Volkswagen AG (VOW3) Earnings Call Transcript & Summary

Good morning, everybody, and a warm welcome to our Q3 Conference Call. I'm Sebastian Rudolph. I'm heading Global Group Communications. And this time, this is a joint call with media and with investors and analysts, and that's why as two nice colleagues are with me, Rolf Woller, our Head of Treasury and IR for the investors and analysts, and Nicole, as you all know, for the media team, our Head of Group Communications. With us today are two important persons, our CEO, Oliver Blume, and our CFO, Arno Antlitz. Welcome to you as well. And before we start, I want to make some housekeeping remarks. First, we have already published, and you should already received the press release, the interim report for the first 9 months, and all other PR related materials. If not, you can find them on our Media and Investor Relations website or give us a call and we send them the material directly. Let me give you a brief run-through of the next 90 minutes. First, Oliver will talk to you about the highlights of the first 9 months and the third quarter. He will also outline the current and upcoming challenges and foremost his strategic approach to tackle them. After that, Arno will take a closer look at the financials, and then we will host a Q&A session like described with investors and analysts' community and after a short break with media. And with this, I hand over to Oliver. The floor is yours.

Yes. Thanks, Sebastian. Good morning, ladies and gentlemen. I'm excited to be here with you today for the first time as Volkswagen Group CEO. And thanks to you for joining us and taking the time. Despite numerous global changes, we achieved a lot with solid financial results. Overall, Volkswagen Group's operating result before special items in the first 9 months increased to EUR 17.5 billion, reflecting an operating margin of 8.6%. In quarter 3, the operating result increased to EUR 4.3 billion, corresponding to a margin of 6%. The performance was burdened by nonrecurring items totaling EUR 1.6 billion. The underlying margin came in at around 8%. Our recovery in China continues to accelerate with a 26% increase in deliveries in quarter 3, and 33% increase in deliveries only in September. The Porsche IPO has demonstrated the continued strength of our brands and the opportunity of realizing their full potential across the Volkswagen Group. Arno will take in detail -- will talk in detail about the last quarter shortly. But first, I want to talk about my leadership priorities. I wanted to build on our recent success using the five leadership principles I applied at Porsche, and I've been rolling out across the whole group. The Volkswagen brands are among the most important criteria for customers buying our products. We will be positioning and sharpening our brands better. And I've seen the great work from colleagues across the different brands, when I visited the sites of Volkswagen, SEAT Leon CUPRA, ŠKODA and Audi within my first weeks. I personally was impressed by the great team spirit, brand strategy and the individual design language. Our products start with a clear strategy, a design focused on brand identity, product identities and above all, quality. When I visited the major brands, I asked for status quo reports per brand to define the current gap versus benchmark, particularly in terms of user interface. We will not compromise on quality or user experience ever. I'm very focused on people working together, helping each other and winning together. Culture play a big role to live it every day, being role model, and that starts with me personally. So two, does entrepreneurship. Innovation combined with engineering excellence is a bedrock of what Volkswagen does. We intend to drive this even more going forward. And last but not least, sustainability. For me, the biggest challenge of our generation is to leave behind a better planet for future generations. As one of the world's largest automobile companies, we will ensure we take a global approach to help solving the environmental challenges which confront us. There are several challenges that the automobile industry currently faces. First of all, there are worrying geopolitical developments, particularly the rise of nationalism and protectionism. This includes growing barriers to technology transfer between East and West. Challenges to our supply chains will become the rule, not the exception. In order to set up our supply chains more resiliently, we founded a separate organizational unit. This organization will provide the Volkswagen Group with relevant risk and strategy information, and analyzes potential risks in advance to identify threats to supply security. We want to be in a position to deal with different possible risk scenario at any time and avoid having long lead times for preparation. At the same time, the speed of technological change is transforming our industry. In markets like China, we are competing with new BEV-only entrants to the industry that are appealing to young people, the country's future drivers. That means, when it comes to software, autonomous driving, but also the performance range and charging times of our cars, we must accelerate our transformation. I have no doubt that Volkswagen will successfully meet all of these challenges from a position of strength, and we will work hard to continuously show proof points along the way. This is due to our financial resilience, scale, great products that millions of people across the world aspire to buy. We know we have the opportunities and means to win. I have introduced