Okay, everybody. Welcome back. We now start with the Capital Markets Day for today. I just want to introduce to you again, the six people who will speak to you today. Myself, of course, but first of all, Dr. Herbert Diess, the Chairman of the Board of Management for Volkswagen. Christian Dahlheim will follow Dr. Diess, who is Director of Group Sales, Volkswagen. Then Frank Witter, who most of you know as the CFO here at Volkswagen. We will take a short break. Hiltrud Werner will then take over the stage. Hiltrud is the Member of the Board of Management for Integrity and Legal Affairs. Then Dr. Stephan Wöllenstein, the newly appointed CEO of Volkswagen Group China, will take the floor. That is the presentation that you see today. We will end promptly at 17:20 P.M., very precise, after an hour, hopefully, of Qs and As.
For those of you who are staying here, we will then move to the design center quite promptly. Christian Senger, newly appointed board member at the Volkswagen brand for software, for vehicle software architecture, will then take the stage. We will see an introduction to the MEB family. As we just discussed, I am not sure why we are getting these ones, but now over to Dr. Diess. Enjoy the afternoon. Dr. Diess, the floor is yours.
Thank you, Oliver. I think we gave you a detailed overview about how we are performing strategy outlook. I really appreciate the chance now to deep dive a little bit in the logic behind, so why are we doing what we are doing more from, let us say, from an investor's viewpoint, probably. Our strategy is really EV-heavy, so I will try to explain why. I already perceived, Frank gave me several hints that you wanted to see me more often here. Appreciate it. Running this company is quite complicated because of governance, shareholder structure. We have a lot to do, so apologies for that. I promise that I will show up more often in the future. But I appreciate being here. Disclaimer. Skip that one. So, why are we doing what we are doing? I think Paris Climate Change Agreement is really important.
We have to do something about climate change. It is really happening. I think we all know it. We can still avoid it if we get CO2 neutral by 2050. We think that it is possible. We think we have to do something because we are relevant. About 14% of CO2 comes out of transportation, not by car traffic, but also by planes and ships. Volkswagen is accountable for 1%. It is significant. So we are significant. We also have the role to lead the industry there. So we cannot save the planet, that is clear. There are many ways to reduce CO2 more efficiently and more effectively than on cars. But I think we have to do something. We think that it can be done. We think climate change compatible or neutral, CO2 neutral mobility should be possible by 2050.
So, and you see it is also the, I would say, the different societies have a plan. We see China pioneering. Electric cars are the main route in China. They are pushed by the government. There is no alternative. Even PHEVs are not considered as a real alternative. So we see around 2040, 85%-90% share of EVs. Europe a little bit later, following behind, but also driven by the European legislation. There is no way around EVs if we stick to what has been agreed on the legislation. And United States probably coming a little bit later, but starting in 2023, the legislation becomes tough on CO2 as well, and you need fleet targets. So why EVs? We think that EVs are the only way forward to reduce CO2 significantly. This is a comparison of a life cycle.
It is about 200,000 kilometers life cycle, and it is a life cycle comparison of the primary energy requirement of all different concepts. And you see that battery electric vehicles are by far the most efficient way forward. Plug-in hybrids are an alternative, but roughly it is the same level as diesel or gasoline engines. Also, synthetic fuel ideas are energy-intensive. Really energy-intensive, so you need a lot of primary energy, and they only work if that primary energy is out of wind or solar, or it is renewable energy. But you already can see on that page, if you want to run a car 100 kilometers or per kilometer on, for instance, fuel cell, you need about twice as many windmills than on an electric car. So the investment in renewable, if you choose any other option, has to be much higher and only come much later.
Though I would not exclude that fuel cell makes its way, but not in a relatively short period of time. Probably in 10 years' time, there is a surplus of renewable energy, it could make sense. So, where are we today? Today we are, and we have been discussing that this morning, fleet targets. Fleet targets in Europe. Fleet targets will be very similar or are very similar already in China and stepping in the United States by 2023 heavily. To meet fleet targets, also EVs, and I will come to that, is the only efficient way forward. Today, we are at 123 grams, Volkswagen Group, and we have to be at 96 grams, basically end of next year, 2020.
So a huge gap, 20-30 grams, which is very hard to close, but we are basically at the same level than the industry, though the distance to the targets, and the targets are weight-specific in Europe, you know that. So for the premium manufacturers, the targets are a bit higher, for the volume manufacturers below. 95, 93 grams, I think is for Fiat. Though the distance to the targets is for most of us 20 grams. For some more. Hyundai, Fiat, it is about 30 grams. We are also more than 20 grams away. The closest is Toyota, probably 10 grams away from the target. And you have to pay, starting in 2021, for every gram you fail on the fleet level, EUR 95 per gram on fleet level, multiplied by the amount of cars.
If you are on average away 20 grams, as the industry, or it might be 25 grams, I do not know. We are talking about a EUR 30 billion tax or penalty, which is huge in the industry, which really would reshuffle the market. The question is, would everybody pay? No, but let us say the threat and the penalty is huge. We are not closer than most of our peers, but we think we have the better strategy. What can you do to get to the fleet target? Fleet target is around 95 grams. For some of us it is 97, 98 grams, for some 93 grams. You see how much would you pay for a 1-gram reduction in your fleet. Today, you can assume that basically everything technically which is cheaper than EUR 95 is in the cars.
Start-stop systems, tires, aerodynamics, efficient turbo engines, whatever was possible and thought through is basically in the car. This brings the up!, which is our entry-level car, you know probably the up!, which is a kind of a city car we sell here in Europe, brings it down to 95 grams, to the fleet average. It is our smallest car, conventional technology. Everything you would add to the car, technically, hybridization, more sophisticated engines, would be much more expensive than EUR 95 per gram. You better pay the fine. There is no way to bring that car conventionally down with less than EUR 95 per gram to the fleet target or below the fleet target. You see, this comparison shows also that, yes, plug-in hybrids are really an option because their average consumption would be around 60, 70, 40 grams if the storage device is big enough.
You also see that hybridization would cost us, and we made many studies, what could we hybridize, would cost about EUR 180 per gram to bring us down. Probably Toyota is a bit cheaper because they have huge economies of scale. Probably they are running around EUR 150 per gram, but already more than you would have to pay as a fine. It is basically impossible to get a SUV down to 95 grams.
The technology is there. Diesel becomes really expensive now with EU7, so there is no way you can get down a conventional car to 95 grams. The only way to get a normal car below those 95 grams is plug-in hybrids and BEVs. Our BEVs, and I will come to that, the first generation to come now, the ID. to come, we are talking about EUR 15, EUR 20 per gram, and next generation will be even lower.
Financially, it is the best way. Also, this new logic of selling cars, which really kicks in 2020, but there is no relief until 2030, and it is basically the same logic worldwide, makes also the look onto our product portfolio different. Because if you have to pay for a, let us say, Tiguan, which is around 135 or 125 grams, if it is the efficient diesel engine, 125 grams, so you have 30 grams adverse to the target. You would have to add a penalty for selling this car of about EUR 3,000. This penalty, if you discount this penalty from your contribution margin, this highly profitable car becomes a, yeah, normal car on the lower end. Some cars lose their profitability.
If you add those, let's say EUR 3,000 sticker price, if you are further away from the fleet target, so let's say 150, 160 grams, you would have to discount EUR 5,000 or EUR 6,000. On the other side, the EV, as it allows you to sell conventional cars, you can add that, let's say, tax as an incentive, and the EVs becomes instantaneously much more attractive and much more profitable in your product portfolio. In our new thinking, it's really complicated decisions to make, and it hits strongest. You see that the mid-size segments, Golf, but also smaller cars are even more hurt because if you think about the up! 95 grams at the fleet level, if we look into 2030, the fleet target will be 60 grams.
The up!, our smallest car, will be 30 grams away, so we have to load it with about EUR 3,000, a penalty payment, which makes this car just not feasible anymore if we don't increase price or we move out of the market. This is a big, let's say, transformation of the industry. Probably also you should think when you analyze profits of the companies and you're not only dealing with Volkswagen, you should have a closer look because it really changes business logic. The same logic applies, as I said, in the other regions, more or less severely, and it becomes more relevant by the year because in 2030, as you know, we have to get down the fleet target to 60 grams, which is impossible for any conventional car.
You need EVs or plug-in hybrids to balance your portfolio to bring it into the right direction. What's going to happen on the Is it possible to have a feasible business case for the EV car? Because what's happening there is if you are successful in selling electric cars with a positive contribution margin in enough economies of scale, you are king. You make the gain. Because if you can comply, if you make your product portfolio compliant with this profitable product, you can still say, sell the Tiguan, the Passat, even the small cars. Also, if you can really balance your portfolio with profitable electric cars, then you can win this game over the next years. Is that possible? We think yes, because also the conventional cars are really becoming more expensive. You have here the comparison, the Tiguan.
The Tiguan will be loaded with EUR 2,500-EUR 3,000 with Euro 7. Two steps to come. There's no way around this. This will apply to the whole industry. On the other hand, we see the battery electric vehicle significantly coming down. I wouldn't follow that line because there will be a step change. We start with the Golf. The ID. will be 40% cheaper than the Golf, the electric Golf. It's a step change really to come. But we see between 2022 and 2025, really the lines crossing, and we would have the same contribution margins on the electric vehicle and on the combustion engine cars. Market prices would increase because this additional value we add to the car because of emission control systems just makes the whole industry increasing the price levels. That might compromise volume, but that's going to happen.
There's no way around it. We think that by 2023, we even can. We see that already in our product calculations, that the electric products which are coming to market, ID. CROZZ, for instance, are becoming more and more feasible and profitable. The better we drive down cost with scale, with battery, with the next generations of battery, the better we are. This is basically our strategy. We say we want in 2050, by 2050, we want to be zero emission. We want to be CO2 neutral. That means that until 2040 probably, we still would launch conventional platforms being balanced with electric cars. In 2030, we would have about 30% electric cars, 40% electric cars in Europe, in China, a bit less probably in the United States.
By 2020, we will meet the fleet targets, which selling the right amount of electric cars, which is a challenge because we have to ramp up the battery capacities. We have to prepare the launch properly. It will be a challenge, but in our plans, we will comply with the fleet targets in 2020, 2021, until 2025. This is reflected in our planning. How are we going to do that? The right approach, we think, is a dedicated platform. Like you know it from Tesla, just take away the combustion engine, the car becomes much simpler, and the car becomes more spacious. You have more interior. You can see that already here on the platform.
The battery is kind of a chocolate bar battery in between the wheels, of engine at the front, engine at the back, and the rest is scalable from this entry-level ID., which is the size of a Golf, to a seven-seater, a microbus concept, which we just recently showed, or a seven-seater SUV, and we will roll out that platform basically worldwide. We think that we have an advantage with that dedicated platform. Many of our peers are, let's say, upgrading their conventional platforms, which is a compromise, either in range or performance or space. We think that the Tesla way is right to really get rid of the combustion. You get also much faster in the development process because application, which always is a big hurdle, application for the drivetrains, for different markets, for the different engine types, is a hurdle.
We think that we even can speed up the development process. It's very versatile. You've seen that in the shows. We can do on that platform all relevant. We can cover all relevant market segments, hatches, sedans, SUVs, up to mono volume cars, which we need in some markets. This is how it's going to work. Main route is MEB, which will be rolled out worldwide, and then in the upper segments, in the premium segment, it's PPE, where we have a different tension. We're working with 800 volts, higher performance engines, and high-speed loading, 350 kW, which won't be mainstream, but for Porsche and Audi, that's probably the right way to go forward. Our strategy is a top-down strategy, which we also think is the right way to go because it's much easier.
This game is much easier in the premium segment. Already first indications from our sales department and customer reaction on the e-tron Audi show that it will work there. We are very confident that it also works on the Porsche Taycan, which is soon to come later this year. It becomes challenging when we get to the volume segment, because then we have to be successful in a price level of between EUR 30,000 and EUR 40,000, which is much more of a challenge than in the premium segment. We will be able to offer the ID. Golf-sized car below EUR 30,000 with reduced sales models. I think we will later learn a little bit more about how we are going to sell the cars, preparing also our retail organization, and so on and so forth. We are having a holistic approach, so it is not only about product.
