Ladies and gentlemen, welcome to the Volkswagen AG Investor Analyst and Media Call, 9-M onth, 2024. I am George, the call's operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Pietro Zollino. Please go ahead.
Good morning, everyone, and a warm welcome to the 9-M onth, 2024 results of Volkswagen Group. It's, as usual, a joint call for both media as well as investors and analysts, which is moderated by Rolf Woller, our Head of Treasury and Investor Relations, and myself, Pietro Zollino. I'm heading corporate communications here at Volkswagen Group. With us today is Arno Antlitz, CFO and COO of Volkswagen Group. Let me provide a few remarks before we start. By now, you should have received all materials, including the press release, the interim financial report, and the presentation, all of which were published this morning. If you do not have them yet, you can find all the documents on our corporate website. In case of any issue, give us a call or drop us an email, and we will send them straight to you.
With that, let me now hand over to Rolf for a brief run-through of the next one and a half hours.
Thank you, Pietro, and a very good morning to everyone on the call, also from my side. Thank you very much for joining us today. What's on our agenda? We will have Arno presenting the 9-month financials and then the key developments during the quarter and thereafter providing the full outlook for 2024. We will continue then with his presentation in the Q&A session for the investor and analyst community, which will be moderated by myself, and after this session, then we will have a short break, as usual, before we continue with the media Q&A, which will be hosted by Pietro. As a reminder, as always, the safe harbor language and the other cautionary statements on page 2 of our presentation, which will govern today's presentation. Please read it yourself because I will not read it for you. With that, I hand over to Arno. Arno, please go ahead.
Yeah, thank you, Rolf. And good morning to all of you. Before we go into the details of the presentation, allow me to briefly comment on the current situation in Brand Group Core. The nine-month results, and particularly the earnings development at Volkswagen Brand, Volkswagen Commercial Vehicles and Tech Components over the last three quarters, demonstrate the urgent need for action in a volatile environment characterized by intense competition. This is why we are facing important and painful decisions that we need to make together and to bear together. I'm well aware that the cuts we are facing are tough for all of us and that many employees are worried about their future. However, it is our shared responsibility to act for the future of this company and for generations to come.
We've not forgotten how to build great cars, but the costs, specifically in our German operations and factories, are far from being competitive. This is where things cannot continue as they are now. In view of the confidentiality of the ongoing talks with our tariff partners, I ask you for understanding that we do not want to comment specifically on plans, on measures, or speculations in the press. With that, let me continue to the presentation with the highlights of the third quarter. Starting with quite a number of exciting product launches in the third quarter, the new ID.7 GTX is currently the most powerful electric car from the Volkswagen Brand. We have also just marked a new range record of 794 km with one single charging load with the Pro S version.
The famous VW Transporter is now in its seventh generation with more space and payload, as well as improved towing capacity and economics. The new ID.UNYX has been launched to the Chinese market. The vehicle, which is tailor-made for the demand of Chinese customers, is characterized by a particularly progressive design and a smart human-machine interface with a customizable 3D avatar. The new Škoda Elroq is a brand's first all-electric model in the important compact SUV segment. The model is on sale since early October with an entry price of around EUR 33,000. The Audi A6 e-tron is Audi's first purely electric Sportback and Avant model. Its striking design enables the best aerodynamics in the portfolio and therefore greater efficiency. Last but not least, Porsche has just launched the new 911 Carrera GTS as the first road-legal 911 to be equipped with a particularly lightweight performance hybrid.
These exciting new models will add to the product momentum we see currently in our order intake figures. I'll come to that topic later. We also made important progress in the formation of the planned joint venture with Rivian. In the past month, we received all necessary regulatory approvals, and even more importantly, we were able to prove the full technical feasibility of the Rivian architecture and software in a drivable demonstrator vehicle. Both were key milestones on our way to set up the joint venture and finally start working on, as a team, developing the next-generation SDV, software-defined vehicle architecture. The joint venture fits very well into our platform strategy and the roadmap we have set for software architectures.
It enables our brands to launch future electric vehicles on the PPE and SSP platform based on a highly competitive and state-of-the-art electrical architecture and vehicle software, adds significantly reduced costs per vehicle, and this more efficient use of capital. We also hosted the world premiere of Scout last week in Nashville. For us, as the Volkswagen Group, it is more than just another model or a new brand. It's a once-in-a-lifetime opportunity to strengthen our position in North America in the long term. With Scout, we will be represented in the most important segments of the US market in the future: E-pickups and rugged SUVs. These two highly profitable off-road segments have been dominated by American manufacturers for decades. The segment previously consisted of combustion engine vehicles, and we had neither the brand nor the scale to be able to seriously play in this segment.
Now, this segment is also gradually turning towards electric, and we have all the ingredients we need to be successful: the electric technology, local batteries from PowerCo, and last but not least, a great brand with heritage, namely Scout. We are convinced that the future is electric, but the transition to electric mobility in the US is not as fast as originally assumed, and one example of how we want to shape the transition to e-mobility is the introduction of a range extender for Scout. Scout is a fully electric vehicle per se, but we want to offer a range extender as an option from the beginning on. With that, back to the 9-month results, starting with group deliveries. We delivered 6.5 million vehicles to customers, about 3% below the prior year level. Order intake in Western Europe remained robust due to seasonal effects.
Q3 order intake at 674,000 units, with some 82,000 vehicles below the number achieved in Q2 2024, but 27% up on the prior year number, and it's worth noting that September order intake accelerated again substantially compared to the summer month and compared to the previous year, driven by a good customer demand for the attractive new product lineup, which is becoming more and more available in the markets. As of the end of September, the order bank in Europe stood at 870,000 units. The 3% decline in deliveries was in particular driven by lower volumes in China, where volumes were 10% lower year over year in the first nine months and 15% lower in the third quarter. The overall growing Chinese market is still characterized by significantly declining ICE volumes and a shift towards BEVs and specifically PHEVs.
Deliveries in Europe were almost stable in the first nine months, but weakened in Q3 with a decline of about 7%, not least due to the lower BEV volumes. In the North American and South American market, the positive trend seen in the first half year continued in the third quarter. Our team in North America delivered a very solid 7% growth, with Volkswagen Brand growing even by 24% in the region, a significant first step towards a more robust global footprint and an excellent result of our team there. Group deliveries in South America grew by 15% year over year. Demand for battery electric vehicles in Europe and North America continued to be muted as a result of BEV deliveries, were 5% lower year on year. BEVs delivered in Europe and the U.S. were down by 14% and 26%, respectively.
