Good morning, ladies and gentlemen, and welcome to the full year results investor and analyst call of Volkswagen AG. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to Rolf Woller.
Thank you very much and a very good morning to everyone and a warm welcome to the Volkswagen Group investor and analyst conference call on the full-year results 2025. With me today are Oliver Blume, our CEO, and Arno Antlitz, our CFO and COO. Before we start, let me provide you with a few organizational remarks. The press release, the annual report, and other related materials were all published early this morning. If you do not have them yet, you can find them on our IR website. As a reminder, and as always, the safe harbor language and other cautionary statements on page two of our presentation will govern today's presentation. I would like to encourage you to read the disclaimer carefully, since all forward-looking statements are qualified by this language.
In order to maximize the time for the presentation and the Q&A, I will not read it loud to you. Our presentation today is structured in four chapters. Oli will guide you through the financial and operational highlights in 2025, followed by our strategic priorities for the year 2026 and the updated financial ambition for 2030. Arno will close the presentation with the financial developments as well as the outlook for 2026. After the presentation, we will enter the Q&A session. If you want to register a question, please press star nine, and if you saw your question already answered, then you can withdraw your question with star three. Now, and without any further ado, I hand it over to Oli. Oli, the floor is yours.
Good morning to all of you. Thanks for joining and also a warm welcome to everyone on the call. Let me begin with 2025. It was a year of decisive action and delivery. We made significant progress in executing our strategy, brought compelling products with improved quality to our customers, and translated technology into tangible customer benefits. At the same time, we started streamlining our structures and reduced our fixed costs with first tangible results. We achieved all of this in a highly dynamic environment marked by increasing geopolitical tensions, new trade barriers, intense competitive pressure, and new competitors in key markets. Nevertheless, we continue to strengthen the Volkswagen Group's robustness and future readiness. We are actively shaping our transformation with a clear ambition to become the global automotive tech driver.
In 2025, we delivered nearly 9 million vehicles worldwide, broadly in line with the prior year. Driven by our strong BEV portfolio, BEV deliveries reached 983,000 units, up 32% year-over-year, representing an 11% share of total deliveries. Group revenues amounted to EUR 322 billion. Operating profit came in at EUR 8.9 billion, primarily impacted by special items and costs related to increased U.S. tariffs. We partially offset these headwinds through sizable contributions from our performance programs over all brands. Excluding special items, but including tariff effects, our operating margin stood at 4.6%. Excluding tariffs as well, the margin was 5.5% at the lower end of our original guidance range.
Automotive net cash flow improved to EUR 6.4 billion, and we maintained net liquidity at a solid level. These results demonstrate how the Volkswagen Group held its own in a challenging global environment, even while undergoing first restructuring with significant associated costs. We will propose a dividend of EUR 5.26 per preferred share for our fiscal year 2025, thereby confirming our dividend policy and our balanced approach to strengthen substance, investing in the future, and maintaining an attractive proposition for investors. The fourth quarter showed a clear improvement across all financial KPIs, with operating profit and net cash flow standing out in particular. This strong finish to the year underpins our confidence as we enter 2026. I would like to take this opportunity to thank all employees who have contributed to this final push.
Our product portfolio remains one of the strongest levers for value creation. We delivered a comprehensive model offensive with enhanced design, improved quality, and features clearly aligned with customer demands. We launched more than 60 new or refreshed models, strengthening our portfolio across all brands and segments, and it makes us proud to see that our brands are again winning awards. We have even set historic records, most recently in the Golden Steering Wheel, Reader Polls, and the Best Car Awards from Auto Motor und Sport. This comprehensive product renewal supports pricing discipline, improves mix, and strengthens customer appeal across all regions. This is also a key differentiator versus both incumbent OEMs and new entrants, particularly in our home market, Europe. What was long seen as a weakness is now our clear strength, our flexibility across drive types. In Europe, we are stronger than ever.
With a 25% market share and a 4% increase in deliveries, we further expand our leading position. This performance was driven by a highly competitive product portfolio, continued improvements in software integration, and performance and strong market acceptance across our brands. The BEV momentum was particularly strong. Sales rose by 66% year-on-year. With a 27% BEV market share, we are now exceeding our share in the ICE segment. Five of the 10 best-selling fully electric models in Europe come from the Volkswagen Group. The positive momentum in Europe continues. By the end of January, order intakes reached close to 328,000 vehicles, a 6.1% increase year-on-year, with an order book of around 1 million vehicles on par with last year. Our performance programs are strengthening the group financial robustness through concrete, measurable actions.
A core focus is a structural improvement of our cost base, and we are progressing according to plan and budget. In 2025, we made significant progress in the realignment of the workforce in Germany. At the same time, we have reduced factory costs at our German sites by more than 20% and will start to adjust capacities to market demand from next year. As planned, the wage agreement and workforce reduction delivered around EUR 1 billion in cost savings in 2025, keeping us firmly on track for more than EUR 6 billion in annual savings by 2030. These are not short-term measures. They are essential to restoring a competitive cost level, especially in Germany. In addition, Brand Group Core was first to initiate a significant overhaul of its steering, modeling, and governance.
As announced in January, a new cross-brand steering model is being introduced, bundling procurement, production, and technical development at brand group level. These steps will simplify decision-making, reduce complexity, and unlock cross-brand efficiencies and speed, while simultaneously reducing board seats by about 30%. In China, we are demonstrating how quickly, flexibly, and consistently the Volkswagen Group can adapt to fundamentally changed markets. With our In China for China strategy, we are now switching to delivery mode after less than three years of transformation. The all-new AUDI E5 Sportback is in the market since late 2025, and we are preparing the launches of numerous NEVs that are highly competitive in terms of design, technology features, and of course, cost. That includes new fully electric and range extender models created in close cooperation with our local technology partners.
Now is the time to start winning market share in the expanding NEV segment in China. Our strong market position in combustion engines, which we were able to further expand in 2025, remains an important foundation of our transformation in the country. Our localized R&D hub in Hefei, VCTC, is now fully operational with more than 3,000 engineers on the ground, and it's central to our ambitious ambitions in the Chinese market. It delivers 30% faster development cycles. With our proprietary China Electronic Architecture, we have taken a state-of-the-art electric electronic architecture from concept to series production in just 18 months, setting new standards in the new generation of intelligently connected vehicles. It will become the central software platform in China.
