Hello, ladies and gentlemen, and welcome to the Annual Media Analyst and Investor Conference of Volkswagen AG. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. If you would like to ask a question later on, this is possible via the telephone conference. Please press nine, followed by the star key on your telephone keypad to signal that you wish to ask a question. If you wish to cancel your question, please press nine, followed by the star key a second time. For now, let me turn the floor over to Rolf Woller.
Many thanks, Ulrika. Yeah, good morning or good afternoon or good evening from wherever you, where you have dialed in, and a warm welcome to the Volkswagen Group's Analyst and Investor Conference 2024. With me today here are Oliver Blume, our CEO, and Arno Antlitz, our CFO/ COO. The presentation we will give is structured in three parts. We will start first with Oli, who will provide a brief overview and status update on 2023, followed by Arno, who will guide you through the financials of 2023 and the outlook for 2024. And the final section is then, again, Oli, with what's next and closing remarks. Before we start, let me provide you with a few remarks. You should have received the press release, the annual report, and other related materials, all of which were published this morning.
If you haven't received them, you can find them on our website. In case of any issue, please give us a call or drop us an email, and we will send them straight away to you. Coming to page two, our disclaimer. As a reminder, and as always, the safe harbor language and other cautionary statements of our presentation will govern today's presentation. I would like to encourage you to read the disclaimer carefully, since all forward-looking statements are qualified by this language. In order to maximize our time we have today for the presentation and the Q&A, I will not read it out loud to you. And with that, I hand over to Oli.
Thank you very much, Rolf. We delivered robust results, desirable products, and an effective strategy with a strong focus on execution. The Volkswagen Group is shaping the long-distance race called transformation from a position of strength. This was an extraordinary achievement. This achievement was only possible thanks to an exceptional team. The year 2023 was a real sprint for the Volkswagen Group's more than 680,000 employees worldwide. They are the DNA of our company and shape it with great passion. This is why I would like to start this conference call today, saying thank you to every single member of the Volkswagen Group team, together with the entire executive board. It has been a convincing performance with great team spirit and overall, a strong year. We look back on an inspiring year in 2023.
We have thrilled fans all over the world with new products and exciting anniversaries. We established our 2023 Top 10 program. This program defined our central fields of action, strategically and operationally, with clear responsibilities and ambition levels, with regular reporting on the progress, all of that in a very transparent way. Most importantly, the Volkswagen Group implemented and delivered along the defined measures. We reached our major milestones and took key decisions to our future. We are executing, we are making progress, noticeably and measurably, day by day and hour by hour. The true strength of the group and key differentiator is to be found in the strength of its brands. Our brands fascinate customers all over the world with an unrivaled product portfolio.
This broad portfolio is unique, not only because it offers attractive vehicles in all segments, of which many have been renewed in 2023. For example, the new Volkswagen Tiguan, the ID. Buzz, Passat, the Škoda Superb, the Bentley Bentayga, the Porsche 911 Dakar, the Volkswagen ID.7, and the Lamborghini Revuelto. These are just a few examples of our fascinating product novelties in the year, in the last year. Our products makes a difference. At 9.2 million vehicles delivered to customers in 2023, we were up 12% up compared to the previous year. We recorded strong double-digit growth in Europe and North America in particular. Our deliveries are also increased in China last year, despite a very demanding environment. Our electric vehicles outperformed the strong overall growth in deliveries. With a highly attractive range, with convinced, we convinced our, our customers.
Compared to the prior- year, our BEV deliveries increased by 35% to a total of 771,000 vehicles. In the final quarter of 2023, the share of our BEVs reached 10%. This strong basis and the upcoming launches of some highly attractive new BEV models make us confident that we will be able to grow our BEV share also in 2024. Financially, we achieved robust results in challenging 2023. Our strong unit sales performance resulted in a sizable growth in revenues, which increased by 15% to EUR 322 billion—v olume was a main growth driver, but price and product mix contributed as well. The operating result also improved to EUR 22.6 billion, despite substantial headwinds from valuation effects from raw material derivatives.
Excluding those, the operating profit grew to almost EUR 26 billion and resulted in an underlying return on sales of 8%. During quarter four, in quarter four, we put extra effort on bringing down our working capital. That clearly played off and led to a strong full- year net cash flow to EUR 10.7 billion. As a result, our net liquidity came in at very strong, solid base of EUR 40.3 billion. The strong operating performance translated into an increase in net income of 13% to EUR 17.9 billion. Earnings per share grew to almost EUR 32. We continue to let our shareholders participate in the financial success of Volkswagen Group, offering an attractive investment proposition.
The Group Executive Board and Supervisory Board will therefore propose a dividend of 9 EUR per ordinary share and 9.06 EUR per preference share to the Annual Shareholder Meeting in May. Before we continue, let me briefly revisit our promises we made at the Capital Markets Day in June 2023. We have defined action fields that are aligned with our ambitions and the expectations of the capital market, and we made significant progress across all action fields. For example, our top 10 programs are having an impact. The 2022 results are first testimony to that. We have further strengthened the management team. We developed a group-wide sustainability strategy. With the Audi Q6 e-tron and the new Porsche Macan Electric, we have the first models on the PPE platform ready for market launch. Our battery strategy is right on schedule.
With our mix of combustion engines, plug-in hybrids, and pure electric engines, we can adapt flexibly to customer demand and differentiate from other OEMs. We have a clear plan for Audi and Volkswagen brands. Now we are starting to execute it. In China, we are stepping up the pace with local partners and catching up with competition with our In China, For China strategy. In North America, we are focusing on greater localization and development and production as a basis for a stronger presence. In Europe, our home market, we are operating from a position of strength. Here, in particular, we are concentrating our sustainable value creation. Accordingly, we are adapting production capacity to our core workforce. We have decided on ambitious performance programs together with all brands, and are now focusing on consequent implementation.
