Good morning, everybody, and a warm welcome to our Q3 conference call. I'm Sebastian Rudolph. I'm heading Global Group Communications, and this time this is a joint call with media and with investors and analysts. That's why, two nice colleagues are with me. Rolf Woller, our Head of Treasury and IR for the investors and analysts, and Nicole, as you all know, for the media team, our Head of Group Communications. With us today are two important persons, our CEO, Oliver Blume, and our CFO, Arno Antlitz. Welcome to you as well. Before we start, I want to make some housekeeping remarks. First, we have already published, and you should already received the press release, the interim report for the first nine months, and all other PR related materials.
If not, you can find them on our media and investor relations website, or give us a call and we send them the material directly. Let me give you a brief run-through of the next 90 minutes. First, Oliver will talk to you about the highlights of the first nine months and the third quarter. He will also outline the current and upcoming challenges and foremost, his strategic approach to tackle them. After that, Arno will take a closer look at the financials, and then we will host a Q&A session, like described, with investors and analysts community, and after a short break, with the media. With this, I hand over to Oliver. The floor is yours.
Thanks, Sebastian. Good morning, ladies and gentlemen. I'm excited to be here with you today for the first time as Volkswagen Group CEO, and thanks to you for joining us and taking the time. Despite numerous global changes, we achieved a lot with solid financial results. Overall, Volkswagen Group's operating result before special items in the first nine months increased to EUR 17.5 billion, reflecting an operating margin of 8.6%. In quarter three, the operating result increased to EUR 4.3 billion, corresponding to a margin of 6%. The performance was burdened by non-recurrent items, totaling EUR 1.6 billion. The underlying margin came in at around 8%. Our recovery in China continues to accelerate, with a 26% increase in deliveries in quarter three and 33% increase in deliveries only in September.
The Porsche IPO has demonstrated the continued strength of our brands and the opportunity of realizing their full potential across the Volkswagen Group. Arno will talk in detail about the last quarter shortly, but first, I want to talk about my leadership priorities. I want to build on our recent success using the five leadership principles I applied at Porsche, and I've been rolling out across the whole group. The Volkswagen brands are among the most important criteria for customers buying our products. We will be positioning and sharpening our brand, our brands better. I've seen the great work from colleagues across the different brands when I visited the sites of Volkswagen, SEAT and CUPRA, Škoda and Audi within my first weeks. I personally was impressed by the great team spirit, brand strategy, and the individual design language.
Our product start with a clear strategy, a design focused on brand identity, product identities, and above all, quality. When I visited the major brands, I asked for status quo reports per brand to define the current gap versus benchmark, particularly in terms of user interface. We will not compromise on quality or user experience ever. I'm very focused on people working together, helping each other, and winning together. Culture play a big role to live it every day, being role model, and that starts with me personally. Too does entrepreneurship. Innovation combined with engineering excellence is a bedrock of what Volkswagen does. We intend to drive this even more going forward. Last but not least, sustainability. For me, the biggest challenge of our generation is to leave behind a better planet for future generations.
As one of the world's largest automobile companies, we will ensure we take a global approach to help solving the environmental challenges with which confront us. There are several challenges that the automobile industry currently faces. First of all, there are worrying geopolitical developments, particularly the rise of nationalism and protectionism. This includes growing barriers to technology transfer between East and West. Challenges to our supply chains will become the rule, not the exception. In order to set up our supply chains more resiliently, we founded a separate organizational unit. This organization will provide the Volkswagen Group with relevant risk and strategy information and analyzes potential risks in advance to identify threats to supply security. We want to be in a position to deal with different possible risk scenarios at any time and avoid having long lead times for preparation.
At the same time, the speed of technological change is transforming our industry. In markets like China, we are competing with new BEV-only entrants to the industry that are appealing to young people, the country's future drivers. That means when it comes to software, autonomous driving, but also the performance range and charging times of our cars, we must accelerate our transformation. I have no doubt that Volkswagen will successfully meet all of these challenges from a position of strength, and we will work hard to continuously show proof points along the way. This is due to our financial resilience, scale, great products that millions of people across the world aspire to buy. We know we have the opportunities and the means to win. I have introduced a 10-point program outlining our key priorities for the next few months.
This is about executing our new auto strategy, which we strongly believe is the right framework to accelerate our ambitions. To do so, it will be critical to speed up the implementation of my ten-point program. That's the advantage when I started at Volkswagen, that I was involved during the last years very deeply in the situation of Volkswagen, and I was able to start from the beginning. Now I would like to lead you a bit through the ten-point program that you understand what is behind. First of all, it starts with our planning round to focus on increasing our financial resilience, to give a very clear KPI framework for the brands and focusing on our product range.
It comes overall to our products, starting with a clear product strategy. It comes to design, having a clear profile for brand identity, for product identity, then the technology strategy. Having a long jump when it comes to new product comparing to the competition. We already started a speed quality initiative. At the end, what is very important are the product returns on the financial level. Talking about the regions, China play a big role, and there it's up to us to have the right China product strategy when it comes to profit pools, customer profiles of our brands, because everything is about the customer perspective.
Having the right product, talking about technologies and the content we are offering to our customers. North America plays a big role being flexible in our global footprint, and therefore also the product portfolio and cycle plans plays a big role. It is about localization of our issues in the U.S., planning to continue with our Chattanooga plant, where we are ramping up currently the ID.4. What we already published is a new approach with the brand Scout, where we will tackle the pickup business. Coming to the software issue, and this one was discussed a lot during the last years.
I think what is very important to look ahead and making a redesign of CARIAD, focusing on the core competencies for the future, having clear where we have the interfaces with the brands and what partnering do we want to have. I think when there are existing solutions in the market, it's not necessary to design and develop them by our own to working together with strong partners. Then it's up to us to optimize our processes, tools, and the organization of CARIAD. We already kicked off this process, and this afternoon we will come to the first decisions. It comes to technology, our platforms for the future and the profiles we do have with the technological footprint.
It will be about the platform allocations and the product mapping in between the brands with a big opportunity we do have with the scale effects in between the Volkswagen Group. Important for the ramp-up of our strong battery and electrification strategy is the deployment planning of our battery plants and supported with our charging strategy and a clear implementation plan. Besides this, more important than ever is a clear energy strategy. Mobility services play a big role for us as a global company. We announced that we bought Europcar as a new partner for our mobility services for Volkswagen, and there we kicked off a restructuring program.
This top 10 point is about development of our mobility platform and at the end of consolidation of mobility activities. As we announced, also when it comes to autonomous driving, we altered our roadmap. We announced a partnership with Horizon Robotics in China. We will continue to develop Level 4 driving with Bosch for the other regions of the world, and we are in good discussions and talks with another partner approaching with Level 2++ and Level 3 driving all over the world. On the other side, we decided not to invest even more ever more in Argo AI, and that's like in the transformation years ago, we started with different approaches, and now it's up to us to alter our roadmap.
Sustainability plays a big role for us and in our strategy, and I personally stand for sustainability as you know it, with the sustainability footprint of Porsche. For us, it's important to have clear KPIs for all our brands and regions, and then establish an ESG program for all the brands and brand groups of our group and having the right footprint and being measured with our progress in our sustainability approaches. Last but not least, this is what my experience of the last month is being focused on the capital markets. Having clear and an analysis of the levers to increase the value of the group and when you see the big success of the Porsche IPO for us, this is a role model.
Looking only to the last four weeks, the shares increased over 20%, and that shows the potential we do have in our brands. Therefore, I established and kicked off a virtual equity story for all brands to unleash the full potential, and this will lead to a complete equity story for the Volkswagen Group, where we will plan a capital markets day in the next year, presenting to you how we want to lift up the value for the whole group. All this shows that we are ready to accelerate our group's transformation with a relentless focus on product quality and shareholder value. I will continue to update you on the progress we have made and to provide further details about my specific priority in due course.
With this, I will hand over to my colleague, Arno, to run you through our quarter three results in greater detail. Thanks for listening.
Yeah, good morning and welcome, everyone, to our today's nine-month combined investor analyst and media call. Thank you, Oliver, for the introduction and brief overview. Now let's change to the financials and the operational business. Before getting into details of our finances, we should not forget to mention that the war in Ukraine is lasting now for 246 days, and that our thoughts and wishes are with the people in the Ukraine. Within the next 20 minutes, I will take you through the major milestones we have achieved in Q3. In summary, our supply of semiconductors has somewhat improved and COVID impacts have at least temporarily reduced. We see, as expected, a significant higher impact from material costs, including energy costs. At the same time, disruptions in supply chains prevail but are carefully managed.
