not an operative topic and/or -- in terms of performance that led us to that reduction. It's more like that we really see the topic that in that whole supply chain, it might be that we end up with a little bit more stock. But not more stock due to we wouldn't like to be stocked but rather stock that is on transport. So -- and this is a burden on the working capital, and this is a major effect that led us to that revised figure.

So you're basically implying a fairly large negative working capital effect in Q4, right?

Yes. And there's also a technical effect on the free cash flow, which Navistar, but I was talking clean cash flow.

We will now take our next question from Philippe Houchois from Jefferies.

I've got a couple of questions for Arno, if possible. Just if you can clarify, Arno, what you told us at the beginning about the net cash position at the end of the year. I heard EUR 20 billion, but I think it's more like EUR 25 billion. And the other question is more technical. But if I look at your balance sheet today on the industrial side only, there is a negative liability of EUR 7 billion, which used to be a positive number. And my understanding of that, when it's positive, it's a loan from Volkswagen to the finco. And it's negative, it's a reverse. It's the finco lending money to Volkswagen. So I'm just trying to understand. First, is that affecting the net liquidity you report, the EUR 25 billion that you had in Q3? And when do you think that number will go back to a positive number? In other words, when does your growth pick up sufficiently so that you grow the asset base of the finco? If you can clarify, that would be great.

I'm not 100% right whether I understand your question, but I'll try to answer it that way. Look, the net liquidity, it's only automotive. It has nothing to do with FS. And we currently see, as we saw in the COVID situation, when production is quasi shifting quite a lot, you get a balance or you get an imbalance between payables and receivables that might affect also the net cash flow. But I'm not 100% sure whether that was the right explanation to your question. If not, what I would suggest, like we can -- perhaps, you can put that question to us, and we come back to you with an answer.

Okay. And for the net cash year-end, are we looking at EUR 20 billion or EUR 25 billion?

Sorry?

The net cash -- the net liquidity position for the year-end 2021 will be at least EUR 25 billion?

EUR 25 billion, yes. The free cash flow, EUR 15 billion. And net liquidity, EUR 25 billion.

Let me speak on that one. Maybe just on -- sorry, maybe just on the net liquidity. It is including all M&A transactions, the EUR 25 billion. Okay. I have heard we have some technical difficulties on the line. And if you're listening, feel free to send me a quick e-mail, and I'll pose your question for you. If not, if we still have people the line, operator, feel free to put on the next caller.

[Operator Instructions] We will now take our next question from Tom Narayan from RBC.

Tom Narayan, RBC. I just have a quick one, I think, for Christian. So yesterday, there was some news that I think Hertz, Tesla and Uber were collaborating in ridesharing. The question is, to what extent is owning the scheduling app an important part of your mobility-as-a-service aspirations? Certainly, if all the OEMs hand over this part to Uber, this could then be hard for VW to own this part of the ridesharing ecosystem.

Yes, Tom, maybe 2 parts of your question. First of all, of course, the delivery numbers, I want to clarify that. Of course, as we said, we have a huge demand for our BEVs, but we prefer them at this point time to sell them to our most profitable channel, which is private customers and corporate customers, not rental car customers. So just to clarify that point. And on your second question, absolutely. We do believe you have to control what we call the Layer 4, which is the customer interface to the actual booking mechanism for different mobility offerings. And that would be also clearly our ambition with the acquisition of Europcar to become relevant in that segment, in particular, of course, in all core regions, Europe, the U.S. and China. So I think that's what you called the scheduling which is the customer-facing app.

Yes, that's right.

Okay. And then may we take the next call. Thank you, Tom.

We'll now take our next question from Charles Coldicott from Redburn. Please go ahead. Charles seem to have stepped away. We will now take our next question from Arndt Ellinghorst from Bernstein.