a 10-point program outlining our key priorities for the next few months. This is about executing our new auto strategy, which we strongly believe is the right framework to accelerate our ambitions. To do so, I will be critical to speed up the implementation of my 10-point program. And that's the advantage when I started at Volkswagen that I was involved during the last years very deeply in the situation of Volkswagen, and I was able to start from the beginning. And now I would like to lead you a bit through the 10 -- top 10 program that you understand what is behind. First of all, it stands -- starts with our planning round to focus on increasing our financial resilience to give a very clear KPI framework for the brands and focusing on our product range. Then it comes overall to our products, starting with a clear product strategy. When it comes to design, having a clear profile for brand identity, for product identity, then the technology strategy, having a long jump when it comes to a new product comparing to the competition. Then we already started a speed quality initiative. And at the end, what is very important, are the product returns on the financial level. Talking about the regions. China play a big role. And there, it's up to us to have the right China product strategy. When it comes to profit pools, customer profiles of our brands because everything is about the customer perspective. And then having the right product, talking about technologies and the content we are offering to our customers. North America plays a big being flexible in our global footprint. And therefore, also the product portfolio and cycle plants plays a big role. It is about localization of our issues in the U.S. planning to continue with our Chattanooga plant, where we are ramping up currently ID.4, and what we already published is a new approach with the brand Scout, where we will tackle the pickup business. Coming to the software issue. And this one was discussed a lot during the last years. And I think what is very important to look ahead and making a redesign of CARIAD, focusing on the core competencies for the future, having clear where we have the interfaces with the brands and what partnering do we want to have. And I think when there are existing solutions in the market, it's not necessary to design and develop them by our own to working together with strong partners. And then, it's up to us to optimize our processes, tools and the organization of the CARIAD, and we already kicked up on this process. And this afternoon, we will come to the first decisions. Then it comes to technology, our platforms for the future and the profiles, we do have with the technological footprint. It will be about the platform allocations and the product mapping in between the brands with a big opportunity we do have with the scale effects in between the Volkswagen Group. Important for the ramp-up of our strong battery and our electrification strategy is the deployment, planning of our battery plants and supported with our charging strategy and a clear implementation plan. And beside of this, more important than ever is a clear energy strategy. Mobility services play a big role for us as a global company. And we announced that we bought Europcar as a new partner for our mobility services for Volkswagen, and there, we kicked off a restructuring program. This top 10 points is about development of our mobility platform and at the end of a consolidation of mobility activities. And as we announced, also when it comes to autonomous driving, we [ harden ] our road map. We announced a partnership with Horizon Robotics in China. We will continue to develop Level 4 driving with Porsche for the other regions of the world. And we are in good decisions and talks with another partner approaching with Level 2++ and Level 3 driving all over the world. And on the other side, we decided not to invest even more -- ever more in Argo. And that's like in the transformation years ago, we started with different approaches and now it's up to us to harden our road map. Sustainability plays a big role for us and our strategy. And I personally stand for sustainability. As you know, it's -- with a sustainability footprint of Porsche. For us, it's important to have clear KPIs for all our brands and regions, and then establish an ESG program for all the brands and brand groups of our group, and having the right footprint and being measured with our progress of our sustainability approaches. And last but not least, and this is what my experience of the last month is being focused on the capital markets, having clear and the analysis of the levers to increase the value of the group. And when you see the big success of the Porsche IPO for us, this is a role model. And looking only to the last 4 weeks, the shares increased over 20%. And that shows the potential we do have in our brands. And therefore, I established and kicked off a virtual equity story for all brands to unleash the full potential and this will lead to a complete equity story for the Volkswagen Group, where we will plan a Capital Markets Day in the next year, presenting you how we want to lift up the value for the whole group. All this shows that we are ready to accelerate our group transformation with a relentless focus on product quality and shareholder value. I will continue to update you on the progress we have made and provide further details about my specific priority in due course. With this, I will hand over to my colleague, Arno to run you through our quarter 3 results in greater detail. Thanks for listening.