We delivered solid 9-month results with an operating profit before special items of EUR 17.5 billion, corresponding to an operating margin of 8.6%, slightly ahead of our full-year target and showing the robustness of our business model. The Premium and Sport brand groups continued on their strong path. Volume brand group was a little weaker, reflecting the regular seasonal pattern and impact of semiconductor shortages. Non-recurring costs related to the Porsche IPO and impacts from the revaluation of certain parts of our activities in Russia burdened the result in the third quarter by around EUR 1.6 billion. Before these effects, the underlying margin in Q3 was above 8% for the Volkswagen Group. At the end of September, we entered a new era by successfully listing Porsche AG on the stock market.
This was the largest IPO in Europe in terms of market capitalization, an achievement we are very proud of, specifically in the current environment. PowerCo and Umicore established a joint venture for European battery materials production at the end of September, and we are in the process of realigning our mobility as a service and transport as a service activities. Going forward, Volkswagen Commercial Vehicles has decided to cooperate with a different partner to develop a self-driving system. Therefore, Volkswagen will not continue to invest in Argo and is withdrawing as a shareholder. This decision led to a non-cash impairment of EUR 1.9 billion in Q3, shown in our financial result. I'm aware that the gas issue is on top of your minds, so let's spend a few moments right away on this topic.
We are effectively managing the gas supply situation and have put a group-wide task force in place. Effective countermeasures have been implemented in our German and Eastern Europe plants, like switching fuel to coal and oil, reducing energy consumption by reducing heating. We have also stocked up on selected critical parts to buffer production, and we see a low risk of any production stops in the winter period of 2022-2023, assuming average temperatures. Let's have a brief look at our unit sales in Q3. Our deliveries included favorable pricing and low incentives. July and August were weaker due to the typical summer holiday seasonality, with September improving to a run rate of around 750,000 units a month. We recorded a significant increase in deliveries in China as the COVID shutdowns were gradually lifted and the government stimulus kicked in.
Order backlog in Western Europe remains on a high level that will stretch well into the first half of next year. Vehicle sales for Volkswagen Group came in at over 6 million units in the nine-month period, around 220,000 units less than the prior year, caused by ongoing limited vehicle availability. Despite lower sales revenues amounted to EUR 203 billion, including EUR 7.6 billion from the consolidation of Navistar and up 9% from the comparable period. The operating result before special items came in at EUR 17.5 billion. The operating margin stands at 8.6%. Operating result for Q3 came in at four point three billion euro, corresponding to an operating margin of 6%. This clearly looks underwhelming at the first glance.
However, as mentioned earlier, the underlying margin without the cumulative non-recurring items of EUR 1.7 billion for Russian impact and the Porsche IPO costs was about 8.3%. This solid result demonstrates the continued robustness of our group in a challenging environment. In Q3, we had a negative effect of EUR 0.1 billion from fair value measurements on hedging instruments outside hedge accounting. Our financial result came in at minus EUR 0.1 billion in the nine-month period. Our interest results improved significantly year-on-year due to the positive effects from discounting of long-term provisions based on higher interest rates. As mentioned earlier, we made a non-cash impairment of EUR 1.9 billion in Q3, reflecting our withdrawal from Argo AI. Reported net cash flow came in at EUR 5.6 billion. Clean net cash flow amounted to EUR 9.2 billion.
The difference relates to diesel payouts of EUR 950 million and M&A outflows of EUR 2.6 billion, thereof EUR 1.7 billion related to the European car settlement in Q2. Working capital is burdened by higher inventories, due mainly to the ongoing supply disruptions with a significant increase in unfinished goods, especially in Q3. Currently, about 150,000 unfinished vehicles are waiting to be completed and finally delivered to our customers soon. The Volkswagen automotive net liquidity stood at a robust EUR 31.6 billion, an increase compared with the EUR 26.7 billion at the end of 2021 and at the end of Q2. It's not including the proceeds from the Porsche IPO, which will be booked in Q4 2022. Now, coming to the performance of our divisions.
Passenger cars delivered a solid EUR 12.1 billion operating result and a margin of 8.8% before special items. Our commercial vehicles came in at EUR 1 billion and a margin of 3.4%. The financial services division continued with their strong performance also in Q3 and recorded a cumulative profit of EUR 4.2 billion. Moving to our passenger car EBIT bridge, the strong EBIT result before special items of EUR 12.1 billion for the passenger car business was mainly driven by a positive mix effect from well-equipped cars and favorable pricing. The FX exchange rates and derivatives turned year on year into a small burden of EUR 0.3 billion. Product cost deteriorated further to minus EUR 3.7 billion due to increasing raw material costs.
The positive fixed cost and others had a negative effect of minus EUR 1.8 million from higher R&D, non-recurring Russian impairments, Porsche IPO costs, and other effects. While our fixed cost program continuously contributed to the resilience of our business. After special items, the result came in at around EUR 11.7 billion, including minus EUR 0.4 billion for diesel-related costs. Looking briefly at the brand group reporting within the passenger car business, the Volume Group came in with an operating result of EUR 3.7 billion. The cumulative margin for the nine-month period amounted to 4.6%. The margin of Volume Group decreased in Q3 to 3.8%, mainly as a result of summer seasonality and plant shutdowns during the holiday season.
Brand Volkswagen came in at a cumulative margin of 4.7%. Positive mix and pricing and good performance of the regions North and South America had a positive impact, while increased raw material costs burdened the result. Škoda's margin at 5.6% year on year to date, which is a decent performance as they are continuing to consolidate our Russian business. Our premium group came in with a very solid operating result of EUR 6.3 billion and the margin of 14% for the first nine months, benefiting both from strong mix and pricing positive forex effects as well as the positive effects from derivatives. The demand for volume group vehicles remains strong and the order bank is well-filled. Lamborghini and Bentley performed extremely strong. Synergies within the premium group are clearly materializing.
Porsche is well underway with 221,000 units sold in the first nine months, showing an impressive return on sales of 19.4% in its automotive business. The result was mainly driven by improved pricing, better product mix and positive Forex. Net cash flow continued to be solid and totaled EUR 3.3 billion in the first nine-month period. The average price per vehicle remains at EUR 110,000 per car, up 10% versus prior year. Car sales revenue improved, driven by license revenues with brand groups reflecting the ramp-up of our MEB cars. The negative operating result and cash flow reflect the ongoing ramp-up of our business. Volkswagen will significantly strengthen its regional development expertise for autonomous driving in China through the joint venture between CARIAD and Horizon Robotics recently announced. Coming now to our commercial vehicle business.
TRATON unit sales are up 11%, supported by Navistar consolidation. The operating result came in at nearly EUR 1 billion for the first nine-month period, with an operating margin of 3.4%. We saw a significant impact on operating results from supply shortages, higher costs for raw materials and production stops at MAN, as well as impairments related to the disposal of sales business of Russia of communicated EUR 0.2 billion. Net cash flow was impacted mainly by payments related to legal proceedings, EUR 1.4 billion and working capital movements. Our financial services contributed to deliver strong results and reported an operating result of EUR 4.2 billion. The Q3 operating results was burdened by impairments related to financial services business in Russia of around EUR 0.5 billion. Contracts remained stable while used car business positively contributed.
Looking at our JV business in China, Q3 improved significantly, driven by improved chip availability and boosted by the government stimulus. However, the quarter still was impacted by heatwave and regional COVID resurgences. The proportionate operating profit of our JV business in Q3 came in at EUR 1.2 billion, driven by pent-up sales. We continue to thrive in 2022 for a higher Chinese proportionate operating profit than in 2021, depending on the further development of the pandemic and semiconductor supply. Now let's come to the outlook for 2022 and to make it short, we confirm outlook from H1 in major material aspects. However, we now expect our deliveries to customer to come in on similar level as prior year. This is mainly due to limitations in our production, driven by the supply chain constraints.
Revenues are expected to reach the upper end of the range between 8% and 13% due to the continued positive mix effect and pricing. We remain confident to end up at the upper end of our margin guidance between 7% and 8.5%. Reported net cash flow is expected to stay at the same level as in 2021. However, this depends on the ability to transport and deliver the Q4 production to customers and also on the timely completion of processing and settling of the corresponding invoices. We are determined to reduce stocks as much as possible by year-end. However, this will be challenging since we are holding a buffer of critical parts and expect a certain amount of nearly completed vehicles awaiting specific semiconductors also at the end of the year.
Ladies and gentlemen, we are focused on the financial steering of the transformation. Let me give you a brief glance on where we stand on some of these topics at the end of nine months. In Q3, we sold 149,000 BEVs, reflecting a total share of 6.8%. Our year-to-date share is now 6%. Especially in Western Europe, we continue to hold a strong order bank above 350,000 vehicles. Volkswagen Group continues to hold the number one position in Europe. Demand for ID.5 is above our expectations, and ID. Buzz shows great customer response for both cargo and people variants. In China, the Q3 e-tron was also well-received. In China, we are currently at 113,000 BEV units and still see our year-over-year target of up to 180,000 units in reach.