In addition, we are consistently driving the development of the China scalable platform, which will enable us to offer a wide range of NEV across market segments. At the same time, we made great progress in our Horizon joint venture in the development of highly automated driving. With our compact main platform for E-segment vehicles, we managed to reduce cost by more than 40%. This puts us on par with local BEV leaders. 2025 marked the successful first full year of our Volkswagen- Rivian joint venture. Together, we are making great progress towards our joint ambition to create a state-of-the-art electronics architecture for the group in the Western Hemisphere. The joint venture is fully implemented and staffed. Three mule vehicles have been built. The first test vehicles from Volkswagen, Audi, and Scout brands are currently undergoing winter testing, 15 months after the joint venture was established.
Our roadmap to serious production in 2027 is on track, with a full software-defined vehicle rollout from 2028. This partnership is a key accelerator of our software transformation. We were and are convinced the future of mobility is electric and the battery is the key to a competitive setup. 2025 marked a major milestone. Our Salzgitter gigafactory is live. With our subsidiary, PowerCo, we are the first European manufacturer to develop and produce battery cells at industrial scale. This gives us strategic control over a core building block of electromobility. With the Unified Cell, we have created a global cross-brand platform that significantly reduces complexity and unlocks scale effects across the group. Let's look to 2026, and there our focus is on continuing our positive trajectory, accelerating execution, scaling key technologies, and driving efficiencies across the brand, or in short, progressing ahead.
Our top ten programs for the group and our brands remain the key steering instrument for operational and strategic initiatives. They provide clear direction through ambitious targets, defined responsibilities, measurable milestones, and a systematic roadmap. In 2026, four strategic priorities will guide our execution. First, we are defining a clear target picture and roadmap for our North America business. Second, we are driving our model offensive in Europe and even more decisively in China. Third, we are simplifying our structures and reducing complexity to an enhanced group steering model. Fourth, we are accelerating our cost work and stepping up our performance programs to counter the additional headwinds in our environment. Winning North America has long been a strategic priority for Volkswagen. Our localized production model and focused portfolio delivered strong improvements in performance, but the environment has changed.
Trade barriers mean our model no longer works as intended, and a structural reset is required. This will take time. There are unfortunately no quick fixes. 2026 will therefore be the year in which we will develop a clear plan and strategic roadmap for medium-term success. We have already taken a first step by putting a new U.S. steering model in place. This strengthens regional responsibility and independence, speeds up decision-making, and brings us closer to the market. Building on this, our focus is on creating a product portfolio aligned with a segment where value is created, SUVs, pickups, and hybrids. A key differentiator will be our highly flexible range extender technology developed by Scout. Scout is fully on track, and we are preparing the next steps towards launching with strong momentum.
In parallel, we are evaluating additional localization options for imported vehicles across our brands in the North American market to further strengthen competitiveness and resilience. To make decisions that create long-term value, a stable framework is essential. One important factor will be the further evolution of USMCA. Taken together, this is about making Volkswagen North America faster, more focused, and structurally stronger. In Europe, in 2026, we are continuing our product offensive with undiminished momentum. We will bring more than 20 new models to market worldwide across all drivetrains. In Europe, a key strategic milestone in our BEST transformation is a market launch of the electric urban car family. Four models across three brands, Volkswagen, Škoda, and Cupra, are addressing a segment with an annual volume of around 2 million vehicles in Europe, a segment for affordable electromobility that has long been underserved.
Our vehicles are priced starting from about EUR 25,000. The urban car family will close this gap. Starting with the Cupra Raval in the second quarter, the ID. Polo , ID. Cross , and Škoda Epiq will follow in the second half of the year. All four models will be produced at our highly efficient plant in Martorell and Pamplona, leveraging scale, productivity, and cost competitiveness. These vehicles combine state-of-the-art technology, ranges up to 450 kilometers, and fast DC charging as standard. This positions us to win customers at scale. Over the medium term, our ambition is to achieve 20% market share in this segment in Europe and we will start delivering on that ambition already this year. In China, in particular, we are switching to delivery mode and are up to speed with the largest product offensive in the history of Volkswagen Group.
We are starting to launch the first models developed in China for China, highly competitive in terms of design, technology, and of course, cost. By the end of 2027, we will bring 30 new battery electric, plug-in hybrid, and range extender models to the market. 2026 also marks the start of the next phase of our cooperation with Horizon Robotics in our CARIZON joint venture. Together, we are delivering a high-performance, reliable, integrated, intelligent driving solution that will enter our vehicles this year. At the same time, we are developing the group's first scalable design system-on-chip for the next generation of smart connected vehicles in China.
The so-called SoC will power key functions for assisted and automated driving and gives us greater control over a critical core technology. Built on a 3 nm-4 nm technology node with 500-700 TOPS of computing power, it significantly enhances real-time decision-making, safety, redundancy, and system stability, and positions Volkswagen strongly for the next stage of intelligent mobility in China. Ladies and gentlemen, over the past three years, our performance programs have delivered tangible results. We have met our commitments and in several areas, achieved our targets even earlier than planned. Our progress has been driven by a clear focus on our top 10 programs. Building on this momentum, we are now entering the next phase of our transformation. We are working towards a clear target picture for Volkswagen Group in 2030.
This includes a more regionally tailored product portfolio aligned towards local profit pools, tailored technology and software offerings, and a continued strengthening of our financial resilience. To ensure success, we are now establishing a more efficient group structure and steering. The new cross-brand steering model and Brand Group Core was a first step. On group level, we are pushing ahead to further strengthen group steering and operational excellence. It will take over responsibility for cross-functional areas, development, procurement, production and sales. This will allow us to increase speed in decision-making, exploit synergies across the group, improve efficiency and quality while keeping entrepreneurship and at brand level. This brings me to our long-term financial ambition, which is associated with a target picture on group level. Since our capital markets day in June 2023, the industry environment has changed considerably.
Trade protectionism has been arising across all regions, adding complexity, costs and uncertainty to global flows of vehicles and components. Localization of business models is a consequence resulting in the partial loss of global scale advantages. In China, rising competition from Chinese EV brands is pushing into a declining premium and luxury market. Respective volume and margin protections have come under strong pressure. In addition, we lost about 220,000 units and respective margin contribution due to exiting from the Russian market in 2022. Demand for passenger cars in Europe is sustainably lower at about 13.5 million vehicles per year. At the same time, we have faced increased competition also here. Regulatory requirements, especially those related to CO₂ and emission compliance, have been evolving and overall granting some relief short-term.