In investment planning, our investment planning is oriented towards the most attractive profit, profit pools. Management remuneration is mostly closely aligned with our strategic goals, such as the net cash flow targets. The solid financial result demonstrates the group's potential and gives us confidence to master a challenging year, 2024. Our transformation is based on a robust financial foundation, which at the same time allows to let shareholders and employees participate in the success of the, of the group. Ladies and gentlemen, we started to deliver across all dimensions. Let's summarize. 2023 was a year of restructuring. The cleanup work has been completed. We consistently adhered to our ambitious roadmap by focusing on action fields along the Top 10 program. We reached key milestones and made strategic decisions for a successful future. At the end, an enormously productive year.
In 2024, we aim to stabilize these achievements, further executing on our core decisions in all relevant areas. This will form the basis for an ambitious and accelerated ramp-up from 2025 on. I already provided a glimpse of our 2023 financial results. Nevertheless, it's worth taking a closer look. That's why I now hand over to my colleague, Arno, our CFO and COO. Arno, please, it's your turn.
Yeah, thanks very much, Oliver, and a warm welcome to everyone on the call. Ladies and gentlemen, Volkswagen Group once again delivered robust financial results in a demanding environment. At the same time, we have made further important progress in key areas of our strategy and strongly advanced our transformation. Volkswagen is well- positioned and operates from a strong financial position with a solid operating result last year. I would like to thank all employees who have contributed to these convincing results and to the progress we've made in implementing our strategy. Let's now turn to our 2023 financial results in detail. Vehicle sales came in 10% higher at 9.4 million units, excluding our JVs in China. Vehicle sales advanced even stronger by 18% to 6.3 million vehicles.
This was driven by double-digit volume growth, both in Europe and +21%, and North America, +13%. Sales revenue improved to EUR 322 billion in the full- year, up by 15%. Again, Q4 was the strongest quarter of the year, with EUR 87 billion in revenues. Operating results came in on par with prior- year level, at EUR 22.6 billion, corresponding to a margin of 7%. Excluding the overall EUR 3.2 billion headwind from valuation effects of our raw material hedges, we achieved a return on sales of 8%, exactly at the midpoint of our original guidance of 7.5% to 8.5%, given at the beginning of the year.
We consider this to be a solid set of results in view of the challenges currently facing in our industry and the disruptions in the global supply and logistics chain in the past year. Earnings before tax grew by 5% to EUR 23.2 billion in 2023. Profit after tax improved even stronger by 13% to almost EUR 18 billion, thanks to a lower tax burden. Earnings per share grew by 8%, as minorities increased year- over- year as a result of the Porsche IPO in 2022. The cash flow situation has improved considerably, due to a stronger operating business and an excellent working capital management towards year-end. Net cash flow in the automotive division amounted to EUR 10.7 billion in 2023, which includes a contribution of EUR 5.8 billion in the fourth quarter alone.
Our teams were able to reduce inventories by about EUR 5 billion in the final quarter. Here, too, we delivered on our promise at the Capital Markets Day in June last year. The stronger finish will obviously have implications on our working capital opportunities in 2024, since a large share of our ambition had already materialized in the final weeks of 2023. Clean net cash flow totaled to EUR 13.5 billion, compared to EUR 9.2 billion last year. Just as a reminder, to calculate this KPI, we adjust cash flow for M&A and diesel-related outflows. Automotive net liquidity at a solid EUR 40.3 billion, stood above our self-imposed target of 10% of sales revenue by the end of 2023. All in all, a very comfortable position in an industry in transformation.
Compared to the year-end 2022, net liquidity declined by about EUR 3 billion, mainly as a result of dividend payments to Volkswagen shareholders in total amount of EUR 11 billion. These dividends are truly a proof that our shareholders are participating in the success of the Volkswagen Group. Coming to the divisional performance, passenger cars delivered EUR 14.7 billion operating result, almost on par with the prior- year number. The corresponding margin amounted to 6.7% before special items. This result is actually an outstanding achievement. Thanks to a strongly underlying performance, we were able to nearly compensate the swinging valuation effects of our raw material hedging portfolio in the magnitude of EUR 5 billion. Commercial vehicles continued their positive earnings trajectory and closed the year with a strong final quarter.
Operating results came in at EUR 3.7 billion, which is more than twice the level recorded in 2022. The financial services division recorded an operating result of EUR 3.8 billion, about a third below the prior- year level, which is the result of a normalization of the business after unsustainably high used car price levels in 2021 and 2022. Needless to say, that we took good care of the residual value risks. Let's have a look now at the drivers of the operating result development of our passenger car business. Volume price mix contributed EUR 9.5 billion. EUR 7 billion stemmed from strong volume growth. Mix was slightly positive, and pricing contributed with EUR 2 billion, in line with our value over volume strategy. Exchange rate and derivatives were a significant headwind with a negative EUR 4.8 billion.
This was primarily driven by non-cash effective fair value effects of our raw material hedges outside hedge accounting. Product costs were overall higher at -EUR 2.6 billion in the full- year 2023. However, as expected, we experienced a first relief versus the prior- year in the fourth quarter, totaling EUR 0.8 billion. Fixed costs and other costs increased only moderately. This is attributable to higher R&D costs, the ramp-up of new businesses like battery or Scout, higher wages, and inflation. But these effects were partially offset by a rigorous execution of fixed cost reduction measures, specifically in the overhead cost area. Within the passenger car segment, all brands contributed to the strong top-line growth, to the underlying operating profit and a solid cash generation. Brand Group Core saw a significant year-on-year improvement in operating result, margin, and cash flow.
Strongly increased sales volume in Europe and North America translated into 21% higher sales revenue. The operating result grew by almost 80% to EUR 7.3 billion, and it stands at a margin of 5.3%. Brand Group Core thus took an important first step towards achieving its strategic target, return of 8%. Volkswagen achieved a margin of 4.1%, and we are aware that these margins are still below the margins of some of our competitors. It's specifically noteworthy that Brand Group Core generated a cash flow totaling EUR 5 billion, corresponding to a cash conversion rate of 77%. Brand Group Progressive also improved operating profit on an underlying basis. Reported operating profit was burdened by valuation effects in the magnitude of EUR 1.4 billion, mainly resulting from raw material derivatives.