Reflecting the continuous increase in BEV deliveries in Q3, we have our 7%-8% full-year target firmly in sight. To finance our ambitious transformation towards electrification and digitalization, we have initiated in 2021 our overhead cost program. We achieved our 2023 target of -10% cut in overhead costs already in 2021. So far, we are able to largely compensate inflation on the fixed cost side. However, there are first evidence that fixed costs are surpassing prior year's level, driven by higher energy prices. To compensate for that, we will intensify our efforts. Prudent capital deployment and synergies across brands stay on our top priority. In the first 9 months, the R&D expenditures within the automotive division increased to EUR 30.8 billion. Due to a significant development activities for future BEV models and software technologies within CARIAD.
At the same time, the group spent Around EUR 7.2 billion on CapEx. CapEx ratio is at 4.3% with the retooling of the MEB in our Emden plant, Hanover and Chattanooga being one of the major drivers, increasing worldwide MEB capacity to close to 1.5 million cars in 2023. Further CapEx expenditure in Q4 can be expected relating to our new Audi plant in China and for a new electric platform, PPE, at Audi at Porsche. Our forecast for R&D as percentage of sales is at 8%, while we now expect our CapEx ratio to be around 5.5%. This shows clearly our focus to compensate for higher R&D for BEVs and our software stacks with CapEx discipline.
With the Porsche IPO, we pursued a successful and at the same time, one of the largest IPOs in Europe in a challenging environment. Looking at the proceeds from the Porsche IPO according to the exemplary deal value, in total, we will receive gross proceeds of EUR 90.5 billion. Our shareholders will participate via a special dividend of EUR 9.6 billion. It is planned to be paid out at the start of January 2023 based on the resolution of the extraordinary general meeting, which will be held on coming December 16 th. The funds of more than EUR 9 billion that will stay with us will play a vital role in financing the acceleration of the transformation, in particular in supporting the development of our own battery businesses in PowerCo.
We expect a safe and sufficient supply and efficient supply of batteries to be a key differentiator in our industry. PowerCo will be a key decisive competitive advantage in the future and will make a significant positive contribution to our business. Ladies and gentlemen, let me finish today's presentation with our steering metrics, in our view, the key to success in managing the transformation. Based on a very convincing product range, our brand groups performed well in a challenging environment. At the same time, we continued to drive forward our key platforms. Within all value drivers, we achieved good progress so far. BEV sales are significantly up year on year, and we are inside of our share of overall sales target for the full year. The joint venture between CARIAD and Horizon Robotics to develop ADAS demonstrates a further step in software strategy.
China for China, the partnership between PowerCo and Umicore further enables our BEV strategy, and our realignment of MaaS/TaaS will allow us to optimize our development of solutions for autonomous driving. We have achieved strong operating results across all brand groups and our financial services business despite tough conditions. Based on a very sound balance sheet and a robust net liquidity position, we continue to transform Volkswagen towards electrification and digitalization, keep focusing on integrity and ESG, and continue our path of decarbonization for a planet worth living on. Ladies and gentlemen, I'm aware that you're anticipating an event in Q4 as part of our regular reporting that would usually cover the five-year planning round. After careful consideration, we have decided not to hold this event in November.
We are facing a different economic reality than in the time when we set up the framework and assumptions for the planning round. This has to be reflected in our plans, which takes a little bit more time. We will, for sure, give you an update by March 2023 during the annual press conference and in detail in our capital markets day in Q2 next year at the latest. Thank you for taking the time and listening so far, and now we are very much looking forward to answering your questions.
Thank you, Arno. Now we are opening up the question and answer session to our investors and analysts. In order to raise a question, you must press star followed by one. I think I see the first question coming in here from Tim Rokossa from Deutsche Bank. Tim, please go ahead.
Yeah. Good morning. It's Tim from Deutsche Bank. Thank you, Rolf. Thank you, Oliver, and thank you, Arno. I would have two questions, please. The first one is, Oliver, we're generally hearing a lot from you about independence of the brands, potential equity stories, IPO deals, all of them. At the same time, obviously, a group holding like yours only really makes sense when you can reap synergies out of those products that customers don't directly see. How do you intend to balance the independence versus the synergies? Where do you see the biggest synergies? And in particular, on the software side, you were advocating for a lot of independence in your previous role as Porsche CEO. Is that still the case?
Then secondly, when we think about the BEVs, arguably, in particular on the mass market side, they are not very impressive versus the competitive offering. Hyundai has the 800-volt charging infrastructure. The Chinese peers put a lot more tech into these vehicles. Do you believe you need to step up your game there substantially? Can you do that at the current cost structure, or does Arno need to find money elsewhere? Thank you.
Okay. May I start? Tim, thanks for your questions. First of all, to explain a bit, what is my idea to steer the group and at the end, our customers are focused very much on brands and our brands have got the biggest priority. There's in between brand autonomy and synergies in between the group. Our group has got the responsibility to manage the synergies in between the brands.
Giving a KPI, a framework, what is our expectation as an investor for the brands. Therefore, organizing synergies, it's all about platforms. We have scale effects more than any other automotive company in the world, with the scale effects in between our brands. Therefore, we have a very special platform program I mentioned before in my speech. When it comes to software, we have the unique opportunity to share software platforms. Once they are being ready, it's easy to copy from one product to the other. That's the responsibility of the group to manage it.
When it comes to our brands, it is important to have a clear footprint in terms of design when it comes to brand identity, product identities, but also the financial footprint. Therefore, that was my experience of the last months with the Porsche IPO, is building a viable equity story for all brands. Focusing on the right things, having a clear strategy, which is also attractive for the capital market. I think we have exactly the right balance between the steering model from the group and empowering our brands with entrepreneurship. At the end, exciting our customers what is the most important issue. Coming to your second question about our BEV footprint.
Therefore, I established with my top 10 program also a technology initiative which is focused on our platforms, but also on the technology footprint. Therefore, we have a clear analysis where is our competition today, where will be our competition in 5 years, and then to leverage what we have to do in our different platforms to have the right positioning for the future. I'm very confident having started this process and with the experience we do have in our brands we will be able to do so. The expectations of the customers in the different regions of the world are different. Therefore, we need the...
To offer the different ecosystems for our customers in the Western and in the Eastern world. When you look at China, the expectation especially from the younger customers is totally different. They are very technology-focused. We will have there also the right approach together with my colleague Ralf Brandstätter in China. We know what we have to do. We are very confident that we will be able to do so and counting on our experience in the whole group.
Do you believe you can achieve these improvements with the budget you have set yourself so far, or do you feel there's a need to spend more money?
Yeah, that's about us, and that's a big advantage we do have, our scale effect. With an intelligent platform strategy, we share our technologies between the brands. We will come to a positive cost structure. We have already shown it in the last years, in the crisis years. When you look at the CORONA year, at the semiconductor year, and this year we are faced with several crises. Still, CORONA issues, supply chain issues and the geopolitical crisis. We are coming from a position of strength, and we will be able to do so and benefit from our very positive scale position.
Thank you, Oliver.
Thank you, Tim.
Tim, I would like to do one more aspect or add one more aspect to that topic. If you look at the BEV sales, we mustn't forget that we are heavily supply constrained. We sit on the order bank in Europe only of 350,000 BEVs. That shows the huge success of the MEB cars in Europe and also the great customer response and the product substance. If you look at the, for example, the response to the ID. Buzz or other cars, so they are very well received in the market.
Thank you, Arno.
Okay. Thank you, Tim. Looking at the list, the next one is Patrick Hummel from UBS. Patrick, please go ahead.
Yeah, thank you. It's Patrick from UBS. First question for Oliver, please, regarding your comment about the virtual equity stories that your brands will be elaborating. You know, looking at the Porsche IPO, it's been hugely successful for Porsche AG, and congratulations by the way. Looking at VW share price, it hasn't really helped. On the contrary, you now have an even larger sum of the parts discount in the Volkswagen shares. I wonder when it comes to elaborating these virtual equity stories, do you also think about different ways of crystallizing the value, for example, via spin-offs rather than minority IPOs? Any thoughts on that would be appreciated. The second question, I'm not sure if that's for Oliver or for Arno.
I'm a bit confused by the order comments we hear, also from your organization. Order intake has been slowing in Europe. We hear from dealers that the situation in Europe looks pretty difficult these days, including cancellations. Could you maybe just comment on the development of the order bank? Where do we stand at the end of the third quarter versus the end of the second quarter? Thank you.
