[Foreign language]
Hello, ladies and gentlemen. Welcome to today's telephone conference, Volkswagen AG, with a view to the publication of the numbers of the third quarter. This conference will be recorded, and I'll hand over to Mr. von Bestenbostel. You have the floor. Ladies and gentlemen, I wish everyone a very good morning from Wolfsburg. The Q3 numbers of Volkswagen AG are available, and we would like to inform you about them.
We, that is the CFO of Volkswagen AG, Frank Witter, Head of Group Sales, Christian Dahlheim, and my colleague Nicole Mommsen, who has assumed the job of Head of Communication from Marc Langendorf. Nicole, you have the floor.
Thank you very much, Peik, and good morning. I am very pleased to be the facilitator for the first time for the third quarter call, and I will be the facilitator for the questions. I don't want to tell you anything else. Hand over to Mr. Witter straight away. Over to you.
Thank you very much, Ms. Mommsen, and welcome, ladies and gentlemen. You know that in the last five years, and when I've been in this role, we have always been engaged in a dialogue, and even when numbers were bad, I was openly reporting those. It started with the diesel issue years ago, and now it's COVID. I must say that at the half-year conference, it was rather more difficult to present the numbers because now quarter three was actually much more positive, a step in the right direction. Still, COVID-19 remains a central problem after the successful containment in the summer with a number of measures and programs. We now see that infection numbers are surging again in many places. This situation now is anything but relaxed.
I still believe that the remedies that we've taken, our 100-points plan that we've applied across our manufacturing network, have been really successful. It's a fact of the matter that our workforce has much lower infection numbers compared to the overall population. All of our plants are operating, our logistic chains are working with a number of ad hoc measures, of course, but still, they are largely running smoothly. Because this is not only about us, we are also in very close collaboration with our suppliers and retail partners, and we do the utmost to make sure that this continues to be the case.
Now, just yesterday, decisions have been taken by the Federal Chancellery and the state premiers of our federal states, and this has clearly shown that it's up to all of us to act responsibly in order to get a grip on the infection dynamic. Measures taken are strict. There's no doubt about it. I do think that if we all stick to those rules, we can make sure that in the next weeks and months, we can report better figures when it comes to the COVID pandemic. I often look to China if we have similar situations. Yes, we've seen there have been setbacks also, but it also means that if you act stringently, you can achieve good results. Now, ladies and gentlemen, I would like to have a look at our business figures in the third quarter.
There was a big unknown in the sense that we wanted to see whether we could see a continued recovery of the economy. Indeed, the market has bounced back in all significant markets. The month of September, for the first time, has been an increase in the overall vehicle market and also at Volkswagen compared to the prior year. This has provided some good tailwind for us. What is also positive to point out is that in those difficult times, we have managed to gain market shares. This shows you that we're in a solid shape, Christian Dahlheim will share with you a number of details related to our sales figures. Alongside this crisis management, we've found it equally important to push the restructuring of our group forward. We are not letting up when it comes to the transformation of our company.
Just to mention our electric car push, the ID.3 and the ID.4 models, and also the going digital agenda, like the Car.Software Org or our acquisition of HELLA Aglaia are just cases in point here. At the same time, we always had to take efforts to limit the financial impact of the COVID-19 pandemic, zero-based budgeting across all divisions with a stringent investment control, of course, without in any way jeopardizing the investments required for the future.
Also necessary restructuring has been implemented across a number of important divisions like MAN Energy Solutions or also the Brazilian market. We have streamlined our portfolio by the successful divestment of RENK, just to give you a few examples. Something that also has been a priority on the board of management and across the company is to ensure liquidity and manage our working capital.
In total, I can say that the numbers that I'm going to show you in a minute will bear out this fact, namely that in those difficult conditions, we are in good shape. That is yet another confirmation of our solid substance and the strength of our Group. Under the conditions of the COVID pandemic, we have seen a reasonably successful third quarter. Sales volumes and revenue are just slightly below the prior year level, which is a great achievement and an impressive performance of our workforce, of our team. The high-margin premium brands were less affected than the volume brands and the commercial vehicles. The deliveries for Audi in the third quarter were up 6.4%, or even 8.4% with Porsche, where we continue to work in what we call a task force mode.
Countermeasures to cut costs, to ensure liquidity, and to relieve our working capital have been successful, and they are remaining in focus. Our operating profit in the third quarter came in at EUR 3.2 billion. As we talk about September here, we are returning into the black. The net cash flow of the automotive division, which is another very important indicator, increases to EUR 6.2 billion. Year-to-date, this is also positive again, after a very difficult number of minus EUR 4.8 billion at the half-year figures. A driver for that is our working capital. We see a normalizing of liabilities and much lower capital lockup compared to before in terms of our inventory management. Our net liquidity has increased to a very robust EUR 24.8 billion, so it's about EUR 6.2 billion more.
