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Edited Transcript of VOW3.DE earnings conference call or presentation 30-Oct-19 8:00am GMT

Q3 2019 Volkswagen AG Earnings Press Conference

Wolfsburg Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Volkswagen AG earnings conference call or presentation Wednesday, October 30, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frank Witter

Volkswagen AG - CFO, Head of IT & Member of Board of Management

* Marc Langendorf

Volkswagen AG - Head of Corporate Communications

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Conference Call Participants

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* Christiaan Hetzner;Automotive News Europe

* Christoph Rauwald;Bloomberg

* Jan Schwartz;Reuters

* Joe Miller;The Financial Times

* Marco Engemann;dpa-AFX

* Markus Klausen;Dow Jones

* Stefan Menzel;Handelsblatt

* William Boston;The Wall Street Journal

* Yann Schreiber;AFP

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to today's conference call of Volkswagen AG on the occasion of the publication of the third quarter 2019 figures. Just for your information, this conference call will be recorded.

And with that, it's over to Dr. Marc Langendorf, the Head of Corporate Communications at Volkswagen. You have the floor.

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Marc Langendorf, Volkswagen AG - Head of Corporate Communications [2]

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Good morning, everybody. I would like to welcome you to our conference call this morning. Earlier today, we have reported our 9 months figures and the figures for the third quarter of this year. And now what we'd like to do is to give you some explanations on those figures. Joining me here today in this morning is our CFO, Frank Witter.

It was exactly a year ago that we organized a conference call for journalists on our quarterly figures. Generally, we have received very positive feedback. Many of you, we understand, appreciate that we explain you the figures early on as soon as they are posted. But you also told us that we could actually reduce, time-wise, the presentation of results and then rather keep more time for Q&A. And we're certainly happy to do that. We are not going to cover our sales part in greater detail. You've already received the unit sales figures a couple of days ago, and you know and understand how our deliveries to customers have developed over those past months. But you can also attend this conference call not only on the phone, but also on our webcast. And with that, it is over to Mr. Witter.

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [3]

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Thank you, and good morning to all of you. For Volkswagen, 2019 has been a successful year-to-date. After a very strong half year, in the third quarter, we did not lose the momentum. After 9 months, we see a clear positive result in terms of sales and income. Of course, compared to Q3 in 2018, which had clearly shown good marks on account of WLTP, we were able to bring this about despite of an economic environment which has become more challenging. The international economy has clearly lost the momentum or to put it in my words, the best of the party is over. The growth rate in GDP, both in industrialized and emerging economies are mainly below that of the previous year. The uncertainties are great. The Brexit, trade conflicts and the geopolitical challenges in the Middle East keep us busy every single day. Against the latter backdrop, we have postponed the final decision concerning the construction of our multi-brand factory in Turkey, and we observe the development -- we are observing the development with great concern. We do not consider alternative sites and different other countries because our worldwide production network offers us sufficient flexibility for alternative solutions. Hence, there is no decision-making pressure on us.

Global uncertainties increasingly encumber the automotive markets in all regions. The demand for passenger cars is declining worldwide. In the first 9 months, we had -- we could observe a minus of 5%. So under this declining overall market, the Volkswagen Group has performed well and increased its market share. In North America, Canada and Mexico, in particular declined in their economy. The market volume in the U.S. almost reached the high level of the previous year. In this region, we are particularly successful with our SUVs, the share of which in sales accounts for about 50% by now.

As expected, the total demand in Europe in the first 9 months, among others, on account of WLTP was below the previous year's value. As a whole, the WLTP topic was something that we coped with much better in this year.

In South America, the automotive demand declined in general. Particularly in Argentina, the deterioration of the overall economic situation had a very negative effect on demand. In Brazil, in contrast to this, the recovery of the market was continued with a high growth rate. The Volkswagen Group profited from this and was able to clearly increase both deliveries and market shares.

The region of Asia Pacific, the number of new registrations was noticeably below than of the previous year. One significant reason is the continuous uncertainty due to the trade conflict between China and the U.S. In this difficult environment, the Volkswagen Group was able to increase their market share in China.

