China: The second home market of the Volkswagen Group Carsten Isensee Executive Vice President Finance, Volkswagen Group China HSBC Roadshow, Hongkong, 24-25 November 2014 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
2 Volkswagen Group China (VGC) at a glance
Volkswagen production facilities in China Facts 2014
Shanghai Volkswagen FAW-Volkswagen Volkswagen FAW Engine (Volkswagen, Audi) ■ Volkswagen Group ventured into China more than 30 years ago Volkswagen FAW Platform Changchun ■ Over 20 million cars delivered to Chinese Urumqi Dalian Volkswagen Automatic customers since market entry Beijing Transmission Dalian Volkswagen China ■ 89,000 employees work for the Volkswagen Investment Company Volkswagen FAW Engine Tianjin Group in China Volkswagen Automatic Yizheng Transmission Tianjin Chengdu Nanjing ■ Another 360,000 employees work within our Changzhou Shanghai Volkswagen dealer network FAW-Volkswagen Shanghai MAN Diesel & Turbo Ningbo Volkswagen Shanghai Volkswagen ■ Volkswagen Group China is represented by FAW Platform Foshan (Volkswagen, ŠKODA) more than 40 entities in China Shanghai Volkswagen ■ People are the center of Volkswagen Group Volkswagen Transmission Car production plants China’s strategy ‘Ren Wei Ben’. Component plants FAW-Volkswagen Headquarters Volkswagen Group China Shanghai Volkswagen Volkswagen FAW Platform Powertrain 3 Deliveries to customers Volkswagen Group in China (January – October 2014)
Import FBU Locally produced (‘000 units) (‘000 units)
Volkswagen Group: 184 FAW-VW 1,433
SVW 1,409
Ʃ 2,842
Total deliveries region China 3,0261)
1) incl. Hong Kong, excl. Scania, and Ducati. All figures shown are rounded. 4 Deliveries to customers by brand (January – October 2014)
`000 units +14.1% January – October 2013 3,026 January – October 2014 3,000 2,652 +13.8% 2,500 2,296 With a solid sales performance year-to-date 2,018 2,000 all brands contributed to the strong growth of Volkswagen Group China 1,500
1,000 +16.1% +12.4% 464 500 399 +18.5% 199 224 30 36 0
1) incl. Hong Kong, excl. Scania, and Ducati. 5 Volkswagen Group – No. 1 in the Chinese passenger vehicle market
Passenger vehicle market China (January - October 2014 y-t-d)
Others (i.e. local Volkswagen Group Delta of brands) 21% Rank Brand/Group market share 30% (y-t-d) 1 Volkswagen Group + 0.3%
10% Comp.1 2 Competitor 1 - 0.3%
10% 3 Competitor 2 - 0.1%
Comp.2 5% 4 Competitor 3 +/- 0.0% 5%
Comp.3 5 Competitor 4 - 0.6% Comp.4
6 6 out of the Top 10 selling vehicles are Volkswagen brand models
Deliveries to customers (January – October 2014)
1 Lavida 311,295 vehicles 5 Jetta 247,297 vehicles
2 Santana 266,138 vehicles 9 Tiguan 197,954 vehicles
4 Sagitar 250,184 vehicles 10 New Bora 192,076 vehicles
Source: CPCA 7 Audi in China – Enhancing leadership in the premium segment
Flexible capacity expansion, adjusted to market demand Leading the premium SUV market in China
Annual production capacity, vehicles up to 700,000 SUV share of the premium market Comparison of growth rates
SUV 40% +36% 400,000 18% 38% 35% +30% 200,000 30% 100,000 25% +22% Production Production 20% 82% 62% 20082010 2013 2017 15% Pioneering the compact segment 10% with three locally produced models 5% 0% 2008 Jan-Sep 2014 Jan-Sep 2014 Premium Market SUV Premium Market Audi SUV
Audi Q3 Audi A3 Sedan Audi A3 Sportback • Segment leader • 1st local premium • 1st local premium • 50% market share compact sedan compact hatchback (Jan-Jul 2014) • launched early • launched in March September 2014 2014 8 China has become the most important sales market for ŠKODA