This could not be compensated by double-digit growth of 27% in China. In total, we delivered 507,000 BEVs to customers worldwide in the first nine months, corresponding to a share of about 8% of group deliveries. During the year, the BEV share improved sequentially to a level of around 9% in Q3. BEV order intake in Western Europe showed an encouraging trend recently, more than doubling compared to year-end 2023, supported by recent new model launches. Let me now give you a summary of the Q3 financials. The third quarter was expected to be the weakest quarter of the year 2024 in an overall challenging environment, not only for seasonal reasons and corresponding low volumes, but in particular due to the flagged restructuring expenses booked at Audi related to the potential alternative use or closure of the Brussels plant.
In addition, supply shortages had been at Porsche and Brand Group Core, whereas availability of six and eight-cylinder engines at Audi was normalizing in Q3. With these general remarks, let's move on to the financials and the operating performance of the Volkswagen Group. Vehicle sales came in at 6.5 million units in the first nine months, down year on year at minus 4%. Excluding our joint venture operations in China, vehicle sales were down by 1% to 4.6 million vehicles year to date. The corresponding slight decline of 1% in automotive sales revenues could be overcompensated by improved sales revenue in the financial service business. As a result, group sales revenue improved slightly year over year to EUR 237.3 billion. This is up 1%. Operating result came in at EUR 12.9 billion, corresponding to a margin of 5.4%, one percentage point below the prior year period.
Profit before tax amounted to EUR 12.5 billion in the first nine months of 2024, some 29% below prior year period. In addition to the lower operating result, this was due to a lower financial result. Profit after tax declined by 31% to EUR 8.9 billion. And as a result, earnings per share were down by 33% to EUR 15.2. All these figures are reported and are not adjusted for any non-operating effects. Third quarter results were impacted by additional EUR 1.2 billion restructuring charges, largely related to ongoing information and consulting process with regards to the Audi Brussels site. This brings the total impact from various non-operating items accounted for in the first nine months to EUR 2.5 billion. The remaining EUR 1.3 billion had already been booked in the first half.
Net of these non-operating items, underlying operating result in the first nine months to that EUR 15.4 billion and a margin of 6.5%. The underlying operating result in the third quarter standalone amounted to EUR 4 billion and a return of 5.2%. But to be very clear, a reported margin of 5.4% after nine months is by far not a satisfactory level and clearly below our ambition and potential, given the product substance and the global scale of our group. We must and we will continue to intensify our efforts across all brand groups and business divisions to bring costs down, improve our competitiveness, and our financial performance going forward. Net cash flow in the automotive division totaled EUR 3.3 billion in the first nine months, about EUR 1.6 billion below prior year level.
This was mainly due to the lower gross cash flow, which was driven by the lower operating result, as well as a build-up of working capital of about EUR 2 billion and higher investments. Now, working capital, higher inventories in the magnitude of EUR 7 billion, were partially offset, in particular by increased provisions and higher payables. In the third quarter, standalone net cash flow came in at solid EUR 3.4 billion, which brings me to our automotive net liquidity, which recorded a corresponding improvement of EUR 3.1 billion compared to end of June 2024. Compared to the year-end 2023, it declined by about EUR 6 billion. This was mainly attributable to the dividend payments as well as the redemption of a hybrid bond, which has already been booked in the second quarter of the year. Overall, at EUR 33.4 billion, net liquidity continues to stay on a solid level.
Coming to the divisional performance, passenger cars recorded an operating result of EUR 7.3 billion, about a third below the prior year period. The margin amounted to 4.7%, 1.8 percentage points below the prior year level. Commercial vehicles continued their convincing performance trend. Results advanced to EUR 3.1 billion and returned on sales to that strong 9.1%. The financial services division recorded an operating result of EUR 2.2 billion, corresponding to a decline of 27% year over year. Let us look at the drivers behind the operating result development in the passenger car segment. Volume price mix contributed a negative 0.7 billion. As already mentioned, vehicle sales, excluding China JVs, were 1% lower. The volume other effect on the operating result was positive despite the slightly lower vehicle sales, excluding the Chinese JVs, and this was mainly due to an improved spare part business.
Mix over nine months was affected by a weaker model and brand mix with lower sales at Porsche and Audi. It was, however, neutral in the third quarter after it had turned negative. In the second quarter, pricing nearly stabilized in the third quarter, benefiting from last year's price increases, but offset it by higher temporary sales promotions, specifically for BEV electric vehicles. Broader costs were a minor headwind year over year, and fixed costs and other costs increased considerably as a result of higher R&D costs, increased depreciation, and amortization, as well as continued inflationary trends, including higher wages. This bucket also includes the restructuring provisions in a magnitude of EUR 2.2 billion. Our overhead costs in automotive division continue to show a clearly disappointing trend. Both in absolute and relative terms, overhead costs increased considerably in the period under review.
This was mainly driven by the carryover effects of wage increase from 2023 and the lower sales revenue. As a result, overhead cost ratio stood at 17.4 percentage points in the first nine months of this year, 170 basis points above the prior year level. Given an intensifying competitive environment, as well as the ongoing transformation of the industry towards electromobility, this is clearly a call for action. We face increased challenges in the market environment. We have to step up our efforts to improve our competitive position and cost structures, in particular in our German operations. This is moving on to automotive investments into R&D and CapEx.
R&D costs increased by EUR 1 billion in the first nine months as a result of the accelerated transformation of the Volkswagen Group's brand towards electrification and digitalization, as well as the ramp-up of our PPE and PPC platform at Audi and Porsche. CapEx continues to be at high levels due to significant upfront investments in new models in battery and software, as well as the execution of our regional strategies. Relative to automotive sales revenue, the investment ratio stood at 13.6%, up on the prior year level due to higher investments, as well as lower automotive sales revenue in the first nine months. We continue to work towards reducing investments in R&D and CapEx to EUR 165 billion in the next planning round, 2025 to 2029.