All in all, Volkswagen performed well in this difficult environment, particularly the improvements in product mix and price, this gave rise to a situation that both earnings and income were considerably increased.

We're growing in the high-margin SUV segment. Worldwide, 1 out of 3 cars of our group are SUVs. From January to September, the brands of the Volkswagen Group only delivered marginally fewer vehicles to customers compared to 2018. On top of this, as explained, we performed better than the total market.

In Q3 for the first time in the calendar year, we slightly increased the deliveries compared to the previous year in absolute terms. However, the previous year's quarter was considerably encumbered by WLTP as mentioned above. Sales considerably increased with 11% up and where the Q3 with a growth of 11.2% was particularly strong. The operating result before extraordinary effects in the first few months increased with a [price] of EUR 1.5 billion, and clearly. And here again, the reduced incumbents of the WLTP had a positive effect in Q3.

In the last few months alone, we had in operating results raise up of about 37%. The operating margin could hence be increased to 7.9%, which means that after 9 months, we were slightly above our intended target corridor for the whole year. However, in Q3, we also had special items in the context with the diesel issue. With EUR 275 million, they are clearly below the EUR 800 million level of the quarter of the previous year. In total, the negative special items in 2019 accounted for about EUR 1.3 billion after EUR 2.4 billion in the previous year's period. Our R&D ratio in the reporting period increased from 6.6% to 6.8% as expected. Also, CapEx clearly increased by 4.2% to a level of EUR 8.2 billion.

Let me now talk about the main development with our brands. Volkswagen passenger cars after 9 months is still performing well. We've seen clear increases both when it comes to sales and profits. Now this is also first and foremost thanks to improvements in terms of the product mix and pricing. In the third quarter, the operating profit before special items compared to the previous year has more than tripled and is now EUR 866 million, which shows you that we're making good progress towards our targeted profit margin.

Now in terms of Audi, despite all the efforts undertaken by the team, we cannot be quite happy with the results there. The WLTP effect, also charges related to model launches and model phase-out and higher upfront expenditure have left their mark on our profit and loss account.

Now Porsche, after the first 9 months of the year continue to be in excellent shape. Sales revenue has gone up by 6.6%. The operating profit is about at the same level of the previous year. The operating margin is 17.1%. Negative exchange rate effects and cost increases were contrasted by improvements in product mix and volumes.

The increase of unit sales and turnover at Škoda resulted, first and foremost, from the first time consolidations after Škoda has taken over responsibility for the region of India. The operating profit grew less than sales, which means the margin has shrunk.

Now SEAT has increased sales revenues from an already high level in the past year by 14%; profits also, thanks to volume and product mix, increased by 4.2% and is now EUR 248 million.

Volkswagen Commercial Vehicles increased its sales revenues to EUR 8.8 billion. The operating profit comes in at EUR 497 million, which is below the prior year. This is due to costs related to fixed expenditure and development for new products, but also limited availability of engineered gearbox combinations.

Volkswagen Financial Services in the first 9 months of the year has developed very positively an operating profit of EUR 2 billion; means that financial services continues to be in a very important revenue stream and a strong partner for our brands.

So ladies and gentlemen, despite the increasing economic headwind, we are confirming sales and profit targets for the overall year of 2019. We continue to assume that sales revenues will be increased by up to 5%, and we expect an operating return on sales before special items within the target range of between 6.5% and 7.5%. So while we are growing our market shares, we cannot ignore the fact that vehicle markets in many regions of the world are shrinking faster than originally expected.

Now when it comes to deliveries to customers, we expect challenging market conditions, and therefore, those levels will remain on the prior year level. In the past, we assumed that those would increase compared to the prior year. But generally, let us say this, Volkswagen is successful even in those stormy waters. We continue to grow. We are growing even -- our profits even more significantly, and we are confirming sales and operating profit targets for the ongoing fiscal year. As far as our guidance for the next years is concerned, I'd like to refer you to the 18th of November, when we'll be talking about our new 5-year plan.

