Volkswagen AG (VOW3) Earnings Call Transcript & Summary

A very good morning, good evening or good afternoon to everyone from every from wherever you have dialed in, and welcome to our investor and analyst conference call following yesterday's announcement of the Supervisory Board approval of the group target picture 2030. With me today are Oliver Blume, our CEO; and Arno Antlitz, our CFO, COO. Our agenda is straightforward. Oli will guide you through the agreement and the core elements of the group target picture 2030 followed by a Q&A session. And with that, Oliver, I'll hand it over to you. SP629595711 Yes. Thank you.

Thank you, Rolf, and hello to everyone on the call. Thanks for joining. Let's come directly to our update. As you know, over the past years, Volkswagen Group has made significant progress across products like in design concepts quality, technologies, software, ADAS or regions like China and of course, our performance programs to strengthen our financial portfolio. At the same time, the environment around us has fundamentally changed. And as a result, measures and structures that were sufficient in the past are no longer sufficient today. This is not only about Volkswagen Group. This is affecting the whole industry. But at Volkswagen Group, we decided to act timely and comprehensively. To master the challenges in our environment in the industrial transformation, we must make Volkswagen Group more competitive, faster, simpler and ultimately, we must take -- make Volkswagen Group stronger for the long term. There's no alternative, and there is no time to waste. This exactly is exactly what the Volkswagen group target picture 2030 is about. Our group target picture is not a simple cost reduction program it's far more than that is our plan for the future, a comprehensive transformation plan for the Volkswagen Group. Our plan combines 12 initiatives across 3 core areas: technology, performance and steering. Together, these initiatives address all key dimensions of our future competitiveness from products and technology platforms to operational excellence and organizational effectiveness, governance, portfolio management and regional growth opportunities. This is what we, as a Management Board presented to the Supervisory Board yesterday. And following intense but constructive decisions, the Supervisory Board approved the group target picture 2030 and most importantly, with no ascending road. This is a strong sign for the future of Volkswagen Group. The changes in our industry require decisive action, and they require a comprehensive transformation of our group. Between the Management Board and the Supervisory Board, they a shared understanding of the challenges ahead, and there's a shared commitment to address them. Our common objective is clear. to make Volkswagen Group and its brands stronger, more competitive, more effective and better positioned for the future. Implementation will now be driven jointly by the Executive Board of our brands, our subsidiaries and our employee representatives because lasting transformation can only be achieved together. The group target picture is built around a clear financial framework. Our planning assumptions reflect the realities in our market environment. an annual sales volume of 9 million vehicles is a premise for our future structures and cost base. Without additional far-reaching measures such a market environment in the long run would not allow us to generate sufficient returns. Our ambition is clear by 2030, we target an operating margin of 8% to 10%, assuming flat volumes and revenues. This is equivalent to an operating profit of about EUR 31 billion in the midpoint, as a result of our measures, we would expect overhead costs to be reduced to a level of EUR 37 billion, down from EUR 48 billion in 2025 and the current planning round and equal to 12% of automotive revenues. Investment spending will become significantly more focused and disciplined. We agree on an investment plan to selling EUR 135 billion for the 5-year period from 2027 to 2031. And another step down by about EUR 30 billion compared to the current planning round. This framework creates the foundation for sustainable value creation and long-term financial strength. Let me now quickly guide you through the core elements of our future plan. A key element is significantly more focused product portfolio and a consolidated technology footprint. By 2035, we will have streamlined our model portfolio by around 50% and reduced component variety by 75%. At the same time, Volkswagen Group will have systematically tailored its platforms. electric electronic architectures, ADAS and software and concentrated them to the end to the needs of each Western and Eastern Hemisphere. This is not a story about doing less. It's a story about focusing on what matters most. The prioritized models aim to axle in design and technology and win in the markets. by concentrating resources on fewer, stronger products, we will increase scale, reduce costs, improve efficiency and accelerate innovation. The result will be better products for our customers, stronger brands, and sustainable value creation. Moving on to our production network. Our markets have changed structurally. This is true, in particular, for our home market Europe. Our objective is straightforward, establishing a production structure that is competitive on a sustainable basis. As a consequence excess capacity at Volkswagen Group of more than 500,000 vehicles must be addressed. This is acknowledged by the Supervisory Board. Based on current cost structures, a