Good day, ladies and gentlemen, and welcome to the Volkswagen AG Live Audio Webcast and Conference Call on the Half Yearly 2021 Financial Results. For your information, today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Helen Beckerman, Head of Group Investor Relations for Volkswagen AG. Please go ahead, madame.
Hello. Good afternoon, ladies and gentlemen. We welcome you to Volkswagen's conference call for investors and analysts on the results for the period January to July 2021. Based on our half yearly report, which we published earlier this morning, for today's conference call, I'm delighted to be joined by Herbert Diess, our CEO Arnaud Antlitz, our CFO Christian Dahlheim, our Director of Sales and Stefan Wallenstein, our Head of China, our CEO of China. We'll kick off with Herbert today, who has a short presentation, followed by Doctor.
Antlitz, And then both Christian and Stephan are available for specific questions either on sales or on China performance. Over to you, Herbert.
Thank you very much, Helen. Yes, good afternoon, everybody. Volkswagen had a very strong first Half of the year, best EBIT ever in the first half year, thanks to good mix. We did some pricing. We had a strong very Premium Brand Business.
We had good cost discipline on the fixed cost side and strong financial services result. BEST sales more than doubled in the first half year compared to last year. And we have Further momentum to expect in the second half, especially in China through additional product momentum. Semiconductor supply shortages, we managed quite successfully in the first half year, but we see now the first So real impacts in our production. So especially in China, we have lost already quite some market share because of Semiconductor supply.
And the impact is more likely to become visible in the second half of the year. Next quarter, we We'd see some production constraints, but we are working hard to recover in the Q4. The combination of our strong base from first half year, the expected weaker Q3, but a catch up in Q4 gives us enough confidence to raise our group guidance by a further 0.5 percentage point to the range of 6% to 7.5% The strategy, New Auto is our plan for transforming Volkswagen into a software Mobility Company, we are well on the way. We are organizing now the implementation and a few steps we already can communicate later today. All brand groups contribute to a strong first half year performance.
The volume brands under the leadership of Volkswagen showed a growth of around 28% compared to last year. The Volkswagen Group grew its market share in Germany to around 20%, strongest market Position since 2016 and Germany is a high contribution market that helps also to improve Volkswagen's situation. The 4 top most sold products in Germany are Volkswagen led by the Gulf, Tiguan, Passat, T Roc. So since many months Volkswagen was never so Strong and that should then also give momentum in the second half year in the other markets. Premium and Sport impressively Strong more than 30% more deliveries in the first half year.
Audi was its most successful first half of the year in history. All premium brands, Audi, Porsche, Bentley with double digit EBIT margins, truck and bus with growth over 60% And 3% more than the pre COVID first half of twenty nineteen and incoming orders are with 170,000 units Are a first half year record figure. So in many regions, Volkswagen Group could gain market share. In Europe, So, again, further market shares with deliveries growing significantly stronger than the overall market recovery. In Western Europe, deliveries in Q2 were significantly Stronger than in Q1.
So we are really making progress. In Europe, our product momentum, product cadence, product lineup It's coming along very well and we have good order intake still. North America is particularly strong. Volkswagen is back in the United States. Sales are up 30% year on year, best Q2 results since 1973.
Order books are full for the ID. 4, Audi e tron and for the Porsche Taycan. So we play an important role meanwhile in the electrification in the United States. And we aim therefore a number 2 position for electric vehicles, which we have I think currently we have around 9% Market share, which is already twice our market share in the on the compared to the ICE side. In China, Volkswagen Passenger Cars was particularly affected by semiconductor shortages in Q2.
We expect chip supply to gradually improve from the Q3 onwards, while at At the same time, BEST sales are expected to increase significantly. So we have positive news and Stefan will later touch a little bit on what we are doing To even improve our dynamics in the EV sales in China, which is a critical Success factor for our future success in China. E mobility in general is gaining momentum And best sales will further accelerate in the second half of the year. In Q2, the Deliveries more than doubled to roundabout 171,000 units. The major model offensive is having an effect.
The Q4 Eitron now coming to markets, Koda, ENYAQ, Both have very high order intake. So we have lead times of 3 to 4 to 5 months To get your electric car delivered in Europe. In its 1st full quarter of delivery, our world car, the ID. 4, Has become our best selling BEV, followed by the ID. 3, the Audi E Tron and the Porsche Taycan.
Bugatti has an electric future now. You are aware that Porsche has taken over the leadership and is pooling Bugatti's expertise in the hypercar business with the electrification competence of Rimac. Both companies are working together since many years. Porsche is relying on Remark's Expertise in electrification also in their lineup. So this combination now makes best use Of the synergies between a real SportCar Brands, Bugatti, when it comes to Chassis Building, Engine Technology and now also electrification.
I think Bugatti never was really well positioned here in Wolfsburg Because Synergies volume companies have been low, now I think we are well organized and we found a nice future for Probably one of the most prestigious brands in automotive history. We are A clear market leader in Europe meanwhile in the EV business with a market share of about 26% in BEV deliveries. And we Appreciate the European Commission's fit for 55 targets and we think it's feasible. It will be tough. It's a demanding Program for mostly investing in batteries, ramping up battery production and also upgrading the charging fast Networks, but we think it can be done and we are aiming at the 60% market share or let's say, share on our deliveries of EVs In the year 2030, not market share, but deliveries in our sales.
In The U. S, our market share in the BEV market climbed to 9%, I already mentioned that, and it's significantly higher than in our overall market position. In China, initial sales figures for the ID6 are promising. We aim to sell a total of 80,000 to 100,000 BEVs from the ID family By the end of the year, further product momentum to come. And we are just gearing up our dealership And our sales approaches, Stefan will touch briefly on that.
PHEVs are also in high demand. The deliveries more than tripled to 171,000 Units and we plan to deliver we stick to our prediction. We plan to deliver up to 1,000,000 electrified models for the first time in 2021 Combined electric vehicles and PHEVs combined. So that is why we are fully on track to reaching our CO2 targets in the European Union. We presented the new auto strategies through 2,030 2 weeks ago and the transformation already is in full swing And we achieved important milestones also in recent months.
We are now really Putting the measures into place, our strategy is a combination of very successful brands, customer contacts, Modernizing our brands and combining the brands with big platform approaches, hardware, software, battery and charging and mobility and Services. Mechatronics and Software is making good progress. We are building our new lineup based On the so called SSP platform, our unified electronic platform, which will be developed Here in Wolfsburg mostly a combination between Volkswagen and Audi. That is why we decided For an investment of €800,000,000 into our Wolfsburg R and D facilities, they have been a little bit outdated and we really We have to bring that up to speed. That will increase efficiency, speed in the R and D work.