So that is what I wanted to share with you at the top, and it's back now to Marc.

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Marc Langendorf, Volkswagen AG - Head of Corporate Communications [4]

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Thank you very much, Frank. Now before we take your questions in a moment, I'd like to briefly give you a rough overview of our upcoming dates that are important. Now on the 15th of November, we have a small press talk to talk about the results of our planning Round 68, which will be the Friday afternoon, and you can expect invitations to be sent very soon.

Now there's another special highlight, which is on the agenda very soon. On the 4th of November, we'll be celebrating the start of production of our ID.3 model in the car plant at Zwickau with a large ceremony, where also the Federal Chancellor will be present as a speaker. The annual press conference of the Volkswagen Group will take place on the 17th March 2020, followed by the brand of Volkswagen a year after that. Our Annual General Meeting will be held on the 7th of May next year. And all of these dates, you'll also find in our financial calendar when you check our website.

So much for that. Ladies and gentlemen, thank you very much, and we're now looking forward to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is asked by Christoph Rauwald from Bloomberg.

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Christoph Rauwald;Bloomberg, [2]

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I have a short question concerning the presentation. This refers to the evaluation of strategic options for the power engineering sector. Could you give us an indication within what period of time we can expect a decision in this respect?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [3]

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Mr. Rauwald, well, as announced, for the 2 power engineering units which have been combined, we're looking for strategic options. We're doing this without any hurry and with great care, because it is not just a question of selling power engineering units, but we would like to probe the ground in order to find out what possible superior strategic options exist in [the one outside the combination]. So we haven't set any deadline to this process. So I can't give you any time indication, but we, of course, are working on this. We work -- continue to work on this, but I can't give you any final date. We are in the process of trying to explore the situation, and we do not have any information as yet to share with you.

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Christoph Rauwald;Bloomberg, [4]

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Maybe you can give us an indication as to how many interested parties have communicated their interest?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [5]

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Well, I can't give you -- I wouldn't give you a figure, but sufficient, there were sufficient requests as a matter of fact.

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Operator [6]

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(Operator Instructions) Next question comes from Marco Engemann from dpa-AFX.

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Marco Engemann;dpa-AFX, [7]

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Two questions, if I may. Mr. Witter, in the EPM, you mentioned that derivatives had an influence on the operating results. Can you tell us how -- what the effect was in Q3? I remember that in Q1, you said EUR 4 billion. And the special items for diesel, EUR 275 million. Can you give us an impression as to what this is about? Are these legal defense costs or it does have to do with recalls?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [8]

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Special items and the diesel issue, basically, this refers to the topics of Australia, U.S. -- the U.S. and Canada. This will be entirely in the context of the diesel issue.

As regards the breakdown of the valuation effect under IFRS 9, here we will have to check this up against the 500 year-to-date, as a matter of fact. We, of course, did not mention this because of high volatility, and we wanted to make sure that the result will be fully transparent. But of course, there will be fluctuations and whether this positive effect will remain after the end of the year or not or whether there may be even a negative effect is still open. We depend on the market development here in this respect. We will come back presently to what happened in Q3 because the volatility has been with us for the whole year, but I will comment on this presently.

Well, I can do it right now. My colleagues have been very fast, and they gave me that information. We're talking about EUR 400 million in Q3, after in Q2, we were at minus EUR 300 million. So this shows you what major volatility we're facing here across the different quarters. And in many ways, this is in line with what we expected. So EUR 400 million positive figures. These are commodity derivatives, mind you, in Q3.

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Operator [9]

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Our next question comes from Christiaan Hetzner from Automotive News Europe.

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Christiaan Hetzner;Automotive News Europe, [10]

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I have a variety of questions, I must say, but maybe I come back later on during our conference call. Now let me start with those 2 first. First one is on the multi-brand factory in Turkey. Can you share some insights in some greater detail, what currently is the state of play? So why are you saying you're putting the decision on hold knowing full well what the situation in Turkey is like and this, mind you, hasn't changed over those past weeks?