competitive future production allocation for the [ BMB -- Annika ], Hannover and [ Nakasone plant ] cannot currently be secured on a stated basis from '31 to 2034. Within the next 6 to 12 months, the plants have the opportunity to develop sustainable and competitive concepts and cost structures. There is no restricted to the Antonio Hannover and Nakasone plant, but a task for the whole production network. In parallel and in addition, alternative uses for these 4 plants are being assessed. Operational excellence is one of our key value creation levers within the group target picture. The objective is not cost reduction for its own sake. Our objective is to build a faster, leaner and more competitive Volkswagen Group. Across R&D, procurement, production, quality sales and admin functions, we see significant opportunities to simplify processes and improve speed and competitiveness. As part of the plan, we will also establish leaner leadership structures with clear accountability and shorter decision-making path, a group-wide performance and incentive system for executives will further strengthen accountability, both for individual results and for the collective performance of the group. And beyond the programs already underway, including 50,000 positions in Germany and an additional about 20,000 globally what we agreed already in '24, further adjustments to the group's global workforce capacity will be required to achieve the objectives of a transformation and safeguard Volkswagen's long-term competitiveness. According to the analysis underlying the future plan 2030, a group-wide workforce adjustment of approximately 50,000 positions will be necessary and implemented including a reduction of management roles by 1/4. Our transformation also requires a sharper way of steering the group Volkswagen's future organization must be faster, simpler and more accountable. We therefore intend to strengthen clear responsibilities, reduce organizational complexity and accelerate decision-making. Which of this, the Supervisory Board has provided the Executive Board with a mandate to develop a model for valve decision-making and leaner group structure. The portfolio of shareholdings and business businesses will be assessed even more rigorously. We will retain only various with a clear strategic and financial contribution to the core automotive business. nonstrategic activities will be divested or realigned. The group target picture also defines a clear regional strategy. Europe is our home market and our ambition is to strengthen our leadership position. In China, our objective is equally clear. We want to remain the #1 foreign automotive manufacturer. We achieved this we're consistently implementing our in-China for-China strategy and increasingly leveraging China as a technology and export hub. In North America, we are resetting the business for profitable growth. This includes a stronger localization strategy, a sharper product focus and a more targeted regional approach. We will present the details in due course while executing differs by region. The principle remains the same everywhere. Local markets require local solutions. At the same time, local scale must be leveraged wherever it creates competitive advantage. This chart at the end, summarizes the group target picture 2030 across all operational and financial categories, products and technologies over operational excellence, the group governance. It highlights the major milestones and KPIs we aim to achieve. In short, 9% margin, EUR 31 billion operating profit with 9 million vehicles sold and with an investment budget of EUR 135 billion. Volkswagen Group aims to be the leading global automotive tech driver and a consequent implementation of the group target picture will be the key enabler. We have unique strengths to achieve this ambition, iconic brand that excites, competence that leads and scale that wins. The group target picture transforms these strengths into a clear road map for action. We are focusing on our automotive core. We are simplifying structures. We are accelerating decision-making and we are investing in the technologies and products that will define the future of mobility. Ladies and gentlemen, the agreement and the approval of the future plan 2030 by the Supervisory Board mark a decisive step in the transformation of Volkswagen Group. It's in an important signal. We are taking responsibility for the future of our group, for our people, our partners and for industrial value creation worldwide. But let me be very clear. This is only the beginning, the real work starts now. On the other side, we can build on a strong track record Think of our comprehensive plan presented in June 2023 in our Capital Markets Day, our top 10 programs implemented since then and, not to forget, the December 2024 agreements of VW, Audi, Porsche and Carrier. With yesterday's resolution, the future plan 2030 moves into execution. measures already underway will be pursued with full consistency and the next steps will be initiated immediately. Where agreements with employee representatives are required, we will involve the responsible bodies and enter to discussions promptly responsibly. The Executive Board will overtake responsibility for implementation with clear governance, clear accountability and the necessary pace. Supervisory Board will remain closely involved and will be regularly updated on progress. Together, we will make Volkswagen Group stronger, more competitive and better positioned for long-term success. With this, thank you very much, and I hand back over to Rolf again.