And we will have a dedicated team For the SSP platform, also we are ramping up our capacities in China in Anhui. Also there will be the main focus, The SSB, our new hardware platform. On the software side, We're also making progress. The first over the updates for the ID are coming in place. Customers really like it because the car becomes gets certain upgrades, It gets new skins and people are getting acquainted to the continuous software updates, which will they receive In the future, all this was driven already in a collaboration between our software unit, Karyot and The brands.
So battery and charging, also a few things to mention. We partnered with Scotiin High-tech, A battery manufacturer from China where we have a major stake in, Goshen will help us to industrialize Our battery cell production in Salzkita, this is a competency we classic OEM wouldn't own. Now with the combination with Scotiabank, we We are in good shape to ramp up this battery plant in Salzketa and probably some more in other parts of Europe Efficiently with the right skill base and the professional partnership. Volkswagen will invest or has invested another $500,000,000 in sustainable battery activities with our Northvolt Investment, we are partnering with Enel, Enel X for developing, owning and operating more than 3,000 high Our charging points in Italy of up to 3 50 kilowatts each. I think we have been talking several times about this.
The fast charging infrastructure In Southern Europe, it's not to the is not as deployed as we would like to have it. It hinders our electric car sales and that is why we are investing and partnering in Italy and in Spain To get fast charging as fast as possible and then help us also to get our EV sales up And running also in Southern Europe. Mobility and Services, We are I think it's worthwhile mentioning that and you're all aware that we are taking over In a consortium, the Eurocar Rental Car Business, Just to mention, I will explain that in a few slides, we are not buying a rental car business To own a rental car business, but we think that rental car business is the best starting point to build mobility platforms. I will Try to explain you this a little bit later. But you see in our strategy overview that mobility and services is one of the big Platform games we want to play with later on then going to robo taxis And different mobility services, a big cornerstone of this strategy is a mobility platform.
We think that the best starting point indeed is car rental. Why so? Because to run mobility platforms, you need a brand. It's basically to mitigate between mobility demand From the customer side and supply from the, let's say, different mobility provider side, on the next slide, we skip one. We can show you can we skip one slide, please?
Next one, yes. On the next slide, we can We see a clear tendency, a trend that mobility demand is Changing over time. We see people renting a car for the weekend using fleets within the week, using company fleets, Trying to swap cars, change cars, they don't like to lease cars for 3 years, 4 years anymore. They want a The specific car for the week and another car for Envig or the family. So this is the demand is gradually changing.
So the question is who can provide the best service to the customer? We think the most important Piece to own and relevant is the customer ID and the customer knowledge, Which we think we can build a mobility platform, which is really worthwhile using for many customers in the world. The basis we think the best basis is car rental because car rental already has many of the The capabilities and skills you will need for the mobility platform, we already have customer contact. We can provide cars in any airport at central main stations in many cities We have the capabilities to run big fleets, to maintain big fleets, to buy cars, to sell cars. And this is why we think a profitable rental car business is the best place to start for a mobility platform.
We have to add that capabilities, more customer knowledge, pricing capabilities. Also we have to add 3rd party offers, we can combine offers from our brands, so branded mobility offerings. But having that, let's say, Key capabilities of a rental car business is the best place to grow. And if that's profitable, I think that's The best place to grow from a profitable business. And we think we are in good shape to even be competitive later with the big ride hailing companies Other mobility providers because we start from a profitable base, which we will grow fast On the new service side.
So this is basically the rationale behind on the next slide, once again Showing that there are synergies with already existing mobility offerings, We have been trying a lot sharing activities. We have We Share in Berlin. Many of our brands are trying sharing. We found it very complicated to get it profitable because of the usage of the cars. On this slide, you can see that it makes a lot of sense to combine rental and sharing.
It's complementary over the life cycle of a year. Sharing and rental are very complementary businesses. If you think into one spot, one location, even within the week, Sharing and rental could be very complementary. It depends a little bit on the city. So what does it mean?
If you use the Same car fleet, probably adding additional cars from our retail activities, which might be loaners or test Then you can make just better use of your car fleet. And make better use of your car fleet is the Critical parameter to get sharing, rental and also mobility services to profitability. And this is what we are going to do first. We will combine our businesses from the sharing activities. We will combine that with the rental business of Europka and already find some additional growth potential.
Some of our peers Already investing there and we will we have reserved about €300,000,000 in our takeover bid to ramp up our Key competencies in the rental business. Fast to get EuropeCar from rental into Mobility platform. This is what we are aiming to do. We do that and now please 2 slides back if that's possible. We do that in a consortium.
We don't do it alone. We one of our The most successful importers and retailers, PON, is partnering with us, Very competent partner in mobility services already. He is in bicycle leases. He has many customer contacts, Very successful in Holland and he's partnering with us. And one of the initial investors, Atesta Limited, Will help us to restructure and align the company for the new strategy.
We are very happy that Attesto stays with us for at least for the next 5 years to build up or rebuild EuropeCar and make it a big mobility platform. That also leads to a situation where we will not Fully consolidate Europcar because we share the leadership, which also allows us to develop Europe are independently or quite independently from the Our core business, apart from our core business, make it a little bit more agile and Atestor will help us for sure to restructure what's still necessary In the Europe car business, we think it can be profitable again profitable very soon because rental car business is recovering fast in the United States. And with a certain delay, this will also come to Europe and then we can build it or rebuild it on the basis of a profitable Rental car business. That's what we are going to do. That's our aim with Europe Probably not easy to understand at first sight, but you will we will show you some evidence that this is the right way to go very soon.
Yes. But thanks very much and good afternoon colleagues. Good to talk to you. With rising levels of vaccinations, the COVID situation has somewhat normalized and we hope continues to do so. On the other hand, the whole industry is faced with a shortage in the supply of semiconductor And against that backdrop against the backdrop of this challenge, we were able to deliver an extraordinary solid half year result.
Financial highlights. Sales came in at 4,700,000 vehicles well above 2020, but sales also well above Below 2019 figures, sales revenue, however, came in at close to €130,000,000,000 even above the level of 2019. Operating profit came in at €11,400,000,000 This corresponds to a very strong operating margin of 8 point 8% for the group, well above 2019. This result was mostly driven by strong passenger car business, which benefited from Further market recovery and strong product momentum, especially our premium brands performed impressively. We had strong focus on mix and margins And we showed high fixed cost and investment discipline, especially compared to 2019.
