china: the second home market of the volkswagen group

China: The second home market of the Volkswagen GroupCarsten Arntz Senior Finance Director, Volkswagen Group China Beijing, 10 September 2014

Business overview and sales performance

Market development

Investments Volkswagen Group China

Our products

Emerging business fields and financial results

Volkswagen Group China (VGC) at a glanceFacts 2014

■ Volkswagen Group ventured into China more than 30 years ago

■ Over 20 million cars delivered to Chinese customers since market entry

■ 89,000 employees work for the Volkswagen Group in China

■ Another 360,000 employees work within our dealer network

■ Volkswagen Group China is represented by more than 40 entities in China

■ People are the center of Volkswagen Group China’s strategy ‘Ren Wei Ben’.

Volkswagen production facilities in China

Volkswagen Transmission

Shanghai VolkswagenPowertrain

FAW-Volkswagen(Volkswagen, Audi)

Volkswagen FAW Engine

Volkswagen FAW Platform

Shanghai Volkswagen

Shanghai Volkswagen(Volkswagen, ŠKODA)

Volkswagen AutomaticTransmission Dalian

Volkswagen China Investment Company

Beijing

Shanghai

Dalian

Chengdu Nanjing

FAW-Volkswagen

Car production plants

Component plants

Headquarters Volkswagen Group China

Yizheng


Urumqi

Shanghai Volkswagen

Foshan

FAW-Volkswagen

TianjinVolkswagen AutomaticTransmission Tianjin

Shanghai Volkswagen

Ningbo

Changchun

Volkswagen FAW Engine


ChangzhouMAN Diesel & Turbo

Deliveries to customers Volkswagen Group in China (January – July 2014)

1) incl. Hong Kong, excl. MAN, Scania, and Ducati. All figures shown are rounded.

Ʃ 1,968

Volkswagen Group: 131FAW-VW

SVW

Total deliveries region China 2,0991)

973

995

Import FBU(‘000 units)

Locally produced(‘000 units)

Deliveries to customers by brand (January – July 2014)

1) incl. Hong Kong, excl. MAN, Scania, and Ducati.

1,791

1,358

270138

21

2,099

1,602

317152

240

500

1,000

1,500

2,000

`000 units

+12.8%

+17.4%+9.9%

+17.9%

+17.2% January – July 2013January – July 2014

With a solid sales performance year-to-date all brands contributed to the strong growth

of Volkswagen Group China

22%

10%

10%

5%5%

30%

Volkswagen Group – No. 1 in the Chinese passenger vehicle marketPassenger vehicle market China (January - July 2014 y-t-d)

Comp.3Comp.4

Comp.2

Comp.1

Volkswagen GroupOthers(i.e. localbrands)

1 Volkswagen Group + 0.8%

2 Competitor 1 - 0.2%




Rank Brand/GroupDelta of

market share(y-t-d)

1

6 out of the Top 10 selling vehicles are Volkswagen brand models

Jetta 155,950 vehicles

Sagitar 141,735 vehicles

Santana 165,273 vehicles

Lavida 188,751 vehicles

2

3

4

7

8

New Bora 121,638 vehicles

Tiguan 120,521 vehicles

Deliveries to customers(January – June 2014)

Source: CPCA

Audi in China – Enhancing leadership in the premium segmentLeading the premium SUV market in ChinaFlexible capacity expansion, adjusted to market demand

100,000200,000

400,000

Production

up to 700,000

2008 201720132010

Production

Annual production capacity, vehicles

2008 Jan-Jul 2014

SUV share of the premium market

SUV

18%

82%

38%

62%

Comparison of growth rates

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Jan-Jul 2014Premium Market SUV Premium Market Audi SUV

+24%

+32%

+41%

Pioneering the compact segment with three locally produced models

Audi Q3• Segment leader• 50% market share

(Jan-Jul 2014)

