Good morning, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on both the telephone and the Internet to our Q2 results conference call. We are very happy to have with us today Ola Källenius, our CEO, and Harald Wilhelm, our CFO. In order to give you maximum time for your questions, Ola and Harald will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Mercedes-Benz IR website. Now, I'd like to hand over to Ola.
Thank you, Steffen. Good morning, everybody, and welcome. In Q2, we demonstrated as a company resilience in a challenging environment. The global supply chains were influenced by the semiconductor shortages, the war in Ukraine, as well as renewed COVID lockdowns in China. At the same time, we saw strong demand across Europe, U.S., and China with very high order backlog, which is due to the semiconductor shortage. The lower sales in some markets in Q2 are only driven by availability restrictions. We stay vigilant towards the macroeconomic and geopolitical developments. However, we think we have good reasons to be cautiously confident. We expect the high demand in relevant markets to continue for us also in Q3 and Q4. The semiconductor supply remains the main operational issue, which we're working with our suppliers on.
We have, I believe, the most attractive product portfolio ever, and several key products are going to hit the market also in the second half. One good example is the EQS SUV, which is in ramp up. Let's have a look at the key figures of the second quarter. Whereas we had slightly lower sales volume, we increased revenue on a group level by 7% and the EBIT by 6%, which means that the group EBIT adjusted amounted to EUR 4.9 billion. The free cash flow of EUR 1.4 billion was lower than previous year, but this was influenced by higher working capital as a result of the semiconductor shortage. Harald will go into more detail on that.
Our net industrial liquidity is sitting at EUR 19.1 billion, and this is after we paid a dividend in the second quarter of more than EUR 5 billion. Now, one topic that is discussed a lot in Europe is gas supply. Whereas Mercedes-Benz is a global company, Europe faces some risk in some scenarios of potential gas supply bottlenecks. All our operations are running stable currently. Of course, we have been working on our resilience. We have already reduced our gas consumption by 10% while maintaining full operations, and we have put together plans to be able to reduce gas consumption by up to 50% in Germany. How are we gonna do it?
First of all, in some cases, we will be able to replace gas with green electricity. By the way, this is our long-term goal anyway towards the path of CO2 neutrality. We will increase process efficiency across our operations, and we can also, in some cases, replace gas with fossil fuels. We are preparing ourselves for scenarios and of course, working very closely with authorities to make sure that these scenarios, if needed, can be put into operations. If I go over to Mercedes-Benz Cars, what are the key messages for this past quarter? Despite a semiconductor-induced 7% drop in deliveries, revenues at Mercedes-Benz Cars were up 8% and adjusted EBIT up 20%.
I think we're proving from quarter to quarter that our strategy is on track. The profitability in this quarter is driven by positive net pricing, a very healthy product mix. Our focus on profitable growth is certainly paying off. As I mentioned, we have a very attractive product portfolio. We launched the new GLC, which is one of our top sellers. Also, the new EQE sedan has started sales, so the product offensive on electric vehicle is continuing, and we're now in production ramp-up of the EQS SUV that will launch soon.
On the technology side, as you know, at the beginning of the year, we presented a research vehicle that we call EQXX, which drove 1,000 km on one charge with a battery size that is equal to what you would find in some of your vehicles on the road today. Efficiency gains on this vehicle has been phenomenal. We took it for another ride and actually upped the ante to 1,200 km. Some of these technologies that you see in EQXX, only a couple or three years from now, you will see some of those technologies in serious vehicles. We're also investing into our people. We know that as part of this transformation, we need to train and re-qualify our people for an electric future, for a digitized future.
We have put together a plan in this decade to spend EUR 1.3 billion in training of our staff and making ourselves future-ready, future-proof. We also had an event in May where we talked about the profitable growth side, economics of desire side of our strategy, what we're gonna do to our product portfolio, and how we can make the company more successful and more resilient for the future. We have also had one change in our management on senior level. Hired Paul Gao as our new Chief Strategy Officer, who has very deep understanding not only of the automotive industry, but also the Chinese market and the Asian market, and that is where much of the growth lies in this decade to come.
Continuing with Mercedes-Benz Cars, we have also worked on preparing our production network for our all-electric portfolio. What we're focusing on here is both efficient, but also flexible scaling of the next generation electric vehicles across all our plants. The models for entry and core luxury will be produced in our Kecskemét plant in Hungary from 2024 forwards. The Bremen plant will manufacture cars based on the MB.EA platform. AMG .EA will be built in Sindelfingen. The MMA platform, which will be the first of these three architectures, will be produced in Rastatt. The battery systems to be supplied by the global network follows the assembly plans. We are really now future-proofing our production network.
