Volkswagen AG (VOW3) Earnings Call Transcript & Summary

Hi. My name is Sophie. I am 30 years old. So thank you. And when I take a look at the future, then I'm pretty happy with it. Of course, I would like to visit all American national parks and do so 100% emission-free. And it would be cool if with my grandchildren, I was able to look at these pictures. At the moment, unfortunately, it's still a dream, and we all know that there are a couple of steps ahead of us. But I'm pretty certain that together, we'll be able to do it. And I myself, I'm very proud to be part of this. And for this special occasion, we also have special guests of honor. I'm very pleased to welcome Chancellor Olaf Scholz. Welcome in Salzgitter. And we'd like to welcome the Head of our Board of Management, Dr. Herbert Diess, welcome to you. And our Group Board of Management Member for Technology, Thomas Schmall. So but what do we want to do with you? To this end, I would like to ask our Group Board of Management member, Thomas Schmall, to the stage. So hi, Thomas.

Hi, Sophie. Sophie, you are cell developer?

Yes, that's true.

You've been here with us for 2 years. What have you studied?

At Braunschweig Technical University, I studied chemical engineering.

Chemical engineering, the heart of engine production of Volkswagen. So we take it seriously with 100% transformation, moving from ICEs to cell. Sophie, thank you so much. So ladies and gentlemen, I would also like to say welcome to this event today to the Mission SalzGiga event. Now Mission SalzGiga is more than just laying the foundation stone and breaking ground. With the newly created PowerCo and the Worldwide Battery Center here in Salzgitter, it is the start for us to move into a new era. From today onwards, this will be the central site for the worldwide battery business of the Volkswagen Group. One of the biggest companies somewhat reinvents itself and thus writes a new chapter of industrial history. It's a big story and a very big challenge for me, just like for many other colleagues. We have asked our employees at this site how they see transformation and what the head of plant, [indiscernible], what the head of [indiscernible] and the mayor of Salzgitter, Frank Klingebiel say. Let's roll the film. [Presentation]

So as you see, transformation has lots of different facets and is very diverse. And it's this diversity what makes us strong as a society and as a company. The components side in Lower Saxony, in 2020, we have already 20% of the jobs transformed into e-mobility. In 3 years up until 2025, we will have more than 50% of the workforce in the components side be working on e-mobility areas. And that's a good transfer to our side of Lower Saxony to our land, Lower Saxony to Stephan Weil, the premier. The stage is yours.

Mr. Chancellor, Mr. Scholz, dear colleagues from the federal state government and from the parliaments, Mr. Diess and all the members of the Board of Management, hello, Daniela Cavallo and all the Works Counselors. Ladies and gentlemen, this is undeniably a very important day for Volkswagen today. But going far beyond it, it's very important for the plant in Salzgitter for the federal state of Lower Saxony and one of the most spectacular industrial decisions that have been taken in recent years in Germany. Lower Saxony is a state that depends on cars. Our success is very much dependent on the success of the largest company in this federal state of Volkswagen. We benefited from this for many years. We have brought about the transformation process in this federal state, but the fact that this caused some fears and concerns is obvious. Salzgitter is a very good example because it's a traditional site and has been for more than 50 years. This is where we have manufactured engines, more than 62 million in total up until today, as I was told. And if there is no true future prospect for internal combustion engines, the question is, what will happen? Will there be no future prospect for us in Salzgitter? What we experienced today is a convincing answer to that question. Up until today, the engine was the most important component of the car. In the future, it will be the battery, with a share of 40% of the added value. And this is why at first glance, it's a very obvious decision to say that if we now put a focus on the most important component, we will also put a focus on the most important component in the future. What does this mean? At a huge construction site, a huge battery cell factory will be built. This is what begins today, but a lot more is beginning. The strategic decision was taken that Salzgitter will become the site for the battery activities of the Volkswagen Group entirely. With the whole plethora of connected activities that is and especially with a new company which is going to be created, and that's PowerCo, a company that is going to provide a hub for activities the world over. And this is going to be one of the most interesting start-ups in Germany within this century. We can already say that today. So it's a whole package, the beginning of which we celebrate today. And the answer to the question of what is going to happen in the future is quite essential. How about structural change? If you want to bring it about successfully, do it the way they did it in Salzgitter. Let me congratulate all of you in the company, the management, the workers representatives. This was really a gigantic task forward, a major effort of all of us. We managed to achieve a lot. Thanks a lot to all of you on behalf of the federal state of Lower Saxony. Ladies and gentlemen, Volkswagen is on its way towards the new world of automobile step by step. Today is a very important quantum leap but we also do know that a lot remains to be done. But I don't know what you feel like, but everything I'm seeing today and everything I know about the further development of the battery activities of Volkswagen makes me be positive. Lower Saxony is an automotive federal state. It will continue to do so digitally, emissions-free and most definitely, very successful. Thank you very much for your attention.