Further volume expansion of ŠKODA Developing the model range in China within the next years
Annual deliveries to > 500,000 Spaceback customers
226,971 Rapid Rapid
27,000 Yeti Yeti 2007 2013 2018 Superb Superb Superb Superb Superb Superb ŠKODA Top 5 markets 1991 vs. 2013 Octavia Octavia Octavia Octavia Octavia Octavia Octavia Octavia 1991 2013 Fabia Fabia Fabia Fabia Fabia Fabia Fabia Others Czech Republic China Others 2007 2008 2009 2010 2011 2012 2013 2014 38% 34% 37% 25%
15% Superb Superb 5% 9% 6% 6% 8% 7% 10% Germany Combi Combi Import Import Local Production UK Slovak Republic Czech Republic Current Models New Models Russia Poland Germany UK Yeti Yeti 9 Porsche is gaining substantial momentum in China
Deliveries to customers (in units) Increasing model variety and improving customer experience CAGR +15% 37,425 31,205 2,603 24,340 1,149 1,418
949 6,738 SUV 2,402 Flagship 929 9,148 7,726 26,666 Macan launch in China: Q3 2014 Porsche Experience Center Shanghai 19,959 13,283
2011 2012 2013 Sports Car Cayenne Panamera 911 Boxster/Cayman
Dealerships (number of dealers) Sports Car Initiative China
CAGR
+16% Focus 2014:
. Pro-active sports car market development and 63 40 51 exploitation with 911 and Boxster/Cayman 2011 2012 2013
10 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
11 China continues to offer substantial growth potential
Real GDP growth in % 12 Bubble size: real GDP 2013 data unless otherwise stated 10
8 China China 2020 6 China 2030 4 Japan India 2 USA Brazil Russia 0 Germany -2 0 102030405060 Real GDP per capita in `000 USD PPP
Source: IHS Economics 12 Continued positive economic development and the increase in household income drives private consumption on a solid growth path
in USD bn % 7,000 9.0 Private Consumption, China (left scale) Private Consumption Growth Rate, China (right scale) 6,000 8.5
5,000 8.0
4,000 7.5
3,000 7.0
2,000 6.5
1,000 6.0
0 5.5 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: IHS Economics 13 Traffic restrictions reduce local deliveries, however, rumors on future restrictions lead to front loading of car sales
Cities with either restriction policy in place or Deliveries in cities with or rumors on future restrictions without restrictions1)
in ‘000 units Beijing (2011) +12.4% Growth Tianjin(2014) (y-o-y) 12,699 Dalian w/ Rumors 30.9% Shijiazhuang 11,297 Qingdao 3,111 (15 cities) Lanzhou 3,111 Nanjing Shanghai (1994) 2,3762,376 Restricted 2,376 -16.3% Xi’an Zhengzhou Suzhou 1,0421,042 (6 cities) Chongqing 1,2461,246 Chengdu Hangzhou (2014) Wuhan Ningbo Not Cities restricted Dongguan restricted 11.3% Cities with Shenzhen 7,675 8,5468,546 Foshan 7,675 (326 cities) restriction rumors Guangzhou (2012)
Guiyang (2011)
Remark: Restricted cities include Beijing, Shanghai, Guangzhou, Tianjin, Hangzhou, Guiyang; Jan - Sep 2013 Jan - Sep 2014 15 cities w/ rumors include Chengdu, Chongqing, Dalian, Dongguan, Foshan, Lanzhou, Nanjing, Ningbo, Qingdao, Shenzhen, Shijiazhuang, Suzhou, Wuhan, Xi’an, Zhengzhou 1) converted to deliveries to customers from registration data
Source: Registration data, CPCA 14 Less developed cities provide new opportunities
Level I cities Level II cities Share of total market Beijing Dalian Level I share Level II share Shanghai Xi´an Guangzhou Changsha 41% 37% … 35% 34% 119 95 33% ᴓ cars/1,000 inhabitants Number of cities 9 26 Level I II and cities Average # of 16.7 8.4 2014e 2015e 2016e 2017e 2018e inhabitants (m)ᴓ Level III share Level IV share Level III cities Level IV cities Level V cities Level V share 66% 67% Shantou Guyuan Haibei 65% Hengshui Yaan Jinchang 63% Jingdezhen Zigong Turpan 59% … … … 62 ᴓ cars/1,000 29 25 inhabitants Number of cities 68 109 135