We invest in fast-charging infrastructure here in Europe, in the United States as well. It is on the build-up phase. By the end of the year, we will have a fast-charging infrastructure here in Europe. Every 120 kilometers, you will find a loading station up to 350 kW. 350 kW means that you can load or add 100-kilometer of range in six, seven minutes. It is really, really fast. That won't be mainstream. For the ID., we will have still 125 kW, which is basically at the range of Tesla's fast-charging power. Top-down makes a lot of sense, but the crucial point comes 2020, when we really have to get into volume. Just resuming the electric way forward, electric is the only way to really reduce CO2 significantly.
It is the most efficient way, by far, the most efficient way to get compliant with the fleet targets in China, in Europe. We think that dedicated platforms are a must to be fast, to be cost-efficient. We think that we are in a good position for this race because of our strengths in China. In China, we will ramp up very steeply. We are already investing in two MEB dedicated MEB plants. The Chinese regulations are very straightforward, very clear. We need those cars. Our joint venture partners loves the platform. They also consider to use this platform for their own product. China gives us a lot of initial speed, and from this volume base out of China, we can cover Europe and later the United States. We have decided to produce those cars in multi-brand plants.
For instance, in Zwickau, we will produce Volkswagen, Audi, and SEAT, and more of those plants will follow because what you see basically is the same for all the different variants we do. There is a lot of economies of scale, which we can collect there. It is a top-down strategy. We start with our premium brands and then roll out through Volkswagen, Škoda, SEAT, further down the road. Holistic customer view, we really have done a lot to prepare our dealers already. We are investing heavily in infrastructure as well in fast charging. Battery is one of the crucial things here. Battery supplies, we need huge investments into cell manufacturing where we have good agreements for the first phase, but the second phase still to be approved with our suppliers. This is a little bit why we do electrification.
We think that our strategy is very cost efficient on the way forward. We have a lot of encouragement from, let's say, meanwhile, even our planning departments, now sales planning departments, they have been conservative at the beginning, but they are becoming much more optimistic now knowing the brands. Also, you will have a chance to see the product later.
My feeling is that for many customers, it will be very difficult to decide against an electric car coming 2020, 2021. It is highly attractive product. You have half the running cost in an electric car compared to a diesel or to a gasoline car. You have fast charging. You still have the disadvantage that you need infrastructure, you need a wall box in your garage. You need to plan for if you are traveling to Italy or to Spain. But there will be a lot of improved infrastructure until 2020, 2021.
We think that it will be very hard for a customer if he is not driving every day 400 or 500 kilometers or more than 30,000 kilometers a year, or for very big cars where the range is limited. For all those mainstream customers, will be hard to decide against an electric car. We expect also some incentives coming from governments still worldwide. This is electric. We will see in the next years, three major step changes in our industry. First one is drivetrains. I think it is well reflected in our planning. We have a strategy. It is well represented. The next one will be that the car really becomes an internet device, always online, a lot of services provided into the car, and this is probably for us, an even bigger hurdle to succeed than the electrification. I will tell you a little bit why.
Cars are already today quite sophisticated software products. We have about 10x as many lines of software in a car than you would have in your smartphone. But they come basically embedded with 50- 100 microcontrollers, which we fit into the car and which we connect, and then we make the whole thing work. This will change. We think that until 2023, 2024, the amount of software in the car will already double or triple. When it comes to autonomous, it will be 10x more software than we see soon in the car. The car becomes a really sophisticated software product, and we are not prepared for that. We are really not prepared for that because today our capabilities are basically, and you see that on the left side of this picture, to connect those microcontrollers, fit them together, make them work together.
This is what we do, launching a new Golf or so, most of the time, connect the systems and fix failures. That will change in the next generation of cars. MEB, we will have three to five on the premium side, five supercomputers in the car. This will be quite standardized computer hardware, and we will have an own operation system. Part of the functionality comes out of the cloud, so some functions, it already starts with the Golf, speech recognition, navigation. There is edge computing happening, so there is a lot of calculations already being made in the cloud. The car will be run and monitored and driven by a software stack, which is independent of the hardware in the car, partially in the cloud, partially in the car. We have to prepare for that.
And there's also a change to our business models because so far we have been wholesalers. We have been developing a car for three years, hardware and software. Then it was ready to ship, and we shipped it basically to our dealerships. We were basically wholesalers. We have a few retail operations, but basically, we are wholesalers. That's changing now. We will get into direct contact with the customer through the whole life cycle. We have to supply software updates continuously, new services continuously. So we will have to build up a relationship with our customer, which is, for us, a bit scary. We are not used to this, and this will change our business model significantly. So, how are we going to address it? The first step forward comes with the electric vehicles on both platforms, on PPE, on MEB.
We introduced an architecture which, for the first time, is upgradable. So we load software into the car, we upgrade and we update the car that is under construction. What's really crucial is that we are separating hardware and software development, also the, let's say, responsibilities, organizations. Why? Because so far, when we develop a car, it takes us around three years from, let's say, design freeze until we ship the first cars, three to four years. Then we produce the car, we make a model year update, and so after a seven-year cycle, we do the next car in the same segment. On the software side, we have to work continuously. The customer would expect that the software of the car evolves. We fix bugs, we increase functionality, we deliver new services. So the software delivery will be independent from our car development process and the car delivery.
It requires a totally new organization, new processes, and that is what we're currently building up. So we have to ramp up our software competencies. So far, we have very limited software competencies in-house. Also resources, most of it we are buying in from suppliers, so we have to in-source, we have to buy. You have been watching probably a few acquisitions over the last months. We bought a major stake in WirelessCar, which is a company which connects the car to the cloud and makes sure that the upgrades and updates are working well. We have been investing in Diconium, which is an app supplier for the automotive environment. We're building up a partnership with Microsoft because our cloud activities will be based in Seattle, and Microsoft helps us to build up our facilities there. And I think you will get to know later Herr Senger.
Senger was in charge of this platform architecture over the past couple of years. He's now in charge of software development. He will reorganize our software stack, building up an organization. Today, we probably have, not in the core areas of our development, but we have a few subsidiaries dedicated to software. Carmeq, for instance, in Berlin, 600, 700 people developing software. We have in China a team of 300, 200 so far, building up fastly. That will increase. I would say, I mentioned this morning, my view would be that by 2030, we should be half and half software development and hardware development. So that's happening. It's a big challenge for us. We face competition. You all might have heard that also Google is working on an automotive stack from autonomous to connectivity to navigation, trying to work itself into the car.
It's not so easy because a car already today is complex. It has to be safe. We will face competition, but we think we have a chance. We think that we are well-positioned because once that happened, all the innovation in the car, all the customer perception in the car will be software-driven. Software and microcontrollers are, if they work, they are a scale game. If it works, it's relatively cheap. If it works, it works worldwide, and that means that scale will be really, really important in this new game. To roll out the software stack into 10 million cars is more efficient than to roll it out into 2 million cars or something like that. We have a chance to be really very successful if we are fast enough, and this is what we are basically preparing for. A few general remarks.
Electrification, I would say, yes, it's well reflected in the planning. The next big game will be software, the car becoming an internet device. Afterwards, we will talk more about autonomous, which I think will come later. A few general remarks. It's the first time for me speaking to you. I think we made some first steps towards a more value-oriented approach in the company, Traton, in its preparation. We have a few more Assets in mind, Frank and myself. Please understand this is a very complicated company. Our governance is difficult. We have a family, we have the state ownership here. We are strongly unionized. This requires preparation, but we both know that we have a lot of value in the company, which is kind of hidden, and which we should bring to light. Also, it would improve the operations of the company.
We are working on that. Hopefully, I would say towards third quarter, fourth quarter, we should be probably able to tell you something more. What was an important move, I think is the performance share plan introduced in our remuneration scheme for management. This is totally new. This year about 380, 400 TMKs, first level will be involved. Next year, we roll it out to all our management structure worldwide, about 6,000 to 7,000 people. Performance programs, I think, Frank, you will touch on those, are on the way, in all brands. We are now trying to synchronize to copy-paste. We are steering it more from a central position. Hiltrud later will touch on the integrity program, which I think is very helpful. I would also say that we are well on the way. It helps also for the governance and leadership.
Making our managers real entrepreneurs and teaching them more ownership, more independence, is also one of our, let's say, work streams, we would like to show you soon. Key messages. We think we can lead the industry, and we should lead the industry in electromobility. It is also for yourselves, the best way forward for our shareholders, the best way forward. It is the most cost-effective transformation plan. We will be the first big OEM really changing our setup into software. We want to be fast there. We want to insource a lot of software themes to be fast. We will have an increased view on shareholder value, on value creation. Give us a little bit of time, Frank and myself, and I would say the whole management team is really focused on that.
We just started a program, which I hope that it will convince you, but it's not yet to be, let's say, publicly discussed. We would like to update you on the strategy TOGETHER 2025+ in summer, and then we will disclose more and be more concrete about our midterm targets and on our way forward. Thank you for that. Christian.
Thank you very much. Right. I will build on what Herbert Diess has already said, and I will comment of course, on the way we will bring these wonderful machines to market. Before I do this, allow me to give you a quick outlook for 2019. I also skip the disclaimer. You've of course, seen what we delivered in 2018. Record sales in a difficult year. We sold 10.8 million cars. You've seen this number this morning. If you look at it on a global scale, we actually have gained market share in a shrinking global market. You all know that 2018 has been a particularly challenging year, partly due to WLTP transition, hard for us and hard for the industry, and of course, partly due to the overall uncertainty we see and we're still facing.
For us, given these headwinds, we're actually relatively proud of our achievement to gain market share, particularly noteworthy strong performance in the U.S., in Western Europe, in Russia, and in Brazil. One chart that I'd like to show and I will continue to show is our car park, which we typically don't show. Volkswagen has 100 million cars on the road. Herbert Diess talked about us being wholesalers. As wholesalers, that's normally a number you don't care about. As retailers and as people who will sell to our customers, this is a number we will increasingly look at. Because at the end of the day, this is where we can reap benefits. If we sell functional demands and our connected cars in the future, this is where we will make money. Going to 2019, you see we expect largely flat markets. Stephan will certainly later on comment on China.
Globally, we expect a flat total market around 83 million. Western Europe will be flat and North America probably slightly down. Of course, all of this depends on the development of the global economy. Regarding our outlook, we confirm that we think we can still grow moderately in 2019, meaning we intend to continue to grow market share. That confidence is based on a strong model range and the current customer demand. We do have record order entries and record order bank in Europe, so very strong base to build on. Second strong base to build on. We know you're all concerned about potential profitability of e-vehicles. You all know that SUVs are particularly profitable. As you can see in this chart, we have continued to grow our SUV share, and particularly in 2019, based on the current model range, we will further increase that share.
That of course includes the e-tron as our first fully electric SUV. We have huge demand and we have significant pricing power. This should provide a strong base also on the profitability side to manage the transition. Again, building on what Herbert Diess has said, we will launch about 70 new models in e-mobility, meaning we will sell about 3 million e-cars, fully electric cars, in 2025. This will provide the basis for us to achieve our CO2 compliance. Maybe to give you a bit more details, if you look at the glide path from 2020, 2021, 2025, selling fully electric e-vehicles will be the core element for us to achieve our CO2 compliance. You see the relative shares we're showing you on the chart. We're very confident that we can achieve the charts.
Actually, personally, as of 2020, I'm more concerned that we can build enough e-cars than if I can sell enough e-cars. Going to 2021, of course, it will come down to the question, how widespread is the charging infrastructure? Allow me to tackle the question of what are the three key pillars that give us confidence to achieve our targets, both in terms of sales numbers and in terms of profitability. One is usability and range. The second is total cost of ownership. The third one is our sales approach to sell e-vehicles. Let's start with usability and range. Our e-Golf is certainly a wonderful car, but of course, it had its limitations given the current spread of charging infrastructure and given the range that you normally have to cover.
If you jump to the MEB platform, you will see ranges from 330 kilometers, WLTP range, scalable up to 550 kilometers. Christian Senger will show you more details this afternoon. We've included a little picture of Germany, not only because we're a German company, but just to illustrate that most daily use cases are actually manageable with this range. A 550-kilometer range or even a 400-kilometer range is fully sufficient for the vast majority of use cases. Of course, you will need charging from time to time, as you need fueling today. So what are we doing on the infrastructure? You know we have a company in the U.S. called Electrify America that will build a significant and vast network along the highways for high-power charging. Electrify America will also provide charging opportunities and options for home use.