The underlying margin increased to 11%. The margin of Lamborghini and Bentley of 27.2% and 20.1%, respectively, are particularly noteworthy here. This impressively demonstrates the positive leverage from synergies in the brand group on the profitability of these two jewels. Brand Group Sport Luxury continues its successful track record and remains strong at 80.6% operating margin. CARIAD continued to roll out software to a growing vehicle park as planned, which resulted in a significant increase in contracted licenses of about 30% year-on-year. Losses on operating levels were up on the previous year due to an accelerated effort to secure time to market and quality for upcoming key product launches, such as Porsche Macan and the Audi Q6 e-tron, both presented to the market.
Reported net cash flows to that minus EUR 3 billion, but just as a reminder, CARIAD in H1 had benefited from a EUR 1 billion intragroup income tax refund, so the underlying cash out totaled to EUR 4 billion in 2023. Our battery business continued to make fast progress in the ramp-up of the organization, as well as in the construction of Salzgitter plant, which is progressing according to plan. In the period under review, costs for this build-up and higher CapEx led to an operating loss of EUR 0.4 billion, as well as a net cash outflow of EUR 0.8 billion. We view these upfront investments for our battery activities as an essential prerequisite for the successful ramp-up of the electric vehicle production. TRATON delivered a convincing performance on its promises for 2023.
Unit sales increased by 11%, supported by a continued robust customer demand and improved supply chains. Strong volume expansion, positive price and mix effect, as well as growth in vehicle service, drove sales revenue up by 16%. Operating margin came in at a strong 8.1%, about twice the level of the previous year, and this is in particular, driven by a strong rebound of MAN and Scania's return to a double-digit margin of almost 13%. Net cash flow increased significantly to EUR 2.7 billion. Financial services kept the overall contract volume stable. Credit loss ratio was largely unchanged versus the prior- year, despite a worsened macroeconomic environment. Operating income in 2023 fell by about a third to EUR 3.8 billion, corresponding to a margin of 7%.
This decline reflects a meanwhile normalized business environment with regards to used car prices and provisioning for residual value risk, as well as the higher interest rate levels. Now moving on to our China joint ventures. Thanks to a strong fourth quarter, deliveries to customers in the full- year were up 2% year-on-year at about 3.2 million vehicles. We were able to further strengthen our position in the ICE segment, advancing our market share there. Our BEV sales accelerated their sales momentum, in particular, supported by an extensive cost work and improved product substance. As a result, BEV volumes increased by 22% to 191,000 units, with 74,000 units in the fourth quarter alone.
The proportionate operating result of our Chinese JVs amounted to EUR 2.6 billion, thus holding up well in a highly challenging competitive environment, particularly in the BEV segment. For the full- year 2024, we expect the margined market to remain highly competitive during the transition towards new energy vehicles. Short term, this will adversely affect profitability, and we expect a proportionate operating profit in the range between EUR 1.5 to EUR 2 billion in 2024. Ladies and gentlemen, overall, we delivered a robust performance in 2023. With a convincing plan and a robust financial position, we are well-prepared to master the transformation of our company. Our dividend proposal is evidence for this and our strong commitment to let our shareholders participate in the financial success of the Volkswagen Group.
We will propose a dividend of EUR 9.06 per preferred share to the Annual General Meeting in May, equivalent to a payout ratio of 28%. Ladies and gentlemen, we are looking with confidence and optimism into the year 2024, which brings me to the outlook for 2024. We expect global vehicle sales to slightly increase in 2024. We aim to gain share in the North American region, whereas it is our target to sustain our position in Europe. In China, we expect to consciously give share in a highly competitive BEV environment, in line with our value over volume strategy. Our price mix should benefit from a number of new model launches.
Lower material prices and product costs should favor us in 2024, as well as first positive effects from the execution of our performance programs, not to forget our continuous fixed cost work. What we have to offset is, in particular, the significant ramp-up costs for new models, the continued upfront investments in our battery business, as well as for our fully consolidated China operations, and an increasing BEV share, which is currently diluting our margins. These factors translate into a solid financial outlook in a continued demanding environment. We expect sales revenue to grow by up to 5%. We expect our operating margin, before special items, in a range between 7% to 7.5%. Automotive net cash flow should come in within the range of EUR 4.5 billion to EUR 6.5 billion.
This outlook contains up to EUR 6 billion cash outflow for the expansion of our battery activities, on top of our current core business of today. Last but not least, automotive net liquidity is expected in the bandwidth of EUR 39 billion to EUR 41 billion in 2024, and with that, to stay on a very solid level. With regards to our guidance, it should be noted that our start into the year is expected to be slower. We are currently experiencing temporary headwinds, in particular from a supply constraint at selected Audi models, and a significant amount of new model launches across all brand groups over the coming two years. However, we expect to catch up in the course of the year, specifically in the second half. Ladies and gentlemen, the Volkswagen Group owns a portfolio of some of the most fascinating, strongest, and most valuable brands in our industry.
There's no doubt that strong individual brands will remain a differentiating factor in the future. At the same time, however, we must transform ourselves into a technology and mobility service group. This means that we need to focus on our platforms, such as BEV hardware, unified software stack, battery, mobility, and autonomous driving. The transformation of our company towards electromobility and digitalization requires focused financial steering. On the one hand, it requires a courageous and smart allocation of resources to future topics. On the other hand, we want and will keep our combustion vehicles competitive to ensure the flexibility we need in an uncertain environment during the transformation phase. This task is also reflected in our upfront investment ratio. For the full- year 2023, total R&D expenditures within the automotive division amounted to 8.1% of sales.