Emission regulation in Europe has to become more flexible, but medium- and long-term targets remain ambitious. In particular, when taking into account a slower than expected adoption of BEV in the market, especially in Europe and North America, lower BEV volumes are delaying margin parity while higher investment are needed to preserve drivetrain flexibility. In addition, slower ramp-up results in increased supplier compensation for the lower than planned contract volumes. Overall, global passenger cars are expected to display only low single-digit percentage compound annual growth until 2030. Our projections are based on the assumption that Volkswagen Group volumes will be developing in line with our markets. We are countering the additional uncertainty and headwinds with the implementation of substantial group-wide cost reduction programs, adapting both workforce and capacity to these market realities.
Despite these changed conditions, we are sticking to our target ambitions almost unchanged. We are driving our model offensive across all regions with full force while consistently improving mix and pricing discipline. Narrowing the margin gap between BEV and ICE remains a key profitability lever. In North America, we are actively exploiting market opportunities and positioning Scout for sustainable success. We will remain the largest international OEM in China. We have laid the foundation for this. We want to, and will, significantly increase profits there again. The year 2027 marks a turning point in this regard. Bringing our battery business sustainably towards break even is a critical enabler of our 2030 ambition. At the same time, we are accelerating our group-wide cost programs and further increasing their scale and impact.
Together, these levers form the foundation for delivering our updated financial ambition, an operating return on sales of 8%-10% by 2030 and a cash conversion of more than 60% in the automotive division. This ambition represents a significantly higher quality level than our previous long-term targets, which were defined under more favorable framework conditions. The consistent implementation of our ambition gives us the flexibility we need to actively shape our future. Our capital allocation strategy is reflecting this with a triad of strengthening the company's substance, necessary future investments, and creating attractive value proposition for our investors. This balanced approach allows us to navigate the transition at scale while safeguarding financial flexibility and providing attractive returns for shareholders and stay a strong investment grade-rated issuer for our bondholders.
In the 2026-2030 planning period, around 1/3 of all available cash flow is expected to be used for strengthening the balance sheet and shareholder returns. We are committed to a strong investment grade rating profile. Let me close my presentation with a brief summary. In 2025, we acted and delivered. We achieved solid financial results in a highly dynamic environment and provided major proof points that our strategy is working across products, technology and costs. In 2026, we are progressing ahead. We are building on this momentum with a continued model offensive, strong advances in software and battery, accelerated cost work and more effective structures and steering across the group.
Looking toward 2030, we are working towards our ambition to deliver an operating margin of 8%-10% for the Volkswagen Group and a cash conversion of more than 60% in the automotive division. This ambition is to be rated much higher than our previous target levels as the economic environment has changed considerably. Ladies and gentlemen, with our extensive restructuring program and the realignment in the past three years, we have put the group on a robust basis. We have delivered on our promises and achieved some of our goals even ahead of schedule. At the same time, our world has changed dramatically over the past three years. That is why we are working on a transformation plan for the next phase, our target picture 2030 for Volkswagen Group.
We will focus on adjusting our business model under new conditions on further developing our product portfolio, specially tailored to the regions of the world and the respective profit pools. On sharpening our roadmaps for technology, battery and software, and on consequently improving our financials and on making the Volkswagen Group more efficient. With this, I would like to hand over to Arno. Arno, the floor is yours.
Yeah. Thank you, Oliver, and good morning to everyone from my side as well. Ladies and gentlemen, 2025 was characterized by geopolitical tensions, tariffs, increased competition and ongoing transformation of the industry. Despite these challenges, Volkswagen continued its product offensive, made further advancements in restructuring the business, delivered solid cash flows, kept liquidity stable at a solid level of EUR 34 billion, thus strengthening the robustness of the group. I would like to thank all employees who have contributed to this success. In 2025, we improved some key performance indicators, but our operating profit fell substantially and even adjusted for restructuring and special items, the group margin only reached 4.6%. This margin level shows that we must continue to consistently reduce costs, leverage group synergies, reduce complexity, and thus increase our profitability to a higher level in a challenging environment.
With this short introduction, I would like to move on to the financial performance of 2025 and to our outlook. The market environment in 2025 was truly challenging. Nevertheless, the Volkswagen Group delivered a robust performance and closed the year with 9 million deliveries to customers, almost on par with prior year. Lower deliveries in China and the U.S. were offset by double-digit growth in South America and strong growth in Europe, as our product renewal is increasingly paying off. Deliveries of battery electric vehicles increased by 32% to 980,000 units, and as a result, the BEV share increased to 11%, up from 8% on a year-over-year basis.
This was in particular driven by a strong performance in Europe, with 60% higher deliveries and BEV share of around 19% in the full year. While vehicle sales were stable in 2025, sales revenue was slightly down to EUR 322 billion. Operating profit fell by 53% to EUR 8.9 billion. The corresponding margin stand at 2.8% in line with our updated guidance. Our result was impacted by significant special items from higher U.S. tariffs to restructuring costs and the Porsche product realignment and goodwill impairment. Adjusting for these effects provides a more nuanced picture of the true performance of the group.
The operating result includes special items in a magnitude of EUR 5.9 billion, mainly stemming from the Porsche goodwill impairment in the amount of EUR 2.7 billion and the Porsche realignment totaling EUR 2 billion on group level, both known already from Q3 results. Adjusting for these effects, the return on sales came in at 4.6%, which is also a good indication where we are standing right now in terms of margin in a difficult environment, including tariffs. U.S. tariffs added another EUR 2.9 billion burden since April 2025. Before special effects and tariffs, we achieved a margin of 5.5%, which is at the lower end of the guidance we gave at the beginning of the year and which we consider a decent performance in a challenging environment.
Don't get us wrong, tariffs in the automotive industry are here to stay, and a margin level of 4.6% is not sufficient to ensure a sufficient level of investments. This margin level clearly shows that we need to step up our efforts in 2026 and beyond to strengthen the resilience of the Volkswagen Group. Profit after tax declined by 44% to EUR 6.9 billion, supported by an improved result from an equity participations. The tax rate came in at 26%, largely unchanged versus the prior year. Our dividend proposal reflects a well-balanced approach. On the one hand, providing an attractive value proposition for our investors. On the other hand, strengthening the company's financial base and ensuring a solid foundation for necessary future investments.