Good morning, and welcome, everyone to our today's 9-months combined investor, analyst and media call. Thank you, Oliver, for the introduction and brief overview. Now let's change to the financials and the operative business. Before getting into details of our financials, we should not forget to mention that the war in Ukraine is lasting now for 246 days, and that our thoughts and wishes are with the people in the Ukraine. Within the next 20 minutes, I will take you through the major milestones we have achieved in Q3. In summary, our supply of semiconductors has somewhat improved and COVID impacts have at least temporarily reduced. We see, as expected, a significant higher impact from material costs, including energy costs. At the same time, disruptions in supply chains prevail, but are carefully managed. We delivered solid 9-month results with an operating profit before special items of EUR 17.5 billion, corresponding to an operating margin of 8.6%, slightly ahead of our full year target, and showing the robustness of our business model. The Premium and Sport brand groups continued on their strong path. Volume brand group was a little weaker, reflecting the regular seasonal pattern and impact of semiconductor shortages. Nonrecurring costs related to the Porsche IPO and impact from the revaluation of certain parts of our activities in Russia, burdened the result in the third quarter by around EUR 1.6 billion. Before these effects, the underlying margin in Q3 was above 8% for the Volkswagen Group. At the end of September, we ended a new era by successfully listing Porsche AG on the stock market. This was the largest IPO in Europe in terms of market capitalization and achievement we are very proud of, specifically in the current environment. PowerCo and Umicore established a joint venture for European battery materials production at the end of September. And we are in the process of realigning our mobility as a service and transferred as a service activities. Going forward, Volkswagen Commercial Vehicles has decided to cooperate with a different partner to develop a self-driving system. Therefore, Volkswagen will not continue to invest in Argo and is withdrawing as a shareholder. This decision led to a noncash impairment of EUR 1.9 billion in Q3 shown in our financial results. I'm aware that the gas issue is on top of your mind, so let's spend a few moments right away on this topic. We are effectively managing the gas supply situation and have put a group-wide task force in place. Effective countermeasures have been implemented in our German and Eastern Europe plants like switching fuel to coal and oil, reducing energy consumption by reducing heating. We have also stocked up on selected critical parts to buffer production, and we see a low risk of any production stops in the winter period of 2022, 2023, assuming average temperatures. Let's have a brief look at our unit sales in Q3. Our deliveries included favorable pricing and low incentives. July and August were weaker due to the typical summer holiday seasonality, with September improving to a run rate of around 750,000 units a month. We recorded a significant increase in deliveries in China as the COVID shutdowns were gradually lifted, and the government stimulus kicked in. Order bank in Western Europe remains on a high level that will stretch well into the first half of next year. Vehicle sales for Volkswagen Group came in at over 6 million units in the 9-month period, around 220,000 units less than the prior year, cost per ongoing limited vehicle availability. Despite lower sales, sales revenues amounted to EUR 203 billion, including EUR 7.6 billion from the consolidation of Navistar, and up 9% from the comparable period. The operating result before special items came in at EUR 17.5 billion. The operating margin stands at 8.6%. Operating results for Q3 came in at 3 point -- came in at EUR 4.3 billion, corresponding to an operating margin of 6%. This clearly looks underwhelming at the first glance. However, as mentioned earlier, the underlying margin without the cumulated nonrecurring items of EUR 1.7 billion for Russian impact and the Porsche IPO costs was about 8.3%. This solid result demonstrates the continued robustness of our group in a challenging environment. In Q3, we had a negative effect of EUR 0.1 billion from fair value measurements on hedging instruments outside hedge accounting. Our financial result came in at minus EUR 0.1 billion in the 9-month period. Our interest results improved significantly year-on-year due to the positive effects from discounting of long-term provisions based on higher interest rates. As mentioned earlier, we made a noncash impairment of EUR 1.9 billion in Q3, reflecting our withdrawal from Argo. Reported net cash flow came in at EUR 5.6 billion. Clean net cash flow amounted to EUR 9.2 billion. The difference relates to diesel payouts of EUR 950 million and M&A outflows of EUR 2.6 billion. Thereof, EUR 1.7 billion related to a Europcar settlement in Q2. Working capital is burdened by higher inventories due mainly to the ongoing supply disruptions with a significant increase in unfinished goods, especially in Q3. Currently, about 150,000 unfinished vehicles are waiting to be completed and finally delivered to our customers soon. The Volkswagen Automotive net liquidity stood at a robust EUR 31.6 billion, an increase compared with the EUR 26.7 