On CapEx, the group spent a total of EUR 14.4 billion, corresponding to a CapEx ratio of 5.4%. For 2024, we expect the combined R&D plus CapEx ratio in the range between 30.5% and 40.5%, and we expect fiscal year 2024 to be the peak year in terms of expenditures. Looking further out, our primary focus is on realizing group synergies and the gradual phasing out of upfront investments in our ICE business. This is enabling us to target a lower cumulative spend for R&D and CapEx over the 2025 to 2029 planning round, at the level of EUR 170 billion. We are continuing to invest in the electrification and digitalization of our company. At the same time, we are doing our homework on the cost side.
An improved element of our group strategy is to enhance resilience by reducing group overhead costs. By 2023, compared to 2019, we were able to reduce the ratio of automotive revenues by, in total, 3 percentage points. In an industry that generates a margin of 8% to 10%, this is a significant contribution to the robustness and success of our company, and this is for sure not the end of the journey. We believe there's further room for improvement, in particular from the consistent execution of our performance program across all brands. Ladies and gentlemen, we have a clear plan for the transformation of the Volkswagen Group. We will continue to invest in the ramp-up of our electric platforms and keep our combustion engine vehicles competitive during the transition phase.
We will continue to systematically develop our automotive software stack, and we continue to invest in future-proof mobility services. The priorities for 2024, from a financial perspective, are also clear. In 2024, we must focus on the ramp-up of our great new vehicles, on massively improving our cost base. We must make greater use of synergies within the group, and we need to position ourselves more robustly, regionally. That means implement our catch-up program in China and continue to grow profitably in the US. Thank you so far, and with having said that, back to Oliver.
Thanks, thanks, Arno, for your insights. These results form a strong basis for year 2024, which expected to be demanding in many aspects. Establishing a Top 10 program was a crucial success factor in 2023. Also, in 2024, we will be focusing on clear structures and clear goals. The Top 10 program is and will remain our central management tool with expanded content. It is clear, simple, unambitious, unambiguous, and that makes it efficient. And that is why the Volkswagen Group brands have adopted this logic. It enables us to manage it in a uniform manner and makes our activities significantly more effective. 2024 will be a record year in terms of model launches. We are preparing for the biggest product offensive in the history of the Volkswagen Group.
We are planning with not less than 30 new models across the brands. These cars will electrify and excite customers and fans across the globe. We have already announced the market launch of all-new electric Porsche Macan, the Audi Q6 e-tron, and the Volkswagen ID.7 Tourer. Our focus is also on rolling out further new PPE models on the market. The premium platform for our electric vehicles demonstrate the group's competitiveness. In the upcoming planning rounds, we will continue to focus on the strategic direction of the company. A strong product strategy, the performance program for our brands, strategic investment planning, continued realistic volume planning for the plant, occupancy and management compensation in line with our strategic goals. These measures will have an impact on our results. They are significant growth drivers for cash flow, returns, and sales.
At the same time, they will enable us to actively reduce our investment in the coming years. Ladies and gentlemen, the Volkswagen Group is facing major challenges. It is in our hands to be successful in this challenging environment because the Volkswagen Group has immense potential. We completed the structural cleanup work in 2023. For 2024, we are setting clear guardrails and priorities with our top 10 program. We will do the right things right. We are entering the year of the biggest product offensive in the group's history. 30 new models will be launched in 2024. That makes us confident. 2024 is a foundation for an accelerated ramp-up from 2025. We have a huge responsibility here, and we strongly intend to live up to that for our society, our company, our employees, and the environment.
The Volkswagen Group will deliver reliably, fast, and sustainably. Volkswagen takes responsibility. You can see this for yourself again in April as part of the Beijing Auto Show. We are organizing a Capital Market Day under the motto, In China, For China. The focus will obviously be on our position and strategy on the Chinese market and how we aim to win in the new era of ICVs. This is our clear target that we would like to showcase to international stakeholders, investors, and analysts. I look forward to exchanging ideas with you all. For now, my colleague, Arno, and I look forward to your questions. Thank you very much for your attention.
Thank you, Oli. Thank you, Arno. And just as a reminder, if you want, press nine, followed by star, and we give it a couple of seconds in order to see the queue for the questions. Very good. We start with Tim Rokossa from Deutsche Bank. Tim, the floor is yours.
Yeah. Good afternoon, gentlemen. It's Tim from Deutsche Bank. I would have two questions, please. The first one, Oli, is probably for you. You run an extremely complex business. Economies of scale are very helpful, but speed and agility are completely of essence here. We know you are a big fan of partnerships. Can this mean that you are gonna replace some of your vertical integration and ownerships over time? And in the end, you always use sport analogies. Most football clubs, they don't make their own jerseys, they don't make their own buses that drives them to games. Do you think VW should be as big and complex as it is today in the mid to long run, or rather focus on the core business of producing and selling passenger cars over time? And then secondly, Arno, I guess perhaps that's for you.
On the margin and free cash flow outlook, there was obviously quite a bit of a discussion when the ad hoc came out. Last year, many thought you were too aggressive, now you're probably a bit too cautious. P911 guides for 200 basis points range, your range is much narrower. Why did you decide to only guide for 50 basis points range? And how should we think about the cadence of the development, considering a lot of the product ramp-ups are actually still to come? And the same for key free cash flow. Can you perhaps walk us through the assumptions there? Thank you.
Yeah. May I start? And coming to your question about vertical integration or partnerships, and there we are leveraging in every technical area where it's useful to have a partnership or what is our core competence and everything focusing on the aspect of speed you mentioned, which means a lot to us and is one important driver in the transformation, giving you some examples. In terms of battery, for example, we decided to make a strong vertical integration in terms of developing battery cells and producing them. And there we are aiming a share of around 50% in-house, and 50% together with partners around the world, depending on the different regions of the world, no?
And partners are today LG, for example, or CATL. We have the partnership in China for Gotion, and then we decided to make our own battery factories in Salzgitter, in Valencia, or in Canada. CARIAD is another example in software. And there, as you know, we are working closely together with Apple, but also important are big partnerships. And there we are now in good talks with big partners, having reordered our partner landscape and focusing more on single big partners than in many different partners for remaining speed, but having the power also of this big part partnerships.