The distribution of the dividends, because of our later AGM, will happen only in the fourth quarter, EUR 2.4 billion now paid in October. The acute impact of the COVID-19 pandemic has been under control. We are back into the black. Our market position, our market footprint also has been consolidated also in these crisis times, and we've kept our financial scope in order to make investments for the future and also to shoulder the transformation of the Volkswagen Group.
Our nine-month figures, however, because of this rather difficult second quarter, are still showing an adverse impact for virtually all significant figures. The dynamic of the reduction has been mitigated across the board than they were at the half-year numbers. In terms of vehicle sales, we have sold 1.7 million vehicles less than the prior year. That is a minus of 21%.
Our drop in revenue is minus 16.7%, slightly less, but much better than at the half-year figures. The operating profit before special items come in at EUR 2.4 billion. Still positive, substantially lower than in the prior year. The reason for that being that we've seen reduced volumes due to slower customer demand, especially in the second quarter of the year. There were negative effects of fair value designations of derivatives outside the hedge accounting, currency effects accounted for a minus of EUR 1 billion in the nine months. There was also a non-cash gain of EUR 0.8 billion from the business combination of AID and the Ford joint venture on autonomous driving. There's a negative effect and a positive effect. They almost were netting out.
We also need to say that we had no other special items in the third quarter, year-to-date for the nine months. In other words, we had EUR 0.7 billion that you also have known from the half-year figures. Our pre-tax profit is at EUR 2.3 billion, is hardly comparable to the prior year where it was at EUR 14.6 billion. Just like the operating profit, the pre-tax profit is back in the net income area. This strict cost discipline also is effective. CapEx has been reduced by about EUR 1.8 billion, so it's almost a minus of 22%. The CapEx ratio has dropped slightly to 5.1% despite a drop in sales. The R&D costs have been reduced by EUR 500 million compared to the prior year to EUR 10.2 billion.
The R&D ratio, because of the significant drop in sales, have gone up to 8.1%, whereas in the prior year, they were at 6.8%. In just a few minutes, I'm also, as usual, I'm going to give you an overview of our brands. Before I do that, Nicole will talk about the vehicle sales situation. Frank.
Thank you so much, Frank. I would also like to welcome you quite warmly to this conference call. I'd like to present the sales numbers for the first quarters, focusing on the third quarter. As you know, the corona outbreak in the first half left its severe traces in the entire automotive industry. Of course, it also meant a negative trend for our delivery numbers of our brands. As Frank Witter said, I would also like to say that for Q3, we have clearly more promising numbers.
Our worldwide deliveries are almost at previous year's levels in the third quarter. From January to September, we delivered 6.5 million vehicles all over the world. That's a minus of about 19% year-on-year. Premium, in particular, luxury brands are not so much involved as our volume brands and truck and bus.
Let's now take a look at the deliveries depending on the regions. I'll start with North America. Deliveries year-to-date are at 22%, so we are a bit weaker than the market. Starting from a low of -26%, the third quarter improved to -14%. Main driver of increase was United States and Canada, whereas Mexico, with -33% in the third quarter, stayed rather weak. Let's go to Europe now. Passenger car deliveries year-to-date in the first three quarters were at -25%, whereas the overall market went down 28%. We see diverse development in Western and Eastern Europe. If you take a look at Western Europe, passenger car deliveries year-to-date are at -27%, whereas the overall market went down by 30%. Thus, we increased our group market share.
Strong corona-related deliveries to customers, declines in the first half year were improved in Q3 with -3%, we're almost at previous year's levels. In many countries, many state and OEM incentive programs contributed to the recovery at state level in Great Britain and Italy. Those need to be mentioned that have mainly contributed towards the third quarter results when it comes to increase of deliveries to customers.
Central and Eastern Europe, passenger car deliveries in the first three quarters went down by 16%, the overall market by -20%. Again, there we were able to increase our market share. Compare this to -26% in the first half year. The third quarter had a plus of 3%, which was above previous year's levels. Despite very high corona incidences, recovery in the third quarter is mainly drawing from the strong performance in Russia.
South America, one of the most difficult markets, deliveries -26% year to date. Overall market went down by -36%. In our core markets, Brazil and Argentina, again, we were gaining market share in a rather difficult market environment. In the first half year, we lost about one third of our deliveries, and we were able to reduce our decline in the third quarter to -12%. Asia Pacific, which naturally is strongly influenced by China for us, passenger car deliveries were at -10%.
Our deliveries, the overall market went down by -15%. There and in particular in China, we were able to increase our market share. Passenger car market in the Asia Pacific area, it has been recovering since the second quarter and the third quarter went above previous year's level, which, as I said before, is mainly drawing from China.