Against this backdrop, we propose a dividend of EUR 5.26 per preferred share and EUR 5.20 per ordinary share to the annual general meeting on June 18th. The proposal is based on our communicated and unchanged dividend policy of a payout ratio of at least 30%, while the calculation excluding the effect from the non-cash Porsche goodwill impairment, as communicated in autumn last year. Reported net cash flow in the automotive division improved to EUR 6.4 billion. As a result, net liquidity remains stable year-over-year and rests on a robust level of EUR 34.5 billion. This is also above the level of 10% of group revenues. The improvement in cash flow is the result of targeted initiatives that have been implemented across the group since last summer.
A net cash flow of EUR 6.4 billion was generated mainly in the second half of the year, particularly in the fourth quarter, which stood out thanks to improved inventory management and high level of investment discipline. We can be proud of the good work of our teams, whose dedication and commitment I would like to express my sincere thanks. Ladies and gentlemen, given the public debate around how the net cash flow figure of 2025 was achieved, I want to create more transparency here. On the left-hand side of the chart, you see the key components of net cash flow in 2025, starting from gross cash flow of EUR 28.7 billion, changes in working capital of EUR 2.7 billion, and cash out for CapEx, capitalized R&D, and M&A. This leads to the reported net cash flow of EUR 6.4 billion.
However, the absolute values are of only limited explanatory power here. Therefore, the right-hand side graph compares this cash flow reconciliation with the prior year. The figures for 2024 are shown below the graph on the left-hand side of the chart. Driven by significantly weaker operating performance, gross cash flow declined by EUR 6.7 billion year-on-year. This deterioration, which is largely a consequence of the weaker operating business and tariffs, was anticipated and thus we guided for a net cash flow of around zero for the year in September. Already during summer, we took decisive actions and set up a dedicated task force to identify and implement cost and cash measures to offset this anticipated development. Our teams delivered.
By the end of the year, we achieved a positive contribution from working capital of EUR 2 billion compared to a cash outflow of minus EUR 1.1 billion last year. This adds up to a positive delta of EUR 3.8 billion. Most of the improvement stems from lower inventory level at the year-end 2025 versus 2024, and I come back to this later. We spent EUR 1.9 billion less on CapEx versus the prior year. We reduced capitalized R&D by EUR 1.2 billion, and we stayed disciplined on M&A and spent EUR 1.1 billion less compared to last year. The foundation for these contributions was laid in summer, and some success was already evident at the end of the third quarter, but most of them only took full effect in the fourth quarter.
As said, most of the working capital improvements stem from an inventory reduction effect, which is typically in the fourth quarter. In 2025, it was supported by lasting structural process improvements implemented in the second half over the year with a positive impact in Q4. Let me give you one concrete example. Post the corona pandemic, we significantly improved adherence to production deadlines in our vehicle plants. This enabled us to reduce throughput times across the whole value chain. As a result, we were able to lower stocks of finished vehicles throughout the whole value chain without compromising availability of cars in front of the customers.
Overall, inventory in the automotive business was reduced by EUR 4.8 billion versus Q3 and by EUR 2 billion compared to year-end 2024. Next to working capital, lower investments were the other key factor for the improved net cash flow. Investment spend for CapEx and R&D in the automotive division declined overall by EUR 30.5 billion to EUR 34.4 billion. Almost half of the improvement was achieved in the first quarter. The investment ratio declined to 11.8%, 20 basis points below our guided corridor, which demonstrates the increased progress in investment discipline. In 2026, we expect the level of investment in the automotive division in the range between 11% and 12%, and thus slightly lower year-on-year at the midpoint in absolute terms.
Going forward, we aim to continue this trajectory towards ambition of about 9% of the automotive revenue by 2030. As we are increasingly leveraging group synergies, reducing underlying investment spend, phase out investment in combustion engine vehicles and scale our software and battery business. With the initiatives I've just described, we were able to solidify the automotive net liquidity at a level of EUR 34.5 billion, despite the significant lower operating profit. This reflects a strong execution across all brands, particularly in inventory reduction, disciplined investment spending, which helped to offset the weaker operative result. Again, I would like to sincerely thank all employees who contributed to this achievement. Moving on to the performance of the divisions. Passenger cars were affected by the Porsche alignment, increased U.S. tariffs and restructuring.
As a result, the segment recording an operating result of EUR 5.0 billion, 64% below the prior year. Commercial vehicles reflect the combined effect of lower volumes and respective, fixed cost burden. As a result, operating profit came in 43% lower at EUR 2.4 billion. Financial services, in contrast, achieved a significant improvement, boosting their operating result by 90% to EUR 3.7 billion. Let's look at the drivers of the operating result in the passenger car segment. Volume had a significantly positive effect. Price mix cost us about one percentage point in margin. This was mainly the result of the dilutive effect from higher BEV share and exactly as expected at the beginning of the year. The increased tariffs and related loss of sales volume in the U.S. took another percentage point from our margin.
Product costs improved, contributed by EUR 1.5 billion. It's also important to note that the -EUR 3.2 billion from fixed costs shown in the slide includes the impact from Porsche realignment and goodwill impairment of, in total, EUR 4.7 billion. Excluding both effects, fixed costs improved compared to the prior year, reflecting the progress in our performance programs, which are increasingly paying off. Overhead costs in the automotive division declined by EUR 1.5 billion in the full year, with significant contributions from the Volkswagen brand. A steady downward trend confirms that we are executing firmly on our performance roadmap. At the same time, the market environment and geopolitical development are posing additional headwinds and uncertainties, so we must, and we will, step up both magnitude and implementation speed of the group-wide performance programs. Major contributor to this development was the Zukunft Volkswagen agreement.
Its implementation is in full swing. For the second consecutive year, we are seeing tangible decline in employee numbers. In 2025 alone, the active workforce of Volkswagen AG in Germany decreased by around 9,000 or 8%. Most employees left as part of an early retirement scheme, which is also highly attractive for the respective employee. At the Volkswagen AG alone, we are spending more than EUR 400 million per year on this program. Overall, since end of 2023, headcount was reduced by approximately 14,000. In 2025, Audi, Porsche, and CARIAD have launched similar programs, and these programs will come in full force in the course of the year. Let us move on to the development of the brand groups, the platforms, and the financial services business.