Autonomous driving is an example for partnerships in China with Horizon Robotics, Mobileye from Israel, or the Bosch activities for the future in Europe. Or in-car business, deciding clearly in China what we are doing by our own with our platforms, MEB plus PPE, and in the future, the SSP, but also having partnerships with XPeng or SAIC. So, for us, in terms of deciding what we are doing by our own or where we choose a vertical integration, it's about speed, quality, and know-how. And, I think, we can't and we don't want to do everything by our own, and leveraging where we do have the biggest opportunities.
Do you need to build trucks and sell them over time, Oli, if I can ask you directly?
Yeah. Up to now, we are quite successful with our trucks and the profit margin has increased with a turnaround of MAN. I think in terms of complexity it does not slow down our activities in the car business, and we think with a complete portfolio we are well- positioned. What will bring the future depends also a bit on the development of the profitability in our truck group and the share price. But today, I think we are well- positioned with all these being active in all segments.
Yeah, Tim, I take the second question. Yeah, you mentioned several topics, and I start with the notion of being, having been very ambitious last year. Look, there were a lot of discussions about our deliveries outlook, we had. And so on the other hand, the sales revenue guidance, we even overachieved. And looking at the deliveries, I mean, perhaps you realize we didn't even give a guidance anymore, so it's not a relevant factor for us. We gave a guidance of sales revenue, which we think is robust, up to 5%, which is absolutely in line with our value over volume strategy. So we don't want to overpace on the top line, but rather start from with the robust planning.
So, I take this, at least for this part, as a compliment. On the second, if you look at the remaining KPIs, I think 7% to 7.5% is a robust outlook in a challenging environment, specifically with all the upfront investments, with all the upfront costs of. Also, as said, Audi is temporarily having headwind from supply constraint, specifically on six and eight-cylinder models. And so from today's perspective, we think this solid outlook. And coming to the cash flow, I would like to elaborate a little bit on that. First and foremost, you have to take the cash flow from 2023 and 2024 together in perspective, because we were really, really—o ur teams were really successful to ramp down the inventories we have been building up during the year 2023.
Remember, when we had the Capital Markets Day, we said there were, like, bottlenecks in the logistics chain of finished vehicles. And this basically led to a cash flow of EUR 10.7 billion last year. And looking to the guidance of this year or for 2024, 4.5 to 6.5, so let's say an average 5.5 in the midpoint, it looks underwhelming in the first glance. But in that 5.5 billion, it's an, I would say, a number of more than EUR 6 billion year mark for the ramp-up of our battery business, both in terms of CapEx to ramping up the three plants at the same time in Salzgitter, in Valencia, and also in Ontario. And so there are also some funds earmarked for potential M&A or investments to secure raw materials.
So if you theoretically—a nd this is a business we don't have today, so if theoretically i f you add the EUR 6 billion to the EUR 5.5 billion, you add up more like somewhere around EUR 10 billion to EUR 12 billion of net cash flow, and this is a very solid cash flow in for a company in transformation.
Maybe one word on the cadence of the earnings development in 2024?
Yeah, thanks. Yeah, as indicated, due to the model launches and also to the temporary headwinds at Audi as a supply constraint, we expect a rather weaker Q1. You should expect a Q1 also below the guidance corridor we gave. And we are planning to catch up during the remainder of the year with first positive effects or more positive effects kicking in from our efficiency program, and eventually in the second half of the year with the ramp-up of great new models, Macan, Q6 e-tron, ID.7 Tourer. While in the first quarter and also in the first half of the year, we have a major headwind from ramp-up costs from this effect.
Thank you, Arno. Hope, Tim, this has answered your question.
Yeah. Thank you very much.
Thank you, Tim. The next one in line would be George Galliers from Goldman Sachs. George?
Yeah, good afternoon, and thank you for taking my questions. The first question I had was with respect to some of the strategic initiatives you announced back at the Capital Markets Day last year. Specifically with respect to Scout, given the announcements from some of the US domestics around their own EV strategies, as well as the soft sales performance and financials of some of the battery electric vehicle startups in North America, has that led you at all to reassess your Scout strategy, or at least the timing of your investments there? Or is everything still very much as conveyed six months ago? The second question I had was with respect to the M&A, and I appreciate the comments you've just made around acquiring certain aspects like raw materials, which you maybe didn't have previously access to.
But if we look at the M&A, it was more than EUR 2 billion in 2023, more than EUR 3 billion in 2022, and obviously it's going to be around EUR 4 billion this year. Do you think we should really think of M&A as one time in nature for Volkswagen? Or is it actually just part of the strategic investments you need to make, given your scale and obviously the ongoing evolution of the industry? Thank you.
Yeah, thank you, George. We are well aware of the discussion around electric mobility currently in the market, and at least in two major markets, Europe and U.S. But we are convinced the future will be electric, and we continue to invest accordingly. In the meantime, we keep our combustion engine cars competitive to be flexible. So basically, we invest in the last generation, as I said before, but we haven't made major changes on our investment strategy, on our electrification strategy, and also ramp up so far. Of course, we will monitor that closely. This is specifically true for the investment in our battery capacity.
We review whether we need the capacity, specific blocks and specific capacities within these three factories, and at certain points of time, and we are prepared to be flexible there. And of course, we also reviewed the Scout project. In terms of Scout, we must say, look, this is a once in a lifetime opportunity for us to grow in the US. We. For a long time, we had really difficult to enter a major segment, and the C pickup segment in the US is one of the most promising and also potentially, at least from outside in point of view, a profitable segment. And in order to get a more robust, yeah, footprint globally, we really want and need to seize the growth opportunities in the US.