Now the region is what it is, the situation there, and I don't think that this will massively change in the foreseeable future. So you're either asking the question, let us quit, let us withdraw from Turkey or maybe the military campaign is irrelevant. It's only a visual blemish for us to announce such a decision just after the military campaign by Turkey in the area. Now there are reports that Slovakia, possibly vehicles can be built, but on the other hand, you would have to take vehicles out of the Bratislava plant to account for those 250,000 that you're looking at in capacity. So the upshot is, can you share some insights in your decision-making processes there, that would be appreciated.

And my second question, the reports of a potential merger of PSA and FCA have been confirmed. Would you welcome, endorse such a merger in order to get more pricing discipline in the European markets?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [11]

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Mr. Hetzner, well, if you have a more colorful bouquet of questions, I'm certainly happy to come back to those later on. Your first question on our multi-brand factory plant in Turkey. Let me put things into perspective here because whatever decision is taken on a new factory, you are not just looking at the short-term horizon, but rather, you look forward 20, 30 years. It is very much long-term intentions when you develop a new site.

Now for such decisions, this is precisely what we do. This is a major driver. Now why do we put it on hold? Well, we do, because like all other people, we are currently monitoring the situation. We're observing it in that region. So that causes great concern, and we're obviously focusing on people that are affected by what is going on there.

But let me say this again. The Turkish market is an important one for us in Europe. It's a large market. And you can be very controversial about seeing this or that. But if ever that investment goes through, it would contribute a major stability driver in a region that is not an easy one. Because you know that we are acting according to Volkswagen Standards globally, and I believe that our standards and the way how we deal with our employees, we certainly have something to show and a good track record.

Hence, putting that decision on hold I think was a right one. And I said earlier that we are currently not under immense pressure to bring about a decision right now. And also we have said before that we're currently not reviewing any alternatives for a new production plant, except Turkey, that is. But of course we are an international, a global multi-brand group of companies, so therefore in existing plants that we have, there are a number of options. You just mentioned Slovakia as a case in point. We have other production facilities as well. And it's true that we are thinking about a number of options. But once again, the decision has been put on hold. It has not been canceled.

Now the PSA-FCA merger that has surfaced today, it's not a new discussion, let me say that and there can be consolidations in our automotive industry. And often, we have been talking about the ongoing transformation and what challenges that means also in terms of carbon compliance. So it shouldn't come as a surprise to anybody that there are talks ongoing between different players in the market. And it's not for us to say, and I'm not going to say anything here to vote in favor or against that.

So clearly, every OEM will decide on their own what the right decisions are. And you also know full well that we have positioned ourselves really well early on. We believe that our portfolio, our network of multiple brands, but also the sheer volume, the size of our company gives us the critical scale in order to embrace this transformation. And this is true for technical competence, on our hardware side, our MEB, our MQB are just 2 cases in point, which help us to position ourselves really well. We have powerful platforms to do what we want to do. And when it comes to software, we also have announced that this is going to be 1 of our 5 strategic modules.

We are going to be a software-enabled company. Alongside our current capabilities, we will literally put some more gas on and others will be pursuing a different avenue, possibly.

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Operator [12]

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(Operator Instructions) Our next question comes from William Boston from The Wall Street Journal.

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William Boston;The Wall Street Journal, [13]

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I have a question on Fiat and PSA. What would the impact be on your collaboration with Ford? Now in that environment, which seems to trigger a wave of consolidations now, could you see your relationship with Ford to become tighter? I mean still in the U.S., your market share is relatively small. And now you're going to face a potential new European competitor that has a very strong foothold in the United States with FCA. Now wouldn't that mean that Volkswagen gets pressurized by that in the United States?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [14]

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Mr. Boston, I talked about PSA and FCA just a moment ago. I don't see that this will impact our cooperation project with Ford. Why? Because with Ford, we are focusing on 3 important modules, which is light commercial vehicles, which is autonomous driving and which is also our collaboration with Argo. Our MEB, our technology platform for electric vehicles in the high-volume segment, this is something that Ford is interested in. We are also collaborating. So these are the pillars that we base our cooperation on. And in the earlier press releases, we've said any capital involvement or capital stakes are not part of our collaboration, are not intended. So with that, you rightly have pointed out -- have rightly pointed out that the market share of VW passenger car in the United States is relatively small. Now within our brand, we are focusing on minimizing the losses that we've done in the past, and in fact, neutralize them by 2020 to achieve a breakeven by next year. So we're working on that. So my clear answer would be, no. It has no impact on our collaboration with Ford or any other strategic considerations after the PSA FCA talks.