Thank you, Oli. In all the -- my useless -- useful recklessness, I forgot about to point out the disclaimer on Page 2. Please read it carefully to yourself as it covers today's presentation. And talking about staying lean and efficient organization, we were just reminding ourselves that such a call in the past would have at least required a back office of 30 people. Today, it's only Oli, Arno, Lars and myself. So another proof point actually that we can learn and that we can act efficiently. So with that, reminding you, if you want to raise a question, please press star followed by one andone and then you can qualify yourself for the queue here in the Q&A. And I see the first question coming from Tim Rokossa from Deutsche Bank. Tim, please mute yourself and start with the first question.

Yes. Thank you very much, Oli, Arno, Rolf and Lars. And I think we can forgive you for getting that slide we're all a bit excited today. Let me start with a bit of a statement, please. I want to really congratulate you for getting this approved. I do certainly think that there wasn't a single market participant who believe that this is the base case yesterday. And from what I can judge and hear from investors, it's the right thing to do for Volkswagen for the German auto industry. So congratulations, Oli, Arno and everyone on your team in Volks, but also particularly on the other powerful stakeholders who are not speaking on the call today who understand what does it take here and what needs to be done. And now my 2 questions, please, Oli, I think probably to you. The biggest question is whether the Supervisory Board has now approved something that is actual change or merely kicked off a process for further discussions and potentially problems down the road. Investors will want to understand which elements of the plan are now effectively locked in and would still require further negotiations. If you could clarify that, please? And Arno probably to you. Can you provide us with as many numbers as you can at this point to help us follow spreadsheets and educate investors on the value of your equity. Obviously, it's the beginning of a no negotiation. I'm well aware you can't give us definitive numbers, but any sort of rough estimate what this may cost you? And then also, obviously, when we think about more details on the bridge from today's profitability to the 2030 ambition would be really interesting.

Yes. Tim, and thanks for your questions. And may I start with your first one. Overall, everything is locked in and Supervisory Board joined our proposal. We already presented in July, now with even more detail. And that's about a complete agreement to our proposals and approaches, especially on the KPIs coming from the profit margin, then the FCA of EUR 135 million up to the additional workforce reduction. And also the activities we are driving now with our plans to reduce furthermore, 500,000 units per year as capacity in Europe is following step, everything what we have done during the last 2 years. The only thing where we got a mandate and haven't taken a final decision in terms of the group structure. But this is clear, this requires activities now on tax level, legal levels and financials. This has to be worked out up to the next month, and we will come back in '27 with a proposal for the structure. And important, there is that we have the clear mandate from the Supervisory Board to do so. And summing up, everything is locked into and now it's up to us to realize the majority of the program is responsibility of the board. And there, we have taken already important decisions like the product portfolio is then technologies and so on. And now we are focusing on the points which we agreed together with also the workers' representatives.