Average # of 4.8 4.0 1.8 V Level III, IV and cities inhabitants (m) 2014e 2015e 2016e 2017e 2018e
15 China will invest further in the construction of road infrastructure
Length of national roads in China (‘000 km) National Road Network Construction Plan
National expressways 265 National ordinary roads Urgent need to expand the current road network: ■ more than 900 counties1) in China are not connected to the national road network +150% +84% ■ more than 18 cities with >200,000 population and 29 regional administrative centers are not connected 118 to expressways 106
The Central Government Plan: 64 ■ By 2030, all cities above 200,000 inhabitants will be connected to the national expressway network, and all counties will be connected to the national ordinary 2011 2030 road network
1) Source: National Road Network Construction Plan (2013-2030) There are 2,856 counties in China 16 Southern and Western regions show above average growth supporting our Go South and Go West Strategy
Regional share of total market sales (Q3 2013 vs.Heilongjiang Q3 2014 in %)
22% 20% NorthernJilin region Western region Inner Mongoli Q3 2013 Q3 2014 Xinjiang Liaoning a 35% 35% B eijing 22% Tianji n 21% i HebeShanxiEastern region Qingha Ningxia i Gans u Shandong Q3 2013 Q3 2014 Q3 2013 Q3 2014 Shaanxi n Hube S hanghai JiangsuHenaAnhui Tibet i Sichua n Chongqing Zhejiang 23% Guizhou 23% Jiangxi Southern regionFujian Yunnan Hunan Guangdong Q3 2013 Q3 2014
Guangxi H ainan
Source: Registration data 17 How big will the Chinese passenger vehicle market be in 2020?
in m vehicles 38 Forecast 32 m 33 vehicles p.a. Scenario CAGR 10% 28 10% growth in 2014e: ≙ ~ 17.5 m vehicles
23 2013: 25 m 15.9 m vehicles Scenario vehicles p.a. 18 CAGR 5%
13 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Volkswagen Group China scenario calculation 18 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
19 Investment program and core projects
Total investment of €18.2 bn1) in 2014 - 2018 Scenario CAGR 5%: >20 m passenger vehicles Vehicle Component Products plants plants
New plant Capacity increase ■ Changsha (SVW) ■ Changchun PHEV products 2011 2012 2013 2014 2015 2016 ■ Chengdu Capacity increase ■ Tianjin ■ Foshan (FAW-VW) Assuming a 5% CAGR and ■ Dalian MQB products a 20% market share of VGC the ■ Chengdu (FAW-VW) additional annual sales volume… …would imply a need of 2 new factories every 3 years 1 m
200,000 CO2 measures for plants and products
Total market Volkswagen Group China
1) Status as per press release 22 November 2013 20 Go West and Go South strategies are core drivers for future growth
Urumqi Changchun
“Go West Strategy” Beijing
Tianjin Qingdao
Chengdu Yizheng Shanghai Nanjing “Go South Strategy” Ningbo Changsha
Foshan
Existing vehicle production site Planned vehicle production site
21 Capacity expansion plans – on the way to 4 million units in 2018 (Standard capacity of 250 working days)
4 million units Changsha Urumqi 3.135 m Changsha Ningbo Urumqi Yizheng Upward Ningbo Nanjing SVW Urumqi Yizheng flexibility Ningbo Yizheng Nanjing Shanghai Nanjing Shanghai Foshan Shanghai Foshan Foshan Chengdu Chengdu Chengdu FAW-VW
Changchun Changchun Changchun
2013 2013 2015 2018 Production Capacity Capacity Capacity1)
Capacity expansion plans are based on the expected growth in unit sales, upward flexibility (e.g. additional working days) and downward flexibility (e.g. postponement of expansion steps).