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Operator [15]

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We now have a question asked by Jan Schwartz from Thomson Reuter.

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Jan Schwartz;Reuters, [16]

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I have 2 questions. First of all, I would like to know, Mr. Witter, what the start of Q3 was -- Q4 was like -- correction Q4? The background is that possibly in a view of the deteriorating outlook in the automotive economic cycle, we may expect further correction for the guidance for the sales figures. And last question on the Planning Round. Concerning a mid-term goal until 2020, and analysts expect that you will have to readjust this a bit taking -- that has to do with the enormous increase from 2016 to 2020 for sales here, I think we would have to be a bit more conservative. Can you give us an impression as to what your plans are in this respect?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [17]

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Mr. Schwartz, as regards Planning Round 68, I should like to again ask you to bear with me because I have to respect our Supervisory Board, since we have to present this to the Supervisory Board meeting on the 15th of November. And after November 18, we'll be able to give you a more detailed information.

2020, yes, I know what you referred to, within the Planning Round 67 for 2020. Here, the targets were presented, and I cannot rule this out because certain parameters have changed, but we will report about this on November 18 in a more definite manner, where we will present the quarter for the next year. And then the targets will be rendered more concrete.

One thing is clear and I think that much I can say about the Planning Round 68 at this point. Within the scope of the budget discussion, we will have to take account of the latest developments as all other players also have to do. But we have a good basis, which we have created with our 9 months figures. And experience has shown that normally, the world does not start from scratch, as per the 1st of January -- 1st of September, rather, and we are working very clearly, observe what's happening outside in the world. And we are working with great pressure [more] improvement programs in the brands in the group.

You always ask about Q4. Well, we explicitly -- and here I talk about the pretax result, this corridor from 6.5% to 7.5% was confirmed. And if I take a look at the October figure as we have them now, there is no reason to deviate from the forecast of consolidated result. So the base is 14.8% -- EUR 14.8 million, rather, and the margin of 10.1 -- 10.9% for the first 9 months is relatively stable, so that we can expect that we will not leave this corridor. And certainly not in a downwards direction, as you referred to. So we're quite confident and have confirmed this. But business will not be easier. And if I take a look at the present fiscal when more than 1 year ago, we planned for the fiscal 2019 as any other player in the industry, we were much more optimistic. Just to give an impression, concerning the production in 2019 about 900,000 units were taken out of the production planned figures compared to what we have expected for this fiscal originally. This had to do with the underlying general conditions, and the outlook ahead certainly still has one who got the question mark. But if you're good -- have good products and strong brands, of course, you are well aligned, and that is what I would also say concerning the first 9 months.

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Operator [18]

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Our next question will be asked by Markus Klausen, Dow Jones.

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Markus Klausen;Dow Jones, [19]

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Mr. Witter, I would like to check back concerning your forecast for the total year, 7.9% you have attained now, 7.5% is the upper end. Is this too conservative? Or are you simply a bit wary, or overly wary concerning the fourth quarter? Can we take it that the upper end of the forecast will be reached?

Second question, the share of SUVs. Can you give us the percentage for the third quarter compared to the previous year for the group?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [20]

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Well, whether the 7.5% will be the upper end of the corridor, whether this will be too conservative remains to be seen. Here I would like to refer the volatility and the derivative valuation, which cannot be predicted, which will have a 1:1 effect on the operating results. So it could be a positive to 500, but it can also turn around very readily. I gave you a first insight as to how these figures from Q2 to Q3 have changed and moved. Of course, we had a guidance also for CapEx and investment in PPE. And here, it also became clear that in absolute terms, we will incur higher development costs, in particular. We take it that the corridor of 6.5% to 7.5% for CapEx and R&D can be adhered to and can be maintained. But the absolute figures will be higher, that again is an encumbrance. For those who have a liking for heavy commercial vehicles, it is not a secret that the order intake are developing in negative terms worldwide. This is another factor which must not be underrated in our situation.