Also, thanks, Tim, for your words from my side. Perhaps if you talk about the program, first and foremost, there are elements that are not quantified, but they are at least as important as the quantified ones, for example, taking out complexity, taking out layers become faster, become leaner, and other elements are clear improvement, which Oliver just mentioned under the topic of operational excellence. And under this operational excellence topics, some we need to compensate for potentially negative developments. We expect to 2030 and some will be clear improvement versus today. And having said that, I would like to give you really a very rough estimate how you could think about like a potential very rough EBIT bridge. And Rolf, I think we meet each other in Paris over -- on October 12, and then we're really happy to give a little bit more details. But on a very rough basis, if we start today at about 1.5% margin. That's EUR 320 billion turnover, like let's start with EUR 50 billion, and we want to explain a bridge to EUR 30 billion, so 4.5% to 9%. As we said, we are conservative on the volume or, I would say, more robust, not like as in the past, where we went for volume growth, which for certain reasons didn't materialize. So volume stable. We expect some pressure on pricing. And on the other hand, part of the improvement program will be incentive optimization based on AI and improvements in the area of sales. and others to compensate for that pressure as good as possible. Then obviously, we have some deterioration of mix due to the ramp-up of the BVs. We want to go to roughly 40% debt mix in 2030 Europe from today, roughly 20% to 50%, although the margins of the BBs become better over time, they are still margin-dilutive. And here, we want to compensate from some elements of the program, material cost improvement, quality improvement, obviously, material cost improvement without deteriorating the product substance of the cars and then comes overhead cost. Overhead cost should be a real improvement versus today. We go from 16% to 12% in terms of sales. which is basically driven by the reduction of people in that area, about roughly 50,000 worldwide, half of that in Germany, the other weren't outside Germany. And last element, let's not forget, today, we have some loss-making units, which we are expecting significant positive contributions in the future. For example, Scout, we have framed up costs there. Here, it's still negative, battery still negative, and we expect them to turn at least positive towards 2030, which should bring another 1 to 2 percentage points, and that is basically the bridge from today to 2030 to the 9%.

Thank you, Tim. And the next question comes from Pattrick Hummel from UBS. Patrick, please are mute yourself...

Thank you very much, Rolf. And yes, hi, everybody. And of course, also congrats well then from my side, I was certainly amongst those who didn't expect such a comprehensive agreement right in the first meeting, so well done. Oli, in the Q2 earnings call, I asked you about the EU and PHEV tariffs. Now you obviously produced a lot of headlines that probably raised the sense of urgency in Brussels and elsewhere in Europe about measures to protect the European industry. So I'm just curious in your really high-level thoughts about the meetings you have or will have in the coming months, what we can realistically expect out of Brussels and national governments in Europe that would also back up your restructuring plan? Because if the headwinds of the Chinese OEMs keep intensifying fast, your pressure on the top line might just be way bigger and we will never get even close to the 9% margin because, obviously, even flat sales is quite punchy assumption to take if you look at the breathtaking speed of market share gains by the Chinese. So any color on that, greatly appreciate it. The second one would be for Arno. Just thinking about the charges arising from this exercise. First, you're going to have that 50,000 head count reduction in overhead that's going to come at a cost I'm pretty sure you're not going to give me a number, but am I right in understanding that if and when you take a decision on the future of the plants that are in question that would be a second wave of restructuring potentially required and a second wave of cash out. So just to conceptually understand what we can expect by when? How much more time do you have to take a decision on those plans?

Yes, Patrick, let me start with your first question. And they think we especially as the biggest company in Europe, play an important role also to achieve at the end, better environment solutions coming from the politics. And let me start with Germany. There, I'm personally in a close contact with the chancellor. And his team to think about and decide what has to be done and everything we announced now also situation plants in Germany. I would like to lead this more to a German discussion, German industry discussion what has to be done. And when we talk about cost reductions, we have 3 levels. The first level is our homework, it's efficiency, productivity, where we have to do also workforce reduction, what we have decided right now. Next level is what we have to negotiate with our labor unions, but also with game to tackle labor costs and what we have on the tariff level there. And the third level is what has to be done on a governmental level. And that's what we will deal now to bring this to a conclusion. And there, I'm completely in line also with lower Saxony as part of our Supervisory Board. Now to touch these points, what's necessary for Germany and also other companies at the end, we will benefit I'm also in contact with my colleagues from the other OEMs or with suppliers. That's a German level, we have to do. And we see ourselves there. It's the main driver also for ours. In Europe, also, we aim for a more European focused industry politic, which starts with a made in Europe approach with an obligation to bring investments to Europe is advantages SCN to act in the market. And this is in favor for us with a strong European footprint. It is about a clever tax policy. For example, this is already implemented for the electric vehicles. and the plug-in hybrids are still without taxes for the Chinese. And you can read this clearly, the market share, the Chinese plug-in hybrids have already in Europe over 30%. It has to be done. And the next point is on regulations, CO2 and there we are also in good talks to achieve leveraging for '28 to 2032 as we agreed at the end for the period, '25 to '27, so many, many topics to do different levels, Germany and Europe. And then I hand over to Arno.