If you continue with a look at top-end luxury and electric vehicle sales, while the total sales decreased, xEV sales increased by 7%, and Mercedes-Benz battery electric vehicle sales increased by 134%. We see strong demand in all segments of our EV portfolio. Until June, we received more than 33,000 orders, that is, for the EQS and 28,000 orders for the EQE. Sales are on track for the fiscal year 2022. However, in Q2, both battery electric vehicle plug-in hybrids, as well as top-end vehicle sales were impacted by chip supply constraints.
Even if we try to direct this, in some cases, if a specific chip is not available, it can hit these production numbers as well. In terms of the battery electric vehicles, the Shanghai lockdown also impacted one of our suppliers on tier two, which makes a component that literally goes into every single plug-in hybrid and BEV. We were a bit lower on that than we had planned in Q2, but we're looking to change that dynamics in Q3 and Q4 and increase production, both on the top-end vehicle side as well as on the battery electric side, vehicle side. Mercedes-Maybach is going from strength to strength with a new sales record.
With that, I would like to hand over to Harald, that will give us a deep dive on the numbers. Harald?
Thank you, Ola. Will do. Hello, everybody. Let's have a look at the numbers, page eight for cars. Well, I mean, sales were down by 7% due to semi and COVID lockdown in China. Revenue up by 8% thanks to pricing and mix. ASP rose by 9% to EUR 70,000. Just a reminder, we calculate that number without the BBAC sales volume, without the BBAC parts-by-parts revenues, and without Smart, as we introduced during our CMD. The EBIT adjusted up by 20% to EUR 3.8 billion, and also the EBIT adjusted up 18% compared to second quarter 2021. A special word on China. In that challenging Q2 environment, we have been able to minimize the impact on Mercedes-Benz main operations in China. Our wholesale in June rebounded significantly and surpassed May by more than 40%.
We also continue to achieve a strong pricing premium. You see that, the mix as well was very healthy, with the S-Class achieving a double-digit growth year-on-year, and also on the Maybach, we achieved, I mean, the best-ever sales for the first six months. Overall, we maintain a strong position in the luxury segment in China, and we'll be bringing the most desirable cars to China's market, including the NEVs. Further on to page nine, the EBIT walk. The bucket volume structure net pricing increased significantly by EUR 1.4 billion. Obviously, the volume impact, I mean, is negative, but at a low three-digit million figure, I mean, that means that structure and net pricing are both significantly positive.
Net pricing is a result, again, combining further reduced discounts and the list price increases, which we mentioned, I mean, in the first quarter. Net pricing is the strongest contributor in this bucket. In the industrial performance, we see higher raw material costs and some one-time commodity charges. In the second quarter, I mean, again, we were successfully compensating raw material costs and inflation by strong net pricing. On the fixed cost development, we continue to I mean strict discipline. In the others, we see a positive valuation effect from the discounting of the non-current provisions and some negative valuation effects from some participations. Overall, EBIT adjusted and booked at around EUR 3.8 billion, return on sales of 14%. On the cash flow, page 10, see it reported EUR 2.4 billion, adjusted EUR 2.9 billion.
Working capital charge was EUR 1.2 billion. We continued to build unfinished semi-finished inventory and products consciously in the second quarter. Why? That will provide opportunity now for the remainder of the year, both in terms of margin as well as in terms of cash flow. Not only that the number of inventory went up, but also, meaning the mix, that means higher structured good margin vehicles coming off the line in the second half of the year. We now have achieved, with the second quarter, the turning point in terms of the inventory. Financial investments of EUR 500 million, chiefly due to the ACC investment. The investments overall in PPE and in intangibles are balanced with depreciation.
Again, you can see that we demonstrate our targets of cash conversion. In the other line, you see the adjustment on the BBAC result between the at equity result and the divi, which we cashed in in June. On the adjustments, you see the usual legal restructuring as well as the ACC investment. On the van side, market demand also for vans was strong despite the constrained semi supply situation. Unit sales were at prior year level, in particular in the U.S. market, where we had the best ever Q2 sales of the Sprinter and the Metris in the U.S. The double-digit margin reflects a healthy mix and especially also on the pricing in the van segment. We are progressing as well on the electrification of the vans with EV sales in the quarter, I mean, doubling.
Furthermore, I mean, in the remainder of the year, we will add the EQT and the eCitan to the portfolio. On the financial side of the van, page 12, sales up 2%, revenue 12%, and you see a good mix and pricing in here. EBIT adjusted flat at EUR 414, and decent cash generation 11% up. Page 13 on the bridge for the van side. The buckets, I mean, volume, structure, net pricing is significantly up by EUR 230. You see, in particular, net pricing at work here, but also, I mean, the mix favorable. The industrial performance is negative, same elements as on the car side, higher raw material prices, and some supply constraint related inefficiencies in the production.