Yeah, Patrick, thanks for your questions. I would like to start with your first question, and I hand over to Arno. Coming to the virtual equity stories, that was my learning effect from the lasst month preparing the Porsche IPO, coming from the investor's perspective, with all these questions from an external. It brings you to a situation to focus more, to unleash the potential of your brand. Then I came to the idea why not start a process with virtual equity stories, to sharpen the profile of each of our brands.
Coming to your comment that the value of the whole Volkswagen Group hasn't yet benefited from the Porsche valuation. I think the Porsche IPO shows the potential we do have in Volkswagen Group. We still have a conglomerate discount. I think when we will be able, with the various equity stories, to crystallize more the value of the whole brands and then decide where is potential for the future, maybe to bring other units to capital market. It isn't decided yet. We are coming to a preparatory process where the capital market will also benefit.
I think on the one hand side, it is a good exercise to improve the profitability of each brand. On the other side, to crystallize the real value of Volkswagen Group. I think the Porsche IPO was a perfect role model. The advance in the market we can see right now that the development during the last 4 weeks only was over 20% of the shares of Porsche in difficult market conditions. I'm very confident that we will go this path with all the other brands and at the end to improve the value of the whole group. It is a positive signal for the capital market.
Patrick, I come back to your question on the order bank and on the situation. Look, we sit, as said before, on a huge order bank. It's about 6 months in Europe, and the 6 months equals to 1.9 million cars. And if you ask for the development, it's really difficult to judge because from today's perspective, we don't have really a significant change in order entry. There are some slight decreases in order entry. Look, some of the cars are really sold out, not only for 2022, but for example, the Q4 e-tron has basically a pipeline of 18 months.
Of course, if you are basically have so long lead times, there are like first customers who say, "Look, this is rather long." On the other hand, not even all the channels are fully open because, I mean, it's pretty clear and you would support that in a time where we don't have enough semis and enough stuff capacity, we would concentrate on the more like profitable channels. For the time being, we are not worried about order bank or order entry so far.
Thank you both.
Thank you, Patrick. Moving to the next question, José from J.P. Morgan. Please go ahead.
Thank you very much. Good morning, everyone. It's José from J.P. Morgan. A couple of questions, please. Oliver, how do you think about CARIAD strategically for this year and for the coming years? You know, on one hand, we've got a substantial negative earnings contribution in the P&L to an extent, you know, offsetting the profitability generated across some of the brands. On the other hand, it is vital and strategic for the group. Can you just help us understand a bit better whether you're planning to reduce the losses maybe in the coming quarters? What's your thinking here? Especially also in the light of the other announcements we've seen on software and autonomous cars across your competitors.
Second, Arno, can you speak a little bit around the pluses and minuses when we think about the fourth quarter versus the third quarter, what are the positives and key negatives we should think about in the light of your confidence to hit the upper end of your margin range guidance for 2022? Thank you.
Yeah, José, may I start with your first question about CARIAD? First of all, it was the completely right decision to go for our own operating system for the Volkswagen Group, only thinking about the scale effects we do have in between our group. To ramp up a company like this cost efforts. That's very clear all over the world, also in other industries. We are tackling the problems and it's not a secret. It was discussed a lot in the media about the issues we do have in CARIAD.
Now we are looking ahead, what we have to do, and therefore I started an initiative from my first day on in Volkswagen Group. To focus on the core competencies of CARIAD on the one hand side, to define very clearly the interfaces we do have in between CARIAD and the brands, to optimize them, and then to build a clear partnering profile for the different generations of software in CARIAD. Besides this, we are close to finish a clear picture what content do we want to connect with which generation of software. What will be the starting time for which generation, and then we build and rebuild our cycle plans with this approach.
Besides this, we already started optimizing processes in between CARIAD, optimizing tools and organization. Now we are in the middle of this optimization process. We continue to invest heavily in software, and we will have the scale effects once we are able to make the application to the product. We will be in the market in 2024 with the first product with the software generation 1.2. Developing this generation even further for a lot of other products coming in this decade. A further step will be the 2.0 generation, especially prepared well for the autonomous driving issue when it comes to level four driving.
Both generations are perfectly prepared for the market. I personally have driven the cars from Audi and from Porsche with the software generation 1.2, and I'm very confident that we are hitting in the middle of the market and our customer needs. We will improve step by step by CARIAD and having the right footprint for CARIAD for the future. I hand over to Arno to your second question.
Yeah, José, talking about the fourth quarter. Let's start with what you've said already. We are quite confident that we can end at the upper end of our margin guidance. I think it's best to describe the fourth quarter in terms of our EBIT bridge. Look, the first bucket, volume price mix, it clearly will be a positive from the volume side, and we plan to keep on our current path in terms of mix and pricing. We have a great track record there so far, and we want to keep that path. There might be a slight deterioration in terms of country mix once we have more cars available throughout the world. Yeah, we also want to sell some more cars than in, for example, Brazil or other countries.
In general, pricing and cost, pricing discipline and mix discipline will stay volume positive. We don't expect major changes on the currency side and derivatives. We expect from today's perspective a significant higher burden on the material cost and the product cost side. You're aware we communicated a minus EUR 3.7 billion product cost so far. You shouldn't be surprised if that goes up to EUR 6 billion for the full year. There is also a slightly higher burden on the fixed cost side, specifically due to energy and other topics. Again, there will be a significant positive effect on the volume side.
You can see that on the run rate already in the end of Q3, and also we see the run rate already in October. We will continue our path on the fixed cost side and cost discipline. Overall, despite the headwind on product cost, we are quite confident. Not in the EBIT bridge of course is our FinCo, but there we see also clearly positive signs that I think they guided so far a result of EUR 5 billion. We shouldn't be surprised if that goes more like to EUR 5.5 billion and beyond.
Brilliant. Thank you.
Thank you, José. We move on to Horst Schneider from Bank of America. Horst, please go ahead.
Yeah, thank you for taking the question, Horst Schneider here from Bank of America. Maybe first of all, question for Oliver Blume. When you talk about your future strategy in an interview, you've said that you want to stress strength of product, and by strength of product you want to gain back market share. That sounds to me a little bit like a volume strategy that you want to run with less focus on cost. Gaining back market share, that takes of course time because model developments take time. What you intend to do in an environment which is getting maybe more recessionary, would you be prepared to step up the cost cutting?
In that context, again, I know that you have got your CMD only in 2023, but can you at least confirm all targets that have been set for your predecessors before? For Arno, a question on full year guidance again, and I want to follow up on the question that José has asked. When I do the calculation, then basically, your revenues should go up by something like, I don't know, at least EUR 5 billion quarter-over-quarter, 15% year-over-year. You made last year in Q4 a 9%.
Clean operating margin you guide now implied for just 8%, despite your revenues are strongly up year-on-year. I understand the calculation about the product costs, but don't you think that your Q4, implied Q4 guidance is still rather conservative? If it's not conservative, doesn't that mean as well that you have got a cost problem because the costs at the moment increased much more than you originally planned? Thank you.
Yeah, Horst, I would like to start with your product question. Products are the focus of our company and therefore very clearly products are one part of my top ten program. This starts with the right product strategy, then the design approach to sharpen the profile of each brands with brand identity, product identities. Then having the right level of technology and the quality profile, which we already kicked off. That at the end coming to the financial profit margin of our products, and they're having the right footprint for each of our brands. That's the content, how we are driving this process.
It's not about only focusing on volume and saying very clearly my priorities. First priority is profit margin. The second one is operating profit. The third one, we say it's revenue. On the fourth level is coming volume. That shows to you how we are focused. Talking about the cost situation of our products, we are in good conditions because of our scale effects, benefiting from our platform strategy. We think with the right shape of our platform strategy and product strategy at the end focused on profit margins, we will prepare the group for future success. Handing over to Arno.
Oliver, you confirm all targets for 2023 and 2025. Sorry for that.
What targets you're talking about? The profit margin for the group or operating-
I talk about all targets, but specifically, of course, for the profit margin targets are 7%-9% in 2023 and 8%-9% in 2025.
Yeah, we will comment to you about the profit margins in our annual press conference. What we can say for this year, that would be in the upper part of the range in between 7%-8.5% profit margin. What is very clear, given my strategy, very focused on profit margins, that I will go for more potential for the future. It's too early to predict. We will do so in the annual press conference.
Mm.
How we will build our path and therefore, Arno said, with all the activities we are doing right now and with all the situation we have faced all around Volkswagen, we will present all the details of our planning rounds in the spring of next year.
Okay. Thank you.