And so this C pickup segment and also D-SUV is in terms of profit pool are the most promising segments. It was really not possible for us to conquer this segment, or hardly possible for us to conquer this segment in the combustion engine world, because we're just lacking scale. And now the segment is turning electric, perhaps not as fast as everybody assumed, but it eventually will turn electric, and this is our unique chance. We have a great brand, we have the technology, we have the capacity for batteries in Ontario, and so we still pursue this fascinating project Scout.
Fine with that, George?
Yeah, and sorry, just with respect to M&A, maybe being—
Yeah
Kind of more of an underlying and continuous part of the investment plan rather than something we should treat as one-off? Thank you.
Yeah. Yeah, George, thanks for the question. Yeah. Look, we of course do not M&A planning for, for, like, 4 or 5 years ahead, but in the magnitude of EUR 2 to 4 billion, let's say EUR 3 billion, this is something one could expect— year- over- year, because it fits also to the strategy, what Oliver said. We carefully review what competencies do we have internally, what competencies are in the market? How do we partner, with outside players who has more other competence than we have in certain fields? And so this is something you might model in, in your cash flow planning going forward, year- over- year.
Great. Thank you very much.
Thank you, George. We are coming to the next question. It comes from Patrick Hummel from UBS.
Yeah, good afternoon, also from my side, and thank you for taking my questions. The first one, I'd like to ask is, regarding CO2 compliance 2025 in Europe. I would like to understand from your perspective, what is your strategy here? It looks like you have to increase your EV sales a lot next year, which might be difficult in a market that seems to be oversupplied and under a lot of pricing pressure. So I wanna understand, is pooling an option that you consider? How much of a headwind could this become earnings-wise in 2025? Also, when you talk about regulation in the media call, I heard you mentioning you will ask regulators and policymakers for a bit more flexibility.
Was that only a statement as far as the 2035 combustion engine ban is concerned, or are you effectively asking also for more flexibility in regards to the 2025 regulation? 2025, not 2035. My second question is on markets. Can you help us, as far as China is concerned, you're putting obviously a quite significantly more cautious view into your guidance. What is the volume? What is pricing here? I understand there's a consolidation effect also in the more negative outlook. But you sounded pretty positive about the combustion engine vehicle business until recently, so I wanna understand what's going on here.
As far as Europe is concerned, you mentioned the media call, the backlog has now normalized, but I sense you're still kind of constructive in Europe later in the year. Is it mostly product cycle driven? Do you see any inflection points on the macro front that could lead to a better demand situation in the course of the year? Thank you.
Yeah, Patrick, may I start with your CO2 question? First of all, I mentioned in my speech today that we are expecting from the politics in the EU clear regulations where we have a clear orientation because we are a more long-term business, and we need planning transparency there. All these discussions are not useful. On the other side, depending on the framework we have in the different markets, it's important to adjust the CO2 targets and to think what is realistic. Looking to 2025, on the one hand side, we have a strong product offensive. We will have or expecting a growth in electromobility, especially because of our product.
And on the other side, we will leverage, depending on the volume in between pooling and also where it's profitable to work with incentives to avoid the CO2 payments we would have in 2025. And then so we will plan step by step. First of all, what is important for us, launching now the new product, then we will mention the response in the market. The first product we are launching right now, we are getting very positive response. Yesterday in the Porsche press conference, I mentioned the positive order intake in the first weeks of over 10,000 units for the Macan only. From Volkswagen and from Audi and all the other brands. So that's the basis, and at the end we will leverage in between all the drivers to avoid payments.
Yeah, Patrick, and—
Thank you.
In addition to what Oliver just said, this ramp up of electrification in Europe and worldwide in Europe, this is factored in our guidance and margin guidance and also in our long-term guidance for the brand and the brand group. Look, we come from 8% this year, guide basically for 10% next year. But that 8% globally is about 13% in Europe already, 480,000 cars. And then 2024, there will be a lot of new cars coming, but specifically in the second half of the year, which will give us tailwind for 2025. In terms of margin, yes, electric cars are margin dilutive still, and with the ramp up, this basically puts a challenge. It's basically a headwind. But, look, this is what's factored in, in the—for example, in the margin guide of Brand Volkswagen.
Their margin guidance is 6.5% in 2026. Look, let's assume they make EUR 100 billion turnover sales, so it is EUR 6.5 billion, but they shoot for a EUR 10 billion improvement program in efficiency program in gross measures. And one of the component is to compensate for a higher BEV share. But with scale increasing, with product substance, even more increasing, and also with more cars in the smaller segment, ID.2, with LFP batteries, the margins will improve as well. So overall, yes, we will increase BEV share, and but this is all factored in our long-term margin guidance, no? In China, China is a slightly different case. In China, we really see two markets, on the ICE market.
In ICE market, we are rather strong. We even gain market share. I think we jumped over 20% last year and see strong demand. Yes, there is also some pressure on the margins, but overall, the business is very healthy. In terms of BEVs, we always said, we have to catch up. We set up a program to improve the cars, both in terms of ADAS, driving assistance function, with Horizon Robotics, together with ThunderSoft in-car infotainment. We bring an LFP battery, but that takes time, that takes some quarters. And also in 2026 kicks in really two new great products that we developed together with XPeng.
And in between, from today until I would say 2026, we make sound compromises between margin and volume, and this is why I said or we said, we are deliberately prepared to give up some more share in the next two to three years, I would say two years. And from 2027 onwards, we want to pick up also shares significantly in the BEV segments, in the BEV market. So this is our path in China going forward.
Thank you. Very good. And just to be precise, 8% was the BEV share firmly in sight with our balanced earlier volume approach. Thank you, Patrick. Next question comes from Mike Tyndall, from HSBC.
Yeah, thanks. It's Mike from HSBC. Two questions, if I may. Just the first one around launch costs. 30 new models coming this year. I just wonder if you can give us some sense of the actual magnitude of the costs that you're factoring in for those vehicles? And also on those new vehicles, how should we think about pricing on the other side? Is it fair to assume the content levels in those products will go up, and we'll see a price increase? Are we likely to see prices go up by more than the associated content? And then the second question is around tariffs. And I guess two real perspectives on that. One of your counterparts has suggested that Chinese tariffs should be lowered, and increase competition. Curious to know what your perspective is on that.