We go beyond our previous year volume in the third quarter by 3%. As a summary, we can say on a monthly basis, we see a clear recovery since April, where we had the most difficult month. This recovery was spearheaded by China. We can say that at the global level, in every month of the second and third quarter, we went above the market. We were able to gain market share. Of course, for us, these deliveries are still far below the numbers we would like to see.
However, we all know velocity and the degree of further recovery depend on the further outbreak, on the containment of the virus. We see with the stricter measures in Europe that we're not through yet by far. The situation of the market, situation of the health systems and state countermeasures play an important role.
Each of the forecasts that I'm giving you on market and sales development is considered to be rather volatile. Still, we confirm that from today's point of view, we see that there will be a global market decline in the bandwidth of between 15% and 20%. Furthermore, we confirm that our deliveries to customers, we see that a bit better than the overall market development. We continue to believe that we'll stay with our market share.
It's based on our strength in China, the strong and new product portfolio with a broader range of electric cars and many completely upgraded models, core models like the Golf, Octavia, and the Leon. Please allow me at the end to give you some information on our e-mobility strategy. Since the beginning of the year, we delivered 123,000 battery electric vehicles, which is an increase of almost 175%.
Particularly to be highlighted is the first member of the ID family brought on the market recently, our ID.3. It is well accepted by the market, and we are very happy with the order entry. ID.3 is the first car for our new modular electric toolkit, the so-called MEB, which will be rolled out worldwide and will play a decisive role to reach our target of 5%-6% battery electric vehicle share in the EU 28 this year. This year, when I say this year, I am referring to 2021. In 2020, our product drive based on the MEB will be continued with the all-new ID.4. With the ID.4, Volkswagen for the first time offers an electric SUV, fully electric, that will locally be going with zero emissions in the compact SUV class. We will sell it in China and the United States.
This is a major part of our e-mobility strategy. Since the end of September, our customers are able to order the ID.4. In the course of the first half of the next year, 2021, we'll continue the MEB strategy with a sister model with Škoda Enyaq iV and Audi Q4 e-tron. I'll hand over to Frank Witter now.
Christian. Thank you very much, Christian. Now what I'd like to do is to look at the performance of some selected brands, and if you want to get more details from other brands, you can get that from the quarterly report, but also the press release. As you have always wanted, we leave obviously a lot of space also later on for your questions that we're going to take in just a moment. As far as VW passenger cars is concerned, we have progress made in the third quarter. The operating loss before special items compared to the half-year figures was reduced by about EUR 500 million. Still, we end up with a major task to address, which is a minus of EUR 1 billion after nine months.
Our claim and our intention is that after 12 months, we will equalize that without a loss. Cost management at Volkswagen is effective. Fixed costs have been significantly reduced, but this obviously is not enough to set off the negative effect from the much lower sales figures. Without China, we're talking about -31.1%, or in terms of sales revenue, which is a minus of about 28%. The volume market has been hit harder than the luxury segments, but even there in the third quarter, we have seen a rebound. Worldwide deliveries of the brand from July to September are only at 2.7% lower than the prior year. For the entire nine months, we're talking about -19%. Let's move on to the south of Germany, namely Audi.
The high margin premium segment, as I said before, is much more crisis-proof than other segments, which means that we have had a successful third quarter of the year. Vehicle deliveries increased by 6.4%. Sales revenue is also above the prior year. Important drivers, this is something that Christian Dahlheim has just talked about, are our deliveries in China. After nine months, we're posting a new delivery record at a plus of 4.4% versus the prior year.
The operating profit before special items in the third quarter is clearly positive at EUR 0.9 billion. We've achieved a break-even here after nine months at EUR 0.2 billion. Porsche is also strong. It continues to be an important revenue driver for the entire Group, especially now in these crisis times. Operating profit is at EUR 1.9 billion.
Obviously, the prior year, before special items, was EUR 3.2 billion, so that could not be achieved. Still, the return on sales, the margin is impressive at 10.8%. It is double digits. Deliveries in the third quarter, as I said before, is higher by 8.4% over the prior year. Here again, the Chinese business was a major asset, a good revenue driver. Across the nine months, so year to date, deliveries are slightly below the prior year at -5.3%.
Sales revenue -6.3% after nine months, under those conditions is still relatively stable. TRATON, and in particular the industrial business, here the operating profit compared to the half year figures, which was -EUR 0.3 billion, has improved, but it's still slightly in the negative with -EUR 0.1 billion. Revenue year to date has been shrinking by 21% to EUR 15.4 billion.
The main reason being, of course, that new truck business is reducing because of the market slump as a result of the pandemic and even cost savings, although they have been helping, obviously we're not in a position to fully compensate for that slump. The new leadership team with Matthias Gründler is now single-mindedly pushing the restructuring measures, and we assume that for the future, we'll see a major increase in competitiveness of that brand.
