Volkswagen Group China – Balancing the “New Normal” Carsten Isensee Executive Vice President Finance, Volkswagen Group China JP Morgan Fieldtrip, Beijing, 13 June 2016 1
Disclaimer The following presentations contain forward-looking statements and information on the business development of the Volkswagen Group. These statements may be spoken or written and can be recognized by terms such as “expects”, “anticipates”, “intends”, “plans”, “bel iev es”, “seeks”, “estimates”, “will” or words with similar meaning. These statements are based on assumptions relating to the development of t he economies of individual countries, and in particular of the automotive industry, which we have made on the basis of the information available to us and which we consider to be realistic at the time of going to press. The estimates given involve a degree of risk, and the actual developments may differ from those forecast. Consequently, any unexpected fall in demand or economic stagnation in our key sales markets, such as in Western Europe (and especially Germany) or in the USA, Brazil or China, will have a corresponding impact on the development of our business. The same applies in the event of a significant shift in current exchange rates relative to the US dollar, sterling, yen, Brazilian real, Chinese renminbi and Czech koruna. If any of these or other risks occur, or if the assumptions underlying any of these statements prove incorrect, the actual results may significantly differ from those expressed or implied by such statements. We do not update forward-looking statements retrospectively. Such statements are valid on the date of publication and can be superceded. This information does not constitute an offer to exchange or sell or an offer to exchange or buy any securities. 2
Volkswagen Group China at a glance 12 fascinating 1990: FAW-VW was More than 1984: first Joint More than 95,000 ~320,000 employees brands founded in 150 models Venture Shanghai employees end of within dealer network Changchun VW was founded 2015 in 2015 Around € 4.4 billion Over 25 million Proportionate 29 production More than 18% 3.55 million cars delivered operating profit of plants end of 2015 investments market share in deliveries in 2015 € 5.2 billion in 2015 since market entry China’s passenger planned for 2016 car market in 2015 3
Volkswagen Group deliveries to customers by brand 2015 vs. 2014 ‘000 units Jan.- Dec. 2014 -3.4% 4,500 Jan.- Dec. 2015 4,000 3,675 3,549 units -13.3% -4.6% 5,000 3,500 4,453 3,000 2,758 3,860 2,630 4,000 2,500 -36.9% 3,000 2,560 2,000 1,500 -1.4% 2,000 1,615 +0.1% 1,000 579 +23.6% 571 +17.8% 1,000 500 281 282 278 236 58 47 0 0 1) 1) incl. Hong Kong, excl. Ducati. Group numbers incl. MAN and Scania 4
Split between locally produced and imported vehicles 1) Import business 2015 (deliveries in ‘000 vehicles) Deliveries to customers (in ‘000 vehicles) Others 9 1,736 54 Imported 179 58 58 1,634 » Total deliveries in the region China amounted to 3,549 thousand in 2015 1) incl. Hong Kong, excl. Ducati. All figures shown are rounded. 5
Chinese Joint Ventures with strong financial performance in 2015 1) (January to December 2015 vs. 2014, in € million) FAW-Volkswagen SAIC VOLKSWAGEN SAIC VOLKSWAGEN Automotive Company (40%) Automotive Company (50%) Sales Company (30%) + 11.4% 30,035 - 5.5% + 12.4% 42,812 26,956 26,018 40,462 - 0.2% 23,142 4,714 4,705 + 5.4% 3.558 3.376 + 55% + 54.2% 2,170 2,048 1,400 + 11.1% 1,328 + 38.8% 404 449 103 143 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 Post-tax Dividends Sales Post-tax Dividends Sales Post-tax Dividends Sales received 3) revenue received 3) revenue received 3) profit profit profit revenue 2) 1) Financial data on a 100% basis, Volkswagen Group equity interest in brackets; SAIC VOLKSWAGEN sales revenue is mostly generated from its business with SAIC VOLKSWAGEN, which sells passenger cars for SAIC VOLKSWAGEN. 2) Including sales revenue from sales of imported Audi models 3) Dividends received by the Volkswagen Group related previews year‘s local result of our joint ventures. 6
Another strong operating result for the Volkswagen Group in China 2012 2013 2014 2015 Q1 2016 Deliveries to Customers 2,815 3,271 3,675 3,549 980 (’000 units) Production (100%) 1) (’000 units) 2,643 3,135 3,528 3,420 931 1) SAIC-VW Group / FAW-VW Group Operating profit (100%) 8,424 9,569 12,077 11,937 2,622 ( € million) Operating profit 3,678 4,296 5,182 1,174 ( € million) 5,214 (proportionate) 7