Furthermore, we have increased R&D spend for the EV transition, and here you see the investment in the eSprinter as well as in the new VAN.EA architecture. The others are mainly effects in connection with the discounting of the non-current provisions, same as for cars. With this, EBIT adjusted is at EUR 4,414 million, return on sales at 10%. On the cash side, page 14, working capital charge of EUR 160 million. Again, also here, I mean, increase of new vehicle stock. Same thing related to semi, but pretty well balanced by higher level of trade payables. Depreciation and amortization impairments, I mean, are higher than the net investments in PPE and intangible assets. That is chiefly due to cyclical investments.
In the full year, the net investments are expected to increase as guided due to the progress on the EV transformation. Further on to mobility, page 15, the new business volume has been impacted also by the supply constraints, semi-related. We see a lower penetration rate, I mean, due to a higher level, I mean, of competition in the financial services business as well as increasing interest rates. Some solid used car prices and inflationary developments motivate, I mean, more customers to cash buys rather than to lease. Despite the increase in interest rates, interest rate margin remains stable. Net credit losses remain very low, but the weakening macro outlook results in an increase of the cost of credit risk, which we had to take into account in the second quarter.
Furthermore, we realigned the mobility joint ventures with the divestment of Share Now, which we completed recently. On the financials, page 16, I already mentioned in the new business decreasing by 18%, also related to the truck spin-off, the supply bottlenecks and the lower penetration rates. The portfolio increased by just 1%, mainly due to FX and the U.S. dollar, and the adjusted EBIT decreased as expected. Let's have a look on that a bit more in detail on the next page 17. You see that the return on equity continues to be on a healthy level of 17%. How could we get there? The interest rates, the interest margin remained stable. Last year, we had a release of credit provision in the second quarter and no need to build up credit provisions for new acquisitions.
In this quarter, we had a regular credit provisioning. Despite the actual credit losses staying very low, we factored in the weaker macroeconomic circumstances and that caused some risk provisioning in the second quarter. Furthermore, the lower volume of business due to the truck spin-off had an impact on the margin in the second quarter. For the full year, performance should stay at a healthy level, but normalizing as we guided for already at the beginning of the year. Page 18 on the group side, cars, vans, mobility, I already explained before, so leaves us with the reconciliation. Slightly positive. That includes the at equity result from Daimler Truck, which is partially offset by the depreciation of assets from the PPA.
Some further effects from the deconsolidation result of Mercedes-Benz Mobility activities related to the spin-off of the S-Class phase two. The EBIT adjusted at the group level at EUR 4.9 billion. The adjustments of EUR 317 related to diesel and to the M&A effects of the Mercedes-Benz Mobility phase two I just mentioned before. Net debt, EUR 4.6 billion. On the cash side, page 19, same thing on the EBIT I explained for cars and vans leaves me with the income tax reflected already at the beginning of the year that the cash taxes would go up significantly compared to 2021 level. Obviously, higher earnings and lower offset settlement tax, less carryforwards have an impact. That means that the second quarter cash taxes amount almost to EUR 1 billion.
The other reconciling items mainly include centrally processed one-time payments. Without, the free cash flow of the industrial business is at EUR 1.4 billion. On page 20, net liquidity, and we ended the quarter with EUR 19.1 billion. The cash flow obviously was positive with EUR 1.4 billion, as we debated before. That includes also the investment of close to EUR 500 million, chiefly related to the ACC investment. In particular, we paid the dividend of more than EUR 5 billion in May. Others is related to positive, in particular U.S. dollar effects. The NIL is at a very strong and comfortable level. Healthy liquidity, good in these times, good for resilience, good for flexibility, good for optionality. Now, let's turn to the outlook. Page 22.
On the divisional guidance first, please read the assumptions on the chart carefully. The macroeconomic and geopolitical conditions continue to be characterized by an exceptional degree of uncertainty. A key factor contributing to this is the war in Ukraine, with its effects on supply chains and the availability and the development of prices for energy and raw materials. Further effects due to the rapidly changing situation in Russia and Ukraine are not currently known, and have not been taken into account in our key figures, but could possibly have substantial negative consequences for our business activities should it escalate beyond its current state. In addition, the continued very high inflationary pressure for consumers and companies and the associated central bank increases in interest rates, as well as ongoing bottlenecks in global supply chains, make the outlook more difficult.