Concerning the profit development, concerning light commercial vehicles in the course of this year, you could also observe that as regard the registrations of commercial vehicles, we have had WLTP 1 year later, but of the same color, so to speak. But we can also -- we also have to mention that we have major startup reductions for the Golf and the ID family, which also has to do with SOP and launch costs. I don't want to be overly negative and pessimistic. I'm quite confident that we'll reach -- we'll be stay within the corridor at the upper end, but within this environment, many colleagues had to amend their forecasts. I do not think that if things turn out better because many things depend on factors that we cannot control, we will certainly accept them, but everything else would be overly optimistic.

Concerning the -- that on the basis of the present situation. Then you asked about SUVs. Here I only have figures concerning the share of the first 9 months 2018 compared to the first 9 months 2019. So it's about 24% to 33%. That was the increase. But I don't have the quarterly figures, but we could supply this subsequently. But you will see that one of the driving factors was the improvement in our product mix, which we have already presented. So that was amazing driver in terms of the sales development, but also in terms of the operating results.

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Operator [21]

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Now let's move over to a question from Joe Miller from the Financial Times, please.

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Joe Miller;The Financial Times, [22]

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Actually, I'm just wanted to revisit the decision on the factory in Turkey. I'm wondering why that was (inaudible) the electrification (inaudible) a slowdown in those plants if you don't identify an alternative to Turkey or don't make a decision on Turkey soon? Another question is, you noticed -- you noted the disappointment at Audi again. I'm wondering whether that makes a spinoff of Lamborghini any more enticing.

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [23]

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We have agreed with our interpreters to answer in German, and you get the English translation. Now the phone connection was really bad, so we didn't quite understand what you said. With Audi and Lamborghini, I caught that in your question.

Now the disappointment of Audi is in inverted commas. So this is -- I wanted to be understood. If you look at the numbers of Audi, you could actually see that they're performing really well competing with others. Now for everyone, for all our OEMs in the luxury segment, the market situation at the moment is not an easy one, as you will realize, and therefore, we must recognize how focused the entire Audi team was and how well they have performed in those rather difficult conditions. So when it comes to some market speculations of whether or not one or another brand will be sold or not this, I think, is nothing I can comment on. And generally, we are not commenting any rumors out there in the market. There's a clear plan that has been announced by Bram Schot, and Bram Schot and his team is going to drive that forward. They're negotiating also with the social partners, so the labor side. But I'm very confident that the Audi team will turn that plant into good effect.

Now the other question on the Turkey plant. As we've said before, this has been put on hold for the moment. And of course, we're thinking about alternative scenarios. But as I just said, we are under no pressure at all when it comes to timing, so the plans for our Emden factory have not changed. We're not cutting back on any of our plans, so the existing plans remain in action. And in -- whenever that is necessary, we will reassess the situation. Possibly also when there will be positive developments in the regions that we have talked about. Back to the operator, please.

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Operator [24]

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Now here comes a question by Stefan Menzel from Handelsblatt.

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Stefan Menzel;Handelsblatt, [25]

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I'd like to follow-up on Audi as well. There are 200,000 cars and this car minus is actually quite something. Now does that mean you'll have to make even deeper cuts now at Audi? And how do you want to make sure that the big plans of Neckarsulm and Ingolstadt can be guaranteed with those shrinkages? I mean can you at least give a hint of what to expect at Audi?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [26]

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Mr. Menzel, let me explain the Audi result again. In our guidance for 2019, together with our colleagues, we have always said that the first half year of 2019 will have still some ripple effects from WLTP. And then the second half of the year will not be affected by WLTP that much. And this is precisely what we have now observed in the third quarter. So all I can say is we believe that the negative deviations that you've seen in our charts there on -- in a comparison to the previous year, will not be that pronounced going forward. So those gaps -- I mean also with the operating profits, those gaps will narrow. So it is just over the course of the year between the first and the second half of the year, we will see some improvement.