The same is true for Europe, where we have IONITY on the one hand as a joint venture company that will focus on high-power chargers along highways. We have our new company, Elli, that will provide a full range of wall boxes for private use, wall boxes for professional use for corporate customers, and everything you need in terms of infrastructure. Same, of course, applies to China. Now, maybe one of the most important charts is the question of how do we price these MEBs and are they competitive, and can we price them competitive on the one hand, and can we make enough money? We have always said that the new generation of BEVs or ID.s will be at comparable cost or at a comparable level as a comparable ICE, which is here today, the Golf TDI.
What you see here, first of all, of course, the state subsidies help. State subsidies will bring the list price of our new ID. models to about the same level as a Golf today. Additionally, and that's maybe important, the cost of ownership will be lower. You can actually do the math very simple. Take the energy consumption, take fuel prices, and take electricity costs. You see in some markets like France, for example, a significant cost advantage. We actually see a cost advantage in all markets. In Germany, it's slightly lower than in France. That depends on the difference between electricity and fuel prices. The last point is we structurally believe that you can actually reach a higher residual value for an ID. car than you can for an ICE.
Well, one easy answer is, after eight years or 10 years or 15 years, a combustion engine car is essentially worthless. Our cars will still have a battery, a significant amount of batteries. Starting after eight years, you still have value in the car. Going forward, if you manage it properly, we believe you can reap a higher RV, even after the third year and even after the fifth year. Which, if you assume that most of these cars will be leased, gives us a competitive advantage. I'll come into that in more detail. Just building on the state subsidies, without going into details, every government, every major government, even the U.S. government, has put incentives in place to help consumers buy battery electric vehicles, and this, of course, helps us to sell these cars.
But maybe interesting for you and maybe not as widespread, also our large corporate customers actually put incentives in place. What you see here that almost 50% of our biggest 190 multinational customers have a CO2 policy. These customers, like a Siemens or a BASF or a Pfizer, manage their car park as one way to reach their sustainability targets. Like us, they're committed to a sustainable planet and a CO2 target. They see e-cars as we do, as a key feature for them to achieve these targets. This actually will help us because not only do they put a CO2 policy in place, they actually invest in infrastructure for their employees, and they do incentivize. Our large corporate customers pay more to their employees if they take an e-car than they pay for them if they take an internal combustion engine.
We expect this share of CO2 policies obviously to increase, and that's what we hear from our customers when we talk to them. Let's go to the go-to-market strategy. As you know, configuring one of our cars is wonderful if you have a lot of time, but it can be complex. 1 million variation, I think, is the possibility you have with the Golf. We intend to change this with the ID. The ID. should be, let's say, configurable in about 10 clicks. This will be a new approach, and we also think it caters to the expectations of a digital generation that will certainly buy these cars. The sales process will be a lot easier and maybe more relevant for us. It will also reduce the amount of paperwork and process you have to do there at the dealer.
The dealer is there to pick up the car, give you a test drive, to explain the car, and to service the car. The dealer should not be there to do hundreds of pages of paperwork when you do the financing process. This should all be done online, and we will be ready to launch this with the new ID. Second, I talked about price and RV. Effectively, we all look at list prices in our car industry. They are actually completely irrelevant. The only relevant price is the net transaction price, which in our industry typically is a finance or a lease rate if you take the corporate or the private business. The real question is, in this business, who gets the better residual values? Because only this will give you pricing power going forward.
We believe, and that is also the go-to-market strategy, that a strong lease offer will take away some consumer concerns, because consumers might say, "Look, this is a new technology. Do I really want to buy the car or should I rather lease it?" At the same time, it will give us the opportunity to actually manage the RVs, because we will get these cars back. So if we manage it properly, we should be able to get an advantage. How do we do this? This is fundamentally new. Typically, we sell a new car and then we let it go, and we will see what happens after three or four years. With the new ID., the brand Volkswagen will clearly allocate technicals already to the second sale.
We will restructure our technical approach in a way that we say, yes, we do spend some money on the first sale, but we also have money left for the second sale. We will also invest in commercial platforms to make sure that that second sale is effectively handled and we find a used car customer. As I said, if you assume that most of these cars will be leased, and that is probably a safe assumption if you look at today's market, then the question is how do we manage that second sale is essential. Last point, Dr. Diess talked about us being a wholesaler and a retailer. As you know, we have been through some pain to change our retail contracts and our porter contracts globally in the last 18 months. We have been through this pain because we wanted to achieve a few things.
The most important one, we had to clarify with our dealer partners who gets what when we do a functional demand. In today's contract, if we have done an over-the-air update for this car, we would have to reward the dealer for the relevant repair, which of course does not make any sense. So we changed the contract to be clear. If we do an over-the-air update, the dealer will not be rewarded. If the dealer, of course, on the other hand, sells a functional demand, the dealer will be rewarded and will receive something. If we do it ourselves, then we would like to keep the money for ourselves. Second, integrated customer data management. Sounds like a buzzword, but it is a huge achievement because we have an agreement with our dealers that they give us their information and we give the dealers our information out of the car.
Of course, all provided the consumer agrees to it. The third one is really the opportunity to also do direct sales. Yes, we will, in some relevant segments, sell cars directly, which we actually already do in the U.K. and in Germany to our fleet customers. Direct sales is nothing fundamentally new. We just intend to expand it. Since you know that total distribution costs are a significant part of our cost base, we intend to reduce this cost base not only for electric vehicles, but for all connected vehicles in the future. In summary, I think you see us relatively confident. In sales, you should never be overconfident, but we are relatively confident that 2020 we can achieve our volume targets. Maybe more relevant for you guys, we are very confident that we get the disintermediated opportunity to drive profitability, not lose profitability.
With that, I hand it over to Frank. Thank you.
Yeah. Thank you, Christian. One to go, then we have the next break, folks. Hang on. I take, obviously, a lot of optimism from your presentation, Christian, because I heard you saying that you have absolutely no doubt that you are going to sell in 2020 all the electric cars you have in the books, and your only concern is that we can build them fast enough. Being a finance guy, I have only one request, Christian, please sell them at the right price. It is important. It matters to us. One last item of housekeeping. There was a question, I am not sure whether it was George, regarding diesel cars being in stock. We have roundabout 140,000 cars with a remaining book value, so we depreciated them down quite aggressively, equivalent to roundabout EUR 500 million. I think that was the only open question which we had.
Leaving the legal stuff, I love that chart. You might remember going back to our last Capital Markets Day in March 2017. The chart was not as complete, but pretty much exactly the point we made. Remember, we only had the actuals of 2016. Then we told you there is quite a bit of transformation and transitioning happening, and then we gave you for 2020 and for 2025 our return on sales targets amongst some other stuff. But let us stick with the ROS. I think that was very clearly the reaction, guys. Where is the ambition? I think that was a fair statement at the time, because we talked about what it will take to bring combustion engines to the next level to contribute to CO2 fleet targets.
We talked about the challenge to make electric vehicles profitable, even as profitable as combustion engine cars, and how much work it will take to offset those headwinds and still deliver based on the 2016 numbers, an improvement. We left with a little bit of question marks on your side, and in the discussions later, I said, "Please go to all other OEMs and ask them exactly about this middle section, this transformation, where this industry has to go. If they tell you a different story, then please come back." I mean, you know the answer and you know what happened. Nobody came back because I think we take no credit in what we did in diesel. That should have never happened.
But we take a little bit of credit that we were very upright, honest, and told you a very clear story and what it takes to manage successfully this transition. But since we added a couple bars and numbers, we are more confident than ever. With MEB and all the other stuff my colleagues have been talking about, that we have it in our hands not only to improve the profitability, and we will talk about it in greater detail, but also to be a leading part of the pack. I can't refrain, obviously, and I know that you are into the numbers very much in detail, and therefore, those are also the targets, ROS again. Very briefly talk about 2018.
I think we are satisfied and can be satisfied with the 7.3% for the group return on sales, given the circumstances. I don't repeat everything I said this morning. WLTP-related, Audi, I think they lost in Europe 117,000 cars versus previous year alone. Just to mention it, China, the weakening second half, and the ramifications from WLTP and other measures and obviously markets slowing down a little bit. That is basically the sum of the parts if you take the group results. But we also had, and it's part of the truth, we had two misses on the brand level in terms of ROS. Volkswagen passenger cars with 3.8%, you know that we wanted to be in the corridor of 4% to 5%. We had a terrible third quarter with only EUR 200 million of operating profit.
A good recovery in the fourth quarter, where we made it back to a 4.1% margin. But particularly due to WLTP, we couldn't catch up entirely with this very difficult third quarter. Also Audi, 7.9% is close, but it is not 8% to 9%. So those two brands need to be mentioned, and we will talk obviously about Audi quite a bit because we have work to do. We recognize it. The management is aware of it. The entire organization is aware of it. I want to prepare you at least just a little bit that you might see also some smoke coming out of Ingolstadt because we have to wrestle hard over what we need to accomplish. But what's important to you guys is certainly with the headwinds we were talking about, sales outlook a bit more difficult except for the electric vehicles, as Christian stated.
Out there are more question marks than there were six months ago. We are not walking away from our targets. It does not mean that they are walk in the park, you know that. But it is abundantly clear that we want to stick with what we promised. Nevertheless, there are significant headwinds and the amount of money we have to put into, for example, combustion engine cars to make them more CO2 compliant in Europe, they are going up to 3,000,000, which means in pricing terms, we are talking a 5,000. That is huge and this is obviously a tough task. But we also know and we will talk during the session about the opportunities we have, for example, on the cost side to also offset significantly in that respect. Let us talk and take a quick look at the Audi numbers. You see them being framed.
This is not by accident because you guys remember that we cleaned up brand Volkswagen passenger cars just a short moment ago, so to speak. We basically took all group operations, group importers, and some other operations out of the occasion. So we reduced substantially the revenue, which increased the return on sales. We are doing that exactly the same thing on the Audi side, effective January 1st of this year. We are basically taking out from a reporting and consolidation perspective, the group importers, which still belong to Audi. That leads to reduced revenue. My colleagues are going to shed more light on it. But you should think maybe about roughly on a 10% revenue reduction. It has been noticed, even here in headquarters, that this warrants a margin adjustment, logically, because we only take revenue out, and the profit base should be unchanged.
This is basically the only change we made. Now take a closer look at 2019. You see with the new guidance in place, you see us guiding below that corridor. If you translate it, we talk a 6% to 7.5% in the old world and terminology. It hints in the same direction BMW and Mercedes have been hinting you. It will be a difficult year. We will have carryover from WLTP. We have other issues which we need to address. Our colleagues will talk in their respective section in great detail. They also have an analyst day on Friday. I think their press conference is on Thursday, if I am not mistaken.
This is the picture and the story about Audi. But if you look at 2019, we know that we have to improve further. But we also know and we are realistic what we need to deliver. In 2019, and that is the way how you should look at the individual corridors and guidance, is impacted by markets which tend to slow. By tremendous cost we are incurring to be ready for CO2 and technology, new models and the full electrification. That adds up at the same time as, for example, also foreign exchange headwinds do prevail and in some respects are going to strengthen. That is the way we want you to read and basically put the numbers and the guidance for 2019 in perspective. Last but not least, certainly, we also did guide you guys on financial services. Return on sale does not make too much sense.
Return on equity is the way we guided, and since the level of equity varies, we basically said we normalize it at 8%, and you see the guidance for 2019 to be pretty much in line with the corridor for 2018. 2025 is 20% based on this normalized equity in the books. There is one good reason, and I come to it also in a minute, why I believe that is doable, and this is digitalization, and this is the way we deal and interact partially through dealers, but very often directly with the customers. We are going to improve significantly our cost-income ratio, and that is one major pillar why we believe the 20% target is still warranted. Nothing comes for free. Every brand needs to have a plan, needs to have not only a strategy, we need concrete programs which are backing up what we just showed you.