Finally, our financial services division. In times of crisis, it's also a very important factor of stability for the group, not only financially, but also as a partner for our retail businesses. The operating profit at EUR 1.8 billion for the entire division continues to be on a very high level. Our outlook for revenue was increased for the financial division, and we expect it to be on the level of the prior year figures.
Finally, ladies and gentlemen, let me give you an outlook for the overall year for the entire Volkswagen Group. We maintain our outlook in principle with the deliveries and sales revenue clearly below the prior year and the operating profit severely below the previous year, but still positive. There have been a number of news, as I said before, for instance, financial services revenue is at prior year level. The net cash flow of the automotive division is positive, but clearly below the prior year. The net liquidity in the automotive division will also come in at prior year levels, something that we had not seen before. We do still assume there will be high volatility in the market. Infection numbers are very hard to predict, not only in Germany but globally.
Therefore, we will not, as in the future, provide any ranges or corridors which would provide a sense of accuracy that cannot be maintained at this point. Fundamentally, we assume that the recovery will continue in the fourth quarter of the year, although the general conditions, of course, are challenging. Our order intake in September is above the prior year level, and in terms of October, we are reasonably optimistic.
We do not assume at this moment that there will be comprehensive lockdowns in larger markets. We will leave no stone unturned to finalize and to finish this financial year of 2020 under those conditions in the best possible way. For us, this means we want to achieve our operating and financial targets, but also pursue our transformation strategy at full steam.
The Volkswagen Group needs to be made future-proof, and the changes in the world of mobility will be shaped by us.
Something that's also part and parcel of our strategy is to make a contribution towards our sustainable development, because we share a responsibility not only for today's, but also future generations. With that, ladies and gentlemen, it's back to Nicole Mommsen.
Thank you very much, Mr. Witter and Mr. Dahlheim. Now we can start the Q&A part of the call. We are looking forward to your questions. Thank you. Please go ahead.
If you want to ask a question, press the star and number one on your telephone. Please make sure that you deactivate your mute button so that your signal can reach our devices. If you see that your question has already been answered, you can withdraw them by pressing star two. Please press star one in order to ask a question. Thank you. Thank you, says Ms. Mommsen. We start with Mr. Schwartz from Reuters.
Yes. Thank you so much. Good morning to Wolfsburg. I have two lines of questions. What I'd like to know is as to whether you can give us numbers, which order of magnitude are you talking about when you say when savings contributed to this turnaround? The second line of questions would be whether you can say something on M&A situation. Despite this rather difficult situation, you want to completely take over Navistar. How does a potential change look like with Bugatti, Lamborghini, and Ducati? Thank you.
Good morning, Mr. Schwartz. I start straight away with the M&A question. Well, you know Navistar, the Navistar issue, this is positioned at the TRATON colleagues. It's one of the major cornerstones of their global champion strategy. In so far, we still deem this to be an important step.
Of course, it's not easy under the framework conditions as we have them at the moment, but all in all, it is a rather sustainable step in order to strengthen TRATON's competitiveness and to turn TRATON into a truly global player. Of course, there are some reservations still. Due diligence depends, and we also hinge on the decision by the committees, but we moved a step forward, and open questions need to be addressed. We still deem this to be an important and the right type of step. You also know from other rounds of questions that other M&A issues are being discussed. There's lots of speculation going on, and I said so somewhere else, and I think it's completely right that there might be public speculations on what one might envisage, one might think being core business or not.
To fire those up, it does not improve the possibility to move it forward. You see with RENK that we are able to go the way of certain steps, and you know that the board of management has a certain opinion that portfolio clearing has not been finished. We, of course, will have these discussions internally in our committees, and once there is a decision, we'll communicate it. The board of management does have a couple of ideas, but we won't give our opinion publicly, and we won't want to go the way and move forward with speculations ourselves. Now on saving and fixed costs, I referred to CapEx and discipline when it comes to capital expenditure. With Volkswagen, just to give you an example, for the third quarter, we're talking about an order of magnitude of EUR 200 million.
I know when you put these numbers into perspective, that with some of you, there might be bigger numbers around, but please keep in the back of your mind that in this whole quarter, like the entire year, we have been at the end of the monitorship period. We wanted to give the monitor the position to start to end the certification. To work through the to-do list, to work through recommendations, meant a lot of funds, meant a lot of personnel and financials.
We did that being firmly convinced that this makes the company better and sustainably more stable. That, of course, was another factor why general overheads maybe have not been as influenced as with others. Of course, we invested into audit facilities and risk management in order to turn Volkswagen into a more stable and better company. It was a sustainable investment.