billion at the end of 2021 and at the end of Q2. It's not including the proceeds from the Porsche IPO, which will be booked in Q4 2022. Now coming to the performance of our divisions. Passenger Cars delivered a solid EUR 12.1 billion operating result and a margin of 8.8% before special items. Our Commercial Vehicles came in at EUR 1 billion and a margin of 3.4%. The Financial Services Division continued with their strong performance also in Q3 and recorded a cumulative profit of EUR 4.2 billion. Moving to our Passenger Car EBIT bridge. The strong result before special items of EUR 12.1 billion for the Passenger Car business was mainly driven by a positive mix effect from well-equipped cars and favorable pricing. The bucket exchange rates and derivatives turned year-on-year into a small burden of EUR 0.3 billion. Product costs deteriorated further to minus EUR 3.7 billion due to increasing raw material costs. The position fixed costs and others had a negative effect of minus EUR 1.8 million from higher R&D, nonrecurring Russian impairments, Porsche IPO costs and other effects, while our fixed cost program continuously contributed to the resilience of our business. After special items, the result came in at around EUR 11.7 billion, including a minus 4 -- minus EUR 0.4 billion for diesel-related costs. Looking briefly at the brand group reporting within the Passenger Car business. The volume group came in with an operating result of EUR 3.7 billion. The cumulative margin for the 9-month period amounted to 4.6%. The margin of volume group decreased in Q3 to 3.8%, mainly as a result of summer seasonality and plant shutdowns during the holiday season. Brand Volkswagen came in at a cumulative margin of 4.7%, positive mix and pricing and good performance of the regions, North and South America, had a positive impact, while increased raw material costs burdened the result. ŠKODA's margin at 5.6% year-on-year -- year-to-date, which is a decent performance as they are continuing to consolidate our Russian business. Our Premium group came in with a very solid operating result of EUR 6.3 billion and a margin of 14% for the first 9 months, benefiting both from strong mix and pricing, positive ForEx effects as well as the positive effects from derivatives. The demand for value vehicles remained strong, and the order bank is well filled. Lamborghini and Bentley performed extremely strong. Synergies within the Premium group are clearly materializing. Porsche is well underway with 221,000 units sold in the first 9 months, showing an impressive return on sales of 19.4% in its automotive business. The result was mainly driven by improved pricing, better product mix and positive ForEx. Net cash flow continued to be solid and totaled to EUR 3.3 billion in the first 9 months period. The average price per vehicle remains at EUR 110,000 per car, up 10% versus prior year. CARIAD sales revenue improved driven by license revenues with brand groups, reflecting the ramp-up of our MEB cars. The negative operating result and cash flow reflect the ongoing ramp-up of our business. Volkswagen will significantly strengthen its regional development expertise for autonomous driving in China through the joint venture between CARIAD and Horizon Robotics recently announced. Coming now to our Commercial Vehicle business. Trade and unit sales are up 11%, supported by Navistar consolidation. The operating result came in at nearly EUR 1 billion for the first 9 months period, with an operating margin of 3.4%. We saw a significant impact on operating results from supply shortages, higher costs for raw materials and production stops at MAN as well as impairments related to the disposal of sales business of Russia -- of cumulated EUR 0.2 billion. Net cash flow was impacted mainly by payments related to legal proceedings, EUR 1.4 billion, and working capital movements. Our Financial Services contributed to deliver strong results and reported an operating result of EUR 4.2 billion. The Q3 operating result was burdened by impairments related to Financial Services business in Russia of around EUR 0.4 billion. Contracts remain stable, while used car business positively contributed. Looking at our JV business in China. Q3 improved significantly, driven by improved chip availability and boosted by the government stimulus. However, the quarter still was impacted by heat wave and regional COVID resurgences. The proportionate operating profit of our JV business in Q3 came in at EUR 1.2 billion, driven by pent-up sales. We continue to thrive in 2022 for higher Chinese proportion operative profit than in 2021, depending on the further development of the pandemic and semiconductor supply. Now let's come to the outlook for 2022 and to make it short, we confirm outlook from H1 in major material aspect. However, we now expect our deliveries to customers to come in on similar level as prior year. This is mainly due to limitations in our production driven by the supply chain constraints. Revenues are expected to reach the upper end of the range between 8% and 13% due to the continued positive mix effect on pricing. We remain confident to end up at the upper end of our margin guidance between 7% and 8.5%. Reported net cash flow is expected to stay at the same level as in 2021. However, this depends on the ability to transport and deliver the Q4 production to customers and also on the timely