Thank you very much, premier. And he said it, Salzgitter site. What is the Salzgitter site? We have prepared a little film for you that shows how strong we go for transformation already. [Presentation]

So thank you. Now you got a bit of an idea as to how transformation this Salzgitter site looks like. We do just that. We have the first Gigafactory here in Salzgitter. It's got 2 blocks and we'll have 24 gigawatt. Each of these blocks will produce about 22 million cells, 44 million cells on 40 hectares of ground, 600 meters long, 350 meters wide, and that's a medium-sized factory in this business. So what's the key in order to do it in the necessary speed and then the time allotted to us? Well, it's 2 big keys, 2 big levers. It's a technology road map, which we'll hear about with our unified cell [indiscernible] high degree of standardization, differentiation through what is inside the cell, cell chemistry and high standards in the factory. I just said it when we walked around, when you see a cell factory that is of Volkswagen, you might think you've seen it before because it will look exactly like the one in Salzgitter. That's what we have to do. It's the early opportunity, the only chance we have to do this and to be as fast as possible in setting it up. In Salzgitter, we will do more than just a cell factory. It's going be a global battery hub of ours. What does it mean? Well, we show it in [indiscernible]. In the middle, you have the cell factory that I described. We'll have a test center, we'll have pilot lines to test the batteries. Of course, we'll have research and development here. We have an academy to train people. We'll have a supplier park in order to do housings and other things next to the plant where the recycling plant we heard about. And all of this will be included in PowerCo, our European SE, which has been started in January with the Board of Management that will introduce themselves to you. And this is our guarantee, together with factory to do everything that we see today. PowerCo is going to be a global player, we'll not just do the volume for Volkswagen in Europe, we'll do it beyond. We have plans after the 6 Gigafactories to move to other regions with PowerCo. So in Salzgitter, a blueprint version will be created for the factories. And just to give you a couple of numbers for Europe, for 6 factories, we'll need about EUR 20 billion, by the way of capital expenditure. We'll have a revenue potential of at least EUR 20 billion from this business. And in Europe, 20,000 jobs in this business will be created, jobs that do not exist in Europe today, a technology that is only available to a very limited extent in Germany and in Europe. And as Volkswagen, we assume responsibility for this technology in Germany for Volkswagen, and then we'll scale it up in the rollout. Why are we doing this? Well, ladies and gentlemen, there is no planet B. There is no alternative, which is why we formed PowerCo, batteries for generations to come. Thank you very much. How will such a battery be produced? What have we done? We asked children of our employees from the cell business as to whether their parents explained it to them. And that's what you see in the film, how is a battery created? [Presentation]

[indiscernible] what we've seen when looking at the system is that our cell developers can come from 20 different nations. 50% come from East Asian countries and the remaining members from the rest of the world. So our team is already international. But who could explain this better to you than our CEO of PowerCo? Frank Blome, please. The stage is yours, and don't make it too complicated, please.