Key to achieving this is a consequent utilization of synergies across the groups and within the brand groups, of course, more efficient R&D processes and structures, gradually lower investments in ICE, the expected effect from the planned joint venture with Rivian, and adjusting our battery capacity build-up to the market needs. With that, let's move on to the performance of our brand groups, platforms, and financial services business. Brand Group Core recorded stable sales revenues year-on-year, year over year supported by increased list prices and positive mix, but held back by higher fixed costs and higher tacticals, specifically for battery electric vehicles. The operating result declined by about 10% to EUR 4.5 billion, corresponding to a margin of 4.4%, 50 basis points below the prior year period. If adjusted for restructuring expenses, however, the underlying operating margin stood at 5.2%.
Brand Group Progressive recorded sales revenue significantly below last year's level, mainly due to lower vehicle sales and constraints of V6 and V8 engines, in particular in the first half of the year. Operating result came in at EUR 2.1 billion, corresponding to a margin at 4.5%. As mentioned before, earnings were particularly burdened by the restructuring provisions of EUR 1.2 billion in the third quarter, related to the potential alternative use or closure of our Brussels site. We expect the positive underlying earnings trend to continue in Q4, with Brand Group Progressive aiming for a double-digit margin in Q4. Brand Group Sport Luxury recorded an operating margin of 14.6% in its automotive business, corresponding to a decline of 4.3 percentage points compared to the prior year figure.
This was mainly due to lower sales volume, in particular in the Chinese market, higher ramp-up costs due to a record number of new model launches, as well as headwinds from supply shortages. In Q3, overall, Q3 should have marked a low point and Porsche plans to re-accelerate into Q4. Let us have a more detailed look at the Brand Group Core. Two developments stand out here. First, Škoda delivered a very consistent performance throughout the year and achieved a solid 8.3% return on sales in the first nine months in a challenging environment. This, once again, underlines that efficient cost structures combined with strong product substance can generate highly competitive margins.
All other brands and businesses of the Brand Group recorded a sequential erosion of the operating margin in the course of the first nine months, once again highlighting the urgent need to take decisive action to reduce costs and enhance productivity, in particular in the German operations at Volkswagen Brand, Volkswagen Commercial Vehicles and Tech Components, as mentioned earlier. CARIAD continued to roll out software, which resulted in an increase of sales revenue of about 20% year-on-year. Operating result continued to be significantly negative at minus EUR 2.1 billion. Reported net cash flow stood at a negative EUR 1.3 billion, as CARIAD benefited, like last year, from a EUR 1.1 billion intra-group income tax refund, the underlying cash-out total to minus EUR 2.4 billion, closer to the operating loss.
Our battery business continues to ramp up the organization and advances in the construction of production capacity, in particular at the Salzgitter site, leading to an operating loss and cash-out of about EUR 400 million year to date. Traton continued its positive earnings trajectory and delivered another strong performance in the third quarter after already very solid results in the first half of the year. Unit sales normalized in a weaker market environment, specifically in Europe, and decreased by 2% year to date. Operating margin came in at a strong 9.1%, up 110 basis points versus the prior year period, driven by increased ARPUs and improved cost structures. In the period under review, Traton delivered a net cash flow of EUR 1.1 billion and was able to reduce indebtedness in its industrial business further. Volkswagen Group Mobility saw a slight increase in overall contract volume.
The credit loss ratio was stable on an overall solid level. Operating result in the financial services division in the first nine months 2024, as expected, fell by about a quarter to EUR 2.2 billion. This reflects the continued normalization of used car prices, a more difficult business environment in markets outside Europe, and higher risk costs. Moving on to our performance of our China JVs. From a volume point of view, sales decreased by 11.5% to 1.9 million vehicles in the first nine months of 2024. We saw strong growth in sales of battery electric vehicles, which could not be compensated for a significant decline in our ICE business as the market continues to shift to NEVs. The proportionate operative result of our Chinese JVs amounted to EUR 1.2 billion after nine months in 2024, down 37% on the prior year number.
Lower volumes in a highly intense competitive environment, the margin dilutive effects from higher BEV sales and costs related to the realignment of our business and the VCTC ramp-up were main reasons for this development. Overall, results year to date are in line with our expectations, and we expect to end the year at the proportionate operating result of around EUR 1.6 billion. Finally, moving on to the full year outlook for 2024, which we had adjusted on the 27th of September. We expect sales revenue to around EUR 320 billion, operating profit at around EUR 80 billion, an automotive investment ratio between 30.5% and 40.5%, and automotive net cash flow of around EUR 2 billion. Net liquidity is expected between EUR 36 billion and EUR 37 billion. The outlook reflects a total of minus EUR 2.6 billion in non-recurring earnings effects.
However, it does not include a potential additional burden from a conclusion of the current ongoing negotiations in Germany. That said, we continue to expect a solid fourth quarter this year. In order to deliver on that expectation, we build on a step-up of sales and earnings momentum supported by the launch of the new models. We are building on a solid order bank in Western Europe with visibility well into the first quarter of 2025. At the same time, we factor in that markets will remain highly competitive, and we continue to push ahead with the execution of our performance programs and intense cost work across all brands and divisions as the basis for a successful transformation of the Volkswagen Group going forward. With that, I hand it back to Rolf, and thank you for listening.
Thank you, Arno, and we will now proceed to the live Q&A session.
Anyone who wishes to ask a question may press star followed by one. I can already see first questions coming in. We would start the Q&A with José Asumendi from J.P. Morgan. José, please unmute and go ahead.
Thank you very much, Rolf. Good morning, Arno. A few questions, please. The first one, I mean, without going into the different restructuring actions you're looking to take, I would love to understand a little bit better where do you see the biggest cost competitive differences to your peers and what kind of margin uplift are you looking to achieve when executing these measures, specifically looking at the Volkswagen Brand? Second question, we get this question all the time as we're seeing all these headlines on potential restructuring and potential planned shutdowns.
Would this impact the ability to pay a dividend in 2025 if these measures would be taken in any shape or form? Thank you. I'll leave it there.
Yeah, José, hello from my side, and thank you for your questions. I mean, the margin uplift is clear. We always communicated that the target for Volkswagen Brand is 6.5% in 2026, and that would sequentially lead to an 8% margin of Brand Group Core in this year. We originally communicated an improvement program of EUR 10 billion, but since the circumstances in the industry and the environment deteriorated, we had to step up these efforts.