completion of processing and settling of the corresponding invoices. We are determined to reduce stocks as much as possible by year-end. However, this will be challenging since we are holding a buffer of critical parts and expect a certain amount of newly completed vehicles awaiting specific semiconductors also at the end of the year. Ladies and gentlemen, we are focused on the financial steering of the transformation. Let me give you a brief glance on where we stand on some of these topics at the end of 9 months. In Q3, we sold 149,000 BEVs, reflecting a total share of 6.8%. Our year-to-date share is now 6%, especially in Western Europe, we continue to hold a strong order bank above 350,000 vehicles. [ Our E ] Group continues to hold the #1 position in Europe, demand for ID.5 is above our expectations, and ID. Buzz shows great customer response for both cargo and people variants. In China, the Q4 e-tron was also well received. In China, we are currently at 113,000 BEV units, and still see our year-over-year target of up to 180,000 units in reach, reflecting the continuous increase in BEV deliveries in Q3, we have our 7% to 8% full year target firmly in site. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 our overhead cost program. We achieved our 2023 target of minus 10% cut in overhead cost already in 2021. So far, we are able to largely compensate inflation on the fixed cost side. However, there are first evidence that fixed costs are surpassing prior year's level driven by higher energy prices. To compensate for that, we will intensify our efforts. Stringent capital deployment and synergies across brands stay on our top priority. In the first 9 months, the R&D expenditures within the Automotive Division increased to EUR 13.8 billion due to a significant development activities for future BEV models and software technologies within CARIAD. At the same time, the group spent around EUR 7.2 billion on CapEx. CapEx ratio is at 4.3% with the retooling of the MEB in our Emden plant, Hannover and Chattanooga being one of the major drivers, increasing worldwide MEB capacity to close to 1.5 million cars in 2023. Further CapEx expenditure in Q4 can be expected relating to our new Audi plant in China and for a new electric platform PPE at Audi and Porsche. Our forecast for R&D, as a percentage of sales is 8%, while we now expect our CapEx ratio to be around 5.5%. This shows clearly our focus to compensate for higher R&D for BEVs and our software stacks with CapEx discipline. With the Porsche IPO, we pursued the successful and at the same time, one of the largest IPOs in Europe in a challenging environment. Looking at the proceeds from the Porsche IPO according to the exemplary deal value. In total, we will receive gross proceeds of EUR 19.5 billion. Our shareholders will participate via a special dividend of EUR 9.6 billion. It is planned to be paid out at the start of January 2023 based on the resolution of the Extraordinary General Meeting, which will be held on coming December 16. Funds of more than EUR 9 billion that will stay with us, will play a vital role in financing the acceleration of the transformation, in particular, in supporting the development of our own battery business within PowerCo. We expect a safe and sufficient supply and efficient supply of batteries to be a key differentiator in our industry. PowerCo will be a key decisive competitive advantage in the future and will make a significant positive contribution to our business. Ladies and gentlemen, let me finish today's presentation with our steering metrics, in our view, the key of successful in managing the transformation. Based on a very convincing product range, our brand groups performed well in a challenging environment. At the same time, we continue to drive forward our key platforms. Within all value drivers, we achieved good progress so far, BEV sales are significantly up year-on-year, and we are in sight of our share overall sales target for the full year. The joint venture between CARIAD and Horizon Robotics to develop ADAS demonstrates a further step in software strategy. For China, the partnership between PowerCo and Umicore further enables our BEV strategy. And our realignment of MaaS/TaaS will allow us to optimize our development of solutions for autonomous driving. We have achieved strong operating results across all brand groups and our Financial Services business, despite tough conditions. Based on a very sound balance sheet and a robust net liquidity position, we continue to transform Volkswagen towards electrification and digitalization, keep focusing on integrity and ESG and continue our path of decarbonization for a planet worth living on. Ladies and gentlemen, I'm aware that you're anticipating an event in Q4 as part of our regular reporting that would usually cover 5-year planning round. After careful consideration, we have decided not to hold this event in November. We are facing a different economic reality than in the time when we set up the framework and assumptions for the planning round. This has to be reflected in our plans, which takes a little bit more time. We will, for sure, give you an update by March 2023 during the annual press conference and in detail in our Capital Markets Day in Q2 next year at the latest. Thank you for taking the time and listening so far, and now we are very much looking forward to answering your questions.