Yeah. Just coming back to the question. I really all I can say is we are rather confident to achieve the margin guidance between 7% and 8.5% at the upper end. I also gave you basically an indication already on the headwind on material costs. I also must say, look, giving the difficult environment so far, we really showed robust results. We work on the fixed cost side, and we will continue on that path. Let's leave it like that. Rest assured that we do everything like to run our business also in the fourth quarter, and we are confident to end at the upper end of the guidance.
Whether it's conservative or not, I don't wanna really comment on that right now. Yeah.
Okay. Thank you.
Thank you, Horst. We are moving on to the next question from Philippe, from Jefferies. Philippe, please go ahead.
Yes, good morning. Thank you, Rolf. Philippe Houchois, Jefferies. I have two questions, maybe the first one for Oliver and then for Arno. Oliver, on this decision to exit the Argo AI, I mean, unlike Ford, which is exiting these level four, level five ambitions, you are committed to it. You seem to be choosing two different partners, which I fully understand, Horizon for China and Bosch for the rest of the world. I'm just trying to understand how much duplication of technology is required to address different market requirements or how much synergy there is going to be between what you're doing with Bosch and what you're doing with Horizon.
Still trying to, you know, understand, are we kind of doubling down on spending or are we getting an attractive level of synergy between the two approaches considering two different partners? My second question for Arno is, as you know, Volvo Cars has started to disclose the gross margin of their BEVs versus ICE, and there was quite a deterioration in the third quarter, which they explained with a significant increase in cost, particularly related to EVs and batteries. I'm just wondering if you can comment on any change in cost trends for you on your BEV activities that might positively or negatively impact your margins. Thank you.
Philip, to your first question, about Argo or the whole roadmap for autonomous driving. We kicked off several initiatives some years ago, and that's normal in a period of transformation when the technology isn't clear to go for different approaches. Now it's up to me to order our roadmap and to focus. Focus also means speed. Therefore, now we decided a very clear footprint on the one hand to build a joint venture together with Horizon Robotics in China to continue with Bosch and to have quick approaches for level two plus and level three driving with another partner.
I think we are very focused to the different approaches, and therefore we decided not to invest more into Argo. Talking about why different approaches in between the regions. That has a lot to do with regulations for the future we are expecting, especially when it comes to higher autonomous driving levels like level three and level four. From the technology perspective, it's everything is the same. But how to use maps when it comes to legal regulations, we need different approaches.
We think we are well armed in between a Western approach together with Porsche, Eastern approach together with Horizon Robotics and the third partner we are already in a concept phase to add to this concept. What we have learned during the last years, we are now very confident having taken the right decisions for our autonomous driving activities. Coming back to Arno.
Yeah. In terms of margin BVs versus ICE, of course, there's always like the concept of margin parity. When will we achieve it, and what are the specific circumstances right now? Of course, we are all aware that basically, specifically, raw material prices for batteries went up. On the other hand, nickel has stabilized, and we see the lithium price. Yes, they are like cost pressures for the BVs currently. But the question is more for us, how would the material price evolve in the future, and what is the strategy on BVs in the long term?
There you know that we embark on a strategy to ramp up our own battery business, not only in terms of production capacity but also in terms of engagement along the value chain upstream in terms of materials, in terms of passive materials, in terms of mining, and we see this as absolutely the right approach. On the other hand, there's a second effect we mustn't underestimate. BEVs are just ramping up. As said before, we have now a capacity in place for about 1.5 million BEVs on MEBs next year alone. On top come the other costs from PPE and Audi and Porsche. So there will be a significant positive scale effect in the BEVs as well. Customer demand is very high.
Specifically for our current BEVs, customers ask for well-equipped cars for the bigger batteries. So these are basically the effects and we still work on, of course, on the concept of margin parity, and which depends on the raw material prices, of course. I would say the specificities of the Q3, Q4 or Q2, Q3, which was mentioned in terms of Volvo, had very much to do with like the terrible war and the current supply chain topics as well.
Thank you both. Thank you.
Thank you, Philippe. Looking here a little bit at the time, the next question would come from Daniel. If we could stick to the two questions principle, that would be greatly appreciated. Daniel, please go ahead.
Yes. Thank you. Thank you very much. Daniel Schwarz from Stifel. I had a follow-up question on the Porsche IPO. In case the valuation gap remains between Porsche and Volkswagen, so the Porsche is worth more than Volkswagen Group as a whole, will you consider selling more Porsche shares in the long term and pay out the proceeds as dividends after the lockup? The second one is a follow-up on the planning round. Just to understand, is that postponed due to the macro uncertainties or because you still work on the long-term strategy and priorities? I understand you will update the long-term targets only next year.
However, the EUR 15 billion free cash flow target, can that still be valid when you say you will spend the EUR 10 billion proceeds from the Porsche IPO on top of the spending that you had in mind for the Porsche IPO? Thank you.
Yeah. First of all, coming to your comment about the Porsche IPO and thanks that also the market response also positive on the Porsche IPO and that shows the potential we do have with our brands in Volkswagen Group. There isn't planned right now to bring more shares to the market. The only thing is that we want to use Porsche as a role model. Also going into the business cases of the other brands and to unleash the full potential of our brands. Then handing over to Arno with the planning round issue.
In terms of the planning round, first and foremost, there's nothing to worry about that we postponed this event. It's just like, look, we have a rather long planning cycle, and when we started the planning with our assumptions, that was even before the terrible war in the Ukraine broke out. In the meantime, we see basically economic situation worsens, inflation, and all these effects have to be taken into account. It takes a little bit time, but rest assured we work on our resilience, and we showed great resilience over the last years, much more the resilience than we had in the past, and we will continue on that resilience.
We take that time to reflect what are the current macroeconomic outlooks, what are the cost topics ahead, and how to compensate for that, and how to deal with that. Again, nothing to worry about. We, of course, stick at least to our strategic targets we gave out a year ago for 2025 and 2026.
Thank you.
Thank you, Daniel. Moving on. The next one is, Stephen Wilmot from Société Générale. Steven, please go ahead.
Yes, good morning. I have two questions, first of all. On the decision to exit Argo AI, some of us were at a presentation Volkswagen gave on the eve of the Munich Auto Show, the IAA, back in September last year, where Argo AI Bryan Salesky was presenting with Herbert Diess, your predecessor. The decision to exit Argo AI, does this represent now a faster decision-making process, I think under your leadership, that you're looking at now more closely at the returns on some of these businesses and making sort of like faster decisions about things like this? What have you at least gained from the Argo AI the cooperation in terms of what will still go on and what will be kept in terms of IP?
Second question, you mentioned about having different products for different markets with the different customer tastes. It seems that, for example, the Apple iPhone is liked all around the world, and a lot of the new cars, whether it be Tesla or whether some of the Chinese BEVs coming out, are often described as iPhones on wheels. Do you think looking at the present products you have on the BEV range, particularly I'm talking about the ID family, do you think more has to be done and can be done at the maybe mid-year facelift stage, or does it have to wait for the next generation products before we see a more tech visible, tech-heavy approach on these kind of products? Maybe in terms of screens and obviously we discussed CARIAD as well. Thank you.
Yeah, Stephen, thanks for your questions. First of all, decision process, and as you know me from Porsche, I'm about to take decisions. We have a clear plan behind our 10-point program when we want to take what decisions. Up to the end of the year, for all these 10 points, I have a clear schedule. This afternoon, we will take the first decisions when it comes to platforms and to software, and the same for all the other topics. Then, what we are building right now is a plan for the next year already, with milestones, clear goals, for all these initiatives and to take decisions.
Because in the period of transformation, it's all about speed, and that is what you can expect from me. Talking about the product footprint, we have standards for our products like Apple does, as you mentioned. It starts with brand identities, it comes over to product identities to make the differentiations in between the different products. What you need, especially when it comes to software, to fulfill the expectations of the regional customers. Also developing regional solutions with regional partners for regional customers.
That is what we are doing in the Eastern and Western world while at the same time keeping on our product standards, qualities, technology issues. Coming to the ID family, that was a very first approach to come with the ID family very early into the market because we decided very early to switch our strategy from combustion engines to electrification. We know what we have to do from the technology aspect, especially when it comes to the product updates for the ID, talking about charging times, talking about range, talking about the software offers.
We will invest also for the upcoming updates for the ID family as we invest for the other products. Also, I'm looking to Porsche, for example, that we will bring at the end of next year, being in the market in 2024 updates for the Taycan, which was one of the first competitive electric cars in the market. That's the transformation we are driving right now.
Thank you, Stephen. Given the time, we have to come to the last questioner, Charles, from Redburn. Please go ahead.