Our Financial Service business also performed very well. Focus on cash flow generation is our key priority, especially in the transformation. Our reported net cash flow for H1 1 came in at €10,200,000,000 driven by high underlying operating cash flows, especially premium, lower CapEx Even below the disciplined 2020 spending and low inventory levels, we operate currently at about 20% to 30% below Ideal stock levels. Clean cash flow before M and A and diesel amounted to €12,300,000,000 and net liquidity rose to an extremely robust €35,000,000,000 is an increase of €16,400,000,000 versus first half year twenty twenty. This results clearly demonstrate our strong operating performance, show our focus on working capital and prove the robustness of our business.
Net liquidity profited from a strong underlying net cash flow. In H1, we received EUR 1,500,000,000 in dividends from China, Which is around half of the dividends we expect to receive for the full year 2021. The main M and A investments this year so far were the capital increase in Northwell AB €700,000,000 and the capital increase in Argo AI, €300,000,000 Already in Q1, We paid back €1,200,000,000 hybrid bond. Please be aware we expect significant cash outflow in H2 among others for Dividends to shareholders and M and A outflows relating to Navistar or Gaussian. Nevertheless, €35,000,000,000 It's a robust starting point for this transaction and we still strive to keep net liquidity well above €20,000,000,000 at the end of the year, including M and A activities.
Coming to the performance of our divisions. Within the Automotive division, Passenger Cars Delivered €8,500,000,000 operating result and a very solid 9.3 percent operating margin well above 2019. Commercial Vehicles came in at €300,000,000 This result was burdened by substantial restructuring costs at MIN of €700,000,000 Power Engineering came in at breakeven and the Financial Service division contributed a strong €2,500,000,000 result, Benefiting especially from high used car demand and very good residual values. Now moving to the passenger car EBIT bridge, The strong result of €8,500,000,000 for the passenger car business was driven by substantial volume pricemix of €11,200,000,000 The block exchange rates and derivatives came in at a positive €700,000,000 versus last year. This was mainly driven by the fair value valuation of commodity derivatives of €700,000,000 of which the absolute positive contribution in H1 2021 was €1,100,000,000 We were so far able to compensate for higher material costs and prices, but we expect larger headwinds in the second half of the year, For example, in relation to steel.
The position fixed cost others had a significant negative effect of €2,800,000,000 versus 2020. Overhead costs were higher by €400,000,000 versus 2020. The other hand, we achieved significant positive contributions from our overhead cost program. And please consider that we Compare costs with the first half year of twenty twenty, where production was brought to a stop in lockdown for several weeks, there's a significant base effect in there as well. Development costs were higher by €600,000,000 due to our continued BEV ramp up and significant software investment.
That reason are mainly one off effects of €1,800,000,000 in comparison to 2020, which the major driver being the transfer of IID To Argo in 2020, this transaction had a significant positive effect back then. Coming to our Brand Group's performance within the Passenger Car segment within the volume group, Volkswagen came in with an operating margin of 4.4% mainly driven by the ongoing recovery of the regions. Despite COVID-nineteen, we expect North America and South America Within the premium group, Audi delivered an operating margin of 10.7 percent. Bentley came in double digit at 13.4% And in the Sports and Luxury Group, Porsche delivered an impressive 17.6% operating margin standing out in the industry. Looking at the commercial vehicle business in more detail, you get a mixed picture.
Scania delivered an impressive 12% operating margin. The underlying business of MAN had a negative result, which was mainly driven by restructuring costs of €700,000,000 Before restructuring, MAN achieved a margin of 3 point 4%, which is a significant swing versus prior year. In H1, the proportional operating profit of our Major JVs in China came in at €1,300,000,000 which is below 2020 figures. In general, chip shortages had a negative effect, whereby Q2 was stronger affected than Q1. The Huawei Group China premium brands have been doing very well in H1 leading to a decent proportioned operative result on Northern Chain FRV, Farve.
On the other hand, competition in the volume segments, especially in the lower segments, remains tough and negatively impacting The Farve brand. Please note that, Sarve was also burdened with initial ramp up costs for Audi vehicles, which do not have corresponding sales yet, But in the future, overall for the full year, we expect the proportion operating result roughly in part with 2020 figures. H1 has been very strong despite a tough environment. We've managed COVID and the semiconductor restrictions quite well so far. The combination of a strong base from H1 expected weaker Q3, but catch up in Q4 gives us enough confidence To raise our operating margin guidance by a further 0.5% to the range of 6% to 7.5% return on sales.
The risk and the supply of semiconductors have once again shifted now into the second half of the year. So achieving the upper end of this guidance Depends on our ability to recover vehicle production, especially in the light of semiconductor situation, lower our order backlog And recover lost sales in H2 as much as possible. Leading to automotive clean cash flow, we expect a level of above €15,000,000,000 Now I would like to update you on some of the proof points of our strategy. Focusing on BEV ramp up, Our bev volume continues to ramp up significantly. We delivered 16,000 bevs in Q1, 110,000 bevs in Q2 and we are Now striving for a best share between 5% 6% in 2021 with a minimal tactical spending.
To continue with transparency on the performance of Carriage, currently shown within the other line, our group P and L, Since KARET is in the initial investment phase and the operating result and net cash flow were both negative and R and D costs doubled in Q2 as planned to €1,000,000,000 Caritas increased headcount by a further 500 employees in Q2 and now has a headcount of around 4,500 Looking in our fixed cost program, which include general overhead costs in our headquarters, indirect costs in our plants Worldwide and the budgets of our national sales companies. For better comparison, we track our overhead cost program versus 2019 figure That were not distorted by the 2020 plant closures and short term measures. We managed to continue our progress And decreased this cost base by around 8% versus 2019, a further 2% decrease since Q1. And we are absolutely committed to continue this disciplined approach. The sharpened focus will continue throughout this year as well as until 2023 and beyond.
We've very ambitious transformation plans that are required to safeguard Our future for that reason we have guided for R and D of around 7% for the full year 2021, while this is still above our strategic target of 6 is a necessary reflection of the execution of our best strategy and of building up our software competence. R and D spending came in at 7.2%, still above our 2021 target of 7%. But in terms of CapEx, we showed industry benchmark discipline. The H1 CapEx ratio came in at 3.5%, What was well below 2020 figure? In absolute terms, we came in well below both 2020 and below 2019 at 1.4 €1,000,000,000 We put full focus on product and future technologies, while keeping non product related and structural CapEx At the minimum, since we've already achieved a very decent CapEx ratio in Q1 so far, we see an upside Despite the typical seasonal higher CapEx spend that will come in Q2, we will continue our strict disciplined approach and we will increase our efforts Focus and transparency on cash and cash flow even stronger and provide transparency by brand.