Across our brand groups, operating performance reflects a combination of external effects, strong product momentum, operational discipline, and continued focus on margin quality. Brand Group Core recorded solid sales revenue. Operating result came in at EUR 6.8 billion as the brand group was able to largely compensate for the tariff burden. Margins stand at 4.7%, and we'll provide some more detail on brand group in a minute. Brand Group Progressive already closed the year with a strong double-digit margin in the final quarter, not least thanks to the much-enriched product portfolio. Brand Group closed in a year with solid sales and revenue growth of 2%. A good top line did not filter through to the bottom line, however, due to the high U.S. tariff cost and the significantly increased BEV share.
First benefits from the cost program initiated could only partially compensate for these effects. As a result, Brand Group Progressive posted an operating result of EUR 3.4 billion, 14% below prior year and corresponding to a margin of 5.1%. If we include tariffs or set aside the special items incurred in 2025, the margin would have come in at 6.3%. Operating result of Porsche automotive business reflects lower volumes, particularly in China, and above all, significantly extraordinary costs incurred during financial year 2025. Let's have a look at operating profit before the special effects of the Brand Group Core. Excluding the non-operational effects and tariffs, the operating margin at Brand Group Core was solid at 5.6%, and two factors stand out here.
Škoda delivered another phenomenal year with operating return on sales of 8.3%, impressively demonstrating what can be achieved when a strong product substance on Volkswagen platforms is combined with a competitive cost structure. Volkswagen brand concluded the year with a strong fourth quarter, excluding tariffs and restructuring effect. The brand's margin came in at 4.5%. This is a strong evidence that the implementation of our Volkswagen Group Zukunft Volkswagen agreement is being to deliver tangible results. However, it is reported profit that matters, not adjusted figures, and therefore we need to prepare for an environment where tariffs remain in place and high uncertainty persists. In our technology platforms, we made visible progress. However, results achieved here still significantly burden our results on group level.
CARIAD increased software license revenue and reduced operating losses by EUR 300 million to EUR 2.2 billion on the back of higher revenues and implementation of a restructuring program. PowerCo shows higher operating losses due to the ramp-up of battery production capacity, critical to enable our future BEV strategy. TRATON faced a tough year in dynamic global truck markets. Sales revenue declined to EUR 42.5 billion and operating profits fell to EUR 2.4 billion, mainly due to lower volumes in North America and Brazil, Forex headwinds, and costs for the China production plant. Despite this recent order intake trend, give us a good reason for confidence that 2026 should see some improvement. Financial services delivered significantly improved performance, driven by strong business momentum in Europe and healthy portfolio margins. Remarketing results continue to contribute positively even as used car prices normalize.
The operating result increased by 19% to EUR 3.7 billion, confirming the strength of this segment. Moving on to the performance of our joint ventures in China, which delivered results at the upper end of the guided corridor. Competitive pressure remains high, specifically in the premium and luxury segment, whereas pricing and incentive level in the volume segment stabilized sequentially throughout 2025. Against that backdrop of the market dynamics and upcoming BEV launches, unit sales were 6% lower year-over-year, came in at 2.6 million vehicles. Looking ahead, we expect the upcoming launches of highly competitive NEVs to at least partially compensate for the continued decline of ICE sales in the market.
In total, we expect 2026 proportionate operating profit to be burdened by the ramp-up of a series of highly competitive NEVs and all JVs before we expect it to stabilize and turn around in 2027. Ralf Brandstätter and his team will provide an update on the progress made in implementing the China for China strategy on April 23rd in Beijing. On top of operational improvements, we continue to review our portfolio participations and investments and take decisive steps to reduce complexity in our group. We already made progress with some smaller transactions, including, for example, the sale of Italdesign or the placement of trade and shares. We also initiated the process to sell a majority stake in Europcar. Project is progressing as planned with strong interest from prospective buyers.
Ladies and gentlemen, this brings me to the financial outlook for 2026, which reflects again a dynamic market environment and a business environment. Our outlook is based on the tariff situation. As per end of February, customer demand in the passenger car market is expected to be broadly stable globally. At the same time, competitive pressure will persist or can even rise. We will be enhancing our strong product portfolio in 2026 further, and we expect to see increasing benefits from the implementation of our group-wide cost programs. As a result, we expect the Volkswagen Group's sales revenue to range between 0% and 3%. The operating return on sales is expected in the range of 4% - 5.5%.
While we continue to invest in products and innovative technologies, we expect the level of investment in the automotive division in the range of 11%-12%. Automotive net cash flow is expected in a bandwidth of EUR 3 billion-EUR 6 billion. We expect net liquidity to be in the range of EUR 32 billion-EUR 34 billion. Here, the positive net cash flow is expected to be offset in particular by the redemption of a hybrid bond, which carries a carrying amount of EUR 1.75 billion issued in 2014, as well as a dividend payment for full year 2025. Ladies and gentlemen, we have excellent prerequisites to master the transformation of the industry. We are a group of strong brands, compelling products and global scale.
These clear strengths are currently not fully reflected in our financial outlook for 2026. Our strengths are currently overshadowed by the challenges we face, a volatile global economy, high competitive pressure, as well as high expenses for the transformation in our industry. In this environment, we want and need to keep our combustion vehicles technology technologically competitive, continue to invest in expanding electric vehicles and in the latest software solutions for our customers, and we want to expand our regional presence, specifically in the U.S., and pursue our comeback plan in China. To achieve this, it is crucial to continue to reduce our costs, leverage group synergies, reduce complexity, and thus increase our profitability to a higher level. This is what we will focus on in the coming months. Thank you very much.
Thank you, Arno. Thank you, Oli. Yeah, for the explanations and the presentation given. We will now proceed to the live Q&A session. I should tell everyone who wants to ask a question that please dial in via the telephone conference because questions are only able to be broadcasted to us if you are in the telephone conference from the webcast. This is not possible. If you want to raise a question, please press star nine. If you think your question has been already answered, then use star three. With that, we would start with the first question. Star three. What did I say? Okay. Nine star is to ask a question and three star in order to if the question has already been answered. Thank you.