I'd also like to welcome members cordially to today's big event in Salzgitter for SalzGiga. You've seen we don't have to take too much care if they have been coming. They're already ready for it and they came up with a very good explanation. Our unified cell is just a toolkit for batteries and battery cells, just like as the logo toolkit of the kids who showed us what the cell is all about. 80% of our vehicles will be equipped with the unified cell. And with the help of the chemistry of the cell, we will inform the performance and the costs. In line with the strategy of the Volkswagen vehicle platform, we will build the factories, we design the battery cells for the future. And this, it will be possible for us to produce at best costs in a robust fashion, safely and securely. With regards to our products and the building of our factories, we make cell production simpler. We make it more flexible. We make it big and green. For that purpose, we've developed keys. Thomas Schmall made mention of them already. We've got the unified cell and the standard factory. The unified cell provides a quantum leap forward with a unified cell [indiscernible] densities. We can increase our efficiency. We can reduce charging times, increase the range. And we combine all that with the top secure and safety level for our electric vehicles. This makes PowerCo flexible and flexibility, especially in volatile times, is quite a decisive factor. Sustainability is the third important lever of our product strategy. For the entire value chain, we want to set up sustainable industrial sites. PowerCo will thus be based on a very sustainable and solid foundation. But what or who is PowerCo? We have taken the best experts on board and let me present them to you. [Presentation]

Ladies and gentlemen, we are PowerCo. Now I'd like to talk a little bit more about the standard factory, the standard factory in SalzGiga as today's event constitute the milestone of our battery cell strategy. The unified cell helps us standardize products and the standard factory helps to standardize building production processes, even production equipment and the infrastructure of the factory. This is how we are able to scale up rather quickly and learn rather quickly in order to produce the best products in class as soon as possible. Starting off with today, the ramp-up time from the approval of a factory leading all the way up to the SOP will be reduced from 3 years to 18 months. It will be halved. The operations strategy could not be any more robust. And of course, you all know e-mobility can only be emissions-free if it covers the entire supply chain, leading all the way up to the production of the cell and the charging station. This is why the electricity we use for our plants comes from renewable sources of energy. Sustainability, economic activities also means that we reuse scarce resources. That is why already today, we use the battery recycling plant in Salzgitter in order to reuse and recycle the materials of our batteries for the production of the batteries [indiscernible]. The battery cell will be made sustainable because we want to think of the very last step of e-mobility. And that is why PowerCo stands for batteries for generations to come. Now let me thank you for your attention and pass the floor to Daniela Cavallo, the Chairperson of the General and Group Works Council. Thank you.