We know that there are a lot of forces working against us, but we have it in our hands to come up with the measures, and we come up with the agreements necessary. I don't read all of them, but basically, the statement is, there is not one brand nor the group who is being tasked to deliver its results and come up with concrete plans and steps how to get there. This is what the brands are committed. On the other hand, that is what the group board is committed to you and the other stakeholders. That is one part how to get there. But that, I tell you honestly, will not be good enough. We need to address and look at the way we operate.
We have a core principle, which we continue to believe in, that the group steers brands and brands steer regions and brands are responsible for their customers. If we would have followed pursuit and everything would have gone right, we should already be today the most profitable car company in the world. It doesn't come as a surprise that there are other benchmarks than us currently available. That means, for example, as it pertains to synergies, we need to do something different. We need to steer more direct and sometimes need to become more dictatorial where it needs to be, because it can't be that we are not using the full potential of our organization.
When it comes to positioning of brands, IT and processes behind the curtain, where it doesn't matter for the customer at all whether we have one HR system or 15, optimal factory utilization, and I could go on and go on. What we want to very clearly say, intervention in governance only where it matters. It is no micromanagement of the brands who will continue to be responsible for their customers and markets. But the full potential of this conglomerate, of this Volkswagen Group, will not be achieved if we are not pushing harder to get to the respective areas which we deem to be critical. The same applies not only to synergies, it also has to do with standards and processes, compliance, and you see some of the relevant examples. At the end of the day, our job is to deliver.
We know and we touch base, and we can read it in your analysts' reports. We are in some, but in too many we are not benchmark. You see here the examples, SG&A, material costs, productivity, where we are not the benchmark and the trendsetter in our industry. We know full well that producing cars in Germany is not an easy exercise, and we need to be smart, productive and lean, and we need to mix from foreign sites. That is the recipe how to deal with our footprint even better. If we altogether, all stakeholders within this organization, starting with the board of management, but also the unions, the works council, the brands, we need to take ownership in our strategy and we need to take ownership to the commitments we have. Our commitment as the board of management continues to be that we are striving for benchmark performance.
One of those is, for example, the commitment by financial services to go to best-in-class 40% cost-income ratio. It's not all bad. We also have very tangible, good examples looking at production, where things are moving in the right direction. If you take the Škoda Karoq and the SEAT Ateca, those cars have a lot in common, but they are clearly still very differentiated where it matters from a customer experience. We source them together, we design them together, and we procure the parts together. The same also in the Czech Republic will take place, and probably some folks have never, ever thought that we'd get there with the Passat and the Superb sharing the same genes. We have other good examples.
Think about Bratislava, which is a major hub or even Palmela in Portugal, but we can and must do more, even with these good examples. I would have never, ever thought that we'd get our act together on Zwickau being our lead MEB factory, building cars for three brands and six models. This is huge. MEB, we will do better coming back to the question on the maybe slow start on MQB, even though today we are fully convinced that it is an asset rather than a liability. A lot of you folks love this chart. If you look to the upper part, a wonderful Audi. I know that some of you did put money down. Unfortunately, you will have to wait a little bit because you are not alone. I think 20,000 is currently the number of people, and the Taycan, we just can't build enough.
The response is overwhelming. There's a hint to the PPE. For me, for us as a board, there are two messages. These are great cars and you will have fun in case you get one. They will do well for the brands, but there's also a message in here. They are both built on different platforms and architectures, and that is not where it should be. So the key message is, this will not happen again. The next generation of product will be on one platform, jointly developed by our two leading luxury brands. Huge advantages and savings, but we start from not the perfect spot where we should have been. There is one PPE in the future, and I think you addressed it, Herbert, earlier, maybe even opened up, but this is currently not concretely being discussed.
Complexity, and I come to that, Herbert, also related to it, has many facets when we talk about the Volkswagen Group. One is model complexity, and this is what is happening. On the volume brand sides, we are reducing the number of engine gearbox combinations by 20%, and I bet we will and can do even better. Huge benefits in many respects, it is not just a 20% here. It has to do with development, procurement, logistical, and even dealer distribution. This is the path we will continue to be on. We know that we will and have to spend a lot of money to secure our competitiveness and our future. You know those charts because from day one of the new team, we talked about us spending way too much money on CapEx and R&D.
If we would have not changed the way the company operates after diesel, we would look today at ratios closer to an 8% or 8.5%. That was the trajectory we have been on, and we tried to push for much more discipline and much more stringent product development processes. We guide for the same corridor for 2019, but please remember, 2018 and 2019 are the most crucial years in order to achieve CO2 compliance. Christian will sell, but only if the cars are finalized and being built. It is crucial. We will push hard to stay within those corridors. Most important also, we are not walking off the 2020 target. You know that the CO2 challenge has grown on us with a lower share of diesel and more SUVs in the portfolio.
We spent obviously, to invest into technology to get to the CO2 compliance, but also ratchet down in 2020. This is obviously a huge ambition, but we are not moving off our target. Focus on the core. The complexity reduction, I gave you some examples, but the number and the areas where complexity could be reduced is much bigger than just engine gearbox combinations. It is certainly IT and processes end-to-end. I don't want to bother you with those stuff we need to touch. Herbert mentioned it already before, the sum of parts is not adding up. We have a huge conglomerate discount, and Herbert mentioned it, and I reassure you also that group initiative number 13 is still close to our hearts and is not off the agenda.
Also for those who follow our group initiatives, operational excellence is the other lever, which we continue to push to make the Volkswagen Group and its pieces more competitive. I think we talked a number of times about the importance of cash and net cash flow. We talked about it earlier to the Q&A section and also this morning and in the interim, were also quite a number of discussions. I would like to reinforce our commitment to pay a lot of attention to cash, to even more closely monitor what is going on the working capital side within the group, and that investment discipline, but also strategic flexibility need and will to be balanced. Strong cash generation is also the basis for good dividends and payouts to be achieved.
But on the other hand, just to point back to what Herbert said, if you take the relevance of software, some M&A activity, particularly in this area, will also come our way. But you know that we care about dividends. We had a very hard landing in 2015, and we are on our path to a still committed 30% target payout ratio. EUR 4.86 for the preference shares is what we lifted it up to, and the 20% is a step if we normalize the 2017 numbers for the extraordinary event. This is the path, and you know that within the next two years, if all things go right, we want to achieve those numbers. The net liquidity, a little different to explain to the folks from the press. You know the IFRS 16 effect.
Just due to December 31st and the new accounting rules to be applied, we know that there is roughly a EUR 5 billion downward adjustment for our net liquidity on the automotive side because of the new accounting rules for leases. That is, and very likely will continue to be rating neutral because the folks from the rating agencies do understand fully that the overall quality and status of the business has not changed. But we also had on MAN SE minority shareholders who tendered their shares. That did cost us EUR 1.7 billion as of December 31st. And for your benefit in 2019 because of the window which closed on March the 4th, we are now a tick under 95%, and this equates to another EUR 1 billion roundabout for MAN.
We are not only obviously running strong automotive brands, but we also have financial services and this is the main reason, not the only one, but the main reason why solid ratings are essential for us. And you know what matters to the rating agencies, pretty much the very same stuff you are worried about. This is obviously EBIT, this is cash flow, and this is net liquidity. We have and continue to have on the basis on particular with the focus of financial services between EUR 30 billion and EUR 40 billion to refinance each and every year. And it pays off that we have an extremely diversified funding mix available to us. And with a re-entrance to the U.S. senior unsecured market just a couple weeks ago, we are now back to the full array of options. May it be hybrid bonds, commercial paper, and ABS.
We continue to be a frequent issuer the way you were used to us to act before diesel. Hiltrud, after the break, will go at a much greater level of detail on Together for Integrity. Let me make two points here. Together for Integrity is not just Hiltrud Werner's responsibility. It is everybody's responsibility working for the Volkswagen organization. I think we are all clear that a disaster like diesel should never, ever happen again in the Volkswagen organization. We need to strengthen our control processes, our compliance organization, and we need to make Volkswagen a place which has control of its destiny. This area is also important for ESG, environmental, social, and governance factors.
It has an increasing importance for all investors, but I think, and you carefully listened to what Herbert Diess mentioned, I think we have a very strong case with our commitment to the Paris Agreement. It is not just about the cars, it is also about the entire supply chain, the production network, and the energy sources for the respective customers. We hope to be able to restore our place, which we obviously lost in the rankings over time, and we are in a constant dialogue with the investor community. I think the conference we held, I think it was last year in Berlin, was strongly supported by Hiltrud, Ralf, and their respective teams, and we will host another one of those conferences shortly. That brings me to my very final and last chart for today.
I said it a couple of times, but it has also to be on the closing chart. Cash is and will remain king. We are, if you take the guidance, still on track in terms of strong cash generation. We wholeheartedly believe that our strategy TOGETHER 2025+ is the right answer to what lies ahead of us. It is a strong strategy, and we do not need to fuddle around with it. We just, and this is the hardest part, you know that we have to deliver. We need to implement. That is now what the priority is. Delivering our promises just simply means deliver what is in your KPIs, and this is what we are up for. Ultimately, it is just about us. We have so much potential, and Herbert tends to relate to it over and over again. It is true. The untapped potential is still huge.
By uniting all together, all stakeholders of this organization, and I know what you feel about the governance, but if you unite amongst all relevant stakeholders, not engaging in blame games, we have definitely all necessary ingredients in our hands. Thank you very much.
Okay. Thank you, Frank. Those of you who are following the clock will have noticed we are a little bit behind schedule, so we are going to skip the coffee break, and we are going to go ahead straight into Hiltrud Werner's presentation now. Apologies for the slight delay, but Hiltrud, the floor is yours.
Thank you, Oliver. I think taking a zip of integrity and compliance instead of taking a zip from your coffee is in order at this late afternoon. Thank you very much for having me. It is an honor for me to speak again to you, which I have already done, I think, two years ago and in between in various groups. Sustainable progress is also very important for us in Integrity and Legal Affairs. Therefore, I would like to use the next 10 to 15 minutes to update you on two significant factors. One is the monitorship and the other one is what we are doing on our compliance programs. I will start with the monitorship. The monitorship itself is an extremely serious matter.
Those of you who are coming from the U.S., you know that in the last eight years, the Department of Justice has roughly appointed 500x a monitor. For them, it is a bread and butter business. For us, it is the first time. Herbert Diess' quote, which is shown here, shows very clearly that the entire board of management, as well as the supervisory board, stands behind successfully getting the challenges of the monitorship solved. No doubt, the greatest piece of the necessary transformation is the cultural change. The monitor will work very hard with us to achieve this change and make Volkswagen sustainably a better company. How exactly does this work, and how does the monitor help us to achieve this goal? The monitor has to deliver a work plan. Then he starts his review.
At the end of that, he writes a report which provides us with recommendations that the whole company takes very serious. Also tight timelines usually require Volkswagen to act and to change very quick. To save as much time as possible, we also established a smart process to respond to each recommendation that was also needed to establish in a standardized manner. What do we have to do? We have to get buy-in from the business in addition to their day-to-day tasks. We have to assign tasks very clearly. Third, we also have to maintain a very good relationship with the monitor team to understand not only the recommendations, but also between the lines.
We have to make sure that everything is documented properly and ready for the monitor to review so that then in this cycle, you can say the monitor is already in his third cycle now, preparing the third time a work plan, which then will lead to a report. We are in the second cycle and implementing our recommendations from the second report. Let's jump briefly to the second topic then. Not only the process is crucial for successful monitorship, but also what we do in compliance. Integrity together with compliance with law and regulations are the foundations of our corporate culture. When sometimes I am asked, how do you explain to the people what the difference is between integrity and compliance? Then we are a car company, obviously. So I explain it.
If you think you are sitting in a car and you are driving over a small bridge, and there's a valley below you and you have two guardrails. One guardrail is integrity, which are your values, your ethics, your belief, your corporate culture, and the other guardrail are laws and legislations and compliance. That means the stronger our ethics and values are, the more safe you feel also to drive on that side. Therefore, proper compliance and integrity in our organization will also help us to achieve de-bureaucratization of our organization, will make us faster and efficient, and that's why we focus on it. In our compliance organization, we have established a 10-point plan. I just quickly guide you through this. At first, we have further enhanced our whistleblower system with higher accessibility, 24/7 hotline in more than a dozen languages.