Audi A3 Sedan• 1st local premium

compact sedan• launched early

September 2014

Audi A3 Sportback• 1st local premium

compact hatchback• launched in March

2014

China has become the most important sales market for ŠKODAFurther volume expansion of ŠKODA

within the next years

> 500,000

226,971

2007

27,000

Annual deliveries to customers

2013 2018

ŠKODA Top 5 markets 1991 vs. 2013

Others

38%

UK

5%

Poland

6%

Germany

8%Slovak Republic

9%

Czech Republic

34%Others

37%

UK

6%

Russia

7% Germany10%

China

15%

Czech Republic

25%

1991 2013

Developing the model range in China

New ModelsCurrent Models

2007

Fabia Fabia Fabia Fabia Fabia Fabia Fabia

Superb Combi

Superb Combi

Octavia Octavia Octavia Octavia Octavia Octavia Octavia Octavia

Spaceback

Yeti Yeti

Superb Superb Superb Superb Superb Superb

Rapid Rapid

Yeti Yeti

Impo

rt

Lo

cal P

rodu

ctio

n2008 2009 2010 2011 2012 2013 2014

Porsche is gaining substantial momentum in China

13,28319,959

26,6667,726

9,148

6,738

929

9491,418

2,402

1,1492,603

2011 2012 2013

Cayenne Panamera 911 Boxster/Cayman

+15%

24,34031,205

37,425CAGR

40 51 63

2011 2012 2013

+16%

CAGR

Dealerships (number of dealers)

Increasing model variety and improving customer experience

SUV

Spor

ts C

ar

Macan launch in China: Q3 2014

Flag

ship

Porsche Experience Center Shanghai

Focus 2014:

Pro-active sports carmarket development andexploitation with 911and Boxster/Cayman

Sports Car Initiative China

Deliveries to customers (in units)


Market development


Our products


China continues to offer substantial growth potential

USA

China 2030

China 2020China

-2

0

2

4

6

8

10

12

0 10 20 30 40 50 60

Real GDP growth in %

Real GDP per capita in `000 USD PPP

Bubble size: real GDP2013 data unless otherwise stated

India

Brazil Russia

Japan

Germany

Source: IHS Economics

Continued positive economic development and the increase in household income drives private consumption on a solid growth path

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Private Consumption, China (left scale)Private Consumption Growth Rate, China (right scale)

in USD bn %

Source: IHS Economics

Nanjing

Dongguan

DalianShijiazhuang

ZhengzhouXi’an

Qingdao

Suzhou

NingboWuhan

Foshan Shenzhen

Lanzhou

ChengduChongqing

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 rumors on future restrictions

Deliveries in cities with or without restrictions1)

Cities restrictedCities with restriction rumors

Guiyang (2011)

Guangzhou (2012)

Tianjin(2014)

Hangzhou (2014)

Beijing (2011)

Shanghai (1994)

Source: Registration data, CPCA

Remark: Restricted cities include Beijing, Shanghai, Guangzhou, Tianjin, Hangzhou, Guiyang;

15 cities w/ rumors include Chengdu, Chongqing, Dalian, Dongguan, Foshan, Lanzhou, Nanjing, Ningbo, Qingdao, Shenzhen, Shijiazhuang, Suzhou, Wuhan, Xi’an, Zhengzhou

5,894 6,558

943816

1,7812,360

9,7348,617

Jan - Jul 2014Jan - Jul 2013

in ‘000 units

5,894

943

1,781

6,558

2,360

816

w/ Rumors(15 cities)Restricted(6 cities)

Not restricted(326 cities)

32.5%

-13.5%

11.3%

Growth(y-o-y)

1) converted to deliveries to customers from registration data

+13.0%

Less developed cities provide new opportunities

2018e

33%

2017e

34%

2016e

35%

2015e

37%

2014e

41%

2018e

67%

2017e

66%

2016e

65%

2015e

63%

2014e

59%

Level III shareLevel V share

ᴓ cars/1,000inhabitants

Number of cities

ᴓAverage # of inhabitants (m)