There's no contradiction, but that's the way you need to see the numbers for the nine members. Monitorship was an important task for us. Mr. Menzel, you have the next question. Handelsblatt, Mr. Menzel, please. Yes. Good morning to Wolfsburg. I have a rather specific question on Navistar. In the press release on page four, you're referring to the fact that further liquidity decline from mergers and acquisitions is to be reckoned with. Mr. Witter, are we referring to Navistar?
Do you think that Navistar will be closed this year?
Answer, Mr. Witter. No, Navistar won't burden liquidity this year, provided the prerequisites are set. That's a topic for 2021, and that's for the second half of the year. Okay, next question. What kind of money will leave under mergers and acquisition? Is it HELLA? Is that going to become effective?
Well, the bigger numbers, the bigger things that I can come up with spontaneously, that's one thing, is this squeeze out Northvolt as a tranche that needs to be paid out, and a larger contribution is for JAC in China. That should be to the tune of EUR 500 million. Those are the major issues that are meant here. Navistar, that's an issue for the next financial year, should it happen.
Thank you. Okay. Stan, how-
No. Next is Bill Boston from The Wall Street Journal.
Good morning. Thank you for taking my question. I have a couple of questions. Number one, can you say what the relative importance of China is in your net result for the quarter? How does that compare to the previous year? You also said you expect a recovery in the fourth quarter to continue, but just yesterday, we heard about more restrictions in Germany and France. This creates more uncertainty in the global markets of the world. Although industry will not be affected by that lockdown, but there are still psychological changes. People probably will be very uncertain. People will be losing their jobs in different areas. Generally, the world economy will be experiencing yet another slump.
Now, these are indicators that in the past years have always been weighing on the volume of vehicle sales, and I'm sure it will leave a mark on Volkswagen. How do you see the deterioration generally of the mood now in your business? My final question, your portfolio restructuring that we have read about in the press in the past days, as far as Audi is concerned, what's your objective with Bentley, Lamborghini and Ducati? What are you planning to do there, and will it all be moved under the Audi brand? Will there be an IPO? How do we go from here? Thank you very much.
Bill, this is Christian speaking. I'd like to take the second question first, the question of a recovery in the fourth quarter or risks related there, too.
Well, the risks that you have mentioned are, of course, correct, and we look at them as well. What makes us upbeat is that, number one, that China, for us, as a market, because of that current situation, is less affected by the coronavirus pandemic. Secondly, in Europe, we have a record-breaking order book, which is actually much higher than it was in the past year. Now, as far as deliveries are concerned in the next three to four months, we are positive here as well. We look at order intake as well, but even order intake is stable right now. If they were to shrink, obviously, we would have to adjust our production and would see a positive impact on the first quarter of next year. We're optimistic when it comes to our existing order book here in quarter four.
In North and South America, we have been more conservative in our estimates because there are a number of risks there, also the economic impact of the crisis, unemployment, et cetera. We do think this is already reflected in our current figures.
All right, Frank Witter speaking. Let me say a word or two here. Earlier, I said that conditions are not going to be any easier in the fourth quarter. That's true, and it's true that measures taken are not ideal, but they still allow us, given as we see the situation today, we can continue to manufacture our vehicles and sales will continue to work. It also means that we all need to stick to the rules and follow the restrictions in order to contain the further spread of the pandemic.
When I talk about the ongoing recovery, our baseline would be the second quarter of this year, which has been extremely hardly hit. I think I'm slightly more optimistic for the remainder of the year to maintain our production figures. Therefore, our outlook for quarter four means additional bounce back based on the original situation of the second quarter. Again, let me say, no one believes in this organization that it's going to be easy, and therefore we always critically look at our supplier and retailer network. China is and remains a very important revenue driver for our entire group. In fact, it's very impressive to see how the Chinese market has bounced back in a V-shaped fashion.
If I look at our equity results from our Chinese operations, we see a relatively slow drop of EUR 30 million between the second and the third quarter. This is consolidated in our financial result, but parts of our Chinese business is also in the operating business. Therefore, China continues to be a very important stabilizing factor, both in our financial and our operating result. As I said before, the larger chunk of it goes to the financial result. We see a deterioration of results that is still much less than in any other region of the world.
Next question comes from Christoph Rauwald from Bloomberg News.
Good morning to everyone from Frankfurt. I have two questions. Number one, referring to your supply chains. I think in the spring when you had to halt production, you've had the situation under control when it comes to the different production stops. How would you rate the resilience of your supply chains now, given that potential production restrictions would still have to be taken and further lockdowns would take place in markets? That was number one. Question number two is something, a popular topic for analysts, working capital. Mr. Dahlheim, can you talk about your current inventories you have and about pricing in your main markets, Western Europe and China and the United States. If you could respond to that, please.
Okay, Frank Witter, I'd like to start with supply chains first.