We also created far more transparency by establishing a group-wide guideline for the whistleblower system. The second, of course, was measuring the compliance staff against benchmarks and then increase it according to these benchmarks. When I'm asked the question, how many more compliance experts you want to have? I always say, I really don't want to have none. We don't need more compliance experts. We need 100% compliant managers. Then the compliance organization can focus on prevention and standards, and that is our ultimate goal. At third, qualification and training for employees at all hierarchical levels about compliance and also providing them with advice as partners on an eye-to-eye level, plays a central role in our daily compliance work. We use all internal communication channels to reach our employees. We use e-learning. We use other handouts and also on-site trainings.
At fourth, compliance work in the Volkswagen Group is based on a procedure for systematic risk identification and reporting in accordance with national and international law and standards. For example, the audit standard 980 from the Institut der Wirtschaftsprüfer. You all know it's very difficult to apply a value to a risk that has been mitigated before it materialized, but we see this also as one element of a proper compliance culture in the group. At six, we proceeded with our work on a risk-based revision of the group policies, e.g. the implementation of a group policy for gratitudes, for the avoidance of conflicts of interest and corruption, and we will reach here another milestone in 2019.
Seventh point, we designed and developed a new IT tool for risk-based selection process of business partners in the Volkswagen Group, and the piloting of that began already end of last year. A key objective of the new process for M&A transactions is also to create transparency within the Volkswagen Group for entering into business relations with business partners who had previously been classified as ethically or compliance-related questionable, so that if we have done a compliance check in one brand and legal entity, that the results are available to all the other entities in the group. Moreover, ninth point, a center of competence for strategic business units has been established and, post-merger integration and non-controlled shareholding processes are underway.
As you can see, we use a lot to change and improve in the meantime and obviously also our compliance organization supports and goes hand in hand with the PMO for the monitorship to inform the monitor of all the implementation steps that we have done and report on progress. Let's now take a quick look on our cultural change program, the Together for Integrity program. Frank has already mentioned it. This program is an important cornerstone for our TOGETHER 2025+ strategy. The T4I program is designed to ensure that management takes responsibility for compliance, risk management, accountability, and adequate HR processes, also ensuring that all employees actively engage in the transformation and get to the right business behavior. It will help us also to reach the aspired monitor certification in June 2020. The T4I program encompasses a broad catalog of initiatives.
It is rolled out around the world and gives us the opportunity to engage with our employees at all levels. Leadership and employees are eager to participate in T4I. There are a lot of self-initiated events already happening and in his Christmas address to all our employees, Herbert Diess named the Together for Integrity program also as one of the most important programs for the Group, and that also helped everyone to understand this. Let me close with some key facts on that. We have so far already introduced the framework of Together for Integrity in 74 entities. Until the end of the year, we will have reached more than 150 entities, and all entities will be included that have more than 1,000 employees or have been selected on a risk-based approach. Over 300 experts have we interviewed.
You cannot change your culture without knowing what is wrong and what needs to be improved. So that was very important also. The entities so far covered also a so-called T4I rollout, and we have reached with our rollout so far roughly 300,000 employees already, so roughly half of the workforce of the Volkswagen Group. 5,000 participants have been reached in T4I workshops where we address employees from all hierarchies and functions. And we call these workshops perception workshops, where we also discuss how our framework, our business culture, our interaction, how to embed compliance into the business process, how this all has to work. By the end of 2019, we will have reached, so to say, the point of no return for Together for Integrity.
That means that our cultural change program is rolled out in the organization and that we all share the common goal in the organization, how it shall look like. As you can see, we are very serious when we talk about change. Thank you very much for your attention.
Thank you, Hiltrud, and I am delighted now to pass you over to Dr. Stephan Wöllenstein, the CEO of Volkswagen Group China.
Ladies and gentlemen. Good afternoon. I do not know how many of the Chinese colleagues are joining us via the webcast. We are approaching midnight in China. Nevertheless, after a long day, long afternoon, it is about China. If I recall, also the magnitude of questions circling around China this morning in our annual press conference, I believe it is not only for Volkswagen, but also for you, a hot topic to discuss, which I try to address in the next 15-20 minutes in about two sections. On the first one, I also skip the disclaimer, not meaning that it is irrelevant, but probably with the sake of time, we straight move into the content. First, I would like to elaborate a bit on 2018 and 2019, so short-term history as well as our current presence and our objective for 2019.
Also look a bit ahead, what we are trying to do to pursue as a Volkswagen Group with our key brands being engaged in China in the years to come, as it is a rapidly evolving market, which is transforming and which is also transforming Volkswagen Group in this respect. 2018. Many of us have raised a lot of questions around the total market, which is true. It was an extremely interesting one, and I spent probably a minute about this slide because also for you, it is important to understand the mechanism behind. In the history of the automotive industry, it was actually the first time that China has faced a decline. This was happening in a year, almost in completely two different sections. The first half year, and in particular quarter one last year, was business as usual in China.
As you can take out of the slide, the market was growing about 6.7%, which was, once again, one of the strong growth based on a very high base already, that China is known for in the automotive world for many years. We were actually sitting together, if I look to have at these in about March, April 2018, we were really thinking now we have to adjust our total market forecast up. We were about to discuss 26-27 million cars total market forecast based on quarter one results. If we were then throughout the year, I will not, let us say now, spend too much time on discussing the reasons behind, but you all know most of them. We were ending the year with the quarter four, which was down two digits, - 16.3%.
If you would have applied this decline rate to the previous year, 2017, we would probably talk about a 21 million market. In the beginning of the year, trend towards 26, 27 million, ending the year with 21 million. You see what spread is happening because of the various factors. Why I am mentioning this, because now we are all in this wonderful year-on-year comparisons. If you really take this, we are now coming out of this difficult phase in quarter four 2018. We saw already that the first two months are, at least against our expectation, happened slightly better. Whatever we will do in quarter one will, of course, against this very strong quarter the one 2018, look lower.
On the other hand, we see also a relative recovery happening in the second half of this year, where we see a stabilizing and a slightly upward trend in China compared to a very low base in 2018. How has Volkswagen Group done against this background? This is for us, despite all the difficulties we are all together facing in China, the good news is, once again, as you saw on the slide before, total market down -4.6%, Volkswagen Group in China up 0.5%. You see a 5.1 percentage points upward swing for the Volkswagen Group. Effectively, all brands acting and selling in China have done better than the total market, which in total led us also to a substantial increase of about 1 percentage points in market share, now to a level of 18.5.
Certainly, as you are from the investor community, we do not pay our shareholders in market share. We pay them in money, in real money terms, also in money-wise, against this background of a total market, plus the investments that we had to place in order to transform also our business in China. I come to this a bit more in a second. We were able to keep our profit level stable before the currency effect. You see that we had, of course, a slight downturn coming out of the currency, but if you net it out and concentrate on the performance-related part, where we measure it IMB to IMB, we have more or less secured the same profit levels as on previous year.
Looking into the entities, I know that some of you also are interested in our two joint ventures, where we are mainly pursuing our business for the three key locally producing brands, which is Volkswagen, Audi, and Škoda. Both have done pretty well. Both have, let's say, more or less kept their profit level. Also, the one that you see with a slight downturn on FAW-Volkswagen was mainly because of extraordinary effects happening in 2017, where there were some contingencies to be released, which, of course, is a one-off effect that couldn't be repeated in 2018. Overall, you see that the profit margin is still strong two-digit and which is, of course, certainly the level that we want to sustain for our China business for the long run.
Which means, on one hand, with all the cost pressure that is coming up, we also working intensively with our partners on cost efficiency, which we have started last year. Again, with another wave, which we are going to intensify with all entities this year in order to secure these profit levels. Besides the volumes, besides the financials, certainly also a lot happened in our business. We have opened four new factories. This also shows to you, and when I look into the longer future, we will see the necessity from our perspective. We opened four new factories in China. Two are with FAW-Volkswagen, one in Tianjin, so it is a harbor city east of Beijing. We have it in Qingdao. Pretty famous for beer produced according to the German recipes, at least, but will also become very famous for Volkswagen building cars over there.
Foshan, we have opened now an extension of our plant. Foshan is also the MEB factory for our northern joint venture. Last but not least, to mention Hefei, where we have now started also the production within our third joint venture with JAC. We have massively worked on our product offensive, mainly circling around the SUVs for Volkswagen brand, but also Škoda and Audi are pursuing now a kind of SUV strategy. So we have increased the offer from six to 14 locally produced SUVs. At the same time, we were able, and this is also important against what Herbert Diess has outlined to you, we were able to reduce the fleet consumption to 6.1 L, and at the same time, we have also improved the CO2 footprint of our factories and were able to reduce it by 13%.
In terms of third partnership, I mentioned this already, JAC and SEAT has stepped forward as partners. You see here a picture of the signing of another MoU with Chairman An from JAC and Luca de Meo and Herbert Diess witnessing this. What you cannot take out of the picture, that at the same time also Xi Jinping and the Spanish Prime Minister have also witnessed the ceremony. So we are also gearing up our third joint venture. Very important to what we have said on electrification, we had a groundbreaking ceremony in Shanghai with our partner SAIC on our MEB-only factory in Anting. So a lot that happened in 2018 and more certainly to come in the year 2019 and beyond. As far as total market is concerned, we are a mixture between conservative and optimistic.
We simply believe that 2019, we will see a total market around 23 million, so more or less flat, as Christian has also outlined for many other key markets in the world. Certainly, the pattern of the market will be slightly different compared to 2018, so we will facing a pretty low first half and assuming that it will also come back in the second half. You know that now around the National People's Congress in Beijing, there are also now announcement made by the Chinese government, more details to come, that there is a strong willingness, a strong intention to inject also consumer confidence supported by the necessary fiscal measures in China in order to boost the economy. There are also some meant to be for the automotive industry. As a group, we want to gain market share, which would mean that we will also slightly grow on volume.
Very important, we want also, despite the fact that we are investing about EUR 4 billion in 2019 to lay really the foundation for our future product offensive, including the transformation into connected electric vehicles. We aim to also secure the profit levels that we have seen in 2018. This is about 2018 and what we intend to do in 2019, but there is certainly much more to come beyond from 2020 onwards. Looking into the future, also here, once again, a short recap how not we only, but how also a lot of analysts see the Chinese market. Without going into all these bars, therefore, we left the figures out only to give you a perspective.
We, as well as many others, have a strong confidence that China has, within the next, let's say, seven to eight years, a perspective to grow up to a level of 29 million to 30 million cars. It is already with its 23 million, by far the biggest automotive market in the world, and we see more potential to come. This is certainly fed also by a still growing middle class in China. We see that the vehicle density is still low. Also, if you go beyond the tier one and two cities, so the big mainly coastal provinces, if you go then more into the smaller cities in China, which means cities of 3 million to 5 million people. So also there is a huge potential and the disposable income will grow.
Therefore, we do not see any reason why China is not able to go up to a level of 29 million to 30 million cars in a couple of years from now. The only question is, when do we see again the dynamism coming back to the market where we have seen year-on-year growth of a million cars or more? Herbert Diess has stated this this morning in the annual press conference. We regard also China as the new automotive powerhouse, and it is not only to secure also our profitability, it is also that it is kind of facilitating our transformation on a global basis into e-mobility and also this afternoon, you have elaborated on this topic. It is China because of its dedicated industrial policy in this respect that will drive the global trend into ICV, intelligent, connected, electrified vehicles.
We as a leading provider, we certainly want to take this opportunity, at the same time also facing this huge challenge in China, also transform the industry in China, transform us as a company. We see a huge potential to come out of China. You see a lot of the strengths. I will briefly go through all the key ones. Therefore, I do not spend much more time on this one. The first one, SUVs. As said, we started already in the last one, two years in order to really ramp up on our SUV offensive. In 2018, we were able, thanks to our new cars that we have offered, to increase our SUV sales by 12%.
Now it is about 20%. You can take out 20% of all cars that we are selling are SUVs, and we intend to increase this up to 40% by 2020, 2021. Five of the SUVs models that we are going to introduce to China this year will be locally produced. This is also our strategy to bring this car locally to China. Also, the Volkswagen brand in this respect is also taking a leading role because three out of these five will be introduced by the Volkswagen brand. Also Škoda has now a rich portfolio of SUVs. Audi is going to introduce more SUVs to the premium market in China as well.