For the time being, the premium brands are the key contributions So the very strong cash flow generation, our volume brands still have a way to achieve acceptable cash flows levels. But please take into account that cash flow from the Volkswagen brand was still burdened by these outflows of €400,000,000 And of course, The net cash flow of all our brands benefited from lower inventory levels of finished goods. Ladies and gentlemen, with our strategy new auto, we have a clear plan to transform our company into a technology and mobility service group. We will continue to focus on synergies across brands and working hard on cost and efficiency, while focusing on technology, ramping up our electric platforms and Developing and deploying a leading automotive software stock. We intend to shape and financially see our transformation With as much accountability and transparency as possible.
Thank you very much. And now I will Hand back to her. Thank you.
Thank you very much, Arnaud, and thank you, Herbert. If I could just clarify 2 small points, please. On the passenger cars EBIT bridge, the block exchange rates and derivatives came in at Positive €1,700,000,000 not €700,000,000 versus the prior year. So the correct value is shown on the chart. And secondly, of course, we meant that the higher typical seasonal CapEx will come in the second half of the year.
Operator, if I could please pass over to you to kick off our Q and A session. Thank you.
Thank
Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. We can go to our first question. It comes from the line of Tim Rocassa of Deutsche Bank.
Yes, good afternoon. Thank you very much for taking my questions. The first one is probably if you have it off for Christian. I understand that you still want to do a good explanation on the EuroKai acquisition, but I think what was most important to your investors and why I didn't really like the idea of you acquiring this, is that there is a lack of understanding why you need to own a good chunk of this asset rather than just partnering with them. Is that something that you can already allude to what the rationale behind that element of the acquisition is in this idea?
And then secondly, Obviously, you have steered the mix in a tremendous way. I mean, these margins that we're seeing at Porsche and also Audi are very, very impressive. Should we be prepared for a mix dilution once the semi shortage normalizes? Or are you ready to cut out some of the lower end of the portfolio even by that point in time? Thank you.
Yes, Christian.
Okay. So Christian, I think the first question was directed to you on the logic behind buying a chunk of your car.
Yes, Tim, good afternoon. Thanks for your question. I think the 2 fundamentals, one is obviously you also If you put everything in the new mobility platform, you will also leverage the brand. So obviously, if you only partner with the brand, you actually strengthen the massive brand That you at the end of the day don't own if we are successful in the future. 2nd point, you need to as Herbert Diess has explained, you need to work out of an integrated fleet.
So if, for example, through your car, we offer branded subscription service, so let's say, Porsche or Audi, you want to deliver more Audis than Porsche, relatively speaking to that partner, that's a partner you should have a particular intensive relationship, I. E, ideally own at least the majority of it. These are the two main reasons. Part, of course, From the third effect, it's much easier to line everybody in this group to a partner that way actually have a significant shareholding in and you participate in the value creation It we hope to generate.
Okay. Herbert, if you could take the second question. It's on our steering of mix. And if things are I will say we'll be positive when things go back to normal on the semiconductor, Whether we see a mix dilution then or whether we can maintain our very strong mix as in the premium brands?
Yes. For sure, there is an effect of mix improvement because of prioritization, but we have a strong focus On keeping the margins high and improving our mix. So and we have Seeing that we have we are able to price some of our increased costs, And we will maintain that route. So we're not striving anymore for volume leadership. We are striving for profitability.
So our task is and our aim is to keep the margins as high as they are today.
Great. Could we please take the next caller, please?
Our next question comes from Arnd Ellinghorst of Bernstein.
Yes, hi, and good afternoon, everyone. First, a question for Heather Tiss, please, Doctor. Wyss, on capital allocation, I think we all know and understand that you and the management team are very passionate about the value of Volkswagen And the potential of value unlock from really lifting hidden value from the various businesses you have. Now at the moment, it seems that we're moving in the other direction with Nevistar Europe, Caution, we're potentially looking at about EUR 14,000,000,000 of The outflow with the second half alone, can you just update us on your thinking regarding core versus non core businesses and the action behind it That might lead to a more valuable Volkswagen. And then secondly, on China really, I mean, thanks for the additional slides on the deck.
But it's now we've seen this for a while now that the equity contribution from the joint ventures It's dramatically falling. It's obviously related to Shanghai, VW and as you say in your slides as well, the mass market exposure. Can you just talk about what structurally how you will reset the VW brand in China and how much it will cost you To reposition or even take out Skoda? Thank you very much.
Okay. Yes, first of all, I think It's fair to say that we are doing a lot also to streamline our operations. Not many months ago, we Put our seeds operation, for instance, into a joint venture with Prose. I think the move now with Bugatti, where we didn't have A clear future answer now having it under the leadership or under the control of Remax is a very good move. We streamlined our operations for the premium sector, not the combination or let's say adding Bentley to the product portfolio of Audi makes it now very easy to manage The entire product portfolio under one umbrella, but allows Audi to address higher segments with Bentley, leveraging scale and technology.
So we think we are moving the organization of the group Into groups in volume, premium and letting alone Porsche Makes a lot of sense for reducing the complexity. And actually, it's working really well. We are now it's not we don't deal with the Minor investments like Ducati, Lamborghini anymore, it's in good hands with Audi and they leverage all the synergies in scale. On the other hand, we think that Prim's brands are valuable and they we have a good chance to increase Brand value over time, we in our strategy shows clearly that in the by the year 2030 also it will be Very much a brand game. No brands has to be will be have to be aspirational, also emotional.
And we have probably best brand portfolio in the world and we have now I think we have restructured the brand portfolio decently. It's well organized and it's working well. And the combination now is with the big platforms. Also, I think this we have organized in the right manner, Hardware platform, software platform, which allows for the right scale. And we strongly believe that Automotive industry in 2030 will be more of a scale game than it is today.
Software is fully scalable. Autonomous driving is fully scalable. Hardware platforms will be 1 unified hardware platform. You will see that this is going to be Again, for very, very big companies, at least you need the economies of scale on the technology side. So we think it's absolutely The right setup, same applies to batteries and charging.
This is why we are very confident that we are making the right moves. Is there something where we have to work on our brand portfolio? Yes, in some aspects. Skoda is doing very well. They're getting close to 10% profit margins now.
We're streamlining the worldwide business. Skoda has taken control for India, for Russia, East European markets. Volkswagen is coming back strongly in Latin America, in the United States. The brand portfolio, our weakest point probably is Fiat, And they are very well on the move now with their sports brand Cupra. Cupra is already bigger Alfa Romeo has been over the past years, they're going into higher margins.
The new product launches are received very well. So this might be the way forward, and we are confident that it can be the way forward for SEAT as well. And then we have by far the best Worldwide brand portfolio in the industry, all brands are being modernized, made future proof, are electrifying. And this allows us also to play the scale game in the EV sector also probably on a different level than many of our Yes, because 70% of the platforms, EV platforms are on full scale between the brands. This is how we play the game, and we think this is the way we are going to be successful.