Negative effect through increased competition was more than offset by exchange rate effect and fixed as well as product cost reductions Proportionate operating profit (in € million) + 32 million 5,214 5,182 + – + Exchange rate - Volume/Price/Mix • RMB vs EUR on average - Higher development costs up more than 15% especially for NEVs & + Fixed cost efficiency other technologies to program achieve legally required + Product and warranty cost emission targets reduction 2014 2015 8
China efficiency program to support our margins in a market characterized by increased competition China efficiency program Implementation of new culture & Production & Logistics optimization Review of product portfolio lean decision making processes Variance Reduction Change focus from “production New organizational structure • volume maximization” to “cost - Decrease number of overlapping • Enhance responsibility in China efficiency” models • Flexible and decision-oriented • Reduce number of component • Improved production processes structure variances • • Optimized maintenance Improved information flow and lead-time Add models in major growth Shift from “trucks only” to train and • Entrepreneurial spirit segments ship transportation within China • Project house working Investment plan adjustment environment e.g. NEVs 9
Chinese Joint Ventures generate substantial, self-funded growth and at the same time sustainably rising dividends Total amount of dividends paid out to Joint Venture partners (in € billion) Total amount of dividend Chinese Joint Ventures 10.0 thereof paid to Volkswagen Group 6.7 6.5 4.6 4.5 3.0 2.8 2.8 2.0 1.2 2011 2012 2013 2014 2015 10
Deliveries to customers by brand January to April 2016 ‘000 units +4.8% Jan.- Apr. 2015 1,251 Jan.- Apr. 2016 1250 1,193 -21.7% +4.4% units 1,231 1000 939 1250 899 964 1000 750 750 500 -37.8% 500 394 +5.9% +4.8% 250 189 245 179 +4.5% 250 +15.1% 99 95 93 89 21 18 0 0 1) 1) incl. Hong Kong, excl. Ducati. 11
The rapid growth phase of China’s market is over, looking into the future we expect growth to flatten Rapid Growth Phase Continued Growth Phase New Normal Phase CAGR: +28% CAGR: +11% CAGR: +5% 22,365 23,056 23,810 24,542 25,000 21,054 Passenger vehicle market (in ’000 units) 19,352 20,000 17,829 15,903 15,000 11,428 12,354 13,503 10,000 8,460 5,475 5,077 4,155 5,000 3,294 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017e 2018e 2019e 2020e Source: Forecast by IHS (2016) 12
Less developed cities provide new opportunities Level I cities Level II cities Share of total market Level I and II cities Beijing Dalian Level I share Level II share Xi’an Shanghai 44% Guangzhou Changsha 41% 40% 39% 135 136 38% 37% ᴓ cars/1,000 inhabitants Number of cities 9 26 2015 2016e 2017e 2018e 2019e 2020e Average # of 17.2 8.5 inhabitants (m) Level III share Level IV share Level III cities Level IV cities Level V cities Level III, IV and V cities Level V share 63% 62% Shantou Guyuan Haibei 61% 60% Hengshui Yaan Jinchang 59% 56% Jingdezhen Zigong Turpan … … … 94 ᴓ cars/1,000 47 39 inhabitants 68 109 135 Number of cities Average # of 4.9 4.0 1.7 2015 2016e 2017e 2018e 2019e 2020e inhabitants (m) Source: EIU (Economist intelligence unit) 13
Market for New Energy Vehicles will increase significantly and change the Chinese market rapidly New Energy Passenger Vehicles (in ‘000 units) Highlights • ~ 2,000 Government target of reducing air pollution, emission restrictions and subsidies are major drivers for China’s NEV market 207 • 2015 pure BEV amounted for more than 2/3 of the NEV volume • 2 million NEVs by 2020 would imply an average annual growth rate of around 60% until 2020 54 • However, market expectations show high divergence 13 10 • Significant increase in NEV production … 2012 2013 2014 2015 2020e capacity by local and foreign OEMs Source for data 2012-2015: CAAM 14
Legal requirements of average fuel consumption targets for fleets in China l/100 km To achieve the legal 8 requirements in China Volkswagen will 6.9l ≙ 164g CO 2 /km 7 • Legal Develop further requirement emission reducing 6 technologies 5.0l ≙ 117g CO 2 /km 5 4.0l • Actively engage in 4 the NEV market 3 … 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025e 15
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