Not least, for the further course of the pandemic, in particular in China, holds uncertainties for the expected development of the market. Especially in those volatile times, one is well advised to have all senses and all warning indicators activated. We are vigilant and ready to act quickly if necessary. Production planning and sales planning go hand in hand. We have shown every quarter since the start of COVID in Q1 2020 how to do this. Despite the macro risk, we see healthy and high-quality demand for our products for the second half of the year in all of our core markets, and we have solid order books. This healthy demand is driven by our strong product portfolio that is further developing during the course of the year. We continue to see demand being above supply. What does it mean for our Mercedes-Benz Cars guidance?
We expect sales in H2 above H1, and therefore continue to expect sales slightly up in the full year as supply constraints ease slightly. On the return on sales adjusted so far year to date, we have achieved around 15% returns on sales adjusted. It is clearly our ambition for H2 to continue with this H1 run rate with all levers that are in our hand on top line and on cost. However, with respect to the current macro uncertainties, we want to be prudent and assume a general market environment protection. Overall, our guidance for return on sales adjusted for the full year is now at 12%-14%. Let me shortly walk through how we get from H1 to H2. Price and mix expected to stay on a high level. Top-end luxury sales grows more than 10% confirmed for the full year.
Cost targets are clearly set, so you see the strategy execution is at work. Headwinds we expect from material costs. The already mentioned higher R&D expenses, as well as some effects from the used car business, are assumed to result in around a 2% RoS point negative effect in H2 compared to H1. Additionally, as mentioned before, the current macro and political uncertainties, we continue to assume a general market environment deterioration. This could be, for example, further raw material increases or inflationary trends. Our target is clearly to compensate these by net pricing, as demonstrated in the H1, and we will continue to do so in the remainder of the year. Cash conversion rate for cars unchanged, 0.8-1. PPE is now significantly below, as you can see in the performance of the H1.
R&D for cars now significantly above, basically due to the investment in M&A and AMG. EA. On the vans division guidance unchanged, sales remain slightly above 21, with a return on sales of the H1 of 11%. We also see in the second half of the year some increase in material cost and a bit of a mix and as well a general market environment protection. Full year guidance confirmed at 8%-10%. Investment in PPE and R&D significantly above, unchanged, and the cash conversion rate also at 0.6-0.8 is confirmed.
On mobility, the adjusted return on equity is in the range of 16%-18%, in line with previous, I mean, outlooks and predictions, due to the margin headwinds due to higher refinancing cost, expected lower contract value, volume, and normalization of cost of credit risk. If we look at the group KPIs for the guidance, page 23, what does it mean? With a strong net pricing and the mix, we now expect the revenue significantly above 2021, and that also means with a strong H1, we increase the group EBIT guidance from prior year level to slightly above. As well as on the free cash flow for the industrial business, we change from slightly below to prior year level.
Bear in mind, please, the higher cash taxes in 2022 compared to 2021. On CO2 emissions, we remain at prior year level. With this, back to you, Ola.
Thank you, Harald. What are our strategic priorities for this year? First and foremost, scaling EVs. We did increase our BEV sales significantly in the first half of the year, even though, as I mentioned before, we were held back by one supplier constraint associated with the COVID lockdowns in the Shanghai area. We plan to accelerate in H2, and we want to have our global XEV sales to be more than 25% up versus 2021. In that number, every second EV sale should be a BEV. In 2021, it was every third. We are also gonna continue our path towards profitable growth, our sharpened focus on business model and product portfolio, as we presented to you in the Economics of Desire event in May.
We will accelerate our efforts in car software, and we will give you an update in Q4 on what we're doing there and how we're coming along with MB.OS, which is scheduled to hit the market with the MMA architecture. Needless to say, on the operational side, it's all about alleviating supply constraints. We have already made several contracts directly with chip makers, so we have started the process over the last 12-18 months to make deep sourcing in the semiconductor space. As I mentioned, semiconductor constraints will continue throughout this year and most likely into next year as well, so it is and remains our main operational challenge. We will not let down on cost. We will focus on this.
We are on track as far as our fixed cost targets for this year, but we cannot take the foot off of the gas there. We have to stay vigilant. All in all, Mercedes-Benz is withstanding headwinds, and at the same time, we will accelerate the transformation. The key is an excellent team. I wanna take this opportunity to thank all of my colleagues for their outstanding work around the world, and now I'm looking forward to your questions.
Thank you, Ola, and thank you, Harald. Ladies and gentlemen, you may ask your questions now. As always, the operator will identify the questioner by name. However, please also introduce yourself with your name and the name of the organization that you are representing before asking your question. A few practical points. Please ask your question in English. As a matter of fairness, please limit the amount of questions to a maximum of two. Now, before we start, the operator will again explain the procedure.
If you want to ask a question, please press zero and one on your telephone keypad. To remove the question, please press zero and two on your telephone keypad. Again, for a question, please press zero and one on your telephone keypad and zero two to withdraw.