Whenever it's possible, we streamline, yes, Think about seeds. We have other things in mind. We already reorganized our supply plants quite considerably. Now we phased out plastic components Production. And if we see further potential to streamline, we will do so.
We will have strong investments because The industry will remain very capital intensive. Now we have to add the battery plant, and we will do that in a way To maintain our margins high and only invest where we really see the right margins, where we see strategically Very relevant investment. This is the case for Europcar. Now we think mobility platforms can be highly profitable Because at the end, it's customer knowledge, it's software, it's a brand. And this is and the best base is to build up one of Those brands or probably several of those brands delivering services is EuropeCar, And we see high potential for also creating value with building a
mobility platform. You can see that and
we think we can be more successful in many of the You can see that and we think we can be more successful than many of the mobility Players you have in mind like Uber or Lyft or so because they are probably in the worst position than we are now. But time will tell. The Your question regarding China, yes, we are in a difficult situation because of semiconductor supply, but our brands are in good shape. Skoda is suffering because it lacks the size for China. We are just too small and Efforts to make Skoda really successful are really big.
That is why we are really losing market share and not to and the premium brands are doing Because premium is growing much faster in China than volume, but I'm not too concerned about Forexswarm. Forexswarm has a very strong market position. We are around over 10%, 12% market share even now in a crisis situation, Where we are where we have given up market share because of semiconductor supply, very strong. The next brand to follow us has Probably, it has a little bit more than half of our size. So the economies of scale, we are owning there.
The brand perception is very positive. We have a very loyal customer base. We have good dealership network. We are in good shape in the traditional business. Where we really have to gear up now is NEV.
NEV is a new game in China. We have new competitors. It's a new Customer, we have to address and probably Stefan will lose a few words on it. We think that we are in good shape. Our product substance is good.
We have the right range, battery product excitement. We are very competitive. And now we have to really make it work. I would say the first signs are positive. The order intake is growing.
ID6 has was very well received by customers and the press. ID4 sales are picking up, but we have to be aware that NEV is still in development. Now we have Tesla, they are very dominant on the high end side. And then we have very low margin small scale There's no other real competitor, which has been able to overtake us, not talking NIO or Any others which are very much hyped, we are in much better shape than those. And if we do the job, if we find the right way to address The new customer base, which is a much younger customer, if we are fast enough to build up the charging network, we will we can be on the NEV side as Successful as we are currently on the combustion engines.
We have been able to demonstrate this in Europe. We are currently demonstrating this in the United States and we will demonstrate this in China. Stefan, You have to add something.
No. Perfectly summarized almost as we said. So we are well on track also with regards To July, you stated that our China specific model, the ID6, is surprisingly well perceived. Let's say, mixes on order intakes are higher than we And we are I would not say we are doubling now almost every month, but we are now gaining them on a month by month basis between 50% 70% plus On orders as well as on deliveries and as we have also stated in the last days, our aim is, which seems to be quite realistic, to deliver between 80,000 to 1 1,000 cars on the ID family this year in China. And Mr.
Ellinghaus, as you probably know as much as your colleagues that the NEV market is about $2,000,000 and except Tesla, there is actually nobody who delivers, let's say, a 6 digit number On a yearly basis, on the comparable models, if we exclude the mini bets in this respect. So with this number in mind, we are very confident that the first big step Into getting FOXWAN also into the NAV game will be made this year and then with further growth and normalization of the sales trend to be expected for next year. It is a different game, probably also to further elaborate of what Geberd stated on this. You know that in particular, the pure NEV brands, most of them are Startup based ones, if you leave, for instance, BYD as a more traditional contender out, also have pursued a different sales model, which We are also adapting to our traditional franchise model. So we are selling in China as we do in Europe also our ID models via the agency system.
We are currently with both joint ventures ramping up massively exclusive ID stores, relatively small Sized once, but in prime location in shopping malls, we aim for a network across both joint ventures of roughly about 150 of such Prime locations in high frequency areas in China where also our competitors are now presenting their cars, Which would be a similar sized network as also the NEV only brands have. And of course, on top of it, we have our natural strength with our 2,000 unit dealer network, which of course is able to deliver a first class service, which some of our Probably the most important strategic initiative to come. Nevertheless, as you have also elaborated on the FOXFARN brand as such, We are still on the way of executing our so called move forward strategy. So also this year, we had just recently launched another SUV car, which was one of the key areas where we had to pick up, there is one more car to go in order to complete. And then we will have more or less Completed and saturated ICE portfolio and future model extension will happen purely in the field of electric vehicles, Where we are more or less for the transition phase are building a second compelling portfolio on NEVs.
And then in the at the end of the decade, certainly, we Expect also for China then the tipping point to be reached where NEVs are taking the majority over the ICE car business. And also worth to mention that similar to Europe, but probably even more radical, we also built our own charging infrastructure In China, in conjunction with our colleagues from FAW as well as with Star Charge, where we are also completing the offer In terms of charging and not completely relying on public or semi public charging infrastructure, but making sure that our NEV customers have access to 1st plus VIP services on charging. And I believe still the holistic experience, including the charging and service element, Will be one of the decisive factors to turn NAV into the big few things to happen in China.
That's great. Thank you very much. Maybe just one quick follow-up really for Het. Het, given you've got a new contract now, which gives you more planning Visibility for the group, do you personally believe in a partial IPO of Porsche?
The as I said, we're continuously reviewing our setup. First priority is now to finance the battery ramp up. Now we try to partly externally finance And we are working out the models. And all the other, let's say, possibilities to go to market, which Might be trucks, yes, where we could dilute a little bit and coming a new strategy Or any other things, they we have to consider. The first priority now is to finance the ramp up in batteries.
Thanks a lot.
Okay. Thank you. I think we now have Jose next in the queue. Operator, please, next person. Thank you.
We can go to Jose Asamendi of JPMorgan.
Thanks very much, Jose, JPMorgan. Couple of questions please. Doctor. Pitts, can you comment a little bit please about the collaboration with Ford specifically in Europe on this LED architecture That's going to give you, I think, very strong economies of scale. How is that progressing?
Has there been any developments since the last time? And Any opportunity to expand on a geographical basis across any other region? Also, can you comment a little bit Argo, and again, that collaboration with Ford, definitely not valued or priced into the share price currently. Can you comment a bit around The investments, the commitments you have there, any latest development on the technology side that you may share? And then second for, Arnaud, can you help us a little bit in terms of the maybe a little bit the short term momentum into the 3rd quarter?