And then also, what are you thinking in terms of, you know, a potential tariff situation coming from the U.S.? How are you prepared for that? Thanks.
It may have started with the launching situation. First of all, we are planning over 30 models, all of our brands, and around the half are combustion hybrid versions, and the other one electric ones. It's correct that we have this launching cost technically, but also with marketing in the markets, and it's included in our preview. On the other side, what makes 2024 so ambitious is the so-called V- effect. On the one hand side, we have to run out the previous generation and to ramp up the new generations. And there we are coming step by step with all our derivatives and the regional introduction. This makes this year ambitious in terms of volume, but just to greater opportunities from 2025 onwards, when we will be with all derivatives and regional products in the markets. In terms of pricing, that's right.
Most of our products, we are putting into more content. And, for example, the Macan will have 8% more content. And then, on the other side, we will be able also to lift prices. Now, that's depending a bit on the segments and how the markets react, and there we have a specific solution, a market by market, but the aim is to lift pricing and content. In terms of tariffs, we don't know what will happen in the US. For us, it is important to have a free world trade. We are concerned of rising of protectionism, and we think, when you start protectionism in one region of the world, and that affects Europe, also, when we look to China, then you will affect protectionism on the other side.
And therefore, we are fighting for free and fair, fair trade, worldwide, and talking also to our government.
Got it.
Thank you very much. Thank you, Mike. Next question comes from Justin from Federated Hermes. Justin, please go ahead.
Hello, thank you very much. And I thought it was a very good presentation this morning, earlier today, you presented a well-thought-out strategy which strongly features sustainability and reinforces the elements of nature, your workforce, society, and business, and it feels like this is a step forward for the company, and we welcome the direction of travel. Reducing the company's impact on climate change is a big driver behind that strategy, and including, I noted that you're bringing forward the company's net zero ambition from 2050 to 2040.
My first question is, but for such a material topic for one of the world's biggest carbon emitters, does the executive committee believe it has sufficiently explained how the company has handled the impact of its new climate ambitions in the accounts, with little more than half a page stating your climate ambition has limited impact on the consolidated financial statements? My second question relates to the audit report, where investors rely on an independent assessment of the company's handling of the accounts. For such a material topic as climate, I noted that the company's auditor continues to make no mention of climate and how it has considered climate in its audit report. As responsible investors, we expect auditors to explain how this material topic has been considered, and if a decision is made that it's not a key audit matter, we expect the auditors to explain this.
Could you outline the discussions that the company, that you have had with the auditor regarding the handling of climate? And as a management team, are you comfortable that the auditor has made no comment on how it assessed climate within its audit? Thank you.
Yeah. May I start? Justin, for us, it was important to sharpen our sustainability strategy and put it to the next level, and we call it Regenerate+ . And we feel directly responsible to fight against climate change. And you can see it in all aspects where we act in our company through the whole value chain, starting with the development of our cars, which level of recycling materials we are using, what energy is used for our materials. It's a whole value chain with our suppliers which has an importance. Then, of course, our own production, where we are already using 100% renewable energy in our European plants. That's important for us and also our products and our strong electrification strategy behind the investments and partnerings we are doing for building new renewable energy sources.
So overall we thought that it's important to define more ambitious goals. Therefore, we presented today the 2040 approach. In terms of audit for all the sustainability issues, we have now a very clear structure with target fields for all dimensions I presented this morning and also linked to all our brands when it comes to the ESG criteria. For us, it is important to work there with full transparency and showing year by year the progress. In terms of your second question about the audit in China, we have done. For us, it is important that we work with our understanding of values all over the world, the same to our partners, and also by contract in China, it is defined, for example, in terms of human rights, that we are driving the business with our understanding of values.
Therefore, when there are observations from the media or from other people, we check them. For us, it was also important not only checking them by our own, asking an external, independent auditor to check the situations. Up to now, we have not seen any aspect which is going against the human rights policy we do have. But on the other side, we are also considering maybe further steps together with our partner in terms of a economical evaluation and driving there in the Xinjiang region is very small, below 200 people, comparing to the 680,000 people we have overall worldwide. And therefore, it was convincing for MSCI that the audit went well.
That is one point, but at the end, being always in the critics, we have to think to go further on. The most important aspect for us right now is caring for the people there. That is our responsibility, and then taking a decision together with our partner, and there we have good progress in our talks together with our partner.
Yeah, perhaps—
Thank you very much.
I didn't fully explain myself on that last one, but I was more looking at the auditor, Ernst & Young, who have audited your financial statements, and the fact that they have made no comment about how it has assessed climate within the accounts. And they continue to say nothing about climate, and it's a key issue for us, and we would like them to be making some statements. So I guess the question really is, what discussions have you had as a management team with your auditor around the climate and the way in which they've handled climate, and the fact that they're currently not stating anything in the accounts, in their audit around how they've handled climate? There was more to that point.
I appreciate the response you gave on the human rights and supply chain, and we're definitely following that very closely. This one was more around the financial audit.
Justin, may I suggest that we take this with us and approach you directly on that, yeah? How the auditor treated the climate question, and how we responded to it. Is that fine?
Yes, that would be— that'd be fine. Very keen to fall of that.
Very good.
Adding to this, we will provide very clear, with full transparency, all the new targets we have defined and for all dimensions at the end, also to the auditor. We can clarify the point you have got for this audit report, and giving you all the details, no? But everything to come on based on the Regenerate+ , full transparency from our side about the progress.
Thanks. Thank you.
Thank you, Justin. Next question comes from Michael Punzet from DZ Bank.
Yes, Michael, good morning. I have one question or two questions on the performance plan. First one is, should we expect any kind of burdens in 2024, like with structuring provisions? And, if so, can you give us any kind of guidance, which amount we should expect? And the second one is when we will get some, let's say, more hard facts on the measurements for the individual brands.
