Volkswagen: Capital Markets Day 2023

Return to: Volkswagen

On June 21, 2023, Volkswagen Group held its Capital Markets Day. The company discussed many things that range from leadership to brand strategies. Below is a summary of what was discussed.

Key Points

• SSP architecture expected to be achieved in 2026 will ensure margin parity in most vehicles and will reduce charging time to 12 minutes from the current 35 minutes under MEB platform.
• Volkswagen will focus on value over volume.
• New leadership principles focused on team spirit, enterpreneurship and customer orientation.
• Volkswagen aims to grow its revenue by 5-7% annually until 2027. Thereafter, growth rate will be in line with the industry standard.
• The group return on sales is forecasted to grow from 8.1% in 2022 to 7.5-8.5% in 2023, 8-10% until 2027 and then 9-11% from 2027 onwards until 2030.
• The group transferred the responsibility of achieving its target to the brands.
• The group’s investments will be reduced to around 11% of revenue by 2027 and 9% of revenue by 2030 from the current 12% of revenue (between 2023 and 2027).
• Aims to achieve dividend payout ratio of 30%.
• Aims to achieve PowerCo operating profit break-even by 2029.
• Aims to achieve CARIAD operating profit break-even by 2027.
• Volkswagen will employ best-owner principle as a guiding element.
• No IPO planned at the moment.

Leadedership

(From min 0:06)

• CEO Oliver Blume spent some time discussing new leadership principles focus on team spirit, enterpreneurship and customer orientation. Blume wants to give his management more entrepreneurial freedom, while holding them accountable and giving them an option to participate in the companies success.
• He noted that the new team is young. On average, board members have been in office for two years.

Group Financial Targets

(From 2:00)

• Volkswagen aims to grow its revenue by 5-7% annually until 2027. Thereafter, growth rate will be in line with the industry standard.
• The group return on sales is forecasted to grow from 8.1% in 2022 to 7.5-8.5% in 2023, 8-10% until 2027 and then 9-11% from 2027 onwards until 2030.

	2022	2023 Guidance	Mid-term 2027	Strategic Target
Group revenue	€ 279.2bn	307-321bn	5-7%	in-line with industry
Group Operating Profit	€ 22.5bn
Group Return on Sales	8.1%	7.5-8.5%	8-10%	9-11%
Automotive Investment Ratio	13.7%	~14.5%	<11%	~9%
Automotive Cash Conversion Rate	28.9%	~35%	~60%	>60%
Automotive Net Cashflow	4.8bn	6-8bn

Market Share

• The group refined strategies for its most important markets, Europe and China.

China

• Volkswagen strategy in China is to focus on customer needs through localization. In short, In China for China!
• Below are the current challenges and strengths it faces in China.

Today's strengths	Today's challenges
Volkswagen group is number one in china in terms of market share	Strong BEV competition
Volkswagen premium group is number three in China in terms of market share	Growing number of tech competitors with digital ecosystem
Volkswagen Luxury is number one in China in terms of market share	Slow in terms of agility and execution speed
Its parteners have leading customer base and fleet
Its technology and image is advantage in the ICE space

• Oliver Blume noted that they take seriously the claims about force labor in Xinjiang factory in China and will aim to create as much transparency as possible. He noted that an audit on it is expected to commence in October 2023.

Global Market Share in 2022

Country/Region	Market Share
Europe	23%
China	15%
South America	13%
North America	5%

Brands

(From 1:22: 2:10)

• As part of strategic reallignment, the group assigned the responsibility of its targets to the brands. Therefore, each brand is coming up with its own performance program for the first time.
• Sustainable value creation will be based on prioritization of value over volume.
• The reallignment will in future create new designations for Volkswagen brands which will include Core, Progressive, Sport Luxury and Trucks.

Brand Group Core (SEAT, SKODA, CUPRA, Volkswagen Commercial vehicles)

Targets

• Aims to increase return on sales from 3.6% in 2022 to 6.5% by 2026 through cost initiatives, product positioning and structural synergies.
• That will see earnings improve by around 10 billion euros annually.

Current Strengths and Weaknesses

Strengths	Challenges
Leading market share in Europe and China	High cost and asset intensity
Large fleet and global client base	High competition in BEVs and SDV
Strong brand	Limited brand differentiation

Brand Group Progressive(Lamborgini, Audi and Bentley)

Performance Indicators

key Performance Indicator	2022	Mid-term 2027	Strategic Target 2030
Sales Revenue	€62 bn
Return on Sales	12.3% 10.5% after special items	~12%	~14%
Cash Conversion Rate	64%	~75%	~75%
BEV penetration	~11%	~40%	~75%

Current Strengths and Weaknesses

Strengths	Challenges
Strong performance track record	Have not fully realized the potential of Audi
Leading share in target markets	Re-balance regional presence

Brand Group Sport Luxury(Porsche)

key Performance Indicator	2022	Mid-term	Strategic Target
Sales Revenue	~€35bn
Return on Sales	18.0%	17-19%	>20%
Cash Conversion Rate	60%	>60%
BEV penetration	~11%	>50%	>80%

Brand Group Trucks

Targets

• Return on sales target of 9% by 2030.