We made it very clear from the early beginning on that the target is not delivering on the EUR 10 billion, but the target is really to achieve a margin that gives basically, or that leads to a Brand Group Core and specifically Brand Volkswagen that is highly competitive going forward and is able to generate the funds to invest into the future product. Looking into the competitive situation and where we see most of the uplift, I mean, we described the program earlier. It has all elements. We work on the revenue side, on the margin side, but specifically, of course, on the cost side and specifically on indirect area and productivity in the plants and also labor-related costs.
And so basically, with the mentioned topics, I think that the biggest disadvantage versus competition is, from my side, the fixed cost side, the overhead cost side, and specifically, as mentioned several times, productivity and costs in the German operations. And this is where we focus on, but that doesn't mean that we don't focus on other topics as well. We focus on material cost improvements, and we focus on other improvements, but these are, from my point of view, the things we really have to focus on. And your second question, dividend. I mean, our payout ratio is set, our strategic payout ratio is set that we want to have a payout ratio of at least 30% as part of our dividend policy. Of course, as you saw, the current situation is impacting also our financial result and operative result and, in consequence, our earnings per share.
Our earnings per share declined currently by 33% to EUR 15.2 per share, and we cannot rule out additional burdens from restructuring in the fourth quarter due to the ongoing discussions, but we will then, of course, help significant step-ups in profitability going forward. It's reasonable to assume that the dividend for 2024 will be below the EUR 9.6 per preferred share of 2024, but let me restate it. Our dividend policy of at least 30% of payout ratio is still valid.
Very clear. Thank you.
Thank you, José. And we continue with Patrick Hummel from UBS. Patrick.
Yeah, thank you, Rolf. Good morning, Arno. I have also two questions. My first one is regarding the even tougher stance that you're obviously taking here in restructuring the German business.
I don't expect you to comment in detail and understand the nature of the negotiations, but a few weeks we talked about up to two plants that could be subject to closure. Now we're talking about a list that goes way beyond that, also in terms of wage reductions, etc. I'm just wondering, has there been anything happening in the last, say, month or two that has driven that even tougher stance on restructuring? I wonder, that's the B part of that question, is the free cash flow a limiting factor to how you go about restructuring? Because it sounds like if you're going for very comprehensive measures, this could trigger one-time effects that would basically eliminate the entire free cash flow for a year or two. I'm just wondering if that plays a role.
If you allow me a second one, is there anything new in terms of your thinking on the CO2 front? Because that's obviously a significant earnings risk for next year. There is limited action for now, at least from the European Commission, as far as the debate about moving or pushing back the targets is concerned. So how does that CO2 complex flow into your thinking about the restructuring needs and thoughts for next year? Thank you.
Yeah, Patrick, thanks for your question. I mean, as I said earlier, our target was 6.5% for Brand Volkswagen in 2026. And of course, with the deterioration of the market environment over the last, I would say, quarters, it became clear that we had to step up our efforts.
But nevertheless, the principle of the need for a restructuring program at Brand Volkswagen on the fields I just mentioned, fixed cost, productivity, overhead cost, that was very clear from early on. So the situation had not fundamentally changed, and there was not a single impact or incident that drove that change. It's just that we said we want to and have to deliver on the 6.5% in order to make the group and the brand future proof, and we had to step up our ambition. In terms of planned closures, the situation we see, and I described that early on in several locations, is not new. The total market in Europe was, as we counted, 16 million cars before COVID. And after COVID, we see 14 million cars, and we don't expect that to significantly change over the next years to come.
So this is like two million cars missing. We have 25% market share, which leads to the overcapacity we have of about 500,000, and this has also not changed, and we have to tackle this topic as well. In terms of free cash flow, I would put it like the following. Our focus now in the discussion with our partners from the unions and the labor representatives should really be on finding measures to make sure that Volkswagen has a good future, the brand Volkswagen is able to achieve the 6.5% and is also able to earn the financials and have the strength in the earnings to significantly invest into future products, and we should take the measures that are necessary in this situation, and from my point of view, we should not limit ourselves by potential consequence on the free cash flow.
And we have the possibility for doing so because we have very solid net liquidity. And this very solid net liquidity puts us in a situation that we are able to take the decisions necessary to lead Volkswagen into a good future. And thirdly, CO2, yeah, 2025 will be a challenging year. This is clear. We want to achieve our compliance by ourselves while protecting our profitability. This is clearly a trade-off. You're very, very aware of that. What makes me confident is the very positive order intake in Q3. So basically, if you compare our order bank in the BEVs, it almost doubled versus the end of last year. And very, very positive and strong models to come. We have a good order intake on the ID.7 Tourer. Audi is bringing great models. Porsche is bringing additional models.
So that gives us confidence for a significantly better CO2 position in 2025. Will it be enough at the end of the day? We have to look and see because, as we discussed, we also want to protect our margins. There also might be a potential credit pooling chance for us. We will have to look at that, but this is really too early. For the beginning, we set on a really good product momentum. I talked about the Škoda Elroq with something like 33,000, a great car coming. Unfortunately, the ID.2, which is then really the game changer in our business, comes 2026, but it doesn't help to mourn on that. The significant step-up really will come with the ID.2 family, a really great design car for EUR 25,000, very competitive cost structure, built in Spain, LFP battery entry from our own PowerCo.
So that will be really in terms of volume and CO2, the game changer from 2026 onwards. And 2025, we have to look how the year goes.
Thank you, Arno, and good luck with the negotiations.
Thanks, Patrick. And maybe what we can add, yeah, I mean, we have also seen very good reports not only by you, but also by others analyzing the CO2 situation, coming up with, in part, quite drastic headwinds for 2025. And as said during the roadshow activities as well, we don't think actually that the worst-case scenarios, yeah, calculating up to EUR 4 billion headwind, that this reflects the current situation should be much, much lower. I mean, and what I forgot to mention, but we could also mention is we have an extremely good order intake on our PHEVs, which are extremely competitive in terms of range, Passat, specifically Tiguan, PHEV.
And so, as you're aware, this helps also in the CO2 balance for 2025.
