Dr Ing hc F Porsche AG

XETRA:P911

Earnings Call Transcript 2023-Q1

[Sebastian Rudolph, executive]

Yes. Hello, and a warm welcome from my side from Porsche headquarters in Stuttgart, Zuffenhausen. This is Sebastian speaking, and I'm happy to have you all in this call. This is a joint press and analyst call, and we will start with an intro statement by Lutz Meschke, our Deputy Chairman and member of the Executive Board for Finance and IT. And after this, we will first answer the questions of the media, followed by those of the analysts.

Before Lutz starts, I hand over to my colleague, Björn Scheib, our Head of Investor Relations.

[Björn Scheib, executive]

Good morning, and hello, and welcome to all of you for this call. Interesting, and important to mention on periods, such as the investor deck or interim reports are available on the Investor Relations section of our website. But before we begin, let me all remind you that any forward-looking statements we made during today's call is subject to the risks and uncertainties mentioned in the safe harbor statement included in our course materials. So this call will be governed by this language. Now with this, Lutz, please go ahead.

[Lutz Meschke, executive]

Yes. Good morning, and welcome, everyone, to the Q1 2023 joint Investor Analyst and Media Call. In the next minutes, I will walk you through the major milestones if achieved in the first quarter. But before we take a look at the Q1 2023 numbers and our strategy, let me talk about our anniversaries this year as well as the new [indiscernible]. This year marks the 60th anniversary of the Porsche 911. 911, our icon, and we will celebrate its creation, just as deserving as our 75 years, Porsche sports cars anniversary. Our Porsche friends and customers will jointly celebrate the 2 anniversaries with outstanding events over the whole year. In the course of 2020 -- we can look forward to some very special highlights.

We have a couple of surprises in store for you. We recently presented the new Cayenne at the Shanghai Motor Show -- is 1 of the most extensive product upgrades in the history of Porsche far reaching changes to the drivetrain, chassis design, equipment and connectivity. It also includes extensive development of our plug-in hybrids, which will have more power and more electric range in the future. But let's talk numbers now. This quarter, we were confronted with a broad set of challenges, geopolitical tension, inflation and supply chain disruptions on again. Thus, we are very grateful that we are benefiting from unchanged high demand from our loyal customers and were able to deliver the highest number of vehicles in the first quarter ever. At this point, I also want to thank all our Porsche employees and our Porsche partners for the great teamwork.

With all the efforts, this success would not have been possible. During the first 3 months of this year, we generated a strong increase in group revenues by 25.5% to EUR 10.1 billion. Increase is mainly the result of higher unit sales as well as continued pricing and product mix effect. The group operating profit increased accordingly to EUR 1.8 billion, and we continued our robust performance and underlines the resilience of our business model once again. The operative margin remained on strong 18.2%. The -- this EUR 0.8 billion R&D spending and EUR 0.3 billion CapEx, we continued to heavily invest in technology, innovation, digitalization and product. Pushing ahead with our modern luxury strategy. Our investments are the foundation of Porsche's commitment to being a leader in exclusive and sporty mobility. We are sticking to advancing our electrification strategy in terms of attractive product lineup and disciplined ecosystem deployed.

In our Automotive segment, we have seen the highest number of vehicles sold in the first quarter. Overall, we sold over 84,000 cars. All products remain quite popular with our customers. Despite continuing bottlenecks in the supply chain and the limited availability of parts, the BEV share was 11.4%. As discussed earlier, the order backlog stays robust at a high level and our customers unchanged opt for a high share of individualization for their vehicles.

In Q1, the operating profit of the Automotive segment was EUR 1.7 billion. This exceeded the prior year figure by EUR 0.4 billion. This automotive sales revenue of EUR 9.3 billion, the operating return on automotive sales of 18.5% was on previous year's level. The unchanged strong performance is a result of continued positive pricing and product mix effects, volume growth as well as a stable and lean cost structure. At the same time, we had to digest higher material, raw material, energy and logistic costs. Automotive EBITDA increased by EUR 0.4 billion to EUR 2.3 billion corresponding to an automotive EBITDA margin of 24.4%. The Automotive net cash flow climbed to EUR 1.4 billion which was a result of positive effects from EBIT and some tax payments effect.

As of March 31, the automotive net liquidity decreased by EUR 2.5 billion to EUR 5.7 billion compared to the end of the fiscal year 2022. This development is due to the cash outflow from the payment the last profit transfer for the 2022 financial year to Volkswagen and on the other hand, to the positive contribution from net cash flow. Let me add -- this was the last payment of this type. The domination agreement and the profit and loss transfer agreement were terminated at the end of 2022. You can find more details on the net liquidity development in the deck on our website.

Stringent capital deployment remains one of our key priorities. The Porsche Financial Services segment's operating profit was EUR 86 million in Q1 '23, around EUR 20 million lower than last year. This development was mainly due to an increase of refinancing costs. The operating return on sales in financial services amounted to 10.7%. The penetration rate moved to 41.6% after 45.7% in Q1 last year, as we immediately reflected on the changed terms due to the inflationary environment.