Hi. Thanks for taking my questions. Actually, I've just got one on China. Obviously you had a very strong Q3 result, but there has been a noticeable slowdown for the overall industry in October, and some of your major competitors have obviously cut prices. Could you comment on how Q4 has started for VW and how you see the outlook going into next year?
As around the world, we were so far heavily supply constrained in China, not only by semiconductors, but also by the COVID measures from China. Now the stimulus program kicked in, and we remain overall confident for China, both in terms of total market, and recovery of market share, and also in terms of our proportionate operating result, which is rather important for us also in terms of proceeds we get via dividends. You saw already that we surpassed the 2021 level, and we are quite confident that we can also improve there significantly, and come back to old strengths there.
In terms of what we will have a look at, what we already said is in terms of ICE versus BEV, we will work on further competitiveness on our BEVs, and there we are rather really happy that we could communicate the joint venture or our working together with Horizon Robotics, which will give us a significant boost also in driving assistance function and local software capabilities for our BEVs in China.
Thanks.
Thanks, Charles. This concludes now the investor and analyst question and answer session. Thank you very much, Oli. Thank you very much, Arno, for the detailed answers. I want to make you aware, before I hand over back to my colleague, Sebastian, that we have on December sixteenth the extraordinary general meeting. Important for dividend entitlement is the same date, so December sixteenth, and the first ex-dividend price quotation will be on December nineteenth. Yeah, I know it's very technical, but important for investors to note. The dividend payment date is foreseen for January ninth. If there is anything unanswered, anything unclear, please give us a call here in Wolfsburg. The team is very happy to take any questions which are not answered yet.
Thanks for keeping us employed, and I hand it back to Sebastian.
Thanks, Rolf. Now we will make a small break. In 3 minutes, we'll be back, and all media, all journalists can stay in this call. In 3 minutes, and then we start the Q&A session. Looking forward to it, and bye-bye.
[Foreign language] We'll switch to English again for the Q&A as well. If you want to ask your question in German, that is fine as well. We are starting with AFP. Please go ahead. Test.
Can you hear us? Please a short signal. Can you hear us again, Operator? Yes, we can. Okay. Now we are online.
Okay, thank you very much. Thanks for the patience and the short break. We are continuing with the media Q&A. My name is Nicole Mommsen. I'll moderate the Q&A sessions and we'll start with the AFP. Thank you.
Hallo. What do you think about the European deal of yesterday night to ban combustion engine cars by 2035? Also, I had a second question. I wanted to know if you're worried about the political climate worsening between China and Germany. Thank you.
Yeah. May I start, Oliver speaking, with the decision of the EU not to allow more engines with CO2 pollution for up to 2035. We have a strong electrification strategy, and we're very prepared for this decision. In the meantime, for us, it's important to be flexible in the period of transformation because the different regions of the world are moving with a different speed towards the transformation. From our perspective, we will be prepared. All our brands are prepared, and we are not worrying about this. Okay. Yeah, the relationship between China and Germany. China is a strong market for Volkswagen with successful decades in the past.
We have strong partnerships in China. We are focusing on our values in China, focusing on our true customers in China, and continuing to offer exciting products to our fan base in China. On the other side also, we are looking to the geopolitical situation, and therefore, it is important for our business, having a robust financial situation and being flexible with our global footprint in terms of being able to react on geopolitical crisis.
Thank you. Thanks for your question. The next question comes from, Patricia from the Financial Times.
Morning. I have two questions. I'm wondering about the quite abrupt unwinding of Argo AI. Can you help contextualize this? How far back will it take Volkswagen and its autonomous driving ambitions in the West? I also have a sort of China-related question. You spoke about worrying obstacles in the transfer of tech between East and West. Can you give a bit more detail as to what the risks are here and what this means to Volkswagen? Thank you.
Yeah, Patricia, first of all, to the AD issue, we started the initiatives for autonomous driving years ago. It is in a transformation period important to leverage which technology is the right one. Therefore, now it's up to us to orient our roadmap. We have already experienced which technological approach will be the right one. Therefore, we decided, on the one hand side, to continue our partnership together with Bosch and MOIA for the Western world and to open a joint venture with a Chinese partner, Horizon, to be prepared for the Chinese autonomous driving market.
In the meantime, we are in a concept phase with another partner for quick approaches for level two plus and level three. It's more to focus our roadmap on autonomous driving. We believe that it will be very important for the future mobility sector to have the right offer for our customers. Therefore, we will still have offers for individual mobility but also offers for public mobility when it comes especially for level four driving, like we do it already with MOIA. Talking about the different ecosystems in between the Eastern and the Western world, we are already faced with the situations.
For us, it's important to develop our products always first of all from the customer perspective. Our customers expect in their cars the ecosystems they are using in their software devices and their mobile phones. There, the situation comparing, for example, North America, Europe with China is different. Therefore, it's up to us to develop regional solutions for regional customers together with regional partners to be adapted very closely to the customer's needs.
Thanks, Patricia.
Thank you.
We have William Boston from The Wall Street Journal. Bill, go ahead.
I hope you can hear me. Thanks for taking my question. I wanted to follow up a bit on the software. There are a couple of questions. One is this seems like the first time that you've actually broken out.
Figures for CARIAD, you know, it shows up as a loss of, you know, a significant loss. I'm just wondering, you know, why are you showing that since the only revenue is between companies, right? It's within the group. I'm just wondering, is this a real figure that, you know, belongs in the profit and loss accounts, or is this just some kind of internal accounting? You know, what is the significance of this number? Because if it's showing that in the future, there will be revenue, I mean, when is CARIAD going to then show a profit, and where is that revenue going to come from? That's one question.
The other is Oliver Blume's discussion of how the software strategy is changing to include more external partners, but at the same time reaffirming the company's commitment to developing its own operating system. I'm wondering, you know, what has really changed in your software strategy? Are you open to bringing in external partners for, you know, real, the kind of the internal part of that software that in the past the company has said, "This has to be a VW territory. No one can be in here to get our data or be able to control systems that we should be controlling ourselves." Thank you.
Yeah. Bill, may I start? First, with the technical issue, that was totally the right decision to go for our own operating system for the Volkswagen Group, which should be an open operating system, being able to connect solutions from partners. We think that this is important to have the Volkswagen software footprint and benefiting from the scale effects we do have in our brands with over 10 million cars a year. The positive aspect with software is you can copy it once, being ready, and therefore it was right.
Now we are on a point to focus, to define very clearly which are, with our experience from the last years, which will be our core competencies of CARIAD interfaces in between group and CARIAD, and then picking the right partners and defining very clearly the level of integration into our open source system. Coming to the investment question, it's like in another products where we are investing, but CARIAD is a own company, and then I hand over to Arno to explain it a bit more.
Yeah, Bill, coming to the way we set it up, first and foremost, as Oliver said, we really think having our own software in our own hands is a clear competitive advantage, and I don't want to add on what Oliver already said on the strategy. In terms of how we organize that, we organize all the key platforms in the same way. That means like CARIAD is a separate entity, a standalone entity, because we think in this respect, we can manage it much better. It has its own culture, its own processes, how to run a software company.
They are slightly different to how you run a car company, and this is why we set up an own company, which is more agile, and has own reporting and in order to be better able to capture the synergies throughout the group. In terms of business model and why is that shown and why is it negative, we think it helps much more to understand our, like, performance in the group and, the business case is as follows. CARIAD does all the upfront investment in terms of R&D, developing our software stacks, so it's natural that they have a loss at the beginning because they get the revenues in terms of a license fee car by car.
Since we have a lot of upfront investment so far, but only the MEB cars pay a license fee, there will be a phase with losses, but eventually that phase of losses will turn into a significant positive later on. It's only internal, but it's real basically transfer pricing and there are clear business plans behind that. It is basically due to the upfront investment of the CARIAD that there's a loss and there will be some more years losses, but then that's basically as planned and it will turn to a significant positive in a certain amount of time.
Thanks, Bill. We have Monika from Bloomberg News. Monika, go ahead.
Great. Thank you so much. And thanks for taking our calls today. The first question I wanted to ask was on this planning round. You said that the economic outlook has sort of shifted. Can you maybe detail which aspect of the economic outlook is the most concerning for Volkswagen Group overall and needing more time? And then the other question that I wanted to ask is if you could give a regional outlook for car demand. Mercedes earlier reduced expectations for the U.S. and Europe, and I'm wondering what's your view across your luxury and mass market brands and whether or not mass market new orders are weakening.
Look, technically we have a rather long planning cycle and there are several aspects that go into our planning as prerequisite. For example, what are the total markets, what are inflation expectations, interest expectations, and also economic outlook.