Thanks again.
Thanks, Patrick. We continue with Tim Rokossa from Deutsche Bank. Tim, please go ahead.
Yeah, thank you very much, Arno and Rolf. I would have two questions as well, please. The first one is on the very strong order intake while simultaneously having this surprisingly stable pricing. Just to clarify this, is that the model initiative that we are starting to see bearing fruits, or have you done anything else to stabilize pricing and increase order intake? And if that is indeed the case, where do we stand on the rollout, and should we expect this both to develop favorably also in Q4 from what you can currently judge? And secondly, Arno and everyone, in our discussions, you're coming close to your planning round. Let's talk about investment needs.
Last time we spoke, you said that there's room to the downside in spending given Rivian and other developments. Do you still see the investment plan coming down? If so, to what, and are we now at the peak of the investment spending? Is that ratio coming down from here? Thank you.
Yeah, Tim, thanks for mentioning. No, we are very pleased with the price bucket, price versus incentives in the quarter Q3, which really stabilized, and yes, there's a kind of a positive momentum from the new models, which are, of course, young and fresh, and we will continue to see a positive momentum from the new models there. On the other hand, we have to step up significantly the BEV side, and as you know, the BEVs are currently margin-dilutive. The first really, basically, BEV with margin parity will be the ID.2, that ID.2.
The BEVs are not only margin-dilutive. Currently, the BEV, as you see in our pricing, carry higher incentives, obviously. So in principle, we expect a more stable situation on pricing versus incentives and technicals. But the BEV ramp-up will deteriorate in the coming quarters, obviously, once we go into 2025. Yeah, but as I said before, be rest assured, we want to make sound, and we will make sound compromises between pricing and volume. Yeah, on the famous, it used to be 180, then 170, now 165. Everything we said before is still valid. From today's perspective, we expect R&D and CapEx combined to peak in 2024, not only relatively, but also in absolute terms. Yes, specifically, the joint venture with Rivian will give us a potential to improve specifically on the software expenditure. So nothing new on that.
If there might be a necessity of stepping up of investments, Arno and CapEx for slightly more capacity on PHEVs or HEVs, we will then have to compensate that on the expenditures on the BEV side. So they won't come on top.
Thank you. Very clear. Thank you.
Thank you, Tim. Then we continue with Horst, Horst Schneider from Bank of America. Please go ahead.
Yes, thank you. Hope you can hear me. I have got two to three questions. The first one, maybe more plain vanilla ones on Q3. Since you pointed out your price mix impacts, which were both just EUR 100 million each in Q3, was there kind of sequential improvement in terms of price mix? And if that was the case, why? And on product mix, we still can't see any positive raw material price impact. So what's driving here the product mix line?
Is there a chance that this gets any better in Q4, or maybe this just happens in 2025? On the restructuring, I know you cannot say a lot on that because the second negotiation round starts at 10:00 A.M. today. Therefore, you need to be tight-lipped. I think what we fear now from a capital market perspective is that you run into severe strike situations in December. Of course, also you cannot rule that out today, but maybe you can tell us what is the daily usual production volume at Volkswagen AG, so the mass market business in Germany? What would it mean if the production would stop by one day in terms of earnings? Just a ballpark range, that would be great.
And last but not least on restructuring, on the government, I realize that the unions say always, "Not just Volkswagen needs to do something, also the governme nt needs to do something." Is there anything that the government can do that you basically step back a little bit from your restructuring ambitions? Thank you.
Yeah, there was a similar question on the price mix side. I can only reiterate that we had really a stable third quarter. And on the mix side specifically, we were restricted by Audi with the Q6 e-tron and Q8 e-tron, which we basically got a significant release in Q3. And also Porsche had a significant changeover. And with going forward and the recovery of Audi and the recovery of volumes at Porsche with moving on to the new models, you should also expect a significant positive product mix going forward.
In terms of pricing, I just explained the mechanism. We see a very good pricing on the ICE. But yeah, as you can see in the market, not only with us, but also with our competitors, you see a dilutive effect of the BEV ramp-up specifically in Q4 and then going into 2025, which is really too early to tell how the situation in 2025 will be. But because you're aware, every competitor wants to achieve the CO2 targets in this year. Yeah, in terms of restructuring, I really don't want to speculate on strikes and on potential calculations. It depends on, of course, on which factory. It depends on, is it car and component business? Don't forget, we have also component business in Germany.
But all I want to say, we need to make sure that the compromise we find will be significant so that Volkswagen can achieve the 6.5% margin and can move into a profitable and successful future and will be able to invest into future projects for themselves and not dependent on the group. And I'm confident that we reach agreements so that we will achieve this target. But of course, I cannot rule out strikes. This is clear. But sorry for not being more specific, Horst, but I don't really want to do more on the speculation.
But just your daily production in Germany?
In December, normally a little bit lower, yeah, because of the, as you know, there are holidays also coming in December. But ask for your understanding, Horst, that we are not going into details here.
I mean, Horst, if you take some factories, you know the output of like Emden, Zwickau, Wolfsburg, and you know the number of working days, so you can have a rough indication. Of course, 500,000 units, Zwickau, 250,000 units over the year. So I think you can do a very rough math on that if you calculate that down by months, weeks, and then days. But really, I don't want to give a number and don't want to speculate on that.
Yeah, yeah, sure. No problem.
Yeah. Yeah, in terms of governance, my position is we have to look into ourselves and do our homework to what we can do, and we have to focus on what we have in our hands. We did that, and I'm confident that we can deliver on that. Of course, there's a discussion of CO2 regulation. What about 2025?
But all I can say in a more general topic, we adhere to the ramp-up of electrification. We invested accordingly. We are convinced that the future will be electric. And for that, we need, of course, stable requirements, a stable situation, and stable decisions. But also for the current discussion on productivity and competitiveness, we really loo k onto ourselves and discuss the measures we can do as a company.
All right. Thank you. Good luck.
Thank you. We can definitely need the good luck. And we continue with the next question, which comes from Henning Cosman from Barclays. Henning, please go ahead.
Yeah, thank you for taking the question. The first one may be on this encouraging statement on the Brand Group Progressive, double-digit in the fourth quarter, not least context warnings from Mercedes and BMW. So that looks really good.