Chancellor Olaf Scholz, Premier Stephan Weil, Mayor Klingebiel, Dr. Diess, members of the Supervisory Board and the Board of Management, guests and, most of all, dear colleagues. So today, the 7th of July 2022, is a historic day for Volkswagen in Salzgitter. It's a wonderful day for the entire Volkswagen Group, for Volkswagen's home, Lower Saxony and for Germany as a location for industry. What we celebrate today is evidence that with Salzgitter, the deep transformation, the change of our industry is not a dramatic one. We show that ecological and social change can be put together, that it doesn't exclude each other. Now in Salzgitter, we have the biggest engine plant of the Volkswagen brand. More than 63 million engines were built by this proud factory since the 1970s. Various generations of colleagues worked here throughout their entire lives. 4-cylinder, big joint, 16-cylinder engines. We built drives for customers all over the world, about 1 million units per year. Our workforce in Salzgitter has 6,829 colleagues on board. That means 6,829 times questions, what's going to happen with the Salzgitter plant? What's going to happen to me personally? Where is my personal outlook for the future? And the answer is today's start of the building of our very own cell factory shows the start of the cell drive directly next to our factory, the factory for the drivers of tomorrow. That means new employment, thus Salzgitter has a future and an outlook for the future. And this was no self-evident at some point of time. It was a hard work. And this is also, quite decisively, the success of strong codetermination in this group, ladies and gentlemen. Today, we are breaking ground symbolically on the field or outside or here on the stage. But the real foundation was laid by the Works Council more than 12 years ago. In April 2010, the Works Council, for the first time, publicly made the demand that Volkswagen was supposed to build a battery factory. Our reason back then was be able to move into the future, reduce dependency on supplies, control prices in a better way and secure employment. It's exactly what you can read about in the press statement of the group for this meeting. But it was a long and stony path to get there. I'd like to remind you of one statement that is not even 6 years old. On the topic of our own battery cell factory back then, the statement was, "We are not going to do such a crazy thing." And it was said by the then Group CEO. Mr. Diess is laughing already. Of course, the then CEO is no longer with us and now it's no longer something crazy. It is core of our group strategy. And at this point, I would, therefore, like to say to the Group Board Management Member for Technology, Mr. Schmall, I would like to thank you. You know, Mr. Schmall that some of your -- the previous people who were in your position wanted to not do it. Today, everyone envies us when it comes to components. And truth is that the first cell factory is coming to Salzgitter. That's what we worked for, what we worked towards because employment security is just as important as economic feasibility. The state of Lower Saxony and the Works Council agrees that the Volkswagen home is the point to develop the future for Volkswagen. Our heart is beating between the Harz Mountains and the coastal regions yesterday, today and tomorrow. This is going to be the case. Stephan Weil, the state and you are a firm and reliable partner for us. And that cell production, the Volkswagen collective bargaining agreement is being applied, didn't fall down from the skies, just like the cell factory is going to be part of the Volkswagen Group. The important work for cell competence in our center of excellence is mainly due to the work done by the Works Council. We have done that in our pact for the future. We agreed upon it together with management in the year 2016 already with the obligation to serial production. [indiscernible] as the local chair of the Works Council, you have worked with your team and accompanied the situation with your team. You've done a lot of work. The success of today is mainly the success of the workforce. You are going along. You're doing the work. You are in the middle of transformation of our components plants, and you are the spearhead. The automotive world is looking to Salzgitter, at least our competitors from Europe. Volkswagen shows, in Salzgitter, how transformation can work. Lots is being said about the change towards e-mobility. Here and today, it is actually happening in very concrete terms, like it will happen earlier or later in all of our sites, whether they build cars or build parts. We've done the previous work. Now the start is here and now it's all about to move forward and decisive is a pioneering spirit, qualification, further trending courage to change workers, team players and also play a good role and in codetermination. All of this, we have achieved with Volkswagen, which is why we will continue with our success from Salzgitter because we do have a perspective for our business and for our workforce to move forward in employment security and economic feasibility. And I dare to give you one suggestion. If e-mobility happens as fast as it looks like, then we have best opportunities at Volkswagen to benefit from the transformation, with a healthy outlook for all of our sites and with a long-term, maybe even growing workforce. So colleagues, ladies and gentlemen, today is a day where we can be happy, proud and celebrate. Thank you so much.