And let me remind you that also in terms of Porsche, the first quarter this year was for Porsche, very much below the prior year. So our capacity utilization in our factories, I talked about earlier, the Audi plan. And there, of course, capacity utilization is part of our discussions in that Audi plan, and I don't want to preempt discussions here at all. So those talks are still ongoing. And it's not for me now to make another contribution or to comment. But again, of course, those 2 main plants are part of what we are currently discussing when it comes to factory utilization. And in some segments, obviously, with model changes, we need to address a number of things and our colleagues are precisely doing that.

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Operator [27]

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(Operator Instructions) Next is Marco Engemann from dpa.

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Marco Engemann;dpa-AFX, [28]

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Mr. Witter, you said before that the economic party is over. And you also said something about order intake in the heavy trucks business. Now Daimler has certainly cut back on its expectations for this year. And I understand that Daimler is working in different markets as well. But still, they also have margin problems here in Europe. Now do you see a similar picture within TRATON? Or do you think that business is going well in TRATON? And there's a question that others have asked before. What about the interest in the PPA platform with Ford? Do you think there's anything you can comment on?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [29]

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Mr. Engemann, now Ford, with Ford, we're talking about the MEB platform, the modular electrification system. And the question is, are we going to put one hat or 2 hats, body styles on top of that. But again, it's MEB. And in terms of trucks, commercial vehicles, TRATON in the first 9 months, you have seen has developed well. But clearly, the dynamic of order intake is not disconnected from the general market developments in that industry. Now when it comes to Europe, as we are talking about here, that picture is a very specific one because in Northern America, we only have a marginal footprint. So yes, these are significant drops, double-digit percentage losses we're seeing there. And therefore, it makes it all the more important to consolidate and start the new truck generation with Scania and MAN is also going to launch their new truck in the next weeks and months. So it is true that the general picture for all truck makers here in Europe is a bleak one.

As far as the party is concerned, I said the best bits of the party are over, not -- didn't say that the entire party is over, and I don't want to be too subdued at all. And in fact, the chart that we've been showing you earlier here as part of that webcast as actually shown you that, of course, the nicest or the best bits are over. Why? Because we've had a prolonged phase of sustainable growth in the past years. So those growth rates are gone. But that doesn't mean that we're now in a situation where you should become frustrated and therefore, relating to the earlier 9 months, I think it's still in line with my earlier picture that I've drawn.

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Marco Engemann;dpa-AFX, [30]

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Well, can I still follow up on that. Now I've talked about PPE earlier. This is the Audi and Porsche platform. Therefore, my question is, are you talking to other partners as well? Are you going to share the PPE with other OEMs, perhaps?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [31]

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No, we're focusing on ourselves. There's no names that I could possibly announce here. I wouldn't per se rule that out, but there's nothing at all where I would be able to give you any short notice information.

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Operator [32]

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Next question comes from Yann Schreiber from AFP.

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Yann Schreiber;AFP, [33]

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I wanted to ask the following question. In a market environment which is declining, do you think that the sales and e-mobility will be impaired by this? Or what is your planning in this respect?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [34]

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Well, this is a very exciting question. Independently of the economic development, we can say that this is a question -- here, we're talking about the volume segments, which will be important here. Although we are very happy about the order intake and the take on, for example, also at Audi with the e-tron, the question is that for us as a volume producer, the ID.3, and the volumes will be the decisive factor. So and that just cracked one of the exciting questions which have been discussed at length in public is whether the customers, the public will accept these vehicles. We are absolutely convinced about the product and the dealers have given us the feedback. We have also received already first customer feedback. So it is very convincing. It's quite impressive, and I'm convinced that the ID.3 in particular, we mentioned the fact what could start the planning side as a hybrid in the U.S. and the -- as an effect by which is turned out against the classical vehicle concepts, this gave us the euphoria in the United States, particularly on the West Coast. And I could imagine that this (inaudible) that will come later in the pipeline will find people who like them, although not everybody would immediately be ready to change over to -- switch over to E-cars. This will develop over time. So I would rather like to focus on this discussion for the time being, not the question as to whether we are in an overall economic situation which is just growing more slowly or faster. So I think that should be our main focus. But to state it very clearly, the world is not just black and white. It's not just electric, (inaudible) that count, but we have a small portion in 2019, which would still be below 5% for 2020. In view of the number of fully electrified cars sold as a share of our overall sales units from our factories. So I think that the economic development will make much of a difference in this respect.