Patrick, as you expected, it's really too early to give you a specific number there. It obviously depends on the specific decisions, unit per unit and on -- really on the specific measures. Let's start with the current program. Volkswagen achieved the 35,000 and also that's 50,000 in Germany from the first agreement until June 2026, we achieved 17,000 and also the past to the 50,000 these effects will still come in the next year, and we'll have a positive contribution. And the costs incurred with that mostly based on early retirement programs are already included in our P&L outlook. Just to remind you, it's about 0.5 billion, 500,000 a year in Volkswagen -- alone, we assume for these early retirement programs, and they are part of their outlook and basically also part of the bridge already. So if you talk the next, let's say, 50,000. And as I said, like 50% will be roughly in Germany. The other half will be broad. As you know, Germany, there are several elements several instruments, some are more expensive than others -- retirement programs are not as expensive as severance packages and also abroad, it's normally not as expensive as in Germany is headcount. So it really depends on that. And in terms of the plant, so we said currently, we have currently have no allocation in the planning for these 4 plants. But we still look on in parallel on alternative measures or internal users to use them. And this is also too early then to give you a figure there because depending on potential future uses of these plants, we can also significantly reduce the potential one-off. So yes, I don't want to disappoint you, but as you said, it's too early to give you concrete figure. But on the other hand, we have some examples in the past like Brazil or others. So perhaps you could...

Am I right in assuming Arno that you can't wait until 2031 until basically the product roll-offs begin to take a decision on those plants. That would happen earlier, I guess, much earlier.

We need decisions on this plant earlier. For the time being, we have no allocation. We work on different scenarios. But as you said, if you want to have the additional uses, for example, like the discussion we have on Ozempic. Of course, we have to start earlier. And this is also good news. We are discussing these topics early, so we have a lot of time to find alternative solutions.

Thank you, Patrick, and we continue with Horst Schneider from Bank of America. Horst?

Happy weekend or Happy Friday. I think you are happy. I have got a few questions. Maybe first of all, on what that implies now for 2026. I mean I think your 2026 guidance looks tight at the moment? You also said that it's more likely that you achieved the lower end of the guidance range. So first of all, since we are now here on this call, can you make any statement on this guidance, anything changed over summer. It's more maybe a trading update but then also on the implications of the restructuring, I understand that you cannot give us any number right now. But of course, it matters if you book the costs in 2026 or not, especially in the context of the Evolent disposal. So in other words, you maybe want to use the evidence proceeds to pay these restructuring costs or if that not happens, it could imply then that your dividend is a lot higher. So whatever you can say on that on 2026 would be helpful. Then the second question that I have that is on your volume assumption because you say volume assumption, you took a cautious approach, conservative approach. Your plan with flat sales. When I look at my forecast, I have got 1 million unit less for 2030. So I'm forecasting 8 million units because I expect a bigger decline in China. So what would be the consequence of that? If it's just -- if it's 8 million instead of 9 million, that would force you to trigger more restructuring? Or since it's just China, it's not expensive restructuring. So what if you do not sell 9 million units, what would imply going forward? And also with regard to the press, and that's my last question. We have seen a lot of press rumors flying around the last few days. Is it true that the SSP platform gets again delayed, [ handled ] written that it's now 2029 or mid-2029, which would imply that Audi gets all the great vehicles only 1.5 years later, maybe you can also clean up with that several month.

Horst, may I start and then happy Friday to you to your question on volume. We distinguish in between China and rest of the world. And the China decline we see already are this year. is at equity. And so it does not affect directly our financial figures slightly indirectly, but the main part is that equity. And we see up to 2030, a stable situation in Europe. Also with our product offensive, we are implementing and then opportunities also with cost reductions and our guideline not to increase pricing. So that's stable. And we see growth opportunities in North America and growth opportunities in terms of export from China. So we think with this million, it's more an overall globally orientation, but we have to go into details over the regions, which affects directly our balance sheet. So we think with this planning, our cost structure is robust and feasible.