Are you seeing wholesale down versus Q2? And are you seeing raw materials becoming Headwind or do you think you have the opportunity again to offset some of the headwinds with pricing and with mix? Thank you.
Yes. Jose, that's a bundle of questions. Ford Alliance is working out really well. We did that mostly driven by the strategic position of our light commercial vehicles. And we I think we are gaining a lot of competitiveness over the next couple of years using mostly Ford platforms for our commercial vehicles.
It's well underway. The projects are making good progress. The designs I've seen are really promising. The cost Space we will are going to achieve are good and we already see recovery of our light commercial vehicles. I think there should be even in our planning some upward potential because of the Ford partnership from light commercial vehicles and chances.
The Argo venture is making good progress. Now we have been it was Tough times because we couldn't communicate well. We couldn't drive the cars. But now Brian Zelebski is coming over. I think he will give a presentation on the Munich Fair, where we are going to show the next steps.
The cars, I've Been seeing the cars which are being equipped now with all the LiDAR equipment. They started test driving At the Munich airport and later this year, I'm invited to a test drive. And then next year, Hopefully, we're going to see some fleets in the United States and our cars here in Germany. They are telling us, it's a 3rd party that their sensor technology is Much better than what you see in on the rest of the competitors. Compute hardware is very similar.
So I think we are at eye level with at least at the same level of technology than most of our Yes. And test drives next year should show and should show them progress. The vehicles look nice, I think and hopefully, we can next year test drive some of our cars in the Moa environment in Hamburg or In Munich. So I'm happy that we made the investments. It took us I would say probably half a year we examined all potential partners.
We ended up with Argo And we don't regret. We think we have the right partner and we have the right partner with Ford. Now we all know it's a long way to become profitable in Business, its technology road map is still a long one, but I don't regret anything. And I think we've made the right choices. And the team is making good progress.
Ford is happy. We are happy. And I agree with you that we have to show it more because it's an asset, yes? It's probably more of an asset Then you have in your books. Then next question was Headwind.
The headwind, wholesale figures, yes, probably Arno, can you?
Jose, on the margin side, I mean, you asked last time also for Q3 or for Q2. Let me start with the full year. Look, we start with the starting point of 8% now. And but we have a certain seasonality in our business, A typical seasonality, specifically in the Q3, we have closing shutdowns for the summer period. So that accounts for like on full year basis for 0.5 points or up to a percentage point.
So that 8.8 In the first half of year, it should ideally have led to a guidance of 8% for the full year. So why didn't we go for the 8%? Let me first make clear, we are absolutely committed to achieve the best margin possible, but we see some uncertainties in Q3. And that from today's perspective is difficult to predict, Specifically in terms of visibility, and we do not rule out that we even slightly surpass the 7.5%. But for today's perspective, you should expect a more normal Q4, but that Obviously, mathematically leads to a higher burden we expect in Q3.
But again, as I said, we do not rule out that we surpass That's current margin guidance, if we really manage the supply of semiconductors quite well.
Yes. Okay. I think we had a question and a bit more details on raw materials, if possible.
Yes, raw materials, a little bit counterintuitive what you saw in our EBIT bridge Because we had a significant positive effect on the product cost side, what we see is Currently, the raw materials we use, we have it had in our inventories. So basically, these raw materials still had Lower prices, but we see the steel that many we buy so far, the prices increased significantly. So you should expect A higher burden in the second half of the year. Of course, we are hedged. Of course, we have long term contracts.
And of course, we look into pricing. And of course, we look into the possibility to compensate for that on the cost and fixed cost side. But yes, in a theoretical EBIT bridge For the second half of the year, we expect a swing to a negative figure there.
And then maybe, Christian, the last point on the development of pricing into Q3 and rest of year.
So I can assure you that my boss reminds me every morning that we should additionally price our car. But I think generally speaking, as you can see from mix Price effects, I think we've done a pretty decent job to leverage pricing. And again, pricing, of course, always has two aspects. 1 is our price increases, we've already done in March. We have Done a second price increase or we will do a second price increase already announced on the 1st October.
And thirdly, of course, we have reduced technicals massively, which is effectively nothing else Price increase across the board, pretty much across all markets and all segments.
Okay. I think we've Kai Muller now. We still have, if I'm looking, 8 or 9 more people in the queue. So if I Could I ask to restrict yourself to one question? I think we've covered very comprehensively some of the bigger topics.
And we're checking the possibility of extending 10 minutes depending on where all these guys need to get to, But hopefully we'll get through. So George is the next one. We can hand over to the operator, please.
And the next question comes from Kai Mueller of Barclays.
Okay. Sorry, George. But thank you very much for the question. If I just stick to 1, on your europeka deal, as Tim Outlined earlier, there's a lot of questions in terms of the structure of the deal. Can you just clarify a little bit how much will it actually cost you To invest into this and what shareholding you will be having and what is the idea behind being a shareholder in such an asset versus owning the asset outright?
Christian will take that question.
Yes, happy to take the question. I mean, first of all, as Haberthijs has explained, we will buy your car or we intend to buy your car in We will buy 67% of the shares at the price of $0.50 That will cost us €1,655,000,000 If as we hope we will reach the threshold of 90% and then will allow us for a squeeze out, we will pay 1.6 €8,000,000,000 this is for our 67% relative to 100%. Testor will own 27% of the shares and Poin will invest $76,000,000 owning 7 percent of the shares. We believe that instead of owning it outright, I think we'll leverage actually the abilities of 3 great partners. 1, starting with the private equity partner will help us to do some necessary restructuring measures, which sometimes It's easier and better to do in a partnership than as a big corporate alone.
2nd, PON is in Orphan is much more agile and advanced in terms of mobility. So we will be able, of all, not only to test new things in the Netherlands, for example, or in other markets. 2nd, we'll have someone who also holds us accountable. Being a large corporate will sometimes slow, it's good somewhat to have someone to push us and do some things maybe a bit more agile, if I might compare it while competing with 6th, for example, that's a Well run, agile companies, so we need someone to have the same speed. That's the reason why we strongly believe that partnership is a good combination of our abilities.
Thank you, Christian. If we could now take the questions from George and I can confirm we will extend for 10 minutes
George Galliars of Goldman Sachs. Please go ahead.
Thank you, and thank you for taking my question. Look, I wanted to revisit something which has been raised in the past. You are clearly making good traction with your electric vehicle sales. And if I look back this year, your share price on Power Day was at a similar level to today Before increasing by more than 20% in the following 30 days, seemingly indicating that investors too are excited by your EV offensive. However, since then, it does feel like some of the excitement has faded.
