Q & A Highlights

Q: Where do you see the biggest cost competitive interest compared to peers, and what margin uplift are you aiming for with restructuring measures? Will these measures impact the ability to pay a dividend in 2025? A: The target for the Volkswagen brand is a 6.5% margin by 2026, with a sequential goal of 8% for Brand Group Core. The original improvement program was EUR10 billion, but due to deteriorating industry conditions, efforts have been increased. The focus is on fixed costs, overhead, and productivity, particularly in German operations. Regarding dividends, the payout ratio is set at a minimum of 30%. The current situation impacts financial results, and while additional restructuring burdens are possible, the dividend policy remains valid.

Q: What has driven the tougher stance on restructuring the German business, and is free cash flow a limiting factor? How does the CO2 compliance challenge for 2025 factor into restructuring needs? A: The need for restructuring at Volkswagen was clear early on, focusing on fixed costs, productivity, and overhead. The market environment's deterioration required increased efforts, but no single incident drove this change. Free cash flow should not limit necessary measures, as Volkswagen has solid net liquidity. For CO2 compliance in 2025, the aim is to achieve targets while protecting profitability, with positive order intake and new models providing confidence.

Q: How have you managed to stabilize pricing and increase order intake, and what is the outlook for investment needs? A: The stabilization of pricing and order intake is due to positive momentum from new models. However, BEVs currently carry higher incentives and are margin dilutive. Investment in R&D and CapEx is expected to peak, with potential improvements from the Rivian joint venture, particularly in software expenditure.

Q: Can you provide more details on the restructuring and potential impacts of strikes? What role does the government play in this? A: Specific details on potential strikes and production impacts are not disclosed. The focus is on ensuring Volkswagen achieves a 6.5% margin and can invest in future projects. The government discussion is more about CO2 regulation, but Volkswagen is focused on internal measures for competitiveness.

Q: What are the expectations for Brand Group Progressive's performance, and how does Scout fit into the strategy with Rivian? A: Brand Group Progressive aims for a double-digit margin in Q4, supported by strong product momentum. Scout is positioned in a profitable segment in North America, with synergies from group technologies and potential use of Rivian's electrical architecture. Scout and Rivian target different market segments, minimizing direct competition.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.