What we can say is that we need to give a big thank you to our team who have managed the situation really well before the second quarter situation really has hit us hard. They've been dealing with the situation really well, and it's true that with all of our suppliers, we have direct relationships, and we have also taken some liquidity-boosting measures. In general, what I can say is that our supply chains were not discontinued. It is true that there have been some regional corona hotspots that have made the situation rather hard, but the management of those supply chains have been done really well, and this gives us some good experience and makes us upbeat about the future. If we look to the Czech Republic at the moment, you actually see how quickly, how dramatically the situation has deteriorated there.
We are on high alert in our task force mode, as I called it, and it means what we have done so far will continue to be a decisive factor when it comes to supply chain management. Includes also air freight to be taken at some point, and in other places also, we need to provide some liquidity support. Our team has stood the test of time. We are qualified to do that, but it continues to be a major challenge. That is true.
Mr. Rauwald, Christian Dahlheim speaking. The question on the working capital. In the past quarter, we had lower inventories than we had in the ideal world. What ideal inventories mean is to be able to deliver vehicles to our customers quickly.
For instance, if you order a T-Roc, a VW T-Roc today, it'll take you a few months before that car is available. We're currently 10%-15% below our ideal stocks. By the end of the year, we expect to come in at minus 5%-10% of our ideal stocks. This is also the goal provided by the board of management in order to control liquidity and working capital. There are different models that have different stocking levels, of course, and that's true for Europe. In China, we are on normal stock levels just because their sales figures are better to forecast than here in Europe. As far as pricing is concerned, my answer would be twofold. We had higher dealer rates in some core markets. That's certainly true, and I think all OEMs have done that.
In Germany, we have seen some sales incentives with a reduced VAT rate. Especially in the A0 segment, we've taken pricing measures, and they actually have an impact on the bottom line. Just now we're looking at our plug-in hybrid vehicles. There is great customer demand with scarce battery availabilities there. We do aggressive pricing there. When it comes to all-electric vehicles, we're not taking any pricing measures because there's government subsidies or support out there. With our good price positioning, we're selling those vehicles without any additional incentives.
Thank you. Next question comes from Christiaan Hetzner from Automotive News Europe, please.
Yes. Thank you so much, and good morning to everyone. I have three questions. First question goes to Mr. Dahlheim. Are there diesel cars that you can no longer sell this year with higher emission levels, with a lower conformity factor that you would then have to sell from January onwards? Second question, ID.4, once the car has been presented, the contingent for the first edition of the U.S. was sold out. Do you have already envisaged more volume for the U.S.? Have you allocated more, or do you need each and every car for reaching CO2 targets here in Europe? As regards that, where do we stand there? Mercedes last week said that they are rather confident they will reach their fleet targets for 2020 without any assistance by Renault or other partners.
Can Volkswagen claim that as well, or is it possible that more partners, MG, will be necessary that you reach the targets for 2020? It was funnily enough not mentioned in the interim reports. Maybe that's a sign that you can do it on your own. Thank you. Mr.
Hetzner, thank you very much for the questions. Question on diesel, that's pretty easy to answer. No, there are no diesel cars that from this point of view, from this time, we see that we can't sell. The diesel share is declining in all of the core markets, but the residual value for diesel cars are surprisingly stable, which probably is also due to less available cars. We see a stable demand for diesel at a low level. Much on question one. Question two on ID.4s. Yes, we're very pleased about the high demand for ID.4 from today's point of view.
You can't take it that we significantly transfer cars to the United States for two reasons. At one, we focus on Europe, with selling those cars because of customer demand and of course also because of compliance. We have to be honest, the contribution margins for cars are typically higher in Europe than in the United States. That's also true for the ID.4. Therefore, of course, we love to sell the cars in the U.S., but we won't have larger volume from Europe to be reallocated to the United States. Lastly, on CO2, I'd like to confirm what Frank Witter in a couple of calls has mentioned, and Herbert Diess as well. It's going to be a tough race for us.
Today, we can't clearly commit to being able to be in line with the CO2 compliance, but we're intensively working on it to solve this issue by the end of the year. To be fair, we have to say that a couple of points are there. Forecasting this is really difficult. We don't know how the registration offices will be available in December. This is not something that I want to use as an excuse. It's just a matter of fact. We don't know what the effect on the ICE engines will be in Q3 and Q4. Most importantly, we won't be crazy. We won't push electric cars damaging residual value to reach compliance. If so, we want to do it with healthy business. Last but not least, we will not artificially pull back ICE engine cars. The result situation don't allow us to interfere with anything.
We want to make customers happy and get our results on board. It's going to be a tough race, but we haven't given up on the target yet.
Thank you so much.
Right. Ms. Mommsen says we have a last question by Yann Schreiber from AFP.