We will start with the first question, and the first question comes from Tim Rokossa from Deutsche Bank. Tim, please go ahead.
Thank you very much, Rolf. Hello, Oli and Arno. Oli, I think the first question probably goes to you. How do you feel about your discussions with the EU and regulators in general? It feels like they have finally understood how important this industry is, that they really should support rather than fight it. But then again, everything we get from them seems still quite complex and perhaps less than we hoped for. Do you expect to get actually better, more material support from the EU in the form of the credits for EU, for BEVs made in the EU that you speak about, easing of restrictions and so on and so forth, or should we rather not bake in any support from that side? Then secondly, free cash flow, Arno, I know that this is very much at your heart.
It's good to see that you say working capital stays roughly where it is. Investments are expected to come down a lot. I mean, a two percentage point swing would be EUR 6 billion alone, so that would double last year's free cash flow generation, roughly. Is that kind of the ambition we should think about, that you are able to generate going forward once you have established all of the measures? Do you expect investors to continue to participate in this with the very nice dividend that you have just shown? Thank you.
Yeah. Okay, Tim, let me start with your first question. First of all, I'm personally in close touch with the German government, in person with Friedrich Merz and also with Brussels authorities and different prime ministers of European countries. I think there are different detailed discussions about 2023, and I think the regulation has to be easier, more transparent in terms of calculation and more pragmatic. The OEMs should be able to directly influence the levers. On the other side, I think it's also important to get more flexibility, to not have a look at 2035, and they are thinking also in averaging.
Even more important for me is the short-term perspective on 2030. We have to get there. Now, if we won't find a pragmatic solution, it won't be possible to get to 2035. Therefore, we are working for an averaging in between 2028 and 2032. This would be also a feasible averaging period for our planned Volkswagen BEV ramp up. There, I think, it's very helpful, what's already put into the proposal is to give super-credits for smaller cars, 1.3 in this proposal. The size is matching, for example, to our urban car family and later on, for the ID.1.
Also maybe it should be useful to have a made in Europe component for BEVs in terms of special credits. Yeah. Besides of at the end getting to this kind of more pragmatic approach, it's also important to improve the infrastructure and on the highways we mentioned a much better situation right now, but we have to go through the cities and out of the cities with a better charging infrastructure and energy pricing play a role. This should become from the politics to support the BEV ramp up. In total, being more pragmatic, more clear, more transparent. We are fighting for this from our point and in our context.
Yeah. Tim, thanks very much for your encouraging feedback. As you know, Improving cash flow by a much better cash conversion rate is on our key focus. Yes, you're right, the components are inventory or working capital and then the most important aspect is CapEx. We did a significant step in 2025. In 2026, we guided for 11%-12%. We started the year with the ambition of 12%-13%, if I remember it right in 2025, and ended with 11.8%, so slightly better than the lower end of the guidance. We want to see another significant step in 2026. The measures are clear. More investment discipline, more group synergies.
The first effects on the software cooperation paying off, and also more disciplined on complexity or reducing complexity of our portfolio. These are the levers. We set a target of 10%-27%. This will be challenging, but this is where we hit. Even our long-term target is 9%. That is basically still the story we told in Hockenheim, that the major positive element of our investment story is in significant improvement of the cash conversion rate. Rest assured, we also work obviously on the profit side to achieve here also significant improvement since Oliver gave the long-term guidance on 2030 with 8%-10%.
Coming to the question, what are we doing then with that better cash flow? Look, there are three elements. There's dividends, and we have a well-communicated dividend policy of more than 30%. We wanna strengthen our net liquidity position and strengthen our rating. Last but not least, for the hybrid bonds, we wanna in certain steps also reduce that hybrid bond, which works kind of like a share buyback, the small one in the long run. Between these three elements, we are confident that we find a good compromise between dividends, let shareholders participate on the success of the group, strengthen the net liquidity and the financial base, and improve the interest situation.
Thank you very much. The next one in line would be Patrick Hummel from UBS. Patrick, please go ahead.
Thank you, Rolf, and good morning, Oli. Good morning, Arno. My first question goes to Oli. Looking at the Americas, and I don't wanna sound overly harsh, but it looks very messy and very challenging right now for VW. For the Latin region, one could wonder what the growing Chinese presence does to your profitability. For North America, we're still waiting for a clear plan for Audi and Porsche, which are the two most important cash cows for you in the region. At the same time, you're pressing ahead with Scout, which is at least from a timing perspective, questionable in terms of being the right fit at the right time. You keep investing in a cell facility in Canada.
Your Detroit competitors are either discontinuing their cell efforts, they're looking for different owners, or they're repurposing these cell capacities for stationary storage. Doesn't the Americas region require a much more radical shift in the way you run the business there, the way you invest, and, you know, for how long do we have to wait to hear on what's the plan specifically for Audi and Porsche? My second question goes to the 2026 guidance. Arno, you caveated it, and obviously, last few weeks have been very volatile with commodity pricing and everything. What I'd like to understand is what is really covered in that EBIT margin corridor of 4%-5.5%. Can you talk a little bit about the headwinds you've baked in in terms of commodity prices, memory chip prices?
What about the price mix assumption that you're taking? What about the fixed cost of DNA? Just to better understand, where we are in this complex. If I may, just more precisely a follow-up on the dividend. You mentioned Europcar is for sale. It can be expected, that we'll see a significant book gain on that transaction, if we believe media reports. Can we apply the 30% minimum payout to the entire book gain of the Europcar transaction? Or will you say, "Hey, this is just a one-off and we're gonna deviate, with a payout ratio for as far as the book gain on that transaction is concerned." Thank you very much.
Yeah. Patrick, good morning. Let me start with your first question about Americas. The easier point there is Latin America, where you can see a strong growth of market share, about 12% last year and more to come. We restructured our whole product strategy there and having now product with the right cost positioning, pricing, but also very fitted to the South American market. More to come, especially in the pickup segments, smaller and mid pickups.
Having also the opportunity to export from Latin America. There, I think, our strategy is working. More complex is the situation in the U.S. about the tariffs, not only from Europe to the U.S., but especially from Mexico, because we have a huge footprint in Mexico. With a 27.5%, it's quite difficult to export cars from Mexico to the U.S. We are working on an overall American or U.S. strategy. We changed already our sourcing model in the U.S. We need an approach especially for Audi and maybe Porsche. Porsche is still very strong in the U.S. Last year was a record.