The first question goes to Tim Rokossa from Deutsche Bank.
Yeah. Thank you very much. It's Tim from Deutsche Bank. I would have two questions, please. The first one is on demand and the second one on supply financials. Firstly, we've now heard from a couple of OEMs that they actually start to see their order intake being down year-on-year. Can we just confirm that the right interpretation of what you guys just said is that you don't share that view? You really see no impact on your order intake from all the macro problems of which there are ample out there. How long does the order backlog carry you now? Do we always talk about Q1 2023?
Secondly, when we think about supply and financials, Harald, given what you just said is the right interpretation, that from the working capital relief, which is primarily top-end vehicles, as we understand, or at least to a large degree, we should see a very strong free cash flow generation in H2. I know you want to buffer for macro headwinds, and you want to buffer for the pricing, but obviously, commodity prices have started to go down already. Would you rule out that there's the situation where you see in Q3 or Q4 a margin that is actually above the Q2 levels if everything works out the way that hopefully does? Thank you.
Tim, I will start with the topic of demand. Yes, it is true that we see healthy demand across all main markets as we sit here today. One thing that we looked carefully at was what's going to happen to China after the Shanghai lockdown. Of course, if a large part of your dealers for a couple of months are closed and people can't leave their homes, you had this dent in China in April and May. But as we saw back in 2020, once it opened up in June, it swung back up again to a very healthy level. Whereas we're not oblivious to what's going on on the macroeconomic front, inflation, interest rates, we're watching this. We will be vigilant, and we will watch how this develops.
We have strong demand now, and maybe it's also an effect of being in the third year of, should I call it, artificial constraint. I mean, the COVID year 2020 and now almost two years of semiconductor. So there must be an effect sitting in that as well, combined with a very attractive product portfolio and all the new battery electric vehicles that we launch. It's impossible to say exactly how long the backlog would last because you have to divide it up between build to order and build to stock markets. For the second half of this year, we don't believe that demand would hold us back. The main constraint for the second half is semiconductors and not demand. I hope that answers your question.
Tim, on the second half-year trading, well, I mean, as we said before, I mean, we had 15% the first half of the year. It's clearly ambition to keep that run rate going. If we see opportunities, I mean, definitely we'll try to catch. I mean, the top-end vehicle, I mean, is one of these opportunities in the second half of the year as a meaningful part of the inventories, all of the vehicles sit in inventories. From that side, I think you understand what our ambition is, but we want to be realistic, therefore we anticipate, I mean, what we can see. We still see an increase in the material cost and the R&D, and we expect some softening on used car side.
I mean, that's what I mean labeled in the kind of a 2% I mean RoS dilution in the second half of the year. It brings you from 15%-13%. Then I mean a general I mean risk contingency, which I think in this current environment I mean is good to assume. We did that at the beginning of the year in the first quarter. I think I mean worked out pretty well so far, I would say. You understand that we are somehow protected, but I would not rule out upside opportunities.
Very clear and very impressive. Thank you.
We continue with José Asumendi from JPMorgan.
Good morning, José Asumendi from JPMorgan. A couple of questions, please. Can you talk a little bit around DRIVE PILOT, what it means for you, in which regions have you implemented DRIVE PILOTs? And what could this mean in terms of, you know, in terms of earnings, for you in the coming quarters or just in terms of the reception you have received on the option to on the vehicle? The second question, Ola Källenius, you're enjoying, I think, a very strong pricing power across the whole business. Obviously, this is a result of your success in the products, but also the industry incentives are very low.
How does it work for you to protect this pricing power in an environment where your competitors could start giving higher incentives? Do you have in mind the level of inventories you want to keep across regions? How do you think about production returning to these pre-pandemic production levels?
The DRIVE PILOT, especially now the Level 3 feature, is in the German market as we speak in the S-Class and the EQS. Kudos to the technical team for taking this very important step. We're looking at also getting this in technology introduced in the United States, preferably by the end of this year. I look at this as one step on a longer journey. We know that autonomous drive, assisted driving, is one of the most attractive features that is coming with the technology breakthroughs that we see, you know, better sensing technology, more computing power, artificial intelligence-based software stacks. It's just one stepping stone on a longer journey that will continue throughout the whole decade. You cannot pick it out now as one driver for a specific profitability in one year.
As I look at this from mid to long term, can ADAS, assisted driving be a contributor to both revenue and profit pools as we develop the technology? Definitely, yes. I think this is one of the things that we'll talk more about when we meet later in the year to talk about our software strategy. With regard to pricing power, even before we got into this semiconductor constrained situation where demand sits above an artificially constrained production, we had already taken measures on our second pillar of our strategy that we call profitable growth, to not chase volume, but to chase value. Look at sales channels, look at contribution levels on the individual models, and make sure that we go to market in an intelligent way so we can grow profitably.