Yes. Good morning. Thank you very much for listening to my question. Two of my three questions were asked already. There's one question left, that's the one for the electric car models. Maybe Mr. Dahlheim, this goes to you. In how far do you see an effect on the demand for electric cars in rather uncertain times? I might want to speculate here. You said people might be losing their jobs. The situation is a bit insecure.
Do you think people would want to dare to go into a new type of technology, which maybe in the next generation will again improve, and the cars are a bit more expensive now. Are you concerned that the electric share of your cars will be rather damaged because of this?
Well, funnily enough, Mr. Witter asked this question to me four months ago, that's why we have two answers here. We did customer surveys, statistically relevant surveys, funnily enough, we find out that in a crisis, this actually is true for all of the regions, the interest to buy a battery electric car has actually been risen with a rise of about 3% in interest. One-third of our customers are deliberating buying such an electric car. That's a positive piece of news, you also see it from the demand situation.
Technology uncertainty, you can explain it. The cars that come to the market now, that's a technology that will be the technology for the next three or four years. Maybe we would answer the question differently if we were still with an e-Golf on the market without wanting to belittle the car. Since we have the ID.3, the ID.4, and the sister model, the Taycan, this removes a lot of the technology uncertainty. We see a stable situation, slightly risen demand for electric cars.
We have Marco Engemann from dpa-AFX.
Mr. Witter, in a couple of days' time, the U.S. will elect the next president. Do you have an outlook as to what you expect?
Should there be a change in the top job in the United States, whether maybe in the trade front, things might be a bit calmer over the next four years? Answer. Well, of course, we are pretty far with our Planning Round 69, but with all the criteria that we set, the end of the United States election wasn't decisive when it comes to selecting the volumes. No matter whether the president is being confirmed or a new one will be put into the office, this has no influence on our volume expectation. We have a clear plan forward for North America under the conditions that include the region, that's Mexico and Canada as well as the United States. In our industry, we are moving in longer periods and cycles, so we'll consistently move through our plans no matter what the outcome is of the election. Thank you.
A further question comes from Markus Klausen from Dow Jones.
Thank you. A follow-up question referring to electric vehicles in this crisis time. We've heard in a number of calls from other OEMs. Because of different consumer spending, the demand, particularly for premium vehicles, has actually increased, which has mitigated the pressure on the industry. Can you confirm that? Do you see also a different consumer spending behavior now in this, that people still, despite the corona crisis, people want to buy their own cars because they feel safer?
Mr. Klausen, the second part of your question, especially for North America and China, we exactly observe this phenomenon as you describe. Both in North America and China, we've seen a relatively large share of people who are making a first-time purchase decision or are buying a vehicle that they have not owned one, but used it before. Given the mobility situation in those countries, this is understandable.
We don't so much observe that phenomenon in Europe because people still own vehicles, and if they don't want to use the public transport system, they can use other systems like sharing services. We see really a record demand for mobility sharing services. People are swapping public transport for sharing. We see a trend across all regions that the market is moving upwards. Segments are consolidated. Premium segments are rather consolidated because people who can afford a premium product are less affected by this crisis than people who cannot or who are typically purchasing higher volume models. It's over to Stephen Wilmot from The Wall Street Journal, please. Good morning. Two questions, please. You talked a lot about investments in electric mobility, but can you also tell us how much you are planning to invest in software development, like for instance, with your Car.Software Org?
The second question would be, can you also talk about the contribution margin of the ID.3? Was it better than expected given the current situation that we're facing here in Germany and France? Well, yeah, the ID.3 contribution margin is pretty much exactly where we expected it to be. In other words, it doesn't come in as a surprise, but we're only just at the beginning of the vehicle launch. By the end of 2021, we have a full year, and then after that full year, we can give a more accurate analysis referring to the earlier situation there. Not generally on the contribution margin, but also we can then make a statement on production costs, which will also have an impact for other e-mobility platforms.
Given the subsidy situation that we have expected here in this market or generally in markets, there's no deviation in terms of our budgeted figures there. Our investment figures for software, just to talk about the order of magnitude here, it's already an expectation of several billion euros that we're going to invest in our software backbone. It's a substantial commitment that Volkswagen has made, and we expect there will be significant economies of scale, and we will bolster our competitiveness with that. It's one of our investment activities that will be in line with our ROS margin guidance for 2025, which is 7%-8%. We have to do obviously more in this area there, and we're certainly happy to increase investments here, which at the end of the day, is going to help us durably.
When we talk about software, it's several billions of EUR that we're going to invest in the next couple of years. Especially when we talk about the new investment plans, the Planning Round 69, in a couple of weeks time, we'll be in a position to say more about this. Did you have a follow-up question? We have Mr. Johannsen from Automobilwoche.