BeijingShanghai

Guangzhou…

DalianXi´an

Changsha

9 2616.7 8.4

ᴓ cars/1,000inhabitants

Number of citiesAverage # of

inhabitants (m)

ShantouHengshui

Jingdezhen…

GuyuanYaan

Zigong…

68 1094.8 4.0

HaibeiJinchangTurpan

…

1351.8

119 95

62 29 25

Level I cities Level II cities

Level III cities Level IV cities Level V cities

Leve

l III,

IV a

nd V

citi

esLe

vel I

and

II c

ities Level I share Level II share

Share of total market

Level IV share

China will invest further in the construction of road infrastructure

Source: National Road Network Construction Plan (2013-2030)

Length of national roads in China (‘000 km) National Road Network Construction Plan

Urgent need to expand the current road network:

■ more than 900 counties1) in China are not connected to the national road network

■ more than 18 cities with >200,000 population and 29 regional administrative centers are not connected to expressways

The Central Government Plan:

■ 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 road network

118

64

265

106

2011 2030

National ordinary roadsNational expressways

1) There are 2,856 counties in China

+84%+150%

Zhejiang

Guangdong

FujianJiangxi

Gansu

Tibet

Qinghai

Xinjiang

Jiangsu

Hunan

Guangxi

Shandong

Hebei

Liaoning

Henan

Sichuan

Yunnan

Guizhou

HubeiChongqing

Anhui

Shanxi

Shaanxi

Inner Mongolia

Ningxia

Jilin

Hainan

Heilongjiang

BeijingTianjin

Shanghai

Southern and Western regions show above average growth supporting our Go South and Go West Strategy

Regional share of total market sales (H1 2013 vs. H1 2014 in %)

H1 2014H1 2013

H1 2014

35%

H1 2013

H1 2014

23%

H1 2013

H1 2014

23%

H1 2013

21%

Northern regionWestern region

Southern region

Eastern region

Source: Registration data

22%

22%20%

35%

How big will the Chinese passenger vehicle market be in 2020?

13

18

23

28

33

38

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Forecast

in m vehicles

2013:15.9 m vehicles

ScenarioCAGR 10%

ScenarioCAGR 5%

32 m vehicles p.a.

25 mvehicles p.a.

10% growth in 2014e: ≙ ~ 17.5 m vehicles

Source: Volkswagen Group China scenario calculation


Market development


Our products


Investment program and core projectsTotal investment of €18.2 bn1)

in 2014 - 2018

New plant■ Changsha (SVW)

Capacity increase■ Foshan (FAW-VW)■ Chengdu (FAW-VW)

Vehicleplants

Componentplants

Capacity increase■ Changchun ■ Chengdu ■ Tianjin■ Dalian

PHEV products

MQB products

CO2 measures for plants and products

Products

2011 2012 2013 2014 2015 2016

1 m200,000

Total market VolkswagenGroup China

Assuming a 5% CAGR and a 20% market share of VGC the additional annual sales volume… …would imply a need of

2 new factories every 3 years

Scenario CAGR 5%: >20 m passenger vehicles

1) Status as per press release 22 November 2013

Go West and Go South strategies are core drivers for future growth

Existing vehicle production sitePlanned vehicle production site

Urumqi

Chengdu

Changchun

NanjingYizheng Shanghai

Ningbo

Foshan

Beijing

“Go South Strategy”

“Go West Strategy”

Changsha

QingdaoTianjin

Capacity expansion plans – on the way to 4 million units in 2018(Standard capacity of 250 working days)

3.135 m

2013Production

2013Capacity

2015Capacity

2018Capacity

Upward flexibility

4 million units

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).