We have seen record sales, but on the other side, having lost 15% in terms of tariffs. Our planning activities depend a lot if we would find a solution to compensate the tariffs. We can't both to pay on the one hand side a high amount of tariffs and on the other side heavily invest. We are in close contact with the U.S. government, but also with the different states. Now, there's still an interest us to invest, but we need a solution. Until we haven't got a solution for full compensation, we won't do it. For Audi, there is the intention to join the Scout plant.
I think that's an easy approach with a bigger SUV. The activities for Scout making good progress. We still think that's the right approach, coming with a range extender to the market. The order reservation is over 150,000 right now. We want to enter the market by the end of 2028. We are doing currently sensitivity analysis if the market is still there. For this kind of product, Scout has a great design, technology better than the competition. The range extender technology, we still think that's a good approach. The profitability calculation also is positive.
This is the first step to enter this important market of pickups and rugged SUVs. In Canada, we have huge support from the Canadian government for our battery plant. In the mix calculation, this brings us on a very competitive level for all our battery cell activities between Germany, Spain, and Canada. We reduced the overall capacity, but with this calculation and the two blocks we are investing in Canada, we have great opportunities also to export and making better our mix costs. The main action point in the U.S. is Audi maybe added also with SUVs for Porsche, but we haven't got a decision.
At the end, I think their quality is first, and not speed. This plant would be in China in 2030 or later. Therefore, we need a solid base to calculate the business case. At Volkswagen, we are entering now with this great products like the new Tiguan and expecting their market share growth. You're completely right. That's one of our most complex questions we are working right now.
Patrick, concerning basically EBIT bridge, what we factored in. Look, volume obviously it's more neutral, since markets are basically stable, and we don't expect significant market share gains or losses. Then pricing. Pricing is, yeah, slightly positive, but if we take it together with price mix of the BEVs, then it's additional headwind since we are ramping up the BEVs specifically in Europe. Forex is slightly negative, and we priced in the Forex the raw material increase we saw basically in the last month. I come to the current situation in a minute. Tariffs more or less neutral. It's a very small headwind, but more or less neutral.
We see an additional headwind in the first quarter, but on the other hand, we had a quarter last year with 25% or 27.5% from Europe, which is now down to 15%. Fixed costs and the stringent implementation of our efficiency programs clearly are positive. All in all, when we start at 4.6% before special items, and we guide basically in the midpoint for slightly higher than the 4.6%. In terms of what we see in headwinds, when you look at our direct costs, we have rather long-term agreements. For example, we run our own power plants that we have long-term agreements for gas. We also have longer-term agreements for fuel.
In the short term, we shouldn't be affected. Specifically on the fuel price for our trucks and for logistics, this protection doesn't run forever. There might be a headwind coming up in the second half of the year, but this is too early. In terms of dividends, look, I don't want to disappoint you, but I want to be a little bit more generic. As I said, we have a triad between dividends, let our shareholders participate from our success, the strengthening the liquidity and the balance sheet and the redemption of hybrid bond. We make that decision at the end of 2026. For the time being, we also, of course, say our dividend policy of more than 30% is unchanged.
Thank you, Patrick. We move on to the next question, and it comes from José Asumendi from JP Morgan. José, please go ahead.
Thank you very much. Thank you, both Oli and Arno . A few questions, please. Oli, just to address maybe product, please. Can you comment on the product launches of Audi in China and how this is allowing the brand to take market share in the region? And also can you comment with regards to Europe, with regards to the launch of the ID.1, ID.2? Is everything on track? These two vehicles are very important, obviously, to take market share in the compact electric vehicle segment. Question two also for you, Oli , on humanoids. Definitely something that is evolving very quickly. Can you comment on any investments Volkswagen has with regards to humanoids and the deployment of humanoids across assembly lines?
We have Renault obviously today doing a Capital Markets Day, talking about hundreds of humanoids being deployed across the assembly line. Would love to hear any thoughts there. Arno, on financials, can you comment on Audi brand, the margin improvement you're expecting into 2026? I'm sure we will have a separate discussion on Audi, but if you could give us any hints with regards to the improvement in profitability for the Audi brand. Also interested in CapEx. Can CapEx be down on an absolute level in 2026 versus 2025? Thank you.
Yeah. José, I would like to start with product launches of Audi, especially in China. We have seen also a very positive launch of the Audi E5, the lettering brand we implemented. The car got a award as a best car in China of 2025 from the most important journalists in the market. On the one hand side, on the other side, you know that the whole market is under pressure because of the high competition. Over 150 competitors there in the market. We are preparing now also our dealer network for all these launches. The E5, I would say, has started regularly, not overwhelming.
This instead of being best car in China, there you can read the competition. This car will be joined by an SUV with a higher market segment. I think we will need a bit more time to see if the car fits. We are winning all the tests against the competition. Very positive feedback from the customers. We are hitting the pricing point, but having so many competitors in the market, yeah, it won't be won by itself. We have put a lot of work into.
With the product momentum we will bring now to the market with Volkswagen, I think we have all opportunities in our hands. Being faced with competition, that's very clear and being realistic. I think we have done what has been necessary to switch our complete strategy, and now being very quick in the market for around two years as well with new products. Looking to Europe, we are on track with a new urban car family, with ID. Polo, with the Cupra Raval being launched in April already and with a Škoda Epiq.
As I mentioned before, this will be an important segment to tackle by these very attractive products. Feedback is positive and also the drivability in our tests is very promising. Same like for ID.1. We are currently on the first winter testing with our new software architecture being built in our joint venture Rivian and Volkswagen Group Technologies. For both on track. Talking about robots, we see more cooperations. We have some very promising ones in terms of partnerships. We don't think that we need to invest by ourselves. This is a rising market, this is an interesting market, also for our plant.
We are already implementing test robots in different areas of our production lines. This could be more for partnerships. We don't need to be the investor or the owner of these kind of robots. The market is moving so fast. Interesting, but on the other side, more on partnering.