And with that in mind, would you be willing to change your position On the reporting of your battery electric vehicle sales, to report the monthly rather than quarterly so that the market can more easily follow your progress? And in addition, can you confirm that internally you are tracking the revenues and contribution profit generated by your battery electric vehicles? And is that something that you might consider disclosing to the investment community? Thank you.
Okay. So Christian will take the question on reporting of our best progress.
So, maybe I think and Arnaud, analyst has explained it multiple times, of course, we'll increase our transparency on the BEV reporting massively. We strongly oppose me included the monthly reporting because in an organization like ours, what happens then people run after monthly delivery targets and we deliberately want to steer profitability and not for volume numbers. So we believe a 3 month reporting is sufficient transparency and enables us internally to steer what you want at the end of the day, of course, So investors here for profitability and not run after monthly published targets.
And just your second half of your question, We have internally, of course, margin information. And based on that information, combustion engine versus Better electric cars, we gave you the indication that within the next 2 to 3 years, the margins will converge. And we explained in our Strategy Day, the effect of better margins from better electric vehicles, better scale, better battery costs And the priority we will see within the next 2 to 3 years, but for the time being, we won't disclose For competitive reasons, specific margins on specific models, but we are confident that we can stick to that margin currency prediction The next 2 to 3 years, which is a good which should be a good message for also the capital market from our point of view.
Okay. Thank you, George. Thank you, George. We'd like to now take the call and take Stephen. And then we have 5 left.
So it looks it's looking good on time.
We can go to Steven Reitman of Societe Generale.
Yes, good afternoon. If looking at slide number 26, which is the showing the cash flow, Obviously, it's very striking that when you look at the very strong cash flow that you generated, the €10,200,000,000 it's predominantly the results of Audi and Porsche. And obviously those companies also in quite heavy spending phases as well. So they're still managing generally obviously very strong cash flows. But I'm wondering when how do you think the development of the sort of more volume oriented part of the business can be in terms of cash flow generation going forward.
And obviously, I did take note that your Higher cash flow guidance for this year. And second question as well about the United States. You mentioned that you're pretty much sold out already on the ID. 4 in the United States. Obviously, those vehicles are being imported from Germany at the moment.
So could you update us on how quickly you'll be transitioning to local production in United States? Thank you.
Thanks, Stephen. Arnaud will comment on the cash flow developments in relation to brands versus premium.
Stephen, thanks for your question. And as promised, we increased focus and we also increased transparency. And So basically the results you see on Page 26, yes, there is significant upside potential Specifically in the volume brands, but if you look at the Skoda cash flow for 6 months, it's not too bad already. So and Volkswagen Passenger Cars, it's burdened by diesel payouts, but they know they have quite some way to go. But As you're aware, Volkswagen brand currently operates on 4% margin.
There is a path to 5% next year and 6% in 2023. And with that Operative improvement. The margin should improve as well. There is a small thing you need to consider when you look on this Net cash flow exhibit, due to the cash flow due to our operating model within Carriere, there is a significant negative cash Which we also communicated in the deck. And that basically theoretically you had to add To the brands, specifically also to the partly to the premium brands because if they had to pay for their Upfront investment in digitalization and in software, their cash flow would be a little bit more Deluded, but still it's a really strong cash flow from Audi, strong cash flow from Porsche, Basically from a very strong product momentum, very strong operating business and the next small reason is, Yes, we operate a little bit under ideal stock, 20% to 30%, and that will normalize over time.
But as I said before, we increased focus, we increased transparency and we also increased like our initiatives on working capital Perhaps in Q3, but at latest in Q4, we will give you more detail on our working capital Initiative, which has basically 3 streams, focus on ideal stock calculation, a much more Strong and robust and ambitious focus there and then receivables and payables. And from this initiative, we should also see Another positive effect. But again, what you summarized, With the improvement of the operating result of Brandfolkswagen in 20222023, we should also much more see a much more positive cash flow.
Okay. If I could hand over to Herbert. If I can hand over to Herbert just to address When we will localize the ID4 in the USA?
ID4 is going to be localized quarter 3, 2022, quarter 3 next Yes. And until then, we are trying to squeeze out a little bit more production here from our German plants to satisfy the U. S. Demand.
Okay. Next we have Hota. If we can go to the operator please and take the next
Thank you. Our next question comes from Horst Schneider of Bank of America.
Yes. Hey, good afternoon. Thanks for taking my questions. Most of my questions actually have been asked already. So therefore, Just a final one.
On Financial Services, on the splendid result you reported here in Q2, just want to get a feeling what has driven the result in Q2 To what extent the tailwind factor is going to be permanent also in the next two quarters? So I want to get a feeling what is the run rate from here in Financial Services. Thank you.
Thanks for your question there. There were like extraordinary factors, but there are a lot of factors we should expect also In the coming quarters and years to come. Also in the Financial Services business, we started a fixed cost and operational improvement program, And they have a very good and positive business. On the other hand, we saw very good residual values And very low basically
factors
on risk. So it's difficult to predict whether these effects will be permanent. From the sales perspective, we Try to make them permanent since we what we said before, we will promise that we keep the cost discipline, we keep the also the inventory discipline and incentive discipline. And that should also lead to a more permanent positive effect On our Financial Services side and the credit risk is difficult to predict for the time being. They didn't materialize.
Customers are still solvent, but you know this is something you can't really predict for the future. But for the time being, this is very solid as well.
Okay. Operator, if we can take Tom, please.
Our next question comes from Tom Narayan of RBC Capital Markets.
Thanks, Tom Noreen, RBC. Thanks for taking the question. Questions for Stefan on China. And first, thanks for the details from before. But We've been hearing some press reports indicating some issues maybe Chinese consumers have been having with the software On the ID family, I'd just love for you to maybe respond to this and what are those issues and when might they be resolved?
Thank you.
Tom, as you know, we brought the MEB factory alongside the ID4 also the first time to China. Indeed, as I would say, with all complex software, hardware topics, we had to adjust some. As we did so, I would say we are currently since a couple of weeks out with the software where we see hardly any problems, which we are currently also, Let's say offering to our customers of the very first days. Similar to you, as you probably know that we are also aiming, let's Say for the over the air update ability, probably slightly delayed to Europe simply for 2, 3 reasons. Because in China, we have a slightly different hardware, much more performed than we have it in Europe, we have more legal requirements in terms of Permanent delivery on data to government backends to observe and monitor the battery status, which is a legal obligation in China, which of It's affecting all software updates to function as well, and we are planning to go in front of our customers with update ability and increased functionality.
So we'll be very attractive software package to hit the market, I would say, around the year's changes, latest early next year. And the good thing is SA hardware is not going to change. This will be a positive also surprise and benefit for all customers that have Already decided and deciding these days to buy an ID car in China.