Then we have taken an interesting venture, effectively happened three weeks ago, exactly at this place, where together with our joint venture partner, FAW, we have introduced a new brand to the world and to China called Jetta. The Americans might have a view on Jetta already, not many others. In China, Jetta is like Beetle or Golf. The awareness of Chinese people, if you ask them, name me any automotive, more than 90% up will come up with the name Jetta. We have taken this heritage that we got, this trust of Chinese people, because Jetta was, for many Chinese families, their first step into individual automotive mobility. We want to come back to this root for a single business reason. We see currently that a third of the market is a called of entry and economy segment.
Which is to give you a flavor in terms of price points, if you talk about sedans, for instance, we talk about car prices of CNY 60,000-CNY 80,000 , which is equivalent around EUR 10,000 gross retail price. Then we have the SUV. So a reasonable, decent size SUV, which, let's say, being transacted for prices of CNY 90,000-CNY 120,000 , which is then in the order of EUR 13,000-EUR 14,000 . With the Volkswagen brands, all its technology, innovation, we are getting more and more out of the reach for this 1/3 of the customers, which is in particular relevant for us as a group because we see an overproportional share of first-time buyers, 81% in there.
So we said there is, let's say, also for us an area where we want to bring to Chinese customers in this part of the market, also, again, a Volkswagen-related offer for their first step into individual mobility. This is to be done by the Jetta brand. The brand is now launched in Shanghai Auto Show coming in middle of April. We will show all products which will consist out of one sedan. Of course, as the Jetta today is really linked to this specific car, plus two SUVs to cater for the specific SUV trend. We are pretty sure that with this initiative, we are able to really expand the scope of business.
We have done intense cost work on the entire value chain of producing, distributing, selling these cars, including also product concept adjustments, so that also with a lower price positioning around the Jetta brand, we achieve similar profitability levels as we see on many of our Volkswagen or other models. Secondly, I will keep it short because Herbert Diess has already pointed this out, NEV. China is about NEV. So far, China has already surpassed the 1 million threshold in terms of NEV cars sold. We expect that we will see by 2025- 2027, about 20%- 25% of all new cars sold in China being electric vehicles. Certainly, we will also want to be part of it and to stay also in this part of the market, the number one choice for Chinese customers.
By 2020, next year, we intend to sell as a group about 400,000 NEV cars in China. Therefore, we are introducing more than 30 new NEV models, and importantly, 50% of them will be locally produced. Effectively, those of you who have a chance in two weeks' time, we will show the first three locally produced battery electric vehicles on existing MQB platform to our Chinese audience. As I said, the foundation is laid for the MEB factories. End of next year, also MEB will hit China. By doing so, we will then by 2025, we will have about 40 locally produced NEVs.
Mainly it is the MEB-related cars, some PPE cars, and we will have a full-fledged portfolio in all different sizes and body styles built on the MEB to really serve this market in a market, enabling us to do about 1.5 million NEVs by 2025, according to our plan. In order to do so, because these cars are not only simply electric-driven cars, as I said earlier, the government has clearly set an outline that they shall be intelligent, connected. We have also elaborated, Christian and Herbert Diess have done so, about the importance of software, of connectivity. In order to do so, we will further strengthen our R&D capacities in China with our two joint venture partners, but also centrally, not full-fledged.
We will not intend to develop own new platforms in China, but it will be certainly in the area of autonomous driving on connected cars, on battery technology. We really believe that in this respect, China will become a powerhouse globally, but also for the Volkswagen Group. Then for the first time, we really want to develop in China, for China, but beyond, of taking those points also into the rest of the world where those trends then come probably slightly later. Part of this R&D initiative is also the establishment of a 100% subsidiary of us, Mobility Asia, pursuing those five fields that you do see on the slide behind me. Currently, they are delivering very hard with a couple of hundred software engineers on connectivity solutions to come into our JAC Volkswagen Sīhào model to be released to public very soon.
As well as the Jetta brand will play on Mobility Asia connectivity solutions. We are going to offer also, let's say, service and data monetization. We pursue autonomous driving projects, and we introduce smart infrastructure ecosystems. You know that in China, smart cities are a big political topic that is pursued, and certainly, a very important topic on this is also charging. We want to establish a semi-public fast charging network. We provide to our customers, let's say, a seamless offering on securing private charging and a very simple but still very important one. We have already created a kind of app which includes navigation and payment functions for those people who have a plug-in hybrid or an NEV car to make it really an easy pleasure experience to ride a Volkswagen Group NEV car, name it a plug-in hybrid, or could be a fully electric car.
Another important topic, autonomous driving. With our two strong brands, Audi and Volkswagen, we are in different partnerships, pursuing different strategies as also there are many partners, very competent partners in the industry. Audi, for instance, is cooperating intensively with Huawei and working in a city called Wuxi, which is north of Shanghai, near Suzhou, on V2X. All this, let's say, central infrastructure and cloud-related combinations. Was also one of the first manufacturers who were granting level four and level five driving license on autonomous driving. Volkswagen is going on the open source platform with Baidu, the Apollo platform. Now we working on, let's say, an automated parking function in order to also prepare ourselves, get experience on automated driving functions for China. To wrap it up on my last slide.
If we look back to 2018 and what we are having in mind for 2019, we have a strong foundation. We do our homework also in terms of cost effectiveness on building up the necessary product portfolio that the customers are really going to. Expanding our business scope. Here we mentioned the Jetta brand. We are all doing this with the interest to safeguard our profits. Moving on, we will certainly go into NEV full throttle. By doing so, not only that we are taking part of a substantial part of the industry, we will also make sure that we meet all the government regulation in terms of CO2 compliance and NEV credit compliance, which is now also coming into force massively. We will build and strengthen our R&D capacities to prepare for a different future of automotive industry in China and beyond.
We are building also on an entire ecosystem which goes far beyond the car as a hardware itself, going on into a seamless digital experience for our customers with all the related services. That's about China, Oliver, in a nutshell. Now we are done with all the presentations, and Oliver, it's back to you.
Thank you, Stephan. Just pause me for a second. We're just going to put a few tables out, and we'll join the Q&A session. Just to wrap up, we've had a fascinating teach-in this afternoon from Dr. Diess, including, I think, some good commitments on governance that you heard. Christian then talked about the market situation and told you about his confidence in selling EVs, which I know didn't go unnoted by our CFO here, Frank Witter, who also took us through our core KPIs and outlined some of the opportunities that we have. Very importantly, I think Hiltrud explained the steps we are taking to embed compliance and integrity deeper into our organization.
As we talk to investors more and more, we hear this discussion about ESG and topics and about how the Volkswagen Group is changing, and I think some of the issues outlined by Hiltrud are core to how we see the group evolving in the next years. Stephan just gave you a quick outline there on the success of our group in China and the confidence in the years ahead. If I could ask the speakers, please, to join me again up here at the desk. We'll then open up to Q&A. Just to get things started quickly, let's start with Tim here on the second row, because I think we had a question that was still outstanding on CO2. Tim, perhaps you could cover the topic again, and hopefully we addressed your issue, but we'll just reconfirm from your comment earlier today.
Great. Thank you very much, Oliver. It's Tim from Deutsche Bank. Mr. Diess, you wanted me to come back to this question during the Q&A now. I've just spoken to a CEO of one of your major suppliers, and he told me that he doesn't believe that any of the German OEMs will actually meet the 2021 target. He also told me specifically that Volkswagen is actually currently requesting a lot of PHEVs rather than BEVs. What do you say about those two things? Is 2020 missing that an option at all for you? Are you really less committed for BEV as you are presenting it today?
No. I had said on one of my charts, PHEVs are an option here in Germany for sure. It's probably the best way to go forward for premium products because we have price range where you can sell PHEVs with a certain margin. We have a huge range of PHEVs coming. Audi is enlarging its range. On the Volkswagen platform, we have the Passat, the Golf being now improved to 70 kilometers range with the new Passat coming in. So we have that range as well. In complying 2020 and 2021, we have also PHEV push, what we called it, no? So we will have the product come to market from Škoda, from Volkswagen, especially to meet targets. So it plays a role. It's not the most efficient way to comply. You've seen that in our comparison.
To bring down a gram in fleet target, it costs you probably twice as much as with a plain EV. We will meet the targets because we are confident that we can sell them. The product offering is good. Batteries is a concern. Ramp-up battery capacities. We have three battery factories in build-up currently, so under construction work. We are following up very closely. Still, I think, an offensive on EVs we have in the market, we will have still the Golf available. The new product is hitting in by 2020. PHEVs plays a role. We have to hit about 200 something thousand PHEVs and EVs in 2020. Staying focused, that should be possible. Yeah, that should be possible. I cannot comment on our peers. I don't know what they have in their product pipelines. The most efficient way is really successful EVs.
I share your view that probably not all competitors will match the targets. Yeah. What's going to happen then? That's also a concern for us, no? Because when it comes to pay the bill, the bill will be big. Would everyone pay the bill? I don't know. Yeah.
Can I just follow up with a question on the Golf? You showed this chart, which was very interesting, including CO2 compliance costs and excluding CO2.
Yeah.
The Golf didn't score very well, including CO2 compliance costs. How serious do you take that assessment that you say price over volume, A, in a downturn when it comes to volume, Mr. Dahlheim and I, we already discussed about this in Detroit also, and then B, specifically when we think about certain models.
Yeah.
Would you go as far as to say that you do not produce the Golf any longer?
Yeah. The Golf is not the most critical model. No, the more critical models would be the cars with even lower margin. Think about Polo, think about up! Those entry-level cars where we have small margins, and we would never meet the fleet target. Still probably in the year 2020, but not anymore 2025 or even think about 2030. Those models are really under threat. We can push the Golf up with PHEV versions of the Golf. The new Golf, it will be benchmark in CO2 emissions in its class. So the Golf is not the most critical product. But if I come back to my presentation, and we are convinced that we can become very profitable on EV cars in that next year, five years period of time, then we do not have to discount the penalties. Yeah?
That would give us really a competitive advantage over some of our peers struggling complying with the fleet target. That is why we are so pushy and ramping up so steep our EV targets.
Okay. Thank you, Dr. Diess. I am going to take a question from our shareholders here back on the fifth row. If you could just pass the microphone there. I know there is a question that you wanted to ask.
No, you got it.
Thank you very much. A question for Dr. Diess. I know probably it is not the sexiest question around, but if you look at the perception of the market in terms of valuation, it seems that the company at the moment is trading at very, I would say, distressed kind of valuation, very distressed multiples. I was before looking at the presentation of Dr. Witter, and if you basically sum the free cash flow, not even going to 2025. Basically, in 2025, the market is pricing that this company will not exist anymore, because you generated more cash for sure than enterprise value at the moment.
Why do you think Of course, we are invested, and therefore, we believe that it is totally unfair, and it is probably one of the largest case of, let's say, one of the strongest case of undervaluation that we have seen in the last probably decade. But what do you think, as a management board, you can do in order to give back some confidence and to make the stock and therefore also the valuation that affect us as, let's say, all your partners and the stakeholder, be a little bit closer to what should be the intrinsic value of the business, if you agree that the intrinsic value is much above a EUR 70 billion valuation?
Yeah. I fully share your view. The value of the shares or of the company is basically like it wouldn't survive the next four or five years. Because you get all your money back in a four years period of time. And that is a concern for us as well. It is a concern because we think, or I personally, I think we share the view, we will get into a phase of further consolidation in the industry. We might have to use our share price in some transactions in the future. So we have to make clear to the markets that we are underevaluated. And I think we are so. Because if you look into our peers, Toyota traditionally has a much higher evaluation. They are less complex. They are more stable in their margins. They can be a model. But the other model is Tesla.
Tesla is not, let's say, evaluated as a car company. They are seen as a tech company, and Tesla is probably a model for what we are undergoing now. Tesla is fully electric. We are on the way. Tesla is fully connected. I think we are fast following, and then we have a better scale. Our business model is transforming towards what probably Tesla represents today. If we can explain to you and convince you that our business model is sustainable and lasts longer than the next four or five years, then you probably tell it to the rest of the world, and we get a better evaluation. We will help you there. We will come back in summer. We have a plan and evaluations, or we are prepared to lift some of the hidden values of the company. I think we will explain our strategy better.