Thank you, Arno. And now we are opening up the question-and-answer session to our investors and analysts. [Operator Instructions] And I think I see the first question coming in here from Tim from Deutsche Bank.

It's Tim from Deutsche Bank. I would have two questions, please. The first one is, Oliver, we're generally hearing a lot from you about independent of the brands, potential equity stories, IPO drills, all of them. At the same time, obviously, group holding like yours only really makes sense when you can reap synergies out of those product at customers will directly see. How do you intend to balance the independency versus the synergies? Where do you see the biggest synergies, and in particular on the software side, you were absolutely heading for a lot of independence in your previous role as Porsche CEO. Is that still the case? And then secondly, when we think about the BEVs, arguably, in particular on the mass market side, they are not very impressive versus the competitive offering. You may have the 800-volt charging infrastructure. The Chinese peers put a lot more tech into these vehicles. Do you believe you need to step up your game there substantially? Can you do that in the current cost structure? Or there are no need to find money elsewhere?

Okay. May I start, Tim. Thanks for your questions. And first of all, to explain a bit what is my idea to steer the group. At the end, our customers are focused very much on brands. And our brands have got the biggest priority. And there is in between brand autonomy and synergies in between the group. Our group has got the responsibility to manage the synergies in between the brands and giving a KPI framework, what is our expectation as an investor for the brands. And therefore, organizing synergies, it's all about platforms. We have scale effects more than any other automotive company in the world with the scale effects in between our brands. And therefore, we have a very special platform program, I mentioned before in my speech. And when it comes to software. We have the unique opportunity to share software platforms. Once and they are being ready, it's easily to copy from one product to the other. And that's the responsibility of the group to manage it. When it comes to our brands, it is important to have a clear footprint in terms of design, when it comes to brand identity, product identities, but also the financial footprint. And therefore, that was my experience of the last month, that was Porsche IPO, is building a virtual equity story for all brands, focusing on the right things, having a clear strategy, which is also attractive for the capital market. And so I think we have exactly the right balance in between the steering model from the group and empowering our brands with entrepreneurship. And at the end, exciting our customers, what is the most important issue. Coming to your second question about our BEV footprint. And therefore, I established with my top 10 program, also a technology initiative, which is focused on our platforms but also on the technology footprint. And therefore, we have a clear analysis, where is our competition today, where will be our competition in 5 years, and then to leverage what we have to do in our different platforms to have the right positioning for the future. And I'm very confident having started this process and with the experience we do have in our brands, we will be able to do so. And the expectations of the customers in the different regions of the world are different. And therefore, we need to offer the different ecosystems for our customers in the Western and the Eastern world. And when you look at China, the expectation, especially from the younger customers, is totally different. They are very technology focused. And so we will have there also the right approach together with my colleague, Ralf Brandstatter in China. We know what we have to do. We are very confident that we will be able to do so and counting on our experience in the [ Hella ] group.

Do you believe you can achieve these improvements with the budget you have set yourself so far? Or do you feel there is a need to spend more money?

Yes, that's about us, and that's a big advantage we do have are the scale effect. And with an intelligent platform strategy, where we share our technologies in between the brands, we will come to a positive cost structure. We have already shown it in the last years, in the crisis years, when you look at the corona year, at the semiconductor year and this year, we are faced with several crises. Still, corona issues, supply chain issues and geopolitical crisis. We are coming of a position of strength, and we will be able to do so, and benefiting from our very positive scale position.

Tim, I would like to do one more aspect or add one more aspect to that topic. If you look at the BEV sales, we mustn't forget that we are heavily supply constrained. We sit on the order bank in Europe, only of 350,000 BEVs that shows the huge success of the MEB cars in Europe and also the great customer response and the product substance. And if you look at the, for example, the response to the ID. Buzz or other cars, so they are very well received in the market.

Looking at the list, the next one is Patrick Hummel from UBS.