Basically, these are the effects. There are other effects, for example, wage inflation or also material cost increase and more importantly, raw material and energy prices. As you're aware, all these factors have changed since like the terrible war in the Ukraine broke out in February, March, and then it took quite some while to be able to fully quantify these effects. In the meantime, like we basically moved on with our planning cycle, and not all of these aspects were reflected fully. Now we have to come up with a plan how to best compensate for these effects in order to meet our targets, all our targets, as said before.
This takes a little bit time and, as said before, nothing to worry about, but rather we need a little bit more time for that to compensate, in terms of, for example, more productivity, in terms of fixed cost discipline, in terms of perhaps also price steps in the future. If you look specifically in terms of what do we expect for the total market next year. We don't wanna give a guidance today. We will give the guidance in our earnings call next year, and then in our Capital Markets Day, as Oliver posted that already. There are still a lot of institutes that expect a growth of the total industry. Why is that the case?
Yes, the economic outlook has worsened, but on the other hand, you must understand the whole industry today is significantly restricted by supply constraints. If we would not have the semi shortage and other supply constraints, the market would be much higher. This is the reason why although the economic outlook worsens, we still expect, from today's perspective, a market that is next year growing, not by double digit, that's for sure, but we still expect a growing market next year from today's perspective.
We have Jan Schwartz from Reuters. Jan, go ahead.
Yeah, thank you. Can you hear me?
Yeah, very well.
Okay, great. I would like to come back to the Capital Markets Day next year. You speak about these virtual equity stories earlier already in an interview. Will you be in the position then to, let's say, present names saying, "Okay, this or the other brand would be, yeah, could go to the IPO in the next time." How concrete would you be on this? Bye.
Yeah. Talking about the virtual equity stories, the idea behind was also coming from the experience I was able to take during the last month with the Porsche IPO is to unleash the full potential of all our brands. That is a exercise to focus on the right things to sharpen the strategy to have a clear company footprint when it comes to sustainability, for example. We see this more as an exercise to also increase the profitability of each brand. At the end, we will use this exercise for the Capital Markets Day for Volkswagen Group for the next year. We haven't decided for another upcoming IPO.
We see Porsche IPO as a role model, but we have to work step by step in the brands, in the entities. It's only an exercise. What we will do doing this equity story in the single brand, we will assume this for the brand groups. What we will present in the Capital Markets Day is a situation in the brand groups and how they will support the valuation of the whole group.
Thank you. We have Christian Müßgens from Frankfurter Allgemeine Zeitung.
Hello.
We can hear you.
Okay. Thank you. My question is on CARIAD. You said you will have a decision this afternoon or a meeting this afternoon about CARIAD, so maybe you can explain a little bit about that. What will you decide about? Will you clear up what will be the starting time for each platforms and the models already? Or what will be the topic? The second question is, how is this in any way connected to cancel the planning round? I mean, CARIAD is connected to each and every model that will come to the market, so does this play any role in the decision concerning the planning round?
Yeah. We have a very tough schedule taking decisions. I stand for decisions for all of the program I kicked off beginning of September and this afternoon, that's right. We'll have one step of taking decisions. It's nothing to publish, it's internal. It will have an impact also on cycle plans and product planning. That is very clear. It's a first step of all in the roadmap on the level of software, but also we will talk about platforms. During the next weeks, we will have other decision points.
I have got a very clear plan what we have to decide up to the end of the year, while we build already a plan for the next year with clear goals and clear milestones and decision points. Going public with decisions at the end, we will consider when we have a complete picture. There we can show where to go, but it's still too early to go out. It's more an internal process how we take decisions.
Thank you. The next question comes from Stefan Wenzel from Handelsblatt.
Hello. Good morning from Düsseldorf. I hope you can hear me. Does it work?
We can hear you.
Okay, that's fine. Good morning again. Just a more technical question about the planning round, maybe a question for Arno. Normally in November we've got a special supervisory board meeting, and after that a press conference and so on. Does it mean what you said about the planning round for next spring, that nothing will take place this November?
No, Mr. Wenzel, I said before, we need some more time to reflect what has changed in the economic environment and also what Oliver just said in terms of cycle plan. We will decide then next year and that the results of that we will communicate then as early as possible. Potentially in the earnings call, we will give an outlook, and then in detail, we will present all the strategy and the sum of the various equity stories in a capital markets day, which we planning for Q2.
Okay. Thanks a lot.
We have the next question from Henning Krug. Henning, please go ahead.
Ahoi from the Moorcity, Hamburg. Mr. Blume, the topic planning round is the number 1 within your 10-point plan for the VW Group. Now, having this in mind, what is standing at the very top of your personal management agenda for the fourth quarter of the current year, as mentioned in a clear connection with planning round? Mr. Antlitz, you are in charge of finance for quite some time now and have taken over the function of VW Group's Chief Operating Officer. Which new tasks did that bring along for you? Please give some examples. Which part of your additional function turned out to be the most demanding so far? Thank you.
Yeah, Mr. Krug, let me start with planning round. Like, planning round is one of my top 10 points, and that's all about increasing the financial robustness of our business. Therefore, we are focusing on the product range for each brands, focusing on the scale effects in between the platforms. Then, having an adaptation of the volume targets, we will define very clear KPI frameworks for the brands. That is the work we have to do during the next weeks.
Talking about the KPI framework, for me it's important that we as Volkswagen Group, acting as an investor, what is our expectation from the brands, giving guidelines, but having enough space for the brands to move like an entrepreneur. That is what we are working out right now. Having a consistency in between the sub-plans in the planning round, having an optimized cycle plan, CapEx planning plays a big role.
This, as Arno Antlitz already mentioned, in the environment we do have and evaluating the new aspect is important to implement, and therefore we postponed closing the planning round a bit later and going public in the beginning of next year.
Yeah. In terms of my role as CFO, let me first say that Oliver and myself, we know each other for quite a while. We work closely together on all the topics. Look, we have a really ambitious transformation in front of us. Electrification, digitalization, all these projects need a lot of investment and funds. There's one program we call financing the transformation. In that program, we make sure that we have the funds available, but not only in terms of funds available from the capital market of from external, but also that we have enough earnings power and we have enough internal cash flow to finance that program, the transformation. Part of that is the fixed cost initiative we talked about.
Part of that is productivity improvements in the plants. Also on the sourcing side. Also on costs in our retail network. If you ask me what is an important pillar of your COO role, I would say being responsible for the program financing the transformation is surely one of these pillars I could mention here.
Thank you. We are moving on to Frank Jürgens from Automobilwoche.
Yes. Hello from Wolfsburg. Can you hear me? Yes, I hope so. Just two questions at the end of the day. The first one, with your joint venture with Argo AI, you just finished or stepped out. You talked about the new partner to find quick solutions for level two plus and level three. At the end of the day, what ID. Buzz for commercial vehicles and MOIA plan in Hamburg will need level four driving. How does this fit? Will the new partner also develop level four, as Argo AI has tried to do so far? The second question towards CARIAD and software.
You said that the 1.2 software will be available in 2024, so not end of 2023 as was, I think the last plan. Will this be the basis for future developments too? Postponement of 2.0, where you did not say any deadlines so far.
Yeah, Mr. Jürgens. First of all, about the decision of Argo AI was to reorder our roadmap for autonomous driving. Now we have strong partners for Level 4 driving. In China, we partnered with Horizon Robotics, and we will continue very clearly with Bosch for the other regions of the world. Level 4 driving depends also a lot on regulations. We are still not at this point to go directly into Level 4 driving like the whole industry, and therefore we need intermediate steps with 2++ and Level 3.
Therefore, we have a concept phase which is all already run for example by Volkswagen Nutzfahrzeuge, but also with other brands. We will decide during the next months to go for it and then having a clear plan step by step over level 2+ level 3 coming later to level 4 with the right partners. Coming to CARIAD, that's right, that we will be in the market in 2024 with the first project with the 1.2 software level of CARIAD. We are already in the ramp-up activities, preparing everything for example the Porsche Macan.
I had already the opportunity to drive the Porsche Macan, which opens the full potential, and I'm looking very much forward having this product in 2024 on the market. Ramp-up activities are already kicked off and we will have the start of production in the next year. Talking about 2.0, that depends also on the study we have done during the last weeks in between what functions will we connect with which software level. That will be a continuously path coming from a level 1.2 to 2.0. Timing plays a role that should be feasible.
Connecting the decision we will take on the CARIAD issue, combining it with the platform decisions at the end, the result will be the optimization of our cycle plan.
Okay.
Thank you. We have the next question from, thanks, Frank, from Victoria Waldersee from Reuters.