Current Strengths and Weaknesses

Strengths	Challenges
Strong brands	Have not realized the potential of brand collaboration
Cover the largest regional profit pools	Have not transition to sustainable transport
State-of-the-art technology and products	Brand margins and cash flows have not improved

Volkswagen Financial Services

• Aims to achieve operating profit of €4 billion in the medium-term.
• Aims to achieve strategic target operating profit of €5 billion.

BEVS

• Have secured until 2030 up to 30% of all critical BEV raw materials(minute 0:45).
• Aims for up to 80 BEV launches until 2030(minute 1:11).

Realigning Technology Platforms

(From minute 0:38)

PowerCo

• Ramp-up of Powerco will provide Volkswagen group with the highest flexibility and competitiveness in North America and Europe through the Unified Cell.
• Unified Cell is a unit cell that is arranged according to performance segments.
• Volkswagen Group expects Unified Cell to power up to 80% of all BEVs in 2030.
• Once ramped-up, PowerCo is expected to achieve -30% capex per GWh versus state-of-the-art factory.
• Sees PowerCo as a tangible option from 2027.
• Forecasts more than 450 GWh Volkswagen Group demand in 2030, approximately 50% will be provided by PowerCo.

PowerCo Strategic Targets

	Strategic Target
Sales Revenue	> € 20 bn
Operating Result	>10%
Operating Profit Break-even	2029
Cash flow Break-even	2030

Charging Points by 2025

Region	Number of Charging Points
Europe	18,000
China	17,000
North America	8,000

CARIAD

(From minute 0:49)

• CARIAD is being restructured to make it a lean internal software for all the brands.
• Some of the restructuring initiatives involve a change in management team.
• A lean CARIAD will facilitate the launch of the all-electric Porsche Macan and the Audi Q6 e-tron on the new premium platform E3 1.2.
• The next generation E³ 2.0 will be developed using a new structure that will involve collaboration of teams from CARIAD, VW and Audi.

CARIAD Status Quo Assessment

Strengths	Challenges
Scale of Volkswagen Group	Unattractiveness of its software features
Regional partnerships eg with Horizon Robotics	Lack of in-time delivery at competitive costs
Its talent base is growing	Lack of allignments of requirements across brands

CARIAD Strategic Targets

	Strategic Target
Sales Revenue	> € 4bn
Operating Result	>10%
Operating Profit Break-even	2027
Cash flow Break-even	2028

Path Towards One Architecture

• Blume noted that architecture cover around 75% of all material costs for BEV versus around 10% for ICE; hence architecture will be a key driver of profitability in future.
• Software 2.0 and electronic architecture will enable hands-free driving of up to level four.
• Blume pointed out that SSP large-car components used by Bentley, Audi and Lamborghini will be shared by 14 models; hence targeting around 1.4 million combined vehicles until 2030. This will result in addition of up to 150 billion euros in sales revenue and margins of more than 20% due to scale effect.
• With SSP, VW will reduce capex by up to 30% compared with MEB.
• MEB+ and PPE will have level two hands-free driving but with eyes on.

Dimensions	MEB	2024+ PPE	2025+ MEB+	2026+ SSP
Main Segments	A-B	B-D	AO-B	AO-D
Engine Power, KW	110-220	140-700	110-290	120-1,300
Charging Time, min	~35	~21	~20	~12
ADAS	Up to L2+	L2++&More	Up to L2++	Up to L4
Margin Parity	Some	Selective	Selective	Most

Investments

(From 2:20)

• In the medium term and once combustion technology has been phased out, the company's investments will be reduced to around 11% by 2027 and 9% by 2030.
• Below is the breakdown of investments(€ 180 billion) between 2023 and 2027.

Area	Investment
R&D	9%
Competitiveness	1%
Batteries	1%
Strategic areas eg growth of North America	1%

Equity Investment

(From 2:25)

• € 15 billion in book value.
• More than €250 billion non-controlled book value.
• Volkswagen will employ best-owner principle as a guiding element.
• No IPO planned at the moment.

Dividend Target

• Aims to achieve dividend payout ratio of 30% (From 2:42)