I think the core to maintaining this, even if supply constraints should ease, is to have a very healthy balance between demand and supply and not get into a push mode where you are then driven by incentives. To be able to do that, we got to work on our fixed cost. That's the whole point of adjusting your production network to a position where you can also have robust profitability, maybe at a little bit lower volumes. It all ties together. In general, we can say that our strategy of profitable growth and a thoughtful go-to market approach will remain regardless of the semiconductor situation.
Thank you.
Thank you, Ola. Thank you, José. We continue with Patrick Hummel from UBS.
Yeah, thanks. Good morning. It's Patrick from UBS. I will not follow up on demand because it really seems like you're very positive and confident on that point. Let me focus on some headlines regarding the German EV subsidies. There were some media articles yesterday about a reduction of the BEV subsidies and a complete phase out of the plug-in hybrid subsidies. I'm just wondering because you know, if there's a timeline now for the reduction and a volume cap, this could create a kind of a rush situation. You're like everybody else, I guess, just supply constrained. I wonder how much flexibility you have on the BEV side when it comes to pull forward effects and things like that, and how that could affect your mix.
Specifically for the plug-in hybrids, of course, as you mentioned, you still have every second car in XEV being a plug-in hybrid. I would assume Germany is one of the biggest markets for plug-in hybrids. How does that change perspectives for the PHEV segment beyond the end of 2022? My second question is on battery sourcing. There have been lots of headlines from your peers about, you know, own gigafactories about big raw material contracts.
If you can just shed a little bit more light, in terms of your timelines and how things are going with ACC, how much of the raw materials you've actually already procured, directly, just to get a better feel, because that seems to be a mission-critical area, and I feel others are a bit more transparent than Mercedes. Thank you.
Yeah. Thank you, Patrick. Let me just say this as a general statement with regard to EV incentives. That is a very heterogeneous picture across the world. Literally every market has their own scheme. You cannot put together your strategy in general terms based upon any one incentive scheme. This path towards eventual full electrification remains firm, no matter what happens on the incentive side, in a market here or there. With regard to being able to pull forward, it's really a supply constraint situation. We will of course build as many as we can, but it's down to the semiconductors. Beyond what I already said, the expectation for the second half would be, I don't think we can do anything more than that.
I did mention that we had one hiccup with a supplier in Shanghai that kind of pulled us back. We're ramping that back up now. The second half will be bigger than the first half. An additional pull forward in this year would not be possible. Germany, as the biggest market in Europe, is now overlooking its incentive scheme. We don't think in general that it will change the momentum. One thing not to be forgotten, which I believe they have not touched, is what the Germans call Dienstwagenprivileg. I wouldn't even know what the English translation for it is.
In essence, it is if you have a car as a company car, you pay a certain percentage tax every month on the value of that car. The benefit both for the BEV and the plug-in hybrid for that category, as far as I understand, will remain. Since we have a relatively high amount of business cars, so people driving their Mercedes as a business vehicle, this will stay and will benefit both the BEVs and the plug-in hybrids beyond 2022. On battery sourcing, we're making good progress. As you know, we have a range of partners that we're working with, primarily Asian partners. Now with ACC and that deal closed, as you know, we will have a European leg to that stool.
All of those ramp-up plans are proceeding as planned. With our Asian partners we are moving production for the European production of those cells to Europe, and you will see announcements for this. There will be a regional strategy on battery cell manufacturing. The raw material sourcing is a worldwide strategy that fits to the regional strategy, but you cannot procure the raw materials in each region separately. Together with each supplier, we look at the raw material supply chain all the way down to the mine for the world, and on battery cells, it will eventually be region for region. Some of this we have made public, some of it we have not made public, but you can rest assured that we're looking at the whole picture for all of our plants across the world.
Thank you, Ola.
The next gentleman in line is George Galliers from Goldman Sachs.
Yeah. Thank you for taking my question. Firstly, I wanted to start with the gas situation. It sounds like Mercedes as a company is making good progress in reducing your gas consumption as of today and also with respect to the midterm plan. Could you just maybe give us your thoughts on where your supply chain sits? Are there any key components such as foundries or paint shops where it's just simply not possible to completely substitute gas? I think with the semiconductor situation, what we've learned is production is only as good as the weakest link. The second question I had was with respect to the top-end vehicles. You mentioned that you expect growth of 10% year-over-year, which I think would equate growth of around 20% in the second half. Is that aligned with your expectations?