I hope that you get a first idea today where we are heading. It is a transformation story which we are telling. We think we are good in transforming that big company. If we now work on governance, on leaning up the company and focusing the company more, I think that can be a good case for value creation. I am sure that we can convince the markets. Next year will be crucial. The EV strategy, it would work out when we can sustain our profit margin level. I think that can be a good case. I would even say that the whole sector is underevaluated. It is not only us. If you look into the multiples of some of our peers, they are concerning as well. On the other hand, you have the tech companies' multiples, which are really, really high when it comes to multiples.
If you think that transformation through, in about 10 years' time, this is a highly consolidated world. It is electric. It is probably more similar to a smartphone logic of industrial logic than to a car logic. This will be transformed, but the business model will be then totally different. I think there is some, at least personally, I think there is a lot of potential in what we are doing.
Okay. Thank you. Let's take Patrick here from the front, please.
Thank you. Patrick Hummel, UBS, again. My first question, Dr. Diess, you gave a really compelling pitch for MEB. Why it is a great platform, why it gives you the lowest CO2 compliance cost in the industry, and why you are basically ahead of competition. You have a product with which you could potentially gain market share from others because they will not have that for years. Yet, you are ready to share it with others. I am just trying to understand, you must have had that discussion internally, why you decided that it is better to pursue further economies of scale and share the technology and the platform rather than keeping it as a competitive edge.
Yeah. Sharing platforms also is a way to consolidate. Because if you, let us say, you create some dependencies, it is a way forward to consolidate the industry. Think about what I have said before, is this industry will be dominated by software, by microcontrollers. It will be really a scale game. I think it is a better way forward to scale up faster, and we will have peers following us. I would not write off Tesla. Because they are scaling up relatively fast, and their product is a sexy product, and there will be others to come. I think we have to be fastest in scaling up, creating the economies of scale, and also then being able to invest in the next generations of batteries. The more volume we can get, the better. You can use it with peers and enterprise. For instance, Ford.
We share platforms from the old world when it comes to the commercial vehicle businesses. I think it makes sense to share also the platforms of the new world. There might be competitors where you say, "No, I would not share because I will not succeed," or so. That is a decision of us. It is a pitch currently. It is a pitch. We think it is the right way forward to generate even more economies of scale, because we think that the industry will look much more like a smartphone. It does not make sense anymore to have 50 different platforms.
Okay. Sorry, Patrick, but we are running tight on time. I am going to switch across to George, please.
Yes. Thank you. George Galliers, Oddo BHF. Two quick questions. To Dr. Diess, first of all, what is the business rationale for investing in battery cells, which is seen as a commodity and very capital-intensive business?
A question to Dr. Wöllenstein on China. Audi has lost momentum and its leadership in the premium segment. How do you intend to strike back? What is the benefits of this dual network strategy with SAIC?
Okay. Battery cells. If you would have asked what are the risks for our strategy, then there are probably two. One is regulation. The regulation has to be stringent and forward, and those regulators have to stay to what they have been defined. The other one is really battery cells. Because as you know, there is a huge investment required. We are covered for the first couple of years by contracts, by the ramp-up. But the investment required and needed in battery cells is really huge. On the other hand, there are further investments coming from the Chinese. There is a European, let us say, consortium building up. But it might make sense also to involve oneself more in batteries than we thought so far. Now the criticism was always it is high investment and low margin.
It is probably not low margin anymore because the demand for batteries is so high that all of our partners are coming with, let us say, not reduction in prices, but even increasing prices over time. It will be a narrow market for the foreseeable future, though it will be for some of the players, it will be profitable. We see that already in China. CATL, profitable company, also the competitors, profitable company. So it might be profitable. Then the next thing is the most valuable component for the foreseeable future will be the battery. The battery will have, and I do not know, I think you mentioned it, Christian, will have a longer life than the car. There will be a second life in household, as household storage, for instance, or as buffer storage for fast charging.
Then the value, economic value, even after a second or third life of the battery still will be EUR 1,000, EUR 1,500 because of the raw materials involved. As the raw materials are relatively expensive, we will have a full cycle of materials in between the battery application in the car. I think to keep a grip on that full cycle and not, let's say, having to buy materials and then selling scrap is probably also a critical success factor in this new industry. The core investment really is cell manufacturing. It is cell manufacturing. You need high yields. You need high productivity, low cost in cell manufacturing. To be successful in this new world, you need to understand a lot about cell manufacturing, and it's not a commodity. No. Many of us think it's a commodity.
The decisive cost reduction on the MEB will not be our work on the steering column or whatever. It will be when can we introduce the next generation of chemistry? Will it be 2021, 2022, 2023? Because the next generation of chemistry will add another 10%, 15% of cost reduction. We are noticing already now, if you're very dependent on commodity suppliers, they will tell you when you get the next chemistry, which is complicated.
Okay. Sorry.
Long answer. Sorry.
No.
You have to.
But I have to keep the clock running and-
Yeah.
...I try to be-
Audi question.
...short on Audi China.
Yeah.
Audi, if you look on the 2018 figures, was effectively with about 660,000 cars sold back on track in terms of the volumes in the 30th consecutive year, by the way. But I would say for Audi, it is true as it was and is also for Volkswagen. We are in our sector since decades in China, the number one choice for the respective Chinese customers. Volkswagen in the volume-related part, Audi in the premium part. For those who are in the number one position, there is always from time to time the change to reinvent ourselves. We are doing with Volkswagen China with Move Forward. Audi is now also, let us say, on their way of sharpening their image profile again. Besides the volume part, also increase further the profitability and going full throttle on innovations.
Also the second partner in this respect that you mentioned will help us there because with SAIC who are pursuing the second leg for Audi. They will help us on the electrification of Audi. They are determined also to go into different ways of more innovative ways of selling and servicing our cars. So it is all about, let us say, reinventing those who had been in a traditional number one position.
Which is also applicable for Audi. As we have pretty good experience with two joint ventures on Volkswagen side, we shall be also able to do a similar topic for Audi, who is now also getting into volume dimensions where this is a considerable step.
Okay.
But within 2019, 2020, we will review the situation with our joint ventures and define a way forward for all our brands in China.
Okay. Thank you. Daniel, I think you had your hand up. Just forthright back. Thank you.
Thank you. Daniel Schwarz from Credit Suisse. I have a question to Dr. Diess. You showed that the product cost for combustion engine cars is going up massively, especially with Euro 7. Could you give an indication where this extra content is going to? Is that partly internal R&D work at Volkswagen, or is most of that going to suppliers?
No, it's material cost. Material cost for emission.
Okay. As you are running a very substantial component business in-house as an automotive supplier in this changing world, where would you prefer to be? In new technologies, where you face very strong competition from new entrants, or also in the classic business where you are facing potentially a shrinking market?
You know, it's not so easy to decide on that because in the businesses we are in, we can't sell off gearboxes and engines, so it's just not a feasible way forward. We think that it makes sense instead of being in technologies where you're really kind of a commodity, like seats or I would say we are still in the for the damper-
Shock absorbers.
Shock absorbers. In shock absorber business where we are undercritically in size, I think this doesn't make sense for us anymore, and we are really reviewing the situation. Whereas yes, we are investing in the new electric drivetrains, in battery components, which should give us an advantage technologically and also ramping up and building up the economies of scale. So I would prefer to be in the new area. We are executing that transformation process currently mostly in Braunschweig, where we are shifting from plastics components, old commodities, into battery systems mostly. I think it's the right way to make that change now because our company set-up, it is not easy to sell, like gearbox plants or so. Yeah.
Okay. I had a technical question for Witter.
Yeah.
The outlook says net liquidity position will be significantly lower in 2019 versus 2018. I understand the impact from IFRS 16. If that is a EUR 5 billion impact, how does that work? Is that not even including dividend payments easily over-compensated by the free cash flow in 2019?
The EUR 5 billion is a one-off, which is basically just taking the starting point from December 31st and basically what is that worth in the new world. From an overall perspective, we think that we will climb up back to the EUR 20 billion over time with obviously a stronger free cash flow generation. We did not adjust the guidance also for the target on net liquidity and how to be used, make best use. We get a lot of ideas and recommendations from the community. Paying dividends is one of them.
Daniel, we talked earlier, there is a little bit of diesel still to be paid out and that will cover-
Yeah. We are not through with diesel. We have in 2019 around about EUR 2.2 billion and in 2020, EUR 1.5 billion. These are the two last known payments, but as you know also from the experience in 2018, we had legal court cases who led to substantial outflows which were not reserved for. I refer to the Braunschweig and Munich prosecutors. But from what we know today, these are the cash outflows as currently expected.
Okay. Thank you. Arndt, I could see your hand at the back. If we could just get a microphone here, please. Thank you.
Okay, just one more from my side. Thanks, Oliver. When we look at Volkswagen from the outside, there is always a lot of frustration. There is frustration amongst your shareholders and your anchor shareholder expressed his views last week again. Then you are frustrated, then Mr. Osterloh is frustrated, your shareholders are frustrated. As we just heard. So I think the big question really is longer term, how do you get out of this loop? And how much of a commitment is there to change the governance of the company? You talk about value creation, which we all know-
It is a big word.
it's a huge thing. Is there a way out of it? You mentioned you're working on a plan, you'll give us some more details this summer. But is there a more structural solution to the governance problems which lead to the, basically to the fact that you're hindered to transform the company in a bigger and faster way really, to make it really waterproof and dominate in the future because you've got this opportunity, which you're at risk of not fully lifting
Yeah, I think we have the same view now. Also, we have some days where we are frustrated as if we don't move at all. But I think we made some advances. Now we have been discussing with several stakeholders some options where we can lift. I think with Traton, we made a big move forward. Now we are preparing Traton, which is a major step. We are reviewing our situation in China. But yes, we are a complicated company. Now we are 20% state-owned. We have about 20% reasonable, normal shareholders. And then we have a big family, which is very influential here. They have emotional bindings to us, and we have a very present works council here who has a say and is very important in the company, so established position. I think, yes, we can gradually improve.
It takes probably a bit more time than other companies, but there is a way forward visible, and I'm convinced that if we come back to you in summer, we probably can give you some indications. You can take from this meeting that we are fully aware of your perspective, and we are really working hard on it to shape a program which addresses governance. Also our profitability, looking for more synergies, being more cost-efficient. The transformation, I think you got a feeling today where we are heading, which is probably also a criteria for the value of the company, and then also leadership, which we think is an important program. So those three pillars, and under governance, I understand as well portfolio, brand portfolio, core assets, non-core assets. And we are addressing it because we think it's not only to have less frustration on your side.
I think also we need a higher shareholder and a share value and company value because in the phase we are going, we need a higher share price to be able to consolidate and not being, at some stage, unable to maneuver anymore. And I think that is a shared view between all our stakeholders. Now between family, Land, and also the more rational shareholders.
Yeah.
Yeah. Witter?
Yeah, absolutely. If you would leave here today with the impression that we are a bunch of pretty frustrated guys and girls, no, I think it would be misleading. We have a plan. I said it earlier in my presentation, we wholeheartedly believe that the Strategy 2025, as painful and challenging the transition which we are describing in our strategy, and obviously the capital market is reflecting on. We have a plan. We believe in it. We are willing to take the related risks. Yes, certain things could go faster, but trust us, yeah. Group initiative number 13 is not written off. We would love to have progressed faster on the one or the other idea we are having, but we need to communicate, and we continue. There is a lot of energy.
When I talked about smoke coming out of Wolfsburg when we negotiated the future pact, that was a lot of energy fighting for the best and for the best solution to secure the future of the brand. In Ingolstadt, we have a lot work to do. I showed you the guidance. That is a clear message to everybody at Audi. We need to do something, and we need to do it fast, notwithstanding whether BMW or Mercedes have similar challenges. There will be probably some rumblings there in order to address the issue. So energy is not lacking. There are certain part of the governance, and I think I said it in the boardroom, there are people out there who hate our governance. Then let's take it for whatever it's worth. We respect it.
Certain things we cannot change, but there are a lot of things we can touch, and we test the system, and we wrestle. There is also more in common that you sometimes think, and I don't want to devalue what is sometimes being said, but if you take things into the context, the plan has been approved by everybody, and the execution preference and timing, that's where we need to get better. But overall, frustration, yes, sometimes. No question about it. But this is not what drives the management of this organization. But we also need to work on obviously getting even closer as a management team and the new remuneration system, I mentioned it earlier.