It's Patrick from UBS. First question for Oliver, please. Regarding your comment about the virtual equity stories that your brands will be elaborating. Looking at the Porsche IPO, it's been hugely successful for Porsche AG and congratulations, by the way. But looking at VW's share price, it hasn't really helped. On the contrary, you now have an even larger sum of the parts discount in the Volkswagen shares. So I wonder, when it comes to elaborating these virtual equity stories, do you also think about different ways of crystallizing the value, for example, via spin-offs rather than minority IPOs? Any thoughts on that would be appreciated. And the second question, I'm not sure, if that's for Oliver or Arno. I'm a bit confused by the order comments, we hear also from your organization, order intake has been slowing in Europe. We hear from dealers that the situation in Europe looks pretty difficult these days including cancellations. So could you maybe just comment on the development of the order bank? Where do we stand at the end of the third quarter versus the end of the second quarter?

Yes, Patrick. Thanks for your questions. I would like to start with your first question and then I hand over to Arno coming to the virtual equity stories. And that was my learning effect from the last months preparing the Porsche IPO. Coming from the investors' perspective, with all these questions from an external, it brings you to a situation to focus more, to unleash the potential of your brand. And that was a big part of the success story of the Porsche IPO. And then I came to the idea, why not start a process with virtual equity stories to sharpen the profile of each of our brands. And coming to your comments that the value of the whole Volkswagen Group hasn't yet benefited from the Porsche valuation. But I think the Porsche IPO shows the potential we do have. In Volkswagen Group, we still have a conglomeration discount. And I think when we will be able, with the virtual equity stories, to crystallize more the value of the whole brands and then decide where is potential for the future, maybe to bring other units to capital market. It isn't decided yet. But there, we are coming to a preparing process where the capital markets will also benefit. And I think, on the one hand side, it is a good exercise to improve the profitability of each brand. And on the other side, to crystallize the real value of Volkswagen Group. And so I think the Porsche IPO was a perfect role model, and the effectance in the market, we can see right now that the development during the last 4 weeks only was over 20% of the shares of the Porsche in difficult market conditions. And so I'm very confident that we will go this part with all the other brands and at the end to improve the value of the whole group. And it's a positive signal for the capital market.

Patrick, I come back to your question on the order bank and on the situation. We said -- I said before in a huge order bank, it's about 6 months in Europe, and the 6 months equals to 1.9 million cars. And if you ask for the development, it's really difficult to judge because from today's perspective, we don't have really a significant change in order entry. There are some slight decreases in order entry. But look, some of the cars are really sold out not only for 2022, but for example, the Q4 e-tron has basically a pipeline of 18 months. So of course, if you are basically have so long lead times, they are like first customers who say, look, this is rather long. On the other hand, not even all the channels are fully open because, I mean, it's pretty clear, and you would support that in a time where we don't have enough savings and enough capacity, we would concentrate on the more like profitable channels. So for the time being, we are not worried about order bank or order entry so far.

Thank you, Patrick. And moving to the next question, José from JPMorgan.

It's José from JPMorgan. A couple of questions, please. Oliver, how do you think about CARIAD strategically for the -- for this year and for the coming years? On one hand, we've got a substantial negative earnings contribution in the P&L to the extent offsetting the profitability generated across some of the brands. On the other hand, it is vital and strategic for the group. So can you just help us understand a bit better whether you're planning to reduce the losses maybe in the coming quarters? What's you're thinking here, especially also in the light of the other announcements we've seen on software and autonomous cars across your competitors? And second, Arno, can you speak a little bit around the pluses and minuses when we think about the fourth quarter versus the third quarter? What are the positives and key negatives we should think about in the light of your confidence to hit the upper end of your margin range guidance for 2022?

José, may I start with your first question about CARIAD? First of all, it was the completely right decision to go for our own operating system for the Volkswagen Group, only thinking about the scale effects, we do have in -- and our group. To ramp up, a company like this cost efforts. That's very clear all over the world, also in other industries. And we are tackling the problems and it's not a secret. And it was discussed a lot in the media about the issues we do have in CARIAD. And now we are looking ahead what we have to do. And therefore, I started an initiative from my first day on -- in Volkswagen Group to focus on the core competencies of CARIAD, on the one hand side, to define very clearly the interfaces we do have in between CARIAD and the brands to optimize them, and then to build a clear partnering profile for the different generations of software in CARIAD. Besides of this, we are close to finish a clear picture, what content do we want to connect with which generation of software, what will be the starting time for which generation, and then we built and rebuilt our cycle plans with this approach. And beside of this, we already started some optimizing processes in between CARIAD's, optimizing tools and organization. And now we are in the middle of this optimization process. We continue to invest heavily in software. And we will have on the scale effects once we are able to make the application to the product. And we will be in the market in 2024 with the first products with the software generation 1.2 and developing this generation even further for a lot of other products coming in this decade. And a further step will be the 2.0 generation, especially prepared well for the autonomous driving issue when it comes to Level 4 driving. Both generations are perfectly prepared for the market. I personally have driven the cars from Audi and from Porsche with a software generation 1.2, and I'm very confident that we are hitting in the middle of the market and our customer needs. And so we will improve step by step by CARIAD's and having the right footprint for CARIAD for the future. And then, I hand over to Arno to your second question.