Had it not been for the semiconductor shortage, where could top-end penetration have been in Q2? Would it have been materially above the 15%? Thank you.
With regard to gas supply for the supply chain, since the beginning of the war, there have been regular meetings between German industry and the German government to look at scenarios for gas and other things. You're absolutely right. Even though we have put together a very healthy and resilient plan for Mercedes-Benz, it only works if the whole network works. There is a constant information exchange between industry and the German authorities that will organize this.
In fact, they're also planning for the month of September to introduce something like a marketplace where you can then trade your gas, your previous gas demand, if you have been able to reduce towards other industry players that may not have as large reduction plans as we have. The government is preparing for different scenarios here to make sure that the overall industrial system is robust for Germany. I think we have to live with some level of uncertainty because we don't know exactly what's going to happen. From what I can observe, every single company in Germany, but not only in Germany, has this very high on the agenda and is working on it.
The fact that we have been able to put together a plan where we can reduce up to 50%, I think is proof that a large industrial group, as ours, if we can do it, other people can do things as well. We cannot take the uncertainty out of the equation, but I believe everything is being done to make sure that we prepare ourselves for different scenarios. With regard to top-end vehicles, yes, it is true that our plan is to sell 10% more top-end vehicles on an annual basis compared to last year. Full stop.
Maybe, George, I mean, some frustrated demand, definitely, I mean, on some semiconductor-related supply constraints, I mean, look at the Q2 on G-Class, I mean, on some of the Mercedes-AMG products, that's sitting there as frustrated demand, and that definitely means this is what we expect to deliver in the second half. Don't forget about, I mean, EQS SUV coming in the market, I mean, in the second half of the year, the SL coming to market. Great product line, which is going to fuel the growth in the second half of the year.
Great. Thank you.
We continue with Daniel Roeska from Bernstein. Daniel, are you with us? Okay. I cannot hear Daniel at the moment. The next lady in line would be Dorothee Cresswell from Exane.
Yeah. Hi there. It's Dorothee Cresswell from Exane. Thanks for taking my question. The first one is around BEV profitability. Could you comment on the profitability gap between the EQE and the E-Class, both relative to the EQS and the S-Class, and perhaps also in absolute terms? My second question is just around your BEV strategy in China. Can you remind us which BEV products you'll localize in China going forward, and in how far any of those products will be specifically tailored to local tastes? Thank you.
Maybe Dorothee here, I get started on the first one. Well, now, another, I think, healthy quarter of EQS sales. We said that EQS margin, I mean, starts to be healthy. It's maybe not exactly on S-Class level, but sitting here at the middle of the year, I think it's not too far from it, which I think is good news. More or less the first quarter of EQE, so let's be a bit prudent and careful here, but at the point, I think we said that EQE margin, I mean, is at the level of E-Class margin. Maybe there's a good level of competition ongoing now between EQE and the E-Class, and the early ones are already running a bit ahead of the E-Class.
With regard to China production, we are in the process of preparing for production of the EQE sedan in China as well. Next year, we will also launch the EQE SUV in China. As we have mentioned in a previous event, in the midterm, we're also looking at the specific model for China based upon that architecture. We already have today the EQC, EQA, and EQB in production.
With that, the next gentleman in line is Stephen Reitman from Société Générale.
Yes, good morning. A question about your BEVs. You're showing obviously some strong technical progress, particularly EQXX, in terms of technologies. I'm just wondering how that's translating as well in terms of customer perceptions and your customer acquisition. Could you comment on what the customers who are buying your EQS, EQE portion that are new to Mercedes are you actually now taking customers potentially away from the leader in the EV space, who doesn't seem to be spending so much time on their higher-end model, but is more going for a volume strategy? That's what I'm interested in. Thank you.
The customer reception on this EQS and EQE have been tremendous, and we are looking forward to the EQS SUV as well. In terms of what those cars deliver already in range, efficiency, also technology, of course, some spectacular features like the Hyperscreen, we have received very good feedback. I would say a good start. Some of those technologies will come in the MMA and MB.EA platforms. But we always, when we introduce new technology, we kind of look up and down. When facelifts come up for the architecture on which the EQE and EQS is based, you can expect us to not sit on our hands there, but also act accordingly.
We will keep the vehicles competitive and fresh and make sure that the technology gains that we made that they proliferate across the portfolio. With regard to conquest potential, it is absolutely true that the EQ customers is not 100% substitution. Yes, we are also gaining new customers through these vehicles.
Thank you.
We continue with Tom Narayan from RBC.
