China: The second home market of the Volkswagen Group Carsten Isensee Executive Vice President Finance, Volkswagen Group China Beijing, 14 April 2015 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 22 million cars delivered to Chinese Urumqi Dalian Volkswagen Automatic customers since market entry Beijing Transmission Dalian Volkswagen China ■ Around 90,000 employees work for the Investment Company Volkswagen FAW Engine Tianjin Volkswagen 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 Jan.-Feb. 2015
Import FBU Locally produced (‘000 units) (‘000 units)
Volkswagen Group: 25 FAW-VW 262
SVW 297
Ʃ 559
Total deliveries region China Jan.-Feb. 5831)
1) incl. Hong Kong, excl. Ducati. All figures shown are rounded. 4 Deliveries to customers by brand Jan.-Feb. 2015
`000 units Jan.-Feb. 2014 +3.4% Jan.-Feb. 2015 583 600 564
500 +0.9% 438 442
400
300
200 +10.5% +11.3% 100 77 85 +42.4% 42 46 6 9 0
1) incl. Hong Kong, excl. Ducati. 5 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
6 Chinese government reacts with pro-growth policies on economic slowdown Indicator Proxy Dec Jan Feb Trend Key points
GDP (%) 7.3 • China’s economy is facing a further downward trend as both demand and supply declined in the first 2 months: Economic Industrial Value − Demand: Sluggish domestic demand, as indicated by investment and 7.9 6.8 growth Added (%) consumption slip and import plunge, will lead to further economic slowdown. Electricity Output 1.3 1.9 (%) − Supply: Overcapacity issues in the up and mid-stream industries led to production slump, as shown by the record low PPI reading. Retail Sales (%) 11.9 10.7 − Money: The interest rate and RRR cuts since Feb failed to inject liquidity Three into real economy; funds available for business investment and Fixed Asset 15.7 13.9 production were seriously inadequate. major Investment (%) demands − According to 2015 Government Work Report delivered by Premier Li Keqiang at National People’s Congress, the GDP GR in 2015 is Export (%) 9.7 -3.3 48.3 expected to reach around 7.0%, CPI at around 3.0%, M2 GR at around 12.0%, investment GR at around 15%, retail sales at around CPI (%) 1.5 0.8 1.4 13% and import & export at around 6%. Under the great pressure of Price & economic slowdown, the pro-growth policies will be focused on Money “monetary easing”, “housing market” and “infrastructure M2(%) 12.2 10.8 12.5 construction”.
Source: NBS，PBOC 7 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 +12.1% Growth Beijing (2011) (y-o-y) 17,829 w/ Rumors Tianjin(2014) 15,904 27.7% 3,1114,341 (15 cities) Dalian 2,3763,400 Restricted Shijiazhuang Qingdao 2,376 -16.1% Lanzhou 1,0421,458 (6 cities) Nanjing Shanghai (1994) 1,2461,738 Xi’an Zhengzhou Suzhou Chongqing Not Chengdu Hangzhou (2014) Wuhan Ningbo restricted 11.7% 7,675 8,54612,030 10,766 (326 cities) Cities restricted Dongguan Cities with restriction Foshan rumors Shenzhen (2015)
Guiyang (2011) Guangzhou (2012) 2013 2014 1) converted to deliveries to customers from registration data; cities w/ rumors 2013/2014 include Chengdu, Chongqing, Dalian, Dongguan, Foshan, Lanzhou, Nanjing, Ningbo, Qingdao, Shijiazhuang, Source: Registration data, CPCA Suzhou, Wuhan, Xi’an, Zhengzhou and Shenzhen 8 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
9 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 10 Southern and Western regions show above average growth supporting our Go South and Go West Strategy
Regional share of total market sales (2013 vs. 2014 in %)
22% 20%
Heilongjiang Northern region 2013 2014 Jilin Xinjiang 35% Liaoning 34% Inner Mongolia Beijing Western region Tianjin Hebei 22% Ningxia Shanxi Shandong 21% Qinghai Gansu 2013 2014 Eastern region Jiangsu Shaanxi Henan Shanghai Tibet Hubei Anhui 2013 2014 Sichuan Zhejiang 24% Chongqing 23% Guizhou Hunan Jiangxi Fujian Southern region Yunnan Guangxi Guangdong 2013 2014
Hainan
Source: Registration data 11 How big will the Chinese passenger vehicle market be in 2020?