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Operator [35]

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The last question will now be asked by Christiaan Hetzner, Automotive News Europe.

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Christiaan Hetzner;Automotive News Europe, [36]

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Two topics I would like to touch upon. First of all, autonomous driving. Maybe, Mr. Witter, you can give us an impression as to how much start-up capital will be invested into the foundation of this new subsidiary? After all, you have EUR 3.1 billion to invest it in Argo AI. So when will level 3 come at the Volkswagen Group. Audi has developed the A8 now. But to date, we do not have an indication as to when this will be released, we'll be given the go ahead and it may be done.

Secondly, as regards the Golf diesel, there's this twin dodging system with which is just marketed. You have already added in the Passat facelift. You have it in the market since September. Can you give us first impressions and first indications as to the [system performance] which will have a reduction of NOx emissions of 8% or even more and to what -- whether this would then given the right decision whether this can be further expanded in the market?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [37]

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Yes, so we're talking, again, as promised. Well, when will autonomous driving be ready on a broad basis. This is one of the most exciting questions. We all agree in our industry that it will be rather later than sooner, later than optimists hoped 2 to 3 years ago. Because these are highly complex topics that need to be taken into account, the legal framework, the legal conditions, but also technology and the software stack. You also referred to the figures that were published. So these are investments to tune of billions. So I think the approach to be committed together with Ford at the Argo is the right approach.

So we share this development expense, so to speak. And I think this is a meaningful and correct step, which was also adopted by the Board of Management and Ford obviously has taken a comparable decision in this respect.

As regards the diesel situation, the figures that I saw recently were the following: Here, the share of diesel stabilized and diesel side, the increase in the key countries of EU5, in absolute terms, they are below the levels of the level of 4 to 5 years ago. But in the key markets, this has stabilized, which presumably will have to do also with the increased share of SUVs. And this development is not a complete surprise. It may vary, of course, from model to model.

As regards to the Level 3 question, Audi, here honestly, I have to tell you that we will have to check back. I don't have any further information available here right now. And I'm not sure to what extent Audi is willing to disclose this to the public already. So as regards the diesel development over the past few months, has stabilized.

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Christiaan Hetzner;Automotive News Europe, [38]

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Back to the question of investment in Volkswagen autonomy, the new subsidiary, the Volkswagen subsidiary. Could you give us an impression as to what the capital amount could be?

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Frank Witter, Volkswagen AG - CFO, Head of IT & Member of Board of Management [39]

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Well, I think the figure was about EUR 2.6 billion, that was an order of magnitude, a ballpark figure. Christiaan, I will come back to that later. As regards the capital injection for the autonomy, we didn't say anything to put this very clearly. This is the company which would test and validate the solutions, the SDS solutions, which Argo, if this will come to be, because there's some regulatory obstacles to overcome, will test and validate. And the size of the team of autonomy will amount to 200 roughly. But as we got the capital expenditure, we haven't said anything. So it's an interim company. So it's not a major subsidiary now.

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Marc Langendorf, Volkswagen AG - Head of Corporate Communications [40]

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Very well, ladies and gentlemen. In that case, I would like to thank you all for having attended the conference call today. And I think many of you, we will meet again on November 4 in Zwickau for the SOP of our ID.3.

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Operator [41]

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Ladies and gentlemen, this concludes today's conference call. Thank you very much for attending, and we wish you a pleasant rest of the day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]