Is that a sustainable level, or is there anything in there that would make you think you can't extend that into 2025? That's the question. And then the second question on Scout, good to hear that you had the technical feasibility done and also the regular approvals. Is there anything more that you can say around Scout and Rivian on the potential of perhaps a further combination? The vehicles obviously fairly similar would appear to go head-to-head in terms of competition in the market. You have via the investment, the equity stake already. Could you just share about how you're competing there, perhaps a further integration? Thank you.
Yeah, Henning, thank you on your comment on Audi and also on Brand Group Core. Let's not forget there's also two other great brands or three other great brands.
It's Bentley and Lamborghini, which really work closely together and already draw a lot of synergies. We always said Audi has a very strong product momentum. Now a lot of new cars are coming, Q6 e-tron. Then we have the A7, Q5, and Q7. So there's a lot of momentum there. I don't want to do too much of detailed discussion because when is the conference call of Audi? I think tomorrow or the day after tomorrow. So even tomorrow. So I don't want to give you too much detail. But also not forget that with the ramp-up of BEVs, also in our premium brands, currently the BEVs are margin-dilutive. And so that will have an effect. But nevertheless, we are really confident that the product momentum Audi will show over the next 24 months will significantly benefit Audi.
But really, for more detailed discussion, I refer to my colleague, Jürgen Rittersberger, which is happy to give you more details tomorrow.
Yeah, about Scout, I must be careful that I'm not too enthusiastic about this project because I'm still also not the CFO. But also in my role of looking to the North American market, the key elements I gave you already is potentially outsized in one of the most profitable and encouraging segments worldwide with stable returns. It's turning electric, and we have the ingredients we need for that. We have the battery technology. We'll get it from Ontario. The batteries from Canada, from PowerCo, with very competitive prices. We have the electrical component. Although it's a new brand and it's new products, we try to get a lot of synergies within the group. One synergy is, for example, the electrical components.
It will share it with the Audi Q8 e-tron. And we call it the LK4. So it will be electrical components from the group shared with Audi. And although it's not 100% decided on already, it's also a possibility that the electrical architecture we currently develop together with Rivian in our JV, of course, it's clearly an option that one of the early users of this electrical architecture will be Scout. So this is another synergy. In the market, I spent a lot of time last week on this great event in Nashville. And I talked to the team, and I talked to the marketing people. So they did a lot of typical segmentation and all these kinds of things. And Scout and Rivian are really in different segments in terms of pricing, in terms of milieus, in terms of customers.
I'm not afraid that there will be too much competition. But nevertheless, Scout is a standalone brand. And they will find their customer in the heart of this really American segment. And last but not least, and then I'm done, we had a very good response on the range extender. There was a little bit of skepticism about our volumes. Going forward, how fast is this segment turning electric? But with the including of the range extender and that we got the technical feasibility now, there's a lot much more, I would say, confidence in the ramp-up because specifically in the early years, we expect this range extender to significantly add to the demand and stabilize the volumes.
Thank you.
Thanks, Henning. And I have to apologize. The Audi conference call is on November 5th. I should have known this. Yeah, thanks, Robert, actually, for texting me.
So they need a little bit more time in order to put together the very encouraging outlook. Yeah, but then Jürgen Rittersberger had also more time to prepare very convincing answers. Very good. So we continue with Tom Narayan from RBC. Tom, please go ahead.
Thanks for taking the questions. One is a follow-up on Henning's on Scout and Rivian. I understand right now the two very gorgeous vehicles, by the way, Scout, don't price exactly where Rivian is with their R1S and R1T. Sorry, R1S and R1T. I guess the thinking is that when Rivian does come out with their R2 and R3, that starts to compete head-on with where Scout is. So is the strategy going forward to be keeping both complementary where the two are not competing on price and demographics? That's the first question.
The second one is you'd made a comment, or no, I think earlier about pre-pandemic, Europe was doing 16 million, now it's 14 million. I guess what would you say is driving this? Is it just a pricing issue? Is it because of BEVs? And why would this structurally continue? We saw one of your German peers last week report a down 10% revenue per unit ex-China, which suggests price mix came down significantly in Europe. So why wouldn't pricing come down and that then lead to volumes returning, maybe not back to 16 million, but at least somewhat closer? Thanks.
Yeah, Tom. Tom, one thing very clear. Scout is a group brand. It's newly founded. It's 100% group brand. And we focus really with Scout, we focus on the segments, on all competitors. Not on all competitors in terms of focus, but we are aware of all the competitors.
Scout is doing the positioning and the pricing really for themselves. The joint venture with Rivian is really focused on software. We don't discuss and see Rivian specifically from a product side and where Rivian is positioned. We see the whole market and all the competitors. This is what Scout takes into account and the Scout team takes into account when they do the pricing, when they do the segmentation, when they do the design. As I said before, Rivian is focused our joint venture with Rivian is really focused on creating the next generation electrical architecture, state-of-the-art architecture, and future-proof architecture in the JV. We shouldn't mix up these two discussions. Yeah, if I understand you right, you asked me and us, why do we expect the 14 million cars continued in Europe?
I mean, if you look at all the trends in terms of growth, in terms of household income, and we don't expect the market to grow significantly in Europe. Next year, we expect a 1%-2% increase, and so yeah, might it be like 14.1, 14.2, 14.5? It might grow slightly, but from our perspective, we won't see levels of pre-COVID before, and so there are inflation trends, there are macroeconomic factors, customers, and people have to spend more for energy and other topics, so this is our forecast going forward, and I think it's safe and robust to not base our assumptions on a growing market, and then that will eventually not come, so I think it's absolutely the best assumption we can take in the company.
Rolf, I mean, you are doing a lot of this economic research. Do you want to add to that?
Tom, you're right. I mean, price is a decisive factor. When we look pre-COVID or since the pandemic, obviously, prices have risen in average by more than 20%, car prices. Yeah. On the other hand side, you have trends like home office, alternative mobility solutions. So therefore, the structural under-demand, whether it will persist now at 14 million, remains to be seen. But it's not only us who are seeing this trend. It's also third party who clearly sees that at least for the foreseeable future, there is no recovery above this 14 million level. And forecasts can be wrong, but for the time being and looking at the arguments, it looks reasonable to assume that the demand stays at this 14 million level for the foreseeable future.