FAW-VW

SVWUrumqiNingboYizhengNanjing

ShanghaiFoshanChengdu

Changchun

ChangshaUrumqiNingboYizhengNanjing

Shanghai

FoshanChengdu

Changchun

ChangshaUrumqiNingboYizhengNanjing

Shanghai

Foshan

Chengdu

Changchun

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)

1)

Implementation of the MQB toolkit in the Chinese production network

Urumqi

Chengdu

Changchun

YizhengShanghai

Foshan

Beijing

Ningbo

MQB production site by 2016Planned MQB production site

Nanjing

Changsha

Existing production site

OctaviaA3 SBGolf

MQB & MLB share of Volkswagen Group production

MQB MLB201420132012 20162015

MQB volume China

Implementation of MQB in the Chinese production network will significantly reduce investments for new models A3

TianjingQingdao

Significant growth of dealer networks planned1)

[as of H1 2014]

Xinjiang

Tibet

Qinghai

Gansu Inner Mongolia

Shaanxi

NingxiaShanxi

Hebei

Guangdong

Fujian

Shanghai

Shandong

Liaoning

Jilin

Heilongjiang

Beijing

Zhejiang

Tianjin

GuizhouHunan

Jiangxi

Guangxi

Chongqing Hubei

Yunnan

Sichuan Anhui

Hainan

Henan Jiangsu90

135

56

60 104

41

103

4314

71

20364

15032

31

238

44

107

210

10

64

67

27

70

6

33

90

3067

11

45

1,593

341320

2013 2014e 2018e

>3,600

2,395~2,750

1) Map includes only Volkswagen, Audi and ŠKODA dealers; discrepancies may occur due to reporting backlog


Market development


Our products


Volkswagen

Santana Passat

ŠKO

DA

Fabia

Rapid

OctaviaSuperb

Touran

Tiguan

LavidaPolo

Yeti

Gran Lavida

Rapid SB

Volkswagen

Sagitar Magotan

Audi

A6L

A3 SB

Q5Q3

Golf

Jetta

CC

A4L

New Bora

Broad local product portfolio at FAW-Volkswagen and SVW

A3

Note: Status as per July 2014

Model launches in 2014: Continuously strong product momentum

Polo

Cross Polo

Rapid Spaceback

A3 Sportback A3

Octavia

SVW

FAW

-VW

Boxster GTSCayman GTSCayenne Cayenne GTS

HuracánContinental GT V8S Cont. GT Conv. V8S

918 Spyder

New import modelsNew locally produced models

T5 Caravelle

Flying Spur V8

A3

A3 Sportback RS7S3

Macan

S8A8L A8 Hybrid

SciroccoGolf Variante-up! Beetle Cabrio

Significant extension of product portfolio planned: More than 100 models by 2018

CKD >35 FBU>65 >1002018e:

2013: CKD 22 FBU 41 63

Note: number of models including derivatives

SUVs are already the second largest body type in the Chinese market –and the growth is expected to continue

20242020

17,5 21,5 23,0

14,3 12,3 12,3

63,2 59,961,6

2014e

4.1

2013

4.1

2012

4.3

2020e

28.0

4.6

13.1

53.4

2024e

28.7

4.6

13.3

52.5

%

OthersSUVMPVHatchbackNotchback

2012 - 2014 body type market share

63.2

14.3

17.7

4.3

61.6

12,3

21.5

4.1

59.9

12.3

23.0

4.1

53.4

13.1

28.0

4.6

52.5

13.3

28.7

4.6

0.7 0.5 0.7 0.9 0.9

Source: Volkswagen Group China, % share of body type in total passenger car market

Volkswagen China – Product solutions to match our customers’ needs

Passat ChinaPassat USA

China specific wheelbase extensions, trim and colors

China special detail solutions

A6 Europe

A6 L China

Yeti Europe

Yeti ChinaChina exclusive spare wheel

The Chinese target ischallenging due to

► the low proportion of diesel cars in Chinaof only ~1%

► customers’ preference for larger vehicles

Legal requirements of average fuel consumption targets for fleets in China

Published data Assumptions of the Volkswagen Group

2012 2013 2014 2015 2016 2017 2018 2019 2020

5.5

6.56.0

8.59.0

7.58.0

7.0

0

5.04.54.0

7.56.9l ≙ 164g CO2/km

120g CO2/km ≙ 4.8l1)

l/100 km

95g CO2/km ≙ 3.8l1)