Mr. Chancellor Scholz, dear members of the Volkswagen Supervisory Board, dear colleagues from the Board of Management and hello to all the employees from Salzgitter. This is a very special day for Volkswagen for Salzgitter, for the industrial side of Germany and for our competitiveness of Europe in the world. We are building our first battery factory. Obviously, you can see here in Salzgitter how profound the transformation process of our industrial sector is and Volkswagen is one of the drivers of this transformation process. Over the recent decades, we were car manufacturers and we sold cars, and thus we've generated prosperity for generations. But it is necessary for us to change and bring about the transformation process in order to preserve prosperity for generations to come. The car continues to be our core competence but it becomes electric, autonomous. It will become the most complex digital product the world over. We will also become a software manufacturer. And due to the starting point here in Salzgitter, we will also become a battery manufacturer. These are completely new competencies that we've got to build up in a couple of years only. SalzGiga will become our power center. From here, we start and control the worldwide battery strategy. That is why we create the PowerCo. We, with green electricity, create a prismatic cell battery for the entire group. Due to the large scales, we can become more cost efficient compared to our competitors. The battery, apart from the software, will be the value driver within the car. And this is why we want to keep control. Raw material processing, development, the setup in the control of the Giga factories as well as recycling, Thomas Schmall and his team will be responsible for these issues within the entire group. This is how we want to secure in the long run in Salzgitter alone. With the help of our battery factory, 5,000 future-oriented jobs can be created throughout the whole of Europe [indiscernible] even 20,000. Together with partners, PowerCo up until 2030 will invest more than EUR 20 billion in the establishment of our battery business. Up until 2025, the demand of batteries in the Volkswagen Group is secured. For the time afterwards, we intend to build up 6 additional factories like here throughout the whole of Europe with an entire production performance of 240 gigawatt-hours. Also in the United States do we want to set up a cell manufacturing plant. Mr. Scholz, we are particularly happy that you add to this historic dimension of this development with your presence by attending this meeting. Germany and Europe can only continue to be competitive based on courageous decisions and innovation. Already today, with regards to equipment and machines for the establishment of such a battery factory, we depend on Asia. Same holds true for the supply of some raw materials. If we, in Germany and Europe, want -- do not want to be lagging behind China and the U.S., we have to bank more, even more, on future-oriented technologies and do away with red tape. Clear decisions and strong signs of policymakers for the battery, the establishment or software competence and, first of all, investments into renewable sources of energy are decisive for the future of Europe. This is why I would like to thank you most cordially for your participation. You can be assured Volkswagen is a strong partner and it will continue to be so in the future. We also want to be proud of Made in Germany. The highly motivated staff members of Salzgitter, who up until recently, built engines for combustion engines and will soon begin to produce battery cells make me feel confident that we will emerge out of this transformation process stronger than ever. Salzgitter will become a transformation role model, with actually this power will be continued to be competitive. Thank you very much. Mr. Chancellor, the floor is yours.