Yeah, Michael, in terms of burdens, what we currently have agreed on is basically a early retirement program or all early retirement programs for specific age groups. And the way it works, this early retirement program, you book basically, or it's hitting the P&L, contract by contract. So there are huge programs in place, and we budgeted in several hundred million EUR of basically headwinds for that. But it's in already, and it's basically booked contract by contract. This is where we stand so far in terms of headwind from the performance program. Hard facts, I mean, we already started to deliver on the program.
Look, we announced that we stopped hiring in major parts of Volkswagen AG, for example. The allocation of plants is already taut, designed in this direction. We make productivity improvements. And for example, we took out a shift in our electrical plant in Zwickau to optimize the capacity. So a lot of measures are already implemented already. The major proof point for me will be margin of Brand Volkswagen and Brand Group Core in year 2024. And this, and specifically on Brand Group level, a next step in profitability. We aim for 6% to 7% margin, which will be, would be a significant step forward.
To be very precise, 6% to 10% on Brand Group level, not on Brand Volkswagen. Brand Volkswagen will give their margin guidance tomorrow, but this is obviously in line then with Brand Group.
Okay, maybe two clarification questions. 6% to 7% for the core group is already the target for this year, 2024?
Correct, Michael. This is target 2024. The midterm target is 8% for Brand Group Core.
Okay. And the second one is, the several hundred million EUR you have already budgeted in for the early retirement, that this will be, will be adjusted, that it's not included in the, current margin guidance.
This is included already.
Okay, so you will not adjust for that?
Not, not for this program, not for the—
Okay.
Early retirement program.
Okay. Thank you.
Thanks. Thank you, Michael. As we are running a bit out of time, next one is Horst. Horst, may I ask you one quick question so that Harald has a chance to be the last one in line?
Yes, yes, of course, we can do that.
Thank you.
I've got one more question then for Arno, especially on the guidance. So when I consider your guidance of 7% to 7.5% operating margin guidance, and I look at the same time at the revenue guidance, up to +5%, would be interesting to get a feeling what means up to 5%. Because it's up to—i f you were raising revenues by 5%, you would basically increase revenues by EUR 16 billion. If I calculate the 20% operating leverage on that, it takes me to something like more than EUR 3 billion operating profit increase. At the same time, you target for the Brand Group Core here, the 6% to 7%. You had this more than EUR 3 billion of hedging losses in 2023, and also significant negative product costs.
So therefore, to me, still the guidance looks cautious, this 7% to 7.5%. Could you please explain where there's potential upside in 2024, and where you have taken, on this group level, really, the cautious assumptions?
Yeah, thanks for your question. I mean, if we say on sales revenue, up to 5%, I think the best guess would be to take the midpoint, which is, yes, might be cautious. But we had the discussion the year before. And we think it's for our business and for, for, I would say, the motivation of the performance programs and also motivation to lower fixed costs. It's much better to rather plan with a caution top line and not overpace it, no? And yeah, in terms of, I would say, theoretical EBIT bridge, there should be positive from mix and small positive from volume. Obviously a mix because we bring specifically in the BEVs, yeah, we bring really strong products, the Macan and Q6 e-tron, also ID.7 Tourer from a, from a mix point of view versus the average BEVs, positive.
Then we bring also the new Tiguan hitting the road, Passat is hitting the road, so that helps mix in Brand Volkswagen. Yeah, and then on the headwind side, we have still inflation on fixed costs, and we have a significant headwind from the ramp-up of the ID.3 models Oliver mentioned this morning. So, and this is how we end up with the 7% to 7.5%, as said before. In the current environment, also with ramping up our BEVs worldwide, in terms of share, we view this as a solid guidance.
Okay. Just to clarify, so the hedging losses will completely reverse, product cost is gonna be also a tailwind, and pricing is negative, but you don't want to quantify that, I guess?
In a theoretical bridge, we reverse the headwind from hedging, that's the case. And also, we expect a small positive on the product side, yes.
Okay. All right, and pricing negative, but you don't want to specify that, right?
Not at the moment, Horst. Thank you—
Okay. All right. Thank you.
Thank you. The last one from Harald. Harald, ideally with a closed question where we can answer yes or no. Harald?
Hello?
Yes, now we can hear you.
Sorry. Yeah, just a last question. You know, my big, you know, so on, on your company, you know, your free cash flow last year was over 60% of your current market capitalization, but then your spend is obviously roughly the same number. EUR 37 billion a year is obviously an enormous number. It's bigger than all of your competitors. The competitors also spend a lot of money on battery factories and stuff like that, but they maybe do it in joint ventures, so it's not on their balance sheet, or they use more partnerships. You know, you've talked about more partnerships and stuff today, particularly CARIAD is potentially exciting, I think, but also in battery and other parts of the business. You know, how much do you think you can save off of this current peak level?
You know, you talk about 14%-11%, but I have a lot of questions on literally IPO today, asking me, "When is this gonna happen? Is it ever gonna happen?" You heard the question on the M&A, which sounds like another increase in spending. Do you, do you understand the, the frustration that investors have? You have this incredible potential. Can you give us some cadence on whether you'll be able to bring those investment levels down, and, and whether we should expect that to drop through to the cash flow in the next two or three years?
I can be—
Thank you.
So for the sake of time, I can be very brief on that. We stick to our plan to bring that number down in relative terms to 11% in 2027, with the run out of combustion engine investment. And eventually, we target for 9% in towards 2030, as indicated in the Capital Markets Day, which is then absolutely competitive.
That includes every M&A spending we would plan for.
We should expect those savings to drop to the free cash flow, or are there other things that that money would have to be spent on?
Okay. Thank you, Harald. I think we have to close—
All right. Thank you.
Thank you. Thank you very much for dialing in and for hanging in with us, and we are very much looking forward to catch up now during the quarter. First quarter is also around, will be reported on April 30th. And, yeah, wish you all a very good afternoon and we're catching up. Thank you. Thanks to all.