But Oliver, just on China, since you say it does not matter that much because the JV. But in China, for China, these models are owned by the 100% owned JV by Volkswagen. So it is fully consolidated in the future or not.

You're right. But that is only a part or a smaller part of our business in China beside of our JVs. But you have to take into account the opportunities we do have now as maybe the only international player having this China footprint. We are able to act like a Chinese OEM. And that's what we see now. We expect this year over 10 million exported cars from China. And now our ramp-ups, we are in the same condition like all the Chinese OEMs with the same cost base, it's a technology profile. And this gives us a completely different opportunity thinking for example to the Global South. Australia where the Chinese are already very successful -- also into India. India is protected against the Chinese. It's a kind of hedging than Africa and South America. And also in Europe, some models could fit into Europe as well. Now that's a unique opportunity in terms of that.

Yes, in terms of 2026, the SRS meeting was about the group target picture 2030. So hopefully understanding that we're not talking about today and also, as I said, in terms of individual measures and accounting recognition, it's really too early to add what Oliver said, we did distinguish between China for China and the rest of the world because the topic of capacity and overcapacity, how robust it is of our footprint it really depends on whether we plan for the right volume in Europe and specifically, yes, in South America much more robust than in the past. And yes, China also matters. We have our JV in [ Anhui ] with 4 models, but the majority is still in our -- JVs. And yes, that's a topic there. And I think Oliver, there was a third question in terms of SSP platform.

Yes. I, at least, I don't know any delay. And the point said that our SSP platform, we're making very good progress is directly linked to our activities at within joint venture that we are running on time. This is people at form is running on time. I can -- nothing says about...

But the plan is also made up on the -- from a perspective that SSP comes in '28, there's no delay in model launches. And you also say today that this should ramp up on time as you always said, right?

And the first product, Audi on the Rivian software architecture we are developing together in this joint venture.

Thank you, Horst. And the next one in line is Harald Hendrikse from Citigroup.

Yes. Again, as per my note this morning, congratulations. I'm 100% sure that you are managing this more proactively than I have seen at Volkswagen for 30 years. And so both for you and but also, I think, some credit for the unions and even the politicians, which I mean very low is to give them any credit, but the fact that this has gone through unanimously is huge for the industry for you and to bonus for Germany. Two questions. One, how conservative, Oli, is this plan? Can you talk a little bit more detail? Obviously, we're super concerned about China market share losses. How much market share gains by the Chinese are you assuming? How much of a loss of underlying market share for Volkswagen are you assuming in the plan in terms of total volumes? Obviously, we understand what you're doing with capacity. Pricing, what assumptions are you making on a 5-year pricing view for Europe. All of those questions, raw material prices are obviously going to go up. So we know what all the headwinds are. We don't know 100% clear what you have actually assumed in the plan, and I think that's really, really important, a conservative plan is obviously worth a lot more money than a less conservative one. Secondly, on the cash side, obviously, last year, the cash surprise on the upside, you're talking about a EUR 6 billion annual reduction in CapEx and R&D. The EBIT plan is obviously huge. I'm sure nobody is pricing that in today. But if we add all of this up, we're going to potentially add up to some really big free cash flow numbers. So on the cash flow, maybe, Arno, you can talk about this. What is the target cash flow if you do achieve the 2030 targets. And then secondly, selling all the assets that you have, we've had this conversation in the past, you've just raised EUR 7 billion from Evolent. How much money do you think you can raise from asset sales to further improve the net liquidity and net cash position in the business to provide even more support to the downside?

Yes, let me provide some key figures. As we talked before, starting with a volume, 9 million globally. This assumes about 2.7 million in China without the export opportunities. and 6.4 million in rest of the world. And our cost structures, we will bring to a breakeven point, which is aligned to around 8 million cars and distinguishing the different regions of the world, as I explained before. other framework conditions for our planning are stable pricing without increasing pricing. And then we are calculating with a best growth to around 40% share in 2030 in total deliveries and in Europe, over 50%. And -- then other criteria is that we have in our planning up to now, no change in the CO2 regulation. We will achieve what I answered before this could be a positive effect. Also no change in tariff regime, especially in the U.S. And then another point is linked to our cost portfolio is to invest ratio of sales revenue to fall to 9%. And all these effects bring us to a breakeven situation up to 8 million cars around the world, but focusing especially the rest of the world, which is linked directly to our business case. And then handing over to Arno.