Thank you.
Thank you. And we continue with Stephen Reitman from Bernstein. Stephen, please go ahead.
Yes, good morning, everybody.
Two questions, please. I'm looking at your deck and looking at slide number five, looking at the plan JV with Rivian and comparing it to slide 23 with the CARIAD results. And obviously, congratulations on proving technical feasibility of the concept already and done in very quick time. So that's very good. What is that telling you about how fast Rivian moves and how fast you can move with Rivian compared to the relative slow speed of CARIAD and the fact that CARIAD looks like it's lost another 900 million EUR in the third quarter? And how do you see the vector of CARIAD results going forward on that, please? And secondly, on BEV sales in Germany, you have enough promotion at the end of the year, which basically means that you're selling the ID.3 for just under 29,800 EUR in Germany.
Do you think that's actually going to be the sort of pricing levels you're going to have to maintain through 2025 to make your CO2 emissions targets? And what does that say about the profitability at that kind of levels? Thank you very much.
Yeah, Stephen, thanks for the question. Very, very good question in terms of CARIAD. And we already communicated that we will basically in the JV with Rivian, we will develop the next generation software stack. We call it 2.0. But don't forget, the CARIAD is currently deeply involved in the ramp-up and improvement of the stack 1.2. This is a software from the PPE platform for Audi and Porsche, which will be also very competitive in front of the customer with a lot of features. And also with the 1.1 software for all our MEBs.
And also there will be other functions that will be responsible, for example, ADAS, driving assistance functions. So the CARIAD will play an important role going forward. And in terms of business case, of course, we expect CARIAD to significantly improve in terms of EBITDA and cash flow. Why? First and foremost, it's depending on the business model. As you know, CARIAD had basically all the upfront investments on their books. And then the sales basically are license fees that are paid by the brand car by car. So since the first three cars are ramping up just now with the PPE on the PPE platform, Q6 e-tron, A6 e-tron, and Macan. So eventually, the sales side basically on CARIAD will significantly improve going forward starting this next year. And also with the ramp-up of more MEB cars, the license income will significantly improve.
And at the same time, you rightly expect that the expenditure should go down since we have the improvement of the 1.2 and the 1.1 software in our books and ADAS. But the expenditures for the 2.0 will basically move to the joint venture. So you will see a significant increase in profitability and improvement in the current profitability situation going forward for CARIAD. And the current, I would say, increase in losses in CARIAD has also to do that in anticipation of the software situation going forward, the capitalization rate of the CARIAD software went down in the third quarter. So this was basically driving the profitability situation in CARIAD in Q3. In terms of, and which was also basically a consequence of the software strategy going forward.
In terms of PPE sales, I mean, you're aware we had a repositioning of our ID.3 models. But you're also, and new models are coming, for example, like the Elroq with basically EUR 33,000 in Germany. But you're also obviously aware that, for example, ID.4 and ID.7 and ID. Buzz and other models and the premium models are very stable in pricing. So it's more like, I would say, a contribution to the BEV ramp-up in the fourth quarter and then sequentially into 2025. And as I said before, the ID.2 will be then really the game changer with EUR 25,000 and a very attractive model in the market coming only 2026. So the strategy is like the ID.3 should somehow bridge the time between now and until, for example, Škoda Elroq and the ID.2 is coming.
I wouldn't just look on the profitability on the specific ID.3 model that it's repositioned, but rather on the greater profitability of the ID family and our electric cars. In that, I would say, greater view, the repositioning of the ID.3 plays a minor role in terms of margins.
Thank you, Steven. We are moving on to the next question, which comes from Mike Tyndall from HSBC.
Morning, Arno. Thanks for taking my question. Two questions if I can. Just one, Arno, you've focused quite a lot on the 6.5%. If I'm not wrong, when you first announced the plan, you needed around about EUR 10 billion of savings to get to that. Is that EUR 10 billion number still a valid number, or has the world changed and actually you need more now to get to the 6.5%?
And then just a follow-up on the dividend, and I don't know how much you can help me here, but given the ongoing negotiations, how do the optics of paying the capital side versus the worker side influence that payout? Or is it a hard greater than 30% and what's going on in the rest of the business is separate to that particular calculation? Thanks.
Yeah, no, thanks for the question. I think I mentioned earlier already. Originally, let's put it the other way. The target is clear. We need to achieve the 6.5% in 2026. So we originally started with EUR 10 billion. And so what happened was some of the EUR 10 billion had negative effects. For example, we had some assumptions on pricing and on positive effects on the pricing side. So that didn't materialize due to much intensified competition.
And so we had to, I would say, step up the EUR 10 billion. So the EUR 10 billion are now slightly higher. We agreed that we don't really want to give a specific number on that. But yes, the EUR 10 billion are not significant, but they are higher from today's perspective because we had to factor in the negative effects that had been specifically from the markets, as you see in how the competitive environment is intensifying. This was specifically due to the situation. Look, we came from a chip crisis, and there were basically, from my perspective, there were two phases. First and foremost, in the past, due to the shortage of chips, nobody could build and deliver as much cars as there was demand. And so there were the first step when everybody could build as much cars as everybody needs, as every competitor needs.
But there was still a high order bank. And with the ramp-down of the order bank, not only within Volkswagen, but in the whole industry, the competition intensified significantly, and we had to compensate for that in addition in order to restate that in order to achieve the 6.5%. So the EUR 10 billion were gross, but the real target is the 6.5%.
And on the dividend?
Dividend, we had already answered that before. But please repeat the question. I've missed it as well.
I know that the calculation is 30% or greater, but I'm wondering about the optics of that given what's going on. I know you probably will struggle to answer this, but just how difficult will it be to pay capital when you're in the midst of restructuring?
Yeah, but I mean, I tried to give the answer before on that.
You see the earnings per share going down. So you shouldn't expect the same dividend we paid last year. Of course, there might be even more restructuring, which puts more pressure on the earnings per share as the mathematics works in the P&L. But on the other hand, I also said our dividend policy stands at payout ratio of 30%, and this is what I can say currently.
Okay. Thank you.
Thank you, Mike. So we are coming closer to the finish line, but there are still three to go. We continue with Daniel Schwarz from Stifel. Daniel.