1) As per 12/2013; the new vehicle plants planned in Qingdao and Tianjin are not included in the chart (planned start of production in 2017/18) 22 Implementation of the MQB toolkit in the Chinese production network
MQB & MLB share of Volkswagen Group production Changchun Urumqi Beijing
Tianjing Chengdu Qingdao Yizheng Nanjing Shanghai
Changsha Ningbo
Foshan
Existing production site MQB production site by 2016 20122013 2014 2015 2016 Planned MQB production site MQB MLB MQB volume China
Implementation of MQB in the Chinese production network Golf A3 SB A3 Octavia Lamando will significantly reduce investments for new models
23 Significant growth of dealer networks planned1)
>3,600 45 Heilongjiang 31 41 ~2,750 Xinjiang Jilin 2,395 60 106 94 Gansu Inner Mongolia Liaoning 28 Beijing 43 320 11 15 136 Tianjin 71 341 Qinghai Ningxia Hebei 216 Shanxi Shandong 6 Shaanxi 114 68 248 Tibet 107 Henan 72 Jiangsu 30 67 Shanghai 1,593 Sichuan Hubei Anhui 91 Chongqing Zhejiang 34 Hunan 46 217 [as of H1 2014] 60 71 Jiangxi Guizhou Fujian 2013 2014e 2018e Yunnan Guangxi 71 32 Guangdong 151 10 Hainan
1) Map includes only Volkswagen, Audi and ŠKODA dealers; discrepancies may occur due to reporting backlog 24 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
25 26 Tiguan Octavia Lamando Lavida Passat Superb Fabia Touran Santana Rapid SB Yeti Polo Rapid Gran Lavida
Volkswagen ŠKODA Q5 Jetta Q3 Magotan A3 A6L Golf Sagitar CC A4L A3 SB New Bora
Volkswagen Audi perNote: Status as 2014 July Broad local product portfolio at FAW-Volkswagen and SVW product portfolio at FAW-Volkswagen Broad local Model launches in 2014: Continuously strong product momentum
New locally produced models New import models
e-up! Golf Variant Scirocco T5 Caravelle A3 A3 Sportback
Polo Rapid Spaceback SVW
S3 RS7 A8L S8 A8 Hybrid
Cross Polo Octavia
Macan Cayenne Cayenne GTS Cayman GTS Boxster GTS 918 Spyder
Flying Spur V8 Continental GT V8S Cont. GT Conv. V8S Huracán FAW-VW A3 Sportback A3
27 Significant extension of product portfolio planned: More than 100 models by 2018
2013: CKD 22 FBU 41 63
2018e: CKD >35 FBU>65 >100
Note: number of models including derivatives 28 SUVs are already the second largest body type in the Chinese market – and the growth is expected to continue
2012 - 2014 body type market share 2020 2024
%
63,2 61,6 59,9
Notchback 53.453.4 52.552.5 63.2 61.6 59.9 Hatchback MPV SUV Others 12,3 12,3 13.113.1 13.313.3 14,3 12,3 12.3 14.3 4.64.6 4.64.6 4.14.1 4.1 4.3 21,521.5 23,0 23.0 28.028.0 28.728.7 17,517.7 0.7 0.5 0.7 0.9 0.9 2012 2013 2014e 2020e 2024e
Source: Volkswagen Group China, % share of body type in total passenger car market 29 Volkswagen China – Product solutions to match our customers’ needs China special detail solutions Passat USA Passat China
China specific wheelbase extensions, trim and colors A6 Europe Yeti Europe
China Yeti China exclusive A6 L China spare wheel
30 Toolkits support the localisation of of our products
Platform
Extended Wheel Base Lamando
Exterior Interior
Chrome Leather Wood
Lighting
Color 31 Legal requirements of average fuel consumption targets for fleets in China l/100 km The Chinese target is 9.0 challenging due to 8.5 8.0 7.5 ► the low proportion of 7.5 6.9l ≙ 164g CO /km diesel cars in China 7.0 2 6.5 of only ~1% 6.0 5.5 120g CO /km ≙ 4.8l1) 5.0l 5.0 2 ► customers’ preference 4.5 for larger vehicles 4.0 95g CO2/km 0 ≙ 3.8l1) 2012 2013 2014 2015 2016 2017 2018 2019 2020
Published data Assumptions of the Volkswagen Group