Yes. In terms of cash flow, when we -- you remember back then in Okla, when we present our first Capital Markets Day, we said look there to streams of improvement first margin. And the second is cash conversion rate, which we define basically a percentage of cash we convert from EBIT. And this is really something we still stick to that and we made strategic plan back then, we said we came from more 13%, 14%, 13% and 10% to 11% and then finally, 9% in 2030 on the CapEx combined, and that should lead us to really more than -- almost doubling the cash conversion rate to 60%. So if you do the math, it's -- don't get me wrong, it's still 4 years out, but if you take the target of EUR 30 billion of EBIT, 9% over the sales, you deduct our finco because that's not automotive and you take 60% cash conversion rate. So it's roughly like 50%. This is what we aim for. And we are on the path and you need basically the 2 levels, improved margin. This was more or less EBIT I just said. And then obviously, cash flow and the net cash flow is driven by the upfront investments where we committed to that 9% for 2030. But it's much more than that. It sounds easy. It's more like a huge comprehensive program in terms of more energy in the group. Shortening the model range, taking out duplication of most engines on the technology side. And last but indeed, it's also a cultural change. We really achieved a cultural change on the cash flow as well. Two years ago, we included in the bonus scheme for all the managers, not only EBIT, but cash flow and yes, it worked out quite well last year, and we had also until the first 6 months pretty decent cash flow. So this is basically these are the elements we want to deliver on towards 2030. And I think your second question was what to do -- with how to use these proceeds. And there are always 3 elements. First and foremost, in different times, one element is strengthening the balance sheet. We see some competitors. They have a much stronger balance sheet in terms of net liquidity on hand divided by sales. We have EUR 34 billion, which is really solid, but others are stronger on that, and that obviously also translates into the rating, which is important for [ finco ]. The second element, we always look on the hybrid bonds, what to do with that. And first, obviously, we have our dividend policy with a payout of more than 30%. And so these are the elements, and we will look on the way from here to 2030, how to use this 3 elements.

Thank you, Harald. And maybe one word on the stable pricing. Yes, of course, we know that is a bold assumption, but it meant a little bit norms. So we -- of course, we expect prices to be under pressure -- but what we aim for is obviously to work against that with intelligently steering our tacticals we use -- so we are not ignorant of the fact that, in particular, in the volume business, there will be some pressure on the pricing side. And with that, we continue in the Q&A with Tom Narayan from Road Bank of Canada.

Congratulations. The first one of the comments on the model portfolio, the reduction, I think, by 50%, complexity by 75% by 2035. I guess -- and I know you're still figuring this out, but I mean, where could this be specifically, is it specific brands? And then North America, I think you talked about focusing on the most profitable segments. Is this like a mix thing like SUVs, for example? Or does this mean leaning on certain brands? And then alternative uses for the plants. I know you said you haven't figured this out yet, could this include collaborating with the Chinese OEMs for the use of this plant? And then lastly, focus on core automotive. We do know automakers, notably, Tesla, are investing heavily in nonautomotive or endeavors -- we know you're doing robotaxi. But does this mean you would not consider things like defense, energy storage, humanoid robotics? I know those things may sound kind of science fiction, but [ $1.6 trillion ] of market cap suggests potentially otherwise. Those are my questions.