in m vehicles 38 Forecast 32 m 33 vehicles p.a. Scenario 28 2014: CAGR 10% 17.9 m vehicles 2013: 23 24 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 12 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
13 Investment program and core projects
Total investment of €22.0 bn in 2015 - 2019 Scenario CAGR 5%: 20 m passenger vehicles Vehicle Component Products plants plants
New plants New plants ■ Changsha (SVW) New models ■ Changchun ■ Tianjin (FAW-VW) 2011 2012 2013 2014 2015 2016 (FAW-VW) ■ Qingdao (FAW-VW) NEV products1) ■ Qingdao (FAW-VW) Assuming a 5% CAGR and ■ Yizheng (VWPT) Capacity increase MQB products a 20% market share of VGC the ■ Foshan (FAW-VW) Capacity increase additional annual sales volume… …would imply a need of ■ Chengdu (FAW-VW) ■ Changchun (VWED) Mobile Online 2 new factories every 3 years ■ Ningbo (SVW) ■ Tianjin (VWATJ) Services 1 m ■ Yizheng (SVW) 200,000
Total market Volkswagen Group China CO2 measures for plants and products
1) PHEVs and BEVs 14 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
15 Capacity expansion plans – on the way to over 5 million units in 2019 (Standard capacity of 250 working days)
5 million units
SVW ** FAW-VW 3,528 SVW * SVW SVW
FAW-VW FAW-VW FAW-VW
Production Capacity Capacity Capacity 2014 2014 2016 2019 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). *New plant Changsha + Expansion steps in Chengdu, Ningbo, Foshan **New plant Tianjin, Qingdao + Expansion steps in Ningbo, Foshan, Yizheng a.o. 16 Implementation of the MQB toolkit in the Chinese production network
MQB & MLB share of Volkswagen Group production Changchun Urumqi Beijing
Tianjin 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
17 Significant growth of dealer networks planned1)
>3,600 45 Heilongjiang 31 41 2,654 Xinjiang Jilin 2,395 60 106 94 Gansu Inner Mongolia Liaoning 361 28 Beijing 43 320 11 15 136 Tianjin 405 71 341 Qinghai Ningxia Hebei 216 Shanxi 6 Shandong Shaanxi 114 248 68 Henan Tibet 107 72 Jiangsu 1,593 1,770 30 67 Shanghai Sichuan Hubei Anhui 91 Chongqing Zhejiang 34 Hunan 46 217 [as of H1 2014] 60 71 Jiangxi Guizhou Fujian 2013 2014 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 18 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
19 20 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 Significant extension of product portfolio planned: More than 190 models by 2018
118 148 2014: CKD 30 FBU
2018e: CKD >45 FBU>145 >190
Note: updated counting method, number of models including derivatives 21 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 22 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
23 Toolkits support the localization of our products
Platform
Extended Wheel Base Lamando
Exterior Interior
Chrome Leather Wood
Lighting
Color 24 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
1) Committed EU targets of the Volkswagen Group 25 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
26 Expansion of Research & Development know-how in China
Approx. 2,700 engineers in R&D in China Design About 90% are Powertrain development Chinese employees Body development Electric & Electronics development 3D CA-X development environment Prototype workshops Vehicle and components testing facilities
27 Business overview and sales performance
Market development
Investments Volkswagen Group China
Our products
Emerging business fields and financial results
28 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
29 Development of pre-owned car dealer business
Total pre-owned car market forecast Group pre-owned car dealer roll-out 332 in m units 283 285 18.2 16.0 Pre-Owned Commercial Vehicles 14.0 Pre-Owned Passenger Cars 12.4 182 10.6 8.7 6.5 4.8 5.2 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 2014 2013 2014 2013 2014 2013 2014 Volkswagen Audi Porsche Bentley + ŠKODA (refined (approved (Bentley (Das Welt Auto) recomm.) pre-owned) pre-owned)
Qualitative and quantitative roll-out of group pre-owned car dealers
30 Chinese Joint Ventures with strong financial performance in 20141) (January to December 2014 vs. 2013, in € million)
FAW-Volkswagen Shanghai-Volkswagen SAIC-Volkswagen Automotive Company (40%) Automotive Company (50%) Sales Company (30%)
+ 14% + 13%
42,812 + 11% 26,959 + 15% 37,500 23,882 23,142 4,714 + 19% 20,897 4,095 3,376 -9% 2,830 + 26%
+ 13% 1,533 1,400 + 11% 1,057 1,328 359 404 93 103
2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 Sales Post-tax Dividends Sales Post-tax Dividends Sales Post-tax Dividends revenue2) profit received3) revenue profit received3) revenue profit received3)
1) Financial data on a 100% basis, Volkswagen Group equity interest in brackets; Shanghai-Volkswagen (SVW) sales revenue is mostly generated from its business with SAIC-Volkswagen, which sells passenger cars for SVW 2) Including sales revenue from sales of imported Audi models 3) Dividends received by the Volkswagen Group 31 Another strong operating result for the Volkswagen Group in China in 2014
2010 2011 2012 2013 2014
Deliveries to Customers (’000 Units) 1,923 2,259 2,815 3,271 3,675
Production (100%)1) (’000 Units) 1,914 2,202 2,643 3,135 3,528
1) SVW Group / FAW-VW Group
Operating profit (100%) (€ m) 4,389 6,134 8,424 9,569 12,077
Operating profit (€ m) 1,907 2,616 3,678 4,296 5,182 (proportionate)
32 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)
Total amount of dividend Chinese Joint Ventures thereof paid to Volkswagen Group 6.5 6.7
4.6
2.8 2.8 3.0
1.8 2.0 1.2 0.8 0.8 0.4
2009 2010 2011 2012 2013 2014
33 Volkswagen Group China is well positioned to maintain its number one position in the market and seize additional opportunities in the future
4.5 in m units 4 3.5 3 2.5 2 1.5 1 0.5 0
34 China: The second home market of the Volkswagen Group Carsten Isensee Executive Vice President Finance, Volkswagen Group China Beijing, 14 April 2015