Step by step.
I think it is an important step, even though when you talk to the folks in the brand days, not everybody is currently thrilled because there is more emphasis on the group. But only if we utilize the potential of the group, each and every brand will get to its full potential.
You say it is frustration, but look at it from a different perspective. Now, if we assume that this industry is changing in the way I tried to describe, so logic much more of a smartphone logic. Now they say you have, it is electric, it is updatable, gradable, always online. It is software-driven, communication plays a role, direct customer contact. So you say if we share that, and that will happen over the next 10 years or so. If we share that view, which company would be better prepared? Take away the governance issues, but which company would be better prepared? This will be a scale game. It will be driven by closeness and cooperation with technology. I think we have the best setup. We are strong in China, where this will happen first. We have very high energy and skill level in the engineering side.
If we now bundle software, if we now make MEB happen a worldwide game, and we follow up those. I take the startups very seriously, Tesla and so on, but they will also struggle to scale up. This new game is a scale game, and with 10 million cars, with one software stack, being always online, I think we have a good chance to succeed. I think there will be competitors, but they lack scale and energy and-
Switching, talking of energy, José, the microphone's yours.
José?
Thanks very much. José, JP Morgan. A couple of quick questions. Frank, can you talk a bit more about the framework to improve the profitability of Audi in the next 12 months, or improve the profitability to the higher end of the range, maybe 8%-10%? Second, for Herbert, can you just clarify again, on the summer update, would you be looking also to speak about Porsche and Škoda as brands and unlocking the value within those two brands? That would be something that I think shareholders would be very happy to hear about. Sorry, to come back to Ford, just one clarification there. Would you be looking also to potentially collaborate with Ford non-MEB, non-light commercial vehicles in Europe? Thank you.
The framework profitability, was that geared towards Audi or-
Yeah.
Audi. Audi. Yeah. Audi obviously was impacted quite severely by WLTP. When you take into consideration that more than 50% of Europe's EU5 business is fleet business, then you know that if you are not competitive in terms of what you have in those tenders, you are losing a lot of business. This is what did happen. The situation will improve. We have a better starting point in 2019, but obviously the first quarter still is being impacted. Audi, we have clearly laid out the plan. Bram and his colleagues will detail it in the sections on, I think, on Thursday and Friday. But we certainly have productivity and cost issues being part of it.
We have important launch activities ahead of us, but Audi is obviously quite heavily investing at this point of time in electrification and other technologies which are quite critical, including the PPE activities with Porsche. So it is a combination of, but the very most is doing the homework, and you will hear Bram and his colleagues talk about very specifically a very dedicated, substantiated program for the next couple of years, which are definitely needed to deliver a revised margin target of 9%-11%, but is also to secure Audi's superb position in most parts of the world. And you obviously read already a lot about it in German magazines. A lot of stuff is already being discussed. Not everything is signed and sealed, and therefore, it is important that we move fast on those items.
But we have full trust and confidence that the management with its partner will get ink under those necessary contracts, but it will not be without smoke.
Yeah. Unlock or unleash value in the company. Yes, we are considering, I think there are a few more obvious things to do. We have still valuable non-core assets which don't have many synergies. The synergies between Traton and passenger cars is limited, so we can do a lot. Sometimes it is underestimated how intertwined the Porsche business model is with the rest of the group. Porsche is depending basically 100%, or let us say 80% on Audi platforms, which they are using. They are depending on the relatively efficient manufacturing sites in Czechoslovakia.
So let us say the Porsche model, those, let us say 17.5% of return, is only possible within the group or with really long-term contracts and supply. The same applies to Škoda. Škoda is really an integral part. Škoda would not be able to develop a platform or maintain a platform. They are highly dependable on our worldwide organizations.
They are much too small to succeed as a worldwide brand. We see that in China, where Škoda is struggling. So yes, we are considering to lift value, but I think there are more higher priorities than to separate Porsche. Yeah.
Okay. Question there from the left, please.
Hi. It is Christian from Bankhaus Lampe. I would like to ask something on the announcement you made this morning. You are adding 20 new electric models down the road and expect to sell a significant number more. What is driving this? Do you see a broader market opportunity popping up, or is it really the regulation that you realized you need even more electric cars by then to fulfill the regulations? The question is there any economies of scale? You mentioned a little bit, I believe, in the presentation on the R&D for these additional models. What should we expect down the road? What additional costs will that require?
Yeah. We think that it is really that customer demand will be there. We have in certain markets, also incentive programs. Think about Norway, think about parts of Europe. We think that the product will be very convincing, and you will have a chance later to see a few of those models. I am sure that one or the other also in this room might consider to buy one of those instead of a Golf or so, because it is just a more modern product. It is roomy, it is connected. The product will be good. It will be attractively priced, and that is why we see that many people will change, and this will be driven from top-down from the premium then to the mass market, will change to electric cars.
Not everyone, no, because if you are still driving 500 kilometers every day or so, if you do more than 30,000 kilometers a year, it does not make sense. But for many people, and we look forward by 2025, 15%-20%. For many people, those new products make a lot of sense. They are sexier. From planning round to planning round, when people see the product, recently we had an event with our dealers, with our dealer body, German dealer body. Every planning round, the products goes up. So that we create confident. We think also when we come end of 2020, there will be a better infrastructure. You will see more cars driving around. The growth rate in China was 70% or so this year. In Europe as well.
Over 100%.
We could also see when we incentivized the electric Golf, which is a good electric car of today, but it is much inferior to what is to come. When we incentivized the Golf to get accessible below EUR 30,000, which was by governmental subvention and by ours, the case over a few months, people would even queue to buy the e-Golf. We couldn't deliver. We could have sold instead of, I think we sold 25,000, but we could have sold 50,000. That means if the price point is right, and even with 250 kilometers range, with no fast charging, with this relatively conventional product. I think people, the market are prepared to buy. The take up on the e-tron is really fantastic. People are queuing. Taycan, nobody has driven the Taycan. I did. They're all queuing up, and I would. I would.
Good to know.
It's really exciting, yeah.
Maybe Frank-
Hilarious.
Can we talk affordability? The R&D affordability, maybe a comment, and then we will move on.
I mean, obviously, when we talk about models derivatives, this is built in our plan. We obviously need to balance the act and the 6% are still-
Yeah.
What we aim for. I continue to say it's not a walk in the park, but that is the competitive level. Everybody else is climbing up. We obviously, we're far away from the sweet spot, so we need to climb down. And once we do that, and the others continue also to recognize that it requires technology, then we are going forward at a competitive level, which is what we need to accomplish.
Okay. Thank you. Max, you think you've got your hand up? You asked to speak to Dr. Diess recently, and here's your chance.
Thank you. Yep. Max Warburton from Bernstein. Two questions for Dr. Diess linked to one another. You mentioned a few minutes ago that you have this very influential shareholder. My first question is, when you talk to the family, what exactly are they asking you to achieve, and do they express frustration about your share price? Then the second question related to it, amongst all the interesting things you've said today, you just recently said you'd like to get the share price up in case you need it as acquisition currency. Is the family supportive of a big acquisition and using the equity for that purpose?
You know this, the family's wealth is depending on our share price. They are not very diversely invested, so they have a strong interest in their equity. And it requires, I would say, time because there are also emotional ties to some of the brands, some of the products. But basically, they have the same interest like any other shareholder. Probably a little bit more long-term, yeah. But they want to succeed in the transformations, they want to create, or they want to get higher evaluations. So they are supportive, yeah.
Maybe to add to it, a lot of questions, not all, but a lot of questions you are raising are being raised by exactly those family members. There is no disconnect.
So there is a chance.
Okay. Horst, here on the front, please.
Yeah, just two quick ones left. On the IFRS 16 impact again, you quantified the impact on net liquidity, but not the impact on D&A. So how much will the D&A increase due to IFRS 16? That is number one. Number two is on the BEV and MEB platforms, again, on profitability, you expect them to sell from the first minute at a profit? I mean, probably dilutive, but at a profit. Is that correct?
Yeah, that's correct. Yeah.
Okay.
Yeah.
Thank you.
On the depreciation question, we'll come back to you. I think that's an accounting one we'll come to.
IFRS 16 has two effects. One is a -EUR 5 billion on automotive net liquidity, and don't name me, I think -0.7 on ROI. These are the two implications.
Okay. Patrick, we skipped your second question earlier, so maybe if you want to jump in. Oh, maybe Philippe first, sorry, and then we will come to you, Patrick, and then I think that will be probably the end of the Q&A round.
Hi, it is Philippe Houchois, Jefferies. My question is, when I listen to you, I think you have said at some point, personal mobility is going to get more expensive, and you talk about also changing the role of dealers and selling-
Yeah.
...cars without dealers, et cetera. I am just wondering, you are a large multi-brand organization, and you are raising a lot of questions about the future of brands, and so what are you thinking? We have seen waves in the history of the industry where brands get killed, mostly in the U.S. There could be a wave of brand killing. I know it is a delicate subject, but is at least the thinking that maybe some of your brands need to be repositioned as mobility brands or that you cannot go on as this large multi-brand organization because eventually your branded market is going to shrink.
Yeah. We are reviewing also our brands' perspectives. Now, how many do we need? Which brands do we really need in the future? Which brands do we really have to transform fully into this electric world? Now, this is questionable by a very sporty brand like Lamborghini, for instance. Where do you put your effort in? We are doing that, yes. But still, we think that brand equity is one of our core value drivers. Brands will remain very important for customers. For China, we are so strong in China because our brands are there since a long time, and we are delivering. So we are reviewing our brand portfolio as well. Probably in, I would say, second half of the year, we can talk more about this.
Okay. I have got a good eye on the clock. Patrick, we are going to take the last question from you, and then I think we are going to close the Q&A session for today.
Very kind of you, Oliver. Actually, just following up on Max's question, I think you did not answer about using your stock as a currency for industry consolidation. I am just trying to follow up on that one if you have a few sentences on that. The question I actually had was for Frank. You have shown, Dr. Diess, the CO2 compliance cost by technology, and I am wondering if, Frank, you are willing to put a number behind in terms of EBIT impact. If we take 2018 adjusted operating profit as a base and then fast-forward to 2021, which is the photo finish year for European CO2 compliance. The CO2 compliance cost in the bridge, how much would that be to give us a feeling for the key bridge items? Thanks.
Honestly, I do not have a number. Just shooting from the hips. Obviously, all those CO2 measures are part of the targets we are guiding, but I would definitely need to do some maths because that is not the way we look at it. In terms of CO2 and the CO2 cost in every single product decision we are taking today. When we look at the profitability number, we have a number with and without CO2. We are taking fully into consideration the impact on our CO2 balance of each and every investment we are making. But in order to compare 2018 versus the future, I definitely would do some maths.
Herbert will certainly come back to your question, too, but from my perspective, do not get us wrong, that we are expecting an immediate deal here to be just around the corner in order to make our contribution to the consolidation of the industry.
No.
But for all the reasons you fully understand and the family and other shareholders too, it is essential to unleash the true value of the company, and it is the strongest argument you have to be attractive for investors, may it be equity or debt, and that is the main driver. But at the end of the day, you've seen the transactions where stock has been used as a currency. So don't get too excited or too angry, depends how you want to look at it. But it is just bloody damn important that we together are being successful, and we are working on all those elements we have under control, or at least we can drive to the places where decisions are being made, but from the same angle you are looking at it.
Yeah. Nothing to add. No, it is
Okay. At this point in time, I think I'm going to thank our speakers, Dr. Diess, Frank, Hiltrud, Stephan and Christian here to my left. Thank you all for participation. Thank you for those on the webcast and of course, for the team who have put all this together, both my team and the team here in the building here in Wolfsburg. So thank you all for participation today. Those of you who will stay with us now and take a further look into the MEB family, I would ask you as quickly as possible, grab your things, your coat, your bag, and head out to the bus, which is just standing at the back here, out through the door and to the left, and we'll make our way to the design studio.
Those of you not joining us, we wish you a good and safe trip home, and see you at the latest in the summer.
So enjoy the cars. Yeah. Thank you.