Yes. May I please follow up on portfolio adjustment? You said earlier that there's not much you can really say, as far as Bugatti and Bentley are concerned, are these plans already clear? Can we expect an announcement by the end of the year? As you said, the Planning Round is coming up. Can we reasonably expect to get some final statement by the end of the year?
For this year, I wouldn't want to expect too many news here, especially given the fact that we're really approaching home stretch for the end of the year. Okay, thank you.
Thank you. We have a redirect from Bill Boston from The Wall Street Journal. Go ahead, please.
Thank you so much. I wanted to say, so you take it that you will sell 300,000 electric cars this year, next year, 600,000. That is far more than just ID. Which effects will the electric cars, that's plug-in cars, have on your operating profit, is that a negative business, how will that look like next year? Can you maybe also take a look at your business? You talked about the fourth quarter, good order levels. Do you take a look beyond this year when uncertainty rises? I can't imagine that this won't leave traces at your side. How does that look like? Do you have a bit of insight into the first quarter of 2021? Last question, battery capacity.
You have invested a lot in building up capacities in Europe. Is that enough what you have now? If so, for how long? Will you maybe invest more in battery capacities over the next 6 to 12 months? Thank you.
Well, till 2025, we are in a good position. However, the new Green Deal will, when we look towards 2030, significantly increase the share of battery electric cars. All of the OEMs are trying to find out how they guarantee the supply with battery cells. It's not just us, it's the entire industry that is called upon to find out how to bring together the capacity. At one, this is the cooperation with suppliers as we have them today. This is the development of new suppliers such as Northvolt. You've seen that many joint ventures have been started.
Yes, the industry will require more battery capacity, and this is one of the core issues that we have to answer over the next few years. We are prepared wherever it's meaningful and necessary, like within China with a joint venture with Northvolt, to directly make a commitment. I'm sure it's going to be a combination of everything. We have to cross the mountain, and we have a demand that we need to cover, and that has risen significantly.
You asked, well, battery electric vehicles, does that burden our result? If you take a look at the margin here, which we communicated variously, battery electric vehicles with the margins that we have today, they're below ICE engines, so they are dilutive. There is one question which we must not lose sight of. CO2 is one very important side condition to stick to.
If we don't have battery electric vehicles, we would pay significant fines. Christian Dahlheim has explained that neither for 2020 nor in one of the years afterwards, we want to go that way. The contribution of battery electric vehicles can't just be seen with the margin, but also be the avoidance of fines. That's the overall package that we're dealing with here, which is why none of the battery electric vehicles that we sell in 2020 or 2021 make us sad.
Order entry, Christian Dahlheim, over to you. Yes, you asked for the first quarter, I'm just referring this to overall sales. You also have to take a differentiated look at the regions. We said in China, we're basically on track on the normal growth track. In Europe, we are still confident that in the first quarter, we won't see any dramatic negative traces.
To be honest, this depends on as to whether the measures now in November will be good in all of the markets where the infection numbers go down. If that's not the case, then of course, we'll have a clear impact on the first quarter. As regards battery electric cars, you have mentioned the order of magnitude that we want to sell in 2021. We deliberately confirmed that more or less irrespective of the overall market development, we see this stable more or less without any interference.
If the market broke down, that's something different, but we deliver the percentage of battery electric cars. We think we deliver that even if the market develops negatively. We said North America and South America naturally will take till 2022, till they are at the level of before the crisis. Mr. Hetzner, you have another redirect question?
Yes.
Thank you so much. This is a similar issue. This is battery cells. Tesla, during their Battery Day, they have mentioned that they will expand their own capacity to 100 gigawatt hours till 2022, irrespective of their usual deliveries like Panasonic and the like. You built the plant in Salzgitter with 16 gigawatt hours from 2024. Do you have a similar order of magnitude where you see your very own cell capacity in the mid or long run? Thank you.
Well, we are about to assess the Green Deal and the implications thereof. I said the investment in Gotion and Northvolt, et cetera. We know that with solid-state batteries, we're also involved there. That's something which we are assessing now, which is why I can't give you any further statements.
I have clearly sketched out that we have to take a look at the situation, in particular after 2025, see how the demand is, and then we need to take a look at the different regions. I won't exclude this from happening, but it's in a decision-making process, and at the moment, we are about to assess all of this. Thank you so much. Right. Currently, there are no further questions. I'll hand over to the operator once again.
Thank you, ladies and gentlemen. If you want to ask a question now, please press star one. We don't have any further questions. Thus, our Q&A round is ended. This conference call comes to an end. Thank you for your participation. Have a great day. Bye-bye. Thank you so much from our side, says Ms. Mommsen, Mr. Witter, Mr. Dahlheim, Mr. Oemisch for financial communication.
They will be available today, and of course, I will also be available for the rest of the day. Thank you very much, and have a good day. Thank you.