Yes, thank you for taking my question. I had one more technical on the restructuring. Assuming if you had an agreement with unions to cut wages by X%, do single employees need to agree on that?
Assuming they have individual contracts, or can unions negotiate this and the outcome is simply applied to everyone within the collective agreement and outside the collective agreement? And then on China, the proportional operating profit was EUR 1.2 billion in nine months. That's down 37%. The dividend you received is EUR 1.7 billion, actually even slightly up year over year. Could you explain why and how the JVs are paying that much of dividends? And last, just technical question, why is the net cash position expected to increase in Q4 while the free cash flow guidance is negative for Q4? Thank you.
Daniel, for your first question, I must admit I'm not an expert. Yeah, we will find out or give you an answer later on, but I can't answer the technicalities of how that really technically works. So I cannot comment on that. Sorry for that.
China, I mean, look, the EUR 1.6 billion we expect this year and the dividends paid is in a magnitude that the EUR 1.6 billion this year will be relevant for the dividends paid next year. The Chinese are currently paying a slightly higher dividend because that's basically related to the result we earned last year. And on the EBIT, we just distributed. Last year, we had a EUR 2.6 billion proportion operative result, and the dividends we achieve or get this year are based on the EUR 2.6 billion. But as the mathematics works, unfortunately, the EUR 1.6 billion will be relevant to next year, and we have to compensate for that as well in our cash flow.
Yeah, in terms of the cash flow and net liquidity, this has something to do with how we treat the investment and in the Rivian JV and also the convertible that technically will convert basically in the fourth quarter and then burden the cash flow, but the net liquidity is already burdened by it.
Yeah, we'll see a release. Thank you. So the improvement in fourth quarter in the net liquidity has to come from cash flow from financing and not out of the operating or. Which basically is a reclassification of the convertible into M&A, basically. It's included in the M&A focus already.
Thank you.
Okay. Thank you, Daniel. We move on to Michael Punzet. Michael from DZ Bank. Please go ahead.
Yes, Michael Punzet, good morning. I have two questions. First one is on the order bank in Western Europe.
Can you give us, please, a number for the overall order bank and also, in addition, a number for the BEV order bank? And the second question is with regard to the ongoing negotiations in Germany. According to some press articles, the cancellation of the wage agreement will lead to wage increase of up to 10%. Can you confirm that? And if so, when will this effect hit the P&L?
No, the order bank is 870,000. It's basically, to give you a basically rough comparison, 800,000 was the typical order bank we had pre-COVID. So it's really an order bank that was typically for 2018, 2019. So yes, it's down, but it's not significantly down compared to a more normal situation pre-COVID. And the order bank for BEVs is 170. 170. 870 was the overall numb er. 870.
Okay. The other question, yeah, what you have read, Michael, in the press is that if we don't come to an agreement with the unions on the new tariff, then obvio usly the old tariff from 1984 would come into force and that this might then lead to a technical increase of wages, etc., etc. Again, speculation. Yeah, it's rather difficult to say whether really the old regime would then come into play or not. And ask for your understanding that we don't want to comment here on the speculation currently in the press.
Okay. Thank you.
Thank you, Michael. So we continue up. Best for last. George. George Galliers from Goldman Sachs. Please go ahead.
Thank you, Rolf, and thank you, Arno, for taking my questions. The first one I wanted to focus on was personnel costs in light of the negotiations that are taking place.
If I look at your reported personnel costs as a percentage of revenue, they were just over 15% last year. If I look at the majority of your peers in Europe, the ratio is closer to 9%-11%. As part of these negotiations and also as part of the 6.5% margin target for VW brand, are you looking to get down to parity with your peers, or are you simply looking to close some of that very material gap? Second question I had was with respect to the range extender technology that you have unveiled with Scout. Is that a technology that you have developed at Volkswagen, or is it something you will develop in conjunction with Rivian? And do you plan to also examine using range extender technology in both Europe and China going forward? Thank you.
Yeah, thanks for your question there.
Looking at the personnel cost, of course, we have a target for the personnel cost. We don't really calculate it specifically like for like with our competitors because that has heavily to do something with the value-added depth, and as you're aware, we run also a lot of component businesses in Germany. Braunschweig, for example, Kassel for gearboxes and electric engines, Salzgitter for engines, and also in Wolfsburg, so I would expect that our value-added depth is higher than from the competitor, so even with a 100% competitive position, you should expect a slightly higher percentage of personnel cost because that would, compared to other competitors who had less value-added depth, should be a material cost by them.
So rather than comparing on that cost proportionally, we look on what needs to be done in order to be 100% competitive, both in terms of margin, but in terms of factory costs. And we have a clear factory cost target for all factories, obviously, but we specifically have to bring our factory costs down in our German operations, in our German factories where the personnel costs from the factory costs are disproportionately high. Of course, we have targets there, and not only in terms of costs per hour, but specifically also in terms of productivity. And with the implementation of the measures there to become competitive also in the German plants, the personnel costs as a percentage point should obviously significantly go down. Yeah, and your second topic on the range extender, no, the range extender was really developed by Scout together with Volkswagen.
As you're aware, the range extender's concept is a specific concept where you have a battery, and it stays 100% electrical concept. You either have a big battery for the Scout or you have a smaller battery. In the package that you free, you implement the engine and the gas tank and so on. This concept is a concept that is specifically suitable for bigger cars with a bigger footprint. The concept is more difficult to integrate into smaller cars. This is why we start with Scout. Of course, we look on the different options, but for the time being, the range extender concept is really a concept we want to bring firstly at Scout. As said before, it's an all-electric Scout, and the range extender, as you know, charges basically the battery.
Great. Very good. That concludes the Q&A session for today.
Thank you very much for the very vivid discussion we had. Of course, if there is anything left unanswered, yeah, please contact the team here in Wolfsburg, Lars, myself, or any of the other IR members. Next time to meet us is at our virtual and physical roadshows in London and the US and in Paris. The fiscal year results will be released on March 11th, and now we go for a short break, yeah, before we return in about five, seven minutes, and then we'll continue with the media session. Again, thanks very much. Stay healthy and looking very much forward to catch up in person or virtually over the next couple of weeks. Thank you.