5.0l

1) Committed EU targets of the Volkswagen Group

Volkswagen Group China to actively engage in the New Energy Vehicle market with locally produced cars as well as the localization of technology

20202013 20162013

Phase

Introduction

Timing

Import Local production

Localization of New Electric Vehicle technology

Development

Audi A3 e-tron

Volkswagen e-up!Porsche PanameraS E-Hybrid

Porsche 918 Spyder

Audi A6 e-tron

2016

Golf GTE

DesignEngine development

Body developmentElectric & Electronics development

Prototype workshopsVehicle testing facilities

3D development environments

~ 2,700engineers in R&D in China

Expansion of Research & Development know-how in China


Market development


Our products


Car park development of Volkswagen Group China shows substantial opportunities for growth in the service and spare parts businesses

Car park will grow approx. 2 times by 2018 and 3 times by 2023 compared to 2014

>10-15 years5%

1-2 years39%

3-4 years26%

5-8 years20%

8-10 years10%

1-2 years22%

>10-15 years11%8-10 years

19%

5-8 years27%

3-4 years21%

7.0 8.6 10.212.4

15.1

>48

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

in m units

Car park covers all Volkswagen Group brands (only luxury car park does not use scrapping rate) Definition: Car park 2014 is car park as at 31 Dec 2013

Car park of Volkswagen Group China brands Age segmentation of car park 2014

Age segmentation of car park 2023

Development of pre-owned car dealer business

Qualitative and quantitative roll-out of group pre-owned car dealers

in m units

2012 2016e

10.68.7

5.1

2014e

6.5

2013 2015e 2020e

18.2

2019e

16.0

2018e

14.0

2017e

12.4

4.8

2011

4.3

Pre-Owned Passenger CarsPre-Owned Commercial Vehicles

111

285

182

420

330304

Volkswagen + ŠKODA

(Das WeltAuto)

Audi(refined

recomm.)

Porsche(approved

pre-owned)

Bentley(Bentley

pre-owned)

2013 2014e 2013 2014e 2013 2014e 2013 2014e

3.57.26.34.8

10.910.39.58.4

3.12.7

Total pre-owned car market forecast1) Group pre-owned car dealer roll-out

in `000 units

Volkswagen Financial Services is further growing its business

Financial Services China: Strategic growth dimensions

Strong retail finance developmentGaining share in an expanding retail financing market

90%

10%

Cash Finance

8%

2%

VW FS Others

73%

27%

Cash Finance

16%

11%

VW FS Others

67%

33%

Cash Finance

18%

15%

VW FS Others

07/20142007 2018e

Volkswagen Finance (China) retail finance penetration in the Volkswagen Group China network

(% of deliveries to customers)

78,000

149,000

227,000

300,000

2011 2012 2013 2014e

New retail finance contracts (number of units)

Leasing / Credits Fleet Management Used Cars New Mobility After Sales / Insurance

Another strong operating result in H1 2014

1) SVW Group / FAW-VW Group

Deliveries to Customers

Production (100%)1)

(’000 Units)

(’000 Units)

(€ m)

1,923

1,914

1,907

2010 2011

2,259

2,202

2,616

2012

2,815

2,643

3,678

2013

3,271

3,135

4,296

H1 2014

1,813

1,743

2,622

4,389 6,134 8,424(€ m) 9,569 6,000Operating profit (100%)

Operating profit(proportionate)

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)

0.7 0.8

1.8

2.8

4.6

6.5

0.3 0.40.8

1.2

2.0

2.8

2008 2009 2010 2011 2012 2013

Total amount of dividend Chinese Joint Venturesthereof paid to Volkswagen Group

Volkswagen Group China is well positioned to maintain its number one position in the market and seize additional opportunities in the future

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0in m units

china: the second home market of the volkswagen group

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