José, some remarks on Audi, but as you said, they have their own conference call on the seventeenth of March. Audi is targeting for a margin improvement of 6%-8% in 2026. Based on basically product momentum, they're bringing great new products to the market. They ramp up electrification, but also on the combustion engine side, Q7, Q8, and also some very attractive RS models. We talk a lot about electrification. But on the other hand, there are also markets where these models, they still play a very important role. On the other hand, ramping up of electrification means also an additional headwind in terms of margin dilution.
Audi, as you know, launch also a significant restructuring and efficiency program, which should provide some tailwind. These basically are the building blocks for Audi going forward. Really more to tell on their own conference call. On CapEx, we expect like sales and sales revenue not significantly to grow. Since we want to improve our CapEx ratio by a lot of investment discipline, we expect absolute CapEx in absolute terms also be below 2025.
Thank you, José. We are moving on to Michael Punzet from DZ Bank. Michael, please unmute yourself and raise your question.
Yes, Michael Punzet. Good afternoon. I have two questions. First one is on your EBIT guidance. Are they included any kind of one-offs, and if so, what are the topics they are related to? The second one is with regard to your R&D expenses. Is it fair to assume that they will stable or maybe even higher, taking into account the announced additional new models with ICE and to your product portfolio?
Yeah, Michael, thanks for the question. Very short. In the EBIT guidance, there are no significant one-offs included from today where we stand. In terms of R&D CapEx, we want to really compensate all of the upcoming investments. For example, I make one example, we will add hybrids to the Atlas and Tiguan North America, but this is all compensated by our efficiency measures. As said, we wanna reduce R&D CapEx combined going into 2026 and beyond to 10% 2027.
Okay. Thank you.
Thank you, Michael. We are moving on to Mike Tyndall from HSBC. Mike, please go ahead.
Good morning, gentlemen. Just a couple from me. I wonder if we could talk a little bit about where we are in terms of the productivity gains. Oli, you mentioned that you've got a 20% improvement in three of your main German plants, and you also mentioned that you were ahead of where you expected to be. How much is left in terms of how much more can we expect from those programs for you to hit the targets? Within that, on the material cost side, where are we on that front? It doesn't feel like we've had certainly an acceleration in Q4. Is there more to come as the new product comes? I assume that's BEV related. Yeah, if you could give us some sense of where we are in that continuum.
The second question is just around seasonality, specifically with regards to Audi, but also the VW brand. I mean, Q4, a blockbuster for Audi. Is that? Should we just expect that going forward? What's driving that huge seasonality in that business? Because it's started to become a pattern which makes it quite hard to predict. Thanks.
Yeah, Mike. In terms of productivity, that's the first signal that we are moving toward the right direction with the three big plants from Volkswagen in Germany alone. We achieved 20% cost reduction. That's more we have ever achieved in 10 years. That shows the efforts the teams are putting on this. We are still not at the end. There's still room for improvement. We are doing benchmarks with the competition in terms of plant costs. In Europe, there's a margin in between EUR 2,000-EUR 2,500 we can see from the competition.
We are there on a level now a bit lower than 4,000. There you can see there are still a lot of room for improvement. There's more to come also with the staff reduction. We have agreed with our future plans for Volkswagen, Audi, Porsche, for example. Talking overall, what improvement still has to be done. We are now tackling especially all the functional areas like engineering, purchasing, but also production and other areas and sales and then quality.
Even more. Therefore, we implemented a new organization, all of them directly reporting to me, as a cost task. There we see especially also short-term effects because the cake is big what we can do there. There we have some areas where we see more than the 10%, 20% reduction, still, and others lower. Where we will keep on working, especially is on our general costs, we do have. I think a good orientation is around 20%. We have to improve in some areas, more.
In terms of seasonality, for Audi and Volkswagen, we are calculating for this year around the same volume as we have achieved last year, in spite of all the challenges we do have in the market, around 9 million cars. We will have, of course, seasonality, especially with the different product launches we do have. We expect, for example, with the urban car family and the Brand Group Core, this will be a push in the market. But overall, you can expect around the same volume we achieved last year.
Got it. Thank you.
Okay.
Yeah, I wanna ask one more, more specifically, but which helps you potentially predict it. Look, as Oliver well described our programs. On the Volkswagen AG, we have the Zukunft Volkswagen. We agreed to reduce headcount by 35,000, and we achieved last year 9,000 and before 5,000. So 14,000 of the 35 we achieved so far, and the rest will be achieved until 2030. So that gives you an indication, but still out there. Yeah, seasonality Oliver mentioned already, basically strong product momentum. We must also say we guided for that as well. We guided for a double-digit margin for Audi because some of the effects, specifically in the model lineup availability, we saw them.
There's one last question which reached us by email, from Horst Schneider from Bank of America. He wants to know, either Oli or Arno, the midterm guidance, the path to 8%-10% in 2030, is this more back-end loaded, and which role does the SSP play?
Yeah, I think the question has already been partly answered by Oli in his presentation, but any last comments? No, of course we. It's too early to give you an indication of the next years. But what we can say, there are some clear building blocks. We start from 4%-5% and the way to 8%-10%, we will continue to bring great products. This is more a continuous level. And the margin dilution of the BEVs is still there, but it's the effect should build become closer and closer. As you know, ID.2 has also already an 80% margin of the respective combustion engines. Then we consistently implement group wide efficiency programs, as Oliver and myself mentioned already. Investment discipline helps.
Last but not least, what we often forget, we ramp up significant new businesses like PowerCo, on the battery, Scout, autonomous driving, and they will drive positive effects in the future, but they are burdening our business today. In 2030, we expect all these entities to contribute not only strategically, but also financially. By and large, there's not a significant, I would say, step up or step down in these effects. It's more linear.
Thank you, Arno. Thank you all for the very good discussion and questions. We are now at the end of the investor and analyst call. If anything was left unanswered, please contact the IR team in Wolfsburg. They are very happy that you keep them employed. Next chance to meet with us is virtual and physical roadshows that are conducted in London, Paris in the coming weeks. Before we look forward to the Auto China 2026 in Beijing, we will host an investor event on April 23rd, where we will provide you with an update on our progress along our strategic initiatives in China and also showcase our latest NEV models. Very much looking forward to welcome you there.
Q1 results will be released on April 30th, 2026. With that said, thank you for your numerous participations. Thank you, Oli. Thank you, Arno, for all the explanations. Take care and all the best. Speak soon.
Thanks to all of you.
Thanks very much.