1) Committed EU targets of the Volkswagen Group 32 Volkswagen Group China to actively engage in the New Energy Vehicle market with locally produced cars as well as the localization of technology
Timing 2013 20132016 2016 2020 Introduction
Audi A6 e-tron Porsche Panamera Volkswagen e-up! S E-Hybrid
Porsche 918 Audi A3 e-tron Spyder
e-Golf Golf GTE
Phase Development Import Local production
Localization of New Electric Vehicle technology
33 Expansion of Research & Development know-how in China
~ 2,700 engineers in Design R&D in China Engine development Body development Electric & Electronics development Prototype workshops Vehicle testing facilities 3D development environments
34 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
35 Car park development of Volkswagen Group China shows substantial opportunities for growth in the service and spare parts businesses
Car park of Volkswagen Group China brands Age segmentation of car park 2014
>10-15 years 8-10 years in m units 5% >48 10% 5-8 years 20% 1-2 years 39%
3-4 years 26%
Age segmentation of car park 2023 15.1 12.4 >10-15 years 10.2 8.6 8-10 years 11% 7.0 19% 1-2 years 22%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 5-8 years 27% Car park covers all Volkswagen Group brands (only luxury car park does not use scrapping rate) 3-4 years Definition: Car park 2014 is car park as at 31 Dec 2013 21% Car park will grow approx. 2 times by 2018 and 3 times by 2023 compared to 2014
36 Development of pre-owned car dealer business
Total pre-owned car market forecast1) Group pre-owned car dealer roll-out 330 304 in m units 285 in `000 units 18.2 16.0 Pre-Owned Commercial Vehicles 14.0 182 Pre-Owned Passenger Cars 12.4 10.6 8.7 6.5 4.8 5.1 4.3 10.3 10.9 8.4 9.5 6.3 7.2 4.8 20 2.7 3.1 3.5 11 1 4
2011 201220132014e 2015e 2016e 2017e 2018e 2019e 2020e 2013 2014e 2013 2014e 2013 2014e 2013 2014e Volkswagen Audi Porsche Bentley + ŠKODA (refined (approved (Bentley (Das WeltAuto) recomm.) pre-owned) pre-owned)
Qualitative and quantitative roll-out of group pre-owned car dealers
37 Volkswagen Financial Services is further growing its business
Gaining share in an expanding retail financing market Strong retail finance development
Volkswagen Finance (China) retail finance penetration in the Volkswagen Group China network New retail finance contracts (number of units) (% of deliveries to customers) 200709/2014 2018e 390,000
Cash Finance Cash Finance Cash Finance 227,000 90% 73% 67% 33% 10% 27% 149,000
8% 16% 18% 78,000
2% 11% 15%
VW FS Others VW FS Others VW FS Others 2011 2012 2013 2014e
Financial Services China: Strategic growth dimensions
Leasing / Credits Fleet Management Used Cars New Mobility After Sales / Insurance
38 Another strong operating result from January to September 2014
Q1-Q3 2010 2011 2012 2013 2014
Deliveries to Customers (’000 Units) 1,923 2,259 2,815 3,271 2,719
Production (100%)1) (’000 Units) 1,914 2,202 2,643 3,135 2,615
1) SVW Group / FAW-VW Group
Operating profit (100%) (€ m) 4,389 6,134 8,424 9,569 9,061
Operating profit (€ m) 1,907 2,616 3,678 4,296 3,920 (proportionate)
39 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 € bn)
6.5 Total amount of dividend Chinese Joint Ventures thereof paid to Volkswagen Group
4.6
2.8 2.8
1.8 2.0 1.2 0.7 0.8 0.8 0.3 0.4
2008 2009 2010 2011 2012 2013
40 Volkswagen Group China is well positioned to maintain its number one position in the market and seize additional opportunities in the future
4.0 in m units 3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
41