Let's move on to the outlook for 2023. This plan for 2023, the Porsche AG group assumes that average global economic output will continue to grow at a slightly lower level compared to 2022. As detailed in the slide deck available on our website, this is subject to risks, uncertainties and assumptions relating to the development of the economic, political and legal environment in individual countries, economic regions and markets and in particular for the automotive industry.

Based on these above-mentioned assumptions, the Porsche AG Group expects an operating return on sales for 2023 in the range of 17% to 19%. This forecast includes assumed group sales revenues in the corridor of around EUR 40 billion to EUR 42 billion. Our forecast for the Automotive segment is a net cash flow margin between 10% and 12% and an automotive EBITDA margin between 25% and 27%. As part of the 2023 sales forecast, the company expects despite the supply challenges, fully electrified vehicles to account for up to 12% to 14% of total new vehicles delivered to customers.

For the fiscal year 2022, the Executive Board will propose a dividend of EUR 1 per ordinary share and EUR 1.01 per preferred share to the Annual General Meeting. This is to be distributed in early July. In the medium-term, Porsche aims to pay out approximately 50% of net income to shareholders.

But we wouldn't be Porsche if we were satisfied with what we have achieved. Despite all our satisfaction, we have set ourselves very ambitious goals to position Porsche even stronger financially. We have a clear plan on how we want to achieve this. We call it Road to 20. The #20 represents our long-term target, more than 20% group operating return on sales. Porsche is striving for this very ambitious goal in the long-term. To this end, we are now putting everything to the test again.

Starting with our product range through pricing to the cost structure. We are setting up a comprehensive package of measures to increase the quality of contribution margins and make our products even more attractive. Above all, we want to make our products even better, even more unique, even more desirable. We want to focus even more on our customers and offer them even more performance and luxury experiences. This Porsche specific technologies and partnerships, we want to fulfill even more individual visions, so that even more customer dreams come true.

And all in all, of course, we are sticking to our medium- and long-term targets. Group operating return on sales of 17% to 19% for 2023. And in the long-term, more than 20%.

Thank you very much for your attention. We are very much looking forward to answering your questions now.

[Operator]

[Operator Instructions] I hand over to Dr. Sebastian Rudolph, Vice President, Communications, Sustainability and Politics.

[Sebastian Rudolph, executive]

Thank you very much, and thanks, Lutz, for your interest statement. We have now maximum 30 minutes to answer the questions of you. [Operator Instructions] And with this, we now go to the first question, and it goes to [ Victoria Vadaze of Reuters ].

[Unknown Analyst]

I wanted to ask if you could give us a little bit more specifics as to why the return on sales didn't rise in line with revenue and operating profit? Presumably, this has something to do with higher costs. If so and related to that, could you just give us your outlook on what costs are going to look like in the coming months in terms of energy and raw materials? Are there specific costs that you think are going to remain high? Or is there anywhere that you see -- you see some decline?

[Lutz Meschke, executive]

Thank you for your question. Yes, we have seen a very strong increase in sales in the first quarter, and we have seen also very strong increase in operating income, more or less the same level as we have seen for the increase in sales. And therefore, we reached a very stable return on sales ratio of 18.2%. Therefore, there is no onetime effect in place in the first quarter.

And when it comes to the entire year to the outlook for the entire year, we are very confident that we can reach the announced figures when it comes to turnover. It will be between EUR 40 billion and EUR 42 billion. We expect return on sales of 17% to 19% and net cash flow margin between 10% and 12%. Therefore, we expect a very stable and successful year 2023.

[Sebastian Rudolph, executive]

I also saw [ Jan Schwartz ] also from Reuters. In the Q&A queue, Jan, you had dropped your questions. If you still have one, I'm happy to take your question. So Jan, if you still can hear me, your finger was lifted, then please go ahead. Otherwise, we're fine. Okay, Jan. If your question arises, then lift your finger again. Then we -- in the meantime, we switch to [ Marco Engemann from DPA ], please, Marco?

[Unknown Analyst]

My question evolves around the other side of the equation, so to say, the price environment. Mr. Meschke, could you please give us some color on what do you expect in the coming quarters concerning average selling price which has gone up over the last year and quarter year-over-year? Do you feel that's going to hold over the whole year? And how are you enforcing price -- the raising of the prices?

[Lutz Meschke, executive]

Yes. Mr. Engemann, thank you for your question. Yes, we have seen a very strong pricing enforcement with our entire model range in 2022 and also in the first quarter of '23, and we expect the same development for the entire year 2023. We have already decided a price increase for the new model year in the U.S. and in Europe. Starting then with the second half of this year, the price increase will be between 4% and 8%. And in China, of course, with the introduction of the new Cayenne, we will see also a certain price increase when it comes to the launch starting point.

[Sebastian Rudolph, executive]

And Jan, appeared again. [ Jan Schwartz ], please. The next question is yours.

[Unknown Analyst]

Can you hear me now?

[Sebastian Rudolph, executive]

We can, Jan. Please go ahead.