Hi, thank you very much. Just two quick questions. One, how is it that you are planning on keeping your margin at the same level as in your outlook despite lower deliveries? Second question, Arno, you mentioned positive scale effects, that you were seeing positive scale effects as battery electric vehicle sales rise. Is that something that you're already seeing also in the volume brands or just luxury at this stage? More broadly, how will you make an affordable electric car with costs rising and inflation squeezing consumers? Thank you.
Yeah. These are very valid questions. First of all, the margins, we have really close look at the margin. As you see in our results during the last, I would say, months and years, we've achieved to be much more robust than in the past. First of all, if you talk about the contribution margin, of course, we work on cost optimization to balance the cost increase, specifically on material costs. There are also, like, I would say, pricing discipline measures in order to keep the margins. On the second topic on operating margins, as you're aware, so far, we were able to almost fully compensate the increasing costs on the fixed cost side due to inflation with energy costs, the fixed cost measures.
These are the two major effects. Overall, as Oliver mentioned, the good margins start with great product substance and then finally willingness of the customers to pay for our cars. There is also great news. Cars are very well received. The BEVs
Have a huge order bank, 350,000, we mentioned before, and more to come. These are the effects to keep the margins in the first quarter. In terms of battery raw materials, battery prices and cars, as said before, the one level is also to gain the synergy at the efficiencies we get from a greater scale. Look, we have one of the biggest platforms with the MEB in the world, capacity of 1.5 million cars only on that platform. The platform is invested in Europe, now in Zwickau, which was our first plant, and at Škoda, we ramp up now Emden and Hanover. It's in four plants in Europe.
I personally just visited Chattanooga some days ago where we ramped up the MEB, and we have two plants in China. This is one lever how we wanna achieve, like, cost-competitive electric cars using the scale and using the synergies worldwide.
Thank you. We have, Stephen Wilmot from The Wall Street Journal. Stephen, go ahead.
Hello. Thanks for taking the questions. Two from me. One, I'm just gonna come back to this question of the virtual equity stories. Just to try and understand, was the purpose of these of you know seeing the Porsche IPO as a role model for other brands in the group, is the purpose to raise capital, or is the purpose to try and improve the valuation of the VW Group itself just because, as Patrick Hummel mentioned earlier, we haven't actually seen any benefit from the rising share price that Porsche is gaining on Volkswagen Group's shares? So that's one question.
The other question I wanted to ask is about the divergence between what you're seeing, what we're seeing globally, but particularly in Volkswagen's results, between premium and volume performance, particularly at the margin level. Can you talk a bit about why your premium brands are doing so much better than your volume brands in the current environment and what the latest trend on that is? Thank you.
Yeah, Stephen, may I start with your first question about value equity story, and then I hand over to Arno to talk about the margin level and expectations. It is right. That's a purpose of the value equity story is to focus to improve the business model of each brand. I personally take the Porsche process as a role model. Everything we learned in this process to focus more on the main issues, to have a clear strategy, to have a clear path for the future. We think that we can unleash the full potential of all brands at the end.
I think also it will have an impact on the whole valuation of our group. We sum up the results of the various equity stories on brand group level for our capital markets day we will have next year for the group. It's the starting point of a process. I think up to now we see that the full potential of the Volkswagen Group isn't valued. Therefore we have to crystallize more the potential of all of our entities. Then I hand over to Arno talking about the margins.
Yeah. I mean, you are quite right, but let me start first with our two other groups. Premium Group had a margin of 14% in difficult environment, and Porsche has a margin of more than 19%. We can be very pleased with the margin of our Premium and Sport group already. The brand Volkswagen and the Volume Group stand at 4.6%, and there are some operational reasons behind that. Of course, we have a program to improve that. First, operationally, they were hit harder by the shortage of semiconductors, specifically, SEAT and Škoda, and also by the postponement or yeah, of the situation of our Russian business.
On the other hand, we clearly see room for improvement there. The most important thing that needs to achieve in the Volume Group is to lower the break-even, to be more resilient in the future. In order to achieve that, of course, we work on the cost and efficiency side and productivity side, but there is one important measure we haven't discussed that in detail so far. It's the formation of the Volume Group itself. That doesn't mean that cars in front of the customer will become similar. No, exactly the other way around. In front of the customer, they will differentiate even more. In the back office, we will get even more synergies in the Volume Group.
Exchanging ideas, getting more synergies on the sales side, on the after-sales side. This is one of the very important levers.
To improve the margin of the volume group. You know, the margin target is 6% for Volkswagen brand. Of course, the margin target of the volume group will be even higher. We'll communicate that in detail also on the Capital Markets Day. Rest assured, we work heavily on improving the productivity and the margin in the volume group as well.
Thank you. Next in line is Matthias Schmidt, Stuttgarter Zeitung.
Hello, thank you. I'd like to know, how do you look at the EU decision in regards to e-fuels? Does it affect the Porsche plans for e-fuel production? What is your prospect? Do you think that there will be a model 911 in Europe after 2035, the combustion engine?
Yeah, first of all, Volkswagen Group is prepared for the EU decision for 2035. They are still considering how to continue with synthetic fuels and then e-fuels because we think that these e-fuels are supportive for the electrification for the future. Very clearly, the technology path is focused on EVs, but we need solutions during this period. Therefore, e-fuels and the investment Porsche is doing is very supportive. Therefore, as a group, we are very clear that we focus the investments only in Porsche.
The rest of the group will focus only on electromobility while having the flexibility for the transformation, offering in the different regions of the world a mix in between combustion engine cars, hybrids and fully electric cars, because different regions of the world are moving with a different speed towards the transformation. Talking about the 911, we will continue as long as we can with the combustion engine 911. That depends also on the different regions of the world. We are very successful. Right now, the order intake is as high as is an all-time high in history for the 911.
We think we are in this mix on the totally right path. At Porsche, we have a clear strategy being able to offer in all the Porsche segments all three options in between combustion engine hybrids and fully electric cars during the next years. Going electrified step by step through the brands. The 911 will be the last one.
Thank you.
Thank you. We have Samuel Petrequin at Agence France-Presse.
Hi there. A question for Mr. Blume. I just wondered if you're able to confirm that you're gonna be accompanying the Chancellor Olaf Scholz on his visit to China, which is expected next week. If you could, if you can confirm that, what you're kind of planning to achieve on this trip.
Yeah, they asked me to join, and I will go there because we think it is important in our world to have communication in between the countries to listen what are the ideas, perspectives. Therefore, it's helpful that also partners from industrial companies join the politics when they have the talks. That is also important to build our own perspective in this discussions with the Chinese government.
I think it's very positive that they, after their political event in China, get in touch directly with the German government to change opinions, positions, and to further plan future cooperations.
Thank you very much.
Thank you. Just as a reminder, you can press star one for questions. The last one in the line is from William Boston, again, at the Journal.
Hi. Thanks very much. I just have a follow-up. On Argo, when Ford was explaining the decision yesterday, they made very clear that their position was that fully autonomous vehicles are still a long way off, and that they won't be profitable for a very, very long time. It doesn't sound like that's your reasoning for getting out of the venture. I'd like if you could explain, you know, your view on the future, yeah, deployment of autonomous vehicles, fully autonomous vehicles, robo taxis in particular, and, you know, and what were your reasons for getting out of the Argo venture?
Was it the business case, or was it because you just want to work together with Bosch rather than with the American company? Yeah, that was basically it. Thank you very much.
Yeah, what is very clear that autonomous driving is a potential for the future. Today on the roads we see already applications of autonomous driving, which are very helpful for the driver. Which are very helpful for security when it starts with lane assists, for example, we are avoiding accidents. The development of autonomous driving is going step by step. Our strategy is focused on this step-by-step development. First, tapping into the market with level two plus plus, then level three, and then level four. But I think for a big car company like Volkswagen, globally positioned, it is important also to continue activities with level four.
That has something to do very clearly on the one hand side with technology, on the other side with regulations. We have to be prepared once when regions of the world will open the markets for fully connected and fully autonomous driving cars. We have to differentiate in between the individual mobility, where these options are helpful, but especially when it comes to robotaxis, which we kicked off with a MOIA project to get experience for this market. We were prepared and therefore we rebuilt our landscape together with Horizon Robotics with Bosch for the level four issues, a different partner for level two plus plus and level three.
We are prepared as a group. Talking about Argo, there are technical and business case reasons behind. It's not a cooperation with Ford, and we are continuing strongly with Ford, for example, when it comes to share the MEB platform together with Ford. It was more a redesign of our landscape of autonomous driving.
Thank you. Bill, we don't have any further questions. As always, the whole press team and, obviously also the IR team are available for, your questions and, to give answers. We are all here. With that, I wish you all a great day and say thank you and talk to you next quarter. Bye-bye.
All the best to everybody. Thanks for your questions.
Also from my part, thanks very much.