Yes. It's Arndt Ellinghorst, Bernstein. Just maybe a final question for Dr. Diess. You do talk a lot about Tesla, and it's clear that you appreciate their achievements a lot. I just wondered, do you share the same appreciation for other EV start-ups as well? Do you think they will be equally successful? If I think about the Rivians, the NIOs, the Xpengs of this world, there are plenty, which all have very credible product. And I'd say they all ramp pretty successfully. So would you say Tesla is just the beginning, and we might see a more broad success of pure-play EV companies in that market?

Arndt, I still think that Tesla is the most relevant because it's the first one to start. And as we are a slow-moving industry, scaling is not as easy. It takes time and a lot of investment, and Tesla is so strong because it's 15 years of hard work and dedication. That's a lot of capital burned as well. So -- but yes, we have to take some more of them seriously. Many will fail and have been failing already because it's a different story to present a car at a show and a nice team. And the other end is really set up -- setting up a worldwide brand, being able to deliver, because our industry will remain a scale game, so you have to generate scale. But Tesla, we have to take Tesla very seriously because they are technologically good and they can provide scale, and they have also a good cost base meanwhile and scaling is good. So it will take time, but we have to take some of the others very seriously. You mentioned Xpeng, which is the car I'm driving currently. It's a very serious car. And in China, already quite successful. So some of the start-ups will get through, but they have to first try to keep pace with us and then probably with Tesla. So we're probably in between somewhere.

Yes. Okay. And if I may sneak one additional then for Arno and maybe Christian as well. How do you think more strategically and structurally about pricing? When you do your financial planning now, you've gained so much pricing. Let's say, a lot of it was windfall. But how do you think about strategically internalizing some of these positive pricing trends, whether that's list prices, tactical pricing, dealer support and so forth? How do you build that into your forecast?

I'll start with explaining how we built it into the forecast. And hopefully then, I get support from my colleague. Now what we did for the budget for next year and also for the planning round, we foresee -- we foresaw in the figures that there's a lasting effect on the margin and pricing effect of this year, as we promised. So we are pretty confident that, that lasts at least for the next year and the next year -- the next 1 year. And -- but it's also a chance, a structural chance for the whole industry to significantly lower the level we saw in the past, and we foresaw this in our planning.

Maybe Arndt, to add to that. I mean, first of all, I think the semiconductor crisis, as painful as it is, is an opportunity for the industry to sort of rightsize the incentive levels, which you know have been crazy over the last years. And we believe we have a tool, one tool in place, which is the introduction of the agency. We clearly see that already that it significantly reduces discounts. And we think that's long term and enables us to sort of structurally reduce 1, 2, 3 percentage points out of incentives, which based on our revenues, of course, is huge. And secondly, we also believe that structurally, people will spend more mobility going forward, including all the software, et cetera. So if you take share of wallet from mobility, we believe that will increase, which all other things being equal, should increase our profit pools and our profitability. And I think that's the biggest opportunity. That might not all be spent at the point of sale, but maybe some of them will be spent later. But structurally, people -- we fundamentally believe people will spend more for mobility.

And also, the effect of the ramp-up of the BEV, we currently give really minimum incentives on battery electric vehicles. And I think this is also a chance going forward. Battery will be a scarce source. So I think this is really a chance for a new level in the whole industry, and we will really play a role there.

If I may make an additional remark, my boss in particular has an extreme focus on pricing. So rest assured that that's very high on his priority list.

Thank you, Arndt. Thank you to the Board members and for Christian, especially Murat for being here today. Yes, we'd like to talk -- thank you all for your participation. I'd like to remind you that tomorrow afternoon, 15:00 hours Central European time, our colleagues at Audi are holding their conference call on the Q3. Yes, I'd like to also thank my own colleagues and my team and our internal supporting colleagues. And we'd like to wish you a nice afternoon. Thank you very much. Bye-bye.

Thank you all. Bye.

Thank you.

Ladies and gentlemen, that will conclude today's conference. You may now all disconnect.