José talking about the fourth quarter, and let's start with what you've said already. We are quite confident that we can end at the upper end of our margin guidance. I think it's best to describe the fourth quarter in terms of our EBIT bridge. Look, the first bucket, volume price mix, clearly will be a positive from the volume side and we plan to keep on our current path in terms of mix and pricing. We have a great track record there so far and we want to keep that part. There might be a slight deterioration in terms of country mix. Once we have more cars available throughout the world, yes, we also want to sell some more costs than in, for example, Brazil or other countries. But in general, pricing and cost -- pricing discipline and mix discipline will stay volume positive. We don't expect major changes on the currency side and derivatives. We will -- we expect from today's perspective, a significant higher burden on the material cost on the product cost side. You're aware, we communicated a minus EUR 3.7 billion cost so far. You shouldn't be surprised if that goes up to EUR 6 billion for the full year. And there is also a slightly higher burden on the fixed cost side, specifically due to energy and other topics. But again, there will be a significant positive effect on the volume side. You can see that on the run rate already in the end of Q3. And also, we see the run rate already in October and we will make our like -- we will continue our path on the fixed cost side and cost discipline. So overall, despite the headwind on product costs, we are quite confident. Not in the EBIT bridge, of course, is our FinCo. But there, we see also clearly positive signs that I think they guided so far, the result of EUR 5 billion. We shouldn't be expected -- it shouldn't be a surprise if that goes more like to EUR 5.5 billion and beyond.

Thank you, José. We move on to Horst Schneider from Bank of America.

It's Horst here From Bank of America. Maybe first of all, a question for Oliver. When you talk about your future strategy, in an interview, you've said that you want to stress the strength of product, and by strength of product, you want to gain back market share. That sounds to me a little bit like a volume strategy that you want to run is less focus on costs. Gaining back market share that takes, of course, time because model developments take time. So what you intend to do in an environment, which is getting maybe more recessionary, would you be prepared to step up the cost cutting? And in that context, again, I know that you have got your CNG only in 2023, but can you at least confirm all targets that have been set by your predecessors before? So Arno, a question on full year guidance again, and I want to hook up to the question that José has asked. When I do the calculation, then basically, your revenues should go up by something like, I don't know, at least EUR 5 billion quarter-on-quarter, 15% year-on-year. You made last year in Q4, a 9% in operating margin. You guide now imply for just 8%, despite your revenues are strongly up year-on-year. I understand the calculation about the product cost, but don't you think that your Q4 -- implied Q4 guidance is still rather conservative? If it's not conservative, doesn't that mean as well that you have put a cost problem because the cost at the moment increased much more than you originally planned?

Horst, I would like to start with your product question. And products are the focus of our company and therefore, and very clearly, products are one part of my top 10 program. This starts with the right product strategy, then the design approach to sharpen the profile of each brands with brand identity, product identities, then having the right level of technology and the quality profile, which we already kicked off and that at the end, coming to the financial profit margin of our products and they're having the right footprint for each of our brands. That's the content, how we are driving this process. And it's not about only focusing on volume, and I think very clearly, my priorities. First priority is profit margin. The second one is operating profit. Then the third one, the sales revenue. And on the fourth level is coming volume. And that shows you how we are focused. And talking about the cost situation of our products, we are in good conditions because of our scale effect benefiting from our platform strategy. And so we think with the right shape of our platform strategy and product strategy at the end, focused on profit margins, we will prepare the group for future success. And then handing over to Arno.

But Oliver, you confirm all targets for '23 and '25? Sorry for that.