Mr. Diess, Mr. Schmall, Mr. Blome, Miss Cavallo, Premier, Mayor, employees, ladies and gentlemen, and colleagues, of course, I am very happy to be here today in Salzgitter. This gives me the opportunity to talk about a car that we were able to see quite briefly and that I remember from my cars -- from my [indiscernible], as many others, I'm old enough to remember it and to have seen it in the early '70s of the last century in Germany. Those were times of moving forward culturally, politically in science, in economics, in design. Progress, modernity and modern times renewal, that was the feeling we had in those days, in those years. And this is evident, this became evident even today, very specific sites and objects and symbols. Just think of the wonderful Munich Olympic grounds developed by [indiscernible]. It was easy. It was transparent. It was open. It had clear lines. The stadium of 1972 shows the newest spirit of those years to a specific amount, which brings us back to the Volkswagen K70 because for that, the same is true even if it didn't sell that well, it was clear and clean and lean in the '70s. Aesthetically, it was showing a new spirit, a new start. And technology-wise, it was the same. It actually meant a revolution up until the Volkswagen had air-cooled rear engines. Now the K70 was the first Volkswagen with front engine [indiscernible], a concept which was actually proving to be worth one for the future. All the Volkswagen success models, the Golf, the Passat, [indiscernible] would have been impossible without the K70 to break the ground. You all know this progressive car was produced in this plant in Salzgitter. It was developed specifically for that. So this Volkswagen plant stands for a courageous new start with an open end initially, which proves to be successful and showing the way forward for the entire group. This is your history here in Salzgitter and it bodes well for the future. Because the situation is somewhat similar now, together, we will lay the foundation stone for the future of mobility, again coming back to Salzgitter. It is clear to everyone that this future has to be sustainable and saving the climate, which is why Germany decided to be a zero-carbon country till 2045. And we won't do it on our own because that won't stop climate change. We do that in a closely coordinated fashion with our partners in Europe and worldwide. And hardly any other industry, transformation and change that is necessary for that will be so far reaching than in automotive industry. In Salzgitter, it becomes clear because this plant, up until today, provides combustion engines, internal combustion engines. About half of the Volkswagen engines come from here. More than 60 million engines came from Salzgitter since the '70s. What a proud industrial achievement. But we know that burning fossil fuels will come to its end. All of the big automotive companies have decided to go towards e-mobility, and that includes Volkswagen. Just how important the consequences of this will be -- can be seen in Salzgitter. Many thousand jobs depend on a technology which needs to fight for its future and Volkswagen has seen it. And that's why you decided to move from the engine plant to the central of all battery electricity activities of the group. This means a radical 180-degree turnaround. And I know this turnaround means a major challenge for everyone. Some might be concerned looking at the sheer magnitude of the task that's ahead of you. Will it all be happening? Will it be going well for me, for my family, for my region? And I want to say yes, it can be good, and it will be good with one prerequisite, the prerequisite being that we do not just look back but that we actually go forward full throttle and move forward wholeheartedly. That's what you've always done with Volkswagen. Otherwise, the air-cooled rear engine would have been here forever. Otherwise, the trailblazing K70 would not have existed. Otherwise, this plant in Salzgitter would have never been erected. It's not so long ago that many people in Germany were of the opinion, battery cells, but these are random supplier parts, we can simply order them from Asia whenever we need them. Today, we know much better. Latest, the corona pandemic and Russia's brutal attack on Ukraine make it clear, depending on worldwide supply chain mean a major risk on many strategic areas and sometimes too big a risk. For battery cells, I'm sure this is clearly the case, which to all of you, the employees of the Volkswagen plant here in Salzgitter, all of you have a very significant task. Because it's not a good situation when ship, a container vessel stranded in the Suez Canal provides difficulties to us on our way to e-mobility. We want that, up until the year 2030, 15 million electric cars will be in Germany on our roads and streets. We want added value and jobs staying here in Germany and Europe. We want to do the transformation of the climate and stay an industrial country at the same time. So therefore, it is clear, we need our own battery cell production here in Europe, here in Germany and here with you in Salzgitter. Employees, Volkswagen and Salzgitter, that's a very close connection. Many have been working their entire vocational or professional life for this company, the second or third generation together with brothers and sisters, in-laws and cousins. Some have parents, aunts and uncles who have worked on the first car, the K70. Volkswagen is for this entire region has been served for Hanover Branch by Volkswagen Salzgitter for decades. And you are all Volkswagen. You all, every single day, give to your company what Volkswagen needs in order to move forward and be strong in the transformation and move out of it even stronger. Every single person makes a contribution so that this big transformation industry will stay the backbone of our world here. Transformation, yes. But that's an abstract term, even if it's used very often by managers and politicians. But for what is connected to it, politicians can set the right stage. That's true. But it is you. You are the ones who will do the work -- who will do the change towards zero-carbon industry, zero-carbon society. And we need to be very respectful to you, very grateful, and we have to give you all the support you can get. Now Salzgitter is at the next big turning point. You'll open a new chapter of progress. You can be proud of that, very proud. And I wish Volkswagen, the Salzgitter site and all of you all the best. Thank you very much.

Thank you very much, Mr. Chancellor for your moving statement. The people sitting in this room are showing what you spoke about. And now on to the symbolic groundbreaking activity here for our plant in Salzgitter, where we've just described our unified cell is up here on the table. Dr. Diess, Ms. Cavallo, Mr. Stephan Weil, Frank Blome, please join me here on the stage. Sophie, of course, as well, come up here. Right, here we go. And now one by one, let's get some power. Going Sophie, please put the first cell into the system. PowerCo. Secondly, our premier, Stephan Weil; thirdly, Daniela Cavallo on behalf of the Works Council. Dr. Diess, the last but one cell is yours. And now, Mr. Chancellor. Thank you so much. The protagonists of today, the children, the parents, the members of the Board of PowerCo, please join me up here on stage, sit down on the stairs. Please join me up here [indiscernible] we'd like to take a group picture. Thank you very much. That was it. Thanks very much. We have to move on.