Hi. Yes, Tom Narayan, RBC. Thanks for taking the questions. Actually, both of them are follow-ups to questions already asked. On nat gas, a follow-up to George's question. Just to understand, are you guys confident or just more, or just hopeful that nat gas issues, as it relates to the supply chain, won't be a big obstacle for you? And then on battery chemistry, a follow-up to Patrick's question. You know, some OEMs lately have really been pushing, it looks like LFP chemistry, especially given shortfalls in nickel and cobalt supply in the coming years. How open are you to switching more aggressively to LFP chemistry? Could you switch to this easily?
I suppose with what you've demonstrated with the EQXX is you could use nickel and cobalt chemistries and use less metals relative to range performance, but just love to hear your thoughts on LFP. Thanks.
For gas, I would neither want to use the word confident nor hopeful because there is a level of uncertainty. We don't know exactly what's going to happen. I think the word is resilience. We need to work on our resilience. We, as Mercedes-Benz, certainly have prepared ourselves, and we believe other companies are preparing themselves as well. I think that's the only thing you can do in this case. I also very positively have to see this European solidarity, even countries that are maybe not directly affected by that particular supply chain, that Europe comes together here and says, "We're gonna solve this problem together," I think is a very good sign for Europe. There will be a level of uncertainty that we can't control, but we will continue to work on our resilience.
Battery chemistry strategy, LFP, we believe, will experience in the coming years also a bit of a renaissance. There is interesting developments on the performance of the LFP technology. As we have already stated, LFP is also on our technology map going forward. We will have both NMC and LFP in the midterm.
Thank you, Ola. We continue with Charles Coldicott from Redburn.
Hi guys. Thanks for taking my questions. I've got two, please. Firstly, elsewhere in the industry, we've seen some car makers already start to react to the slowing economic scenario, by going further and faster to reducing costs, including even reducing headcount. Is that something you're looking at as well? Can you go further than the 20% fixed cost reduction? My second question was just on currency. Obviously, given the move we've seen in the value of the euro, what are your expectations for the impact of currency in H2?
Yeah. Thanks, Charles Coldicott. On cost reduction, I mean, we set out that ambitious target of a 20% net year-on-year reduction between 2019 and the middle of the decade. As you can see, I think we're doing good progress on that one. At this juncture, I think, I mean, keeping that target in an environment which is driven by lots of inflation and inflation risk moving forward means just that you need to step up significantly, I mean, the effort to make it right. If you have an inflation rate at 7%-8%, maybe it's not running over four or five years, but I mean over some time, that is just an incremental level of challenge. We're taking that one on board.
We're not commenting specifically, I mean, on headcount reduction targets, but definitely in the area, I mean, of white collars, that means that when there is a need for, I mean, headcount reduction in support of these fixed cost, I mean, reduction targets. It's not the only thing. It basically reinforces and requires each and every function and area in the company, I mean, to enhance, to digitize, and to improve. That plan remains, I mean, unchanged in terms of its objective. Again, the built-in ambition is sitting at a higher level due to the inflationary trends.
On the FX, yes, I mean, given, I mean, the U.S. dollar environment, also the RMB and Turkish lira went a bit the other direction, but there is an upside, I mean, potential on the other side. We're already pretty well hedged for the full year 2022. Maybe there's a bit more opportunity sitting there for the outer years, 2023 and beyond, as we would try to catch these opportunities in the markets.
Thank you, Harald. The last question goes to Philippe Houchois from Jefferies.
For having me on the call. I just wanna ask, I was intrigued by Harald's comments earlier about having a good net cash position is good for optionality. You volunteered that comment, and I'm just wondering what you have in mind.
Well, I think it's not the first time that we've been talking about that in terms of.
Mm-hmm.
Our focus on cash generation. I think that's exactly the way we'll take it forward also, I mean, in the second half of the year. I think, however, current environment in terms of macro uncertainties don't make it that I think we can be more specific about it. Definitely, I mean, we see cash generation ahead. We see no obstacle in terms of cash generation, I mean, also for the future. We basically see the strategy delivery being funded by the free cash flow. That means without any incremental or further measure, I mean, the net cash position, even by application of the current dividend policy, would continue to grow and grow. I'm sure you will come back therefore with more questions.
I mean, what else could we consider? That's what I meant by saying there is optionality.
Well, if I can follow up on that, what is your view about having control of your joint venture in China? One of your competitors has, and do you think that is something that would be positive for your business case?
We have a very, very strong partnership in China that works quite well. Should anything change there, we will let you know.
Thank you.
With that, ladies and gentlemen, thank you for your questions and for being with us today. Also, thank you very much to Ola and Harald for answering the questions. Now, as always, Investor Relations remains at your disposal to answer any further questions you might have. To all of you, have a great morning, great afternoon, great evening, and we look forward to talking to you soon. Thanks and goodbye.