Okay. We can take the next questions, please.
Our next question today comes from Henning Kosman of HSBC.
Yes. Hi, good afternoon. Thank you taking the question. Maybe while we're on China, another one for Stefan on Slide 19. So thank you for indicating the Profitability for the remainder of 2021, obviously implies that you go back to above €1,000,000,000 Contribution on a per quarter basis.
So last year in H1, you obviously had the COVID dilution. This year, you had the semi dilution. Is the understanding correct that you can sustain the above €1,000,000,000 contribution on a per quarter basis going into 2022 as well? I'm not really looking for guidance, but just Order of magnitude, so that you for the first time again now able to break that trend of declining earnings
in China. Thank you very much. As
I said, the what you call the decline of earnings in China is really more on extraordinary effects. We had one off effects financial ones that are positively affecting our 2020 results, which are not to be repeated in 2021. And also the colleagues have stated earlier on, we are in particular hit in China by the semiconductor shortage in quarter 2 and quarter 3. Just for you as a background, if you do not know, we are, let's say, in the same boat as we are on many components globally. But We are specifically for a safety relevant part also related to the Japanese supplier that had a burn down in the semiconductor in March, which are now on the way to fully recover, which was hitting our MQB platform massively on the steering box In quarter 2 to be, let's say, continuing in quarter 3, we have an alternative supplier also in on top of what we have with our main one, Hoping to see a return back to almost normal levels by the end of quarter 3, quarter 4 to commence into 2022.
And on top of what Arnaud and it's in general stated, we had also specifically in China, also for a joint venture that was raised by Errolst Ellinghorst, on SVW, a massive fixed cost optimization program, a place where we are able Long term lasting to also reduce the fixed cost by more than €1,000,000,000 So this will, of course, will positively contribute in the earning qualities in the years to come. So I would say if we are really able to manage on one hand the ramp up cost on Audi as we go for a second partner strategy with the South. If our fixed cost programs now unfold fully, we have a price value strategy for the brand Volkswagen to come. We have a richer product module mix On the call, Ben, Volkswagen, as I stated earlier on, so if the lasting effect goes through and the Short term effects mainly around the ship shortage in 2021 will pass away. We will see, let's say, improved financials For China to come and to last.
And Henning, if I understood it correct, you asked for a guidance for 2021 or for 2022? I think 2022, right? So as far as I understood, I think 2021 is clear. We said roughly on par. We said we will give more transparency in the future and I don't rule out that in the future we also guide for the proportion operative profit, but it's too early to Got that for 2022.
I would propose that we do that within our normal guidance process probably next year, And then we can discuss what we expect for 2022. But as said before, we will and we promise to increase transparency and that might be part of that Higher transparency we give in the future.
But in absence of new extraordinary factors, there's no reason assume a deceleration in run rate compared to the $2,300,000,000 in H2, right? That's the message.
Could you repeat your question, please?
For 2021, we said roughly in part on the 2020 figures,
No, exactly, which implies EUR 2,300,000,000 for the second half of the year, right? So I'm just asking In absence of additional extraordinary factors or like you say a normalization into 2022, there's no reason to expect Deceleration from the H2 run rate?
Exactly.
Okay.
Sorry, if I can just add, Henning, if you're looking at the 2020 promotional operation result, that was €3,600,000,000 So that's The number we're referring to as being roughly on par. Yes. If we can now okay, sorry. If we could now take Charlie and we have Jorg and Peeper, so it looks like we're finishing on time.
We can go to Charles Koldikos of Redburn.
Hi, thanks for taking my question. Just a clarification actually. I think you said earlier in your prepared remarks that you're now expecting Fully electric vehicles to be 5% to 6% of your total deliveries this year, which I know is only a small change, but I think previously you said 6%. And obviously, that's relative to an overall group deliveries figure for the year that you now are saying is lower than you previously thought about 5% lower. So I just wanted to check the reason why your expectations for bev sales might be lower And previously thought, is that just the chip issue in spite of sort of prioritizing supply of chips for the BEV models?
Or is it something else? Thanks.
So Christian will cover the topics related to the target for electric vehicles for the full year.
Yes, that's true. I think in our previous guidance, we always communicated 6% were up to 6%, so it's 5% to 6%. Again, the slight change in the outlook is So minimal relative to that share of BEST that doesn't have an impact. Obviously, we're prioritizing BEST due to the semiconductor shortage, but also BEST was slightly affected. So that's what we guide 5% to 6% at this point in time.
Maybe important addition, we continue to say that we definitely will hit our CO2 compliance based on these numbers just to avoid any confusion here. And also for ID's last point as for all other models, we're obviously optimizing for profitability. That's why we, for example, cut some ER production relative to original budgets. So also there we optimize for margin and profitability, while of course, Satisfying customer demand and hitting CO2 compliance.
Thanks, Christian. If we can take Jorgen, please.
Yes. Hi. Good afternoon, gentlemen. I have one question left on the used car business, which seems to be very strong. Can you quickly describe it maybe?
Why is it so strong in the I mean, I guess this is more than 100% The combustion cars, why do people rush for these products? Is it just more or less a demand thing because people Who just don't want to wait for 12 or 18 months for a new car go to used cars as a bit And exit strategy from their side? And is it a widespread phenomenon across The margins sorry, across markets and across products? Or is it more a specific thing, let's say, in Germany and some other markets?
Yes, maybe I can take that question. Maybe I'll start with the last point. This is actually widespread across Europe and the U. S. Most notably.
In the U. S. Particularly big. It's driven by 2 key factors that apply for both markets. 1, of course, you have an effect Due to the simple fact that 2020 you sold less new cars, so if you sell less new cars then at least on the shorter term used cars you have less supply.
And the second, of course, is of course the fact that new cars are first of all more pricey due to the increases we all do and second, they are not As available as customers are used to. So of course, they consider used cars as an alternative. These are the 2, let's say, individual factors. I think generally speaking, All manufacturers are fully aware meanwhile about the importance of residual values and I think we're all jointly managing the used car business a bit more Costlessly and thoroughly and I think that's why we believe it's also, well, not maybe in the order of magnitude, but it is a longer lasting effect because The RV management becomes so important for our entire industry.
Thank you, Christian. Sorry,
thank you.
We'd like oh, sorry. Thank you, Jurgen. We'd like to wrap up now for today's event. Thank you all for your participation. I would like to make a reminder that tomorrow at 1 Central European Time.
Our Audi colleagues are holding their webcast and conference call. So we are looking forward to your participation. And yet to wrap up, the most important thing for today for all of us, Staying healthy and having happy relaxing holidays. If there's questions, of course, contact us or the IR team. And