Yes, Tom, let me start with your question on our product portfolio and to explain all of you how we have handled this -- and all the decisions are -- or most of the decisions are already taken. First of all, we defined some Gordon rules for our brands. what product portfolio should fit for the brands, then we defined clearly in which segments, the brands have to act. Also including lighthouse projects for our brands. And then we decided where to cut derivatives where today we have substitution in some segments to streamline our product portfolio. This is already done, and we know brand by brand, clearly, where to go, the same as options we are offering. And there are key examples we have in brands sometimes like only more than 1,000 variants of seats. And we pushed this down to lower than 100 and the hundreds or thousands of examples what we are tackling right now, the majority is kicked off, but I'm still work to do then come into the regions, also with a very focused product portfolio for the regions. And there we checked the profit pools, especially Utah North America important profit pools already not -- still not played by Volkswagen Group, especially rugged Series and pickups. And there, you know about the activities in scout, but more than this and also that we see opportunity for OEM for Volkswagen, especially to bring cars on non-leather frames very tailor-made for the U.S. as concept, but also at the end, being produced in the U.S. And that's our more regional approach which we started in China for China, but also now more focused in North America for North America because it's an important growth market for us. talking about collaboration with Chinese OEM. My answer is we are a Chinese OEM. And so we don't need any collaboration. What we have done, of course, with hoping in terms of software. But this was only the foundation for our own electric electronic platform. We developed 100% by our own and which we launched already at the end of last year. And for the future, we are a Chinese OEM. Then you touched at the end of your question, growth opportunities. And of course, this is one initiative in our target plan for the future. And there, we have different elements. One element is regional growth. North America, then export from China and also opportunities in India. Second, our services for our customers, like insurance business, also fleet business play a role there after sales and things like this and also to improve the loyalty to our dealer network, which we drive also very close together with our financial services. And the third pillar is about growing industries. And there, we have great opportunities to go into energy storages. We have already implemented in serious production and working first energy storage systems, and this is closely linked to our power core initiatives where we produce our own battery sales. Now that's a great opportunity for us. Then have defense business, what we are doing now first, for example, the plant in [ Osnabruck ], but with more opportunities, you touched robots. There, we have unique opportunities because we have all the use cases in our company and then bringing this to other companies as well in scaling the business. Other opportunities are circular economy, which we already kicked off, which will start in October. There, we have legal requirements on the one hand side, but on the other side, also opportunities for other companies. And then other opportunities or semiconductors also where we see opportunities, only giving you some examples what we are doing in terms of growth opportunities.

Just a clarification, the alternative uses for the plants, and that's where I was talking about the need collaboration, the potential for collaborating in Europe and your plants -- is that something you would consider?

There's no need because we have Chinese products. And when we see the opportunity first as expert, but later, maybe it's localization, we can take our own product. And just remember, up to the end of next year, we will launch around 30 new products in China, especially on the NAV level. There are some interesting ones. We haven't got in Europe. We won't cannibalize European products, but there are segments which are not played by ourselves in Europe. And these products, we will check first as an export and then for localization. And therefore, there's no need to collaboration with the Chinese players.

Tom, I would like to follow up on what Oliver just said, to give you an example and how that translates also into a chance on the mix because we said mix is negative, obviously, product mix due to the BVs. But for example, if you look at U.S., Currently, huge volume is [ cedar ] and towers, which is the entry-level small SUV. And you could imagine you don't need much fantasy that these margins are not great, bringing them from Mexico to U.S. under the current tariff scheme. And so we looked at, as Oliver said, that the profit pools, and we bring this out, which is from our siting perspective, one of the most promising segment and also for brand Volkswagen, it's too early to make an announcement, but also in brand Volkswagen, we move into the segments, which are more promising in terms of margin. And let's not forget, Audi. Audi has a huge product momentum in terms of Q7, Q8 and Q9, which we also targeted to the U.S. market. Yes, from today's perspective, some tariffs, but still with promising margin. So there are a lot of elements that are very concrete to behind that initiative targeting more attractive segments.

Then we continue in the Q&A queue with Christian Frenes from Goldmans.

Hello. Yes, we can Yes. Congratulations to Oli, Arno and Rolf and Lars, for this important announcement. Just a couple of clean-up questions on my part. First of all, your press release talks about 12 initiatives. I only counted 9 bullet points. So were some of those initiatives bundled together in the bullet points? Or are we missing free initiatives?

No. You have to take the overall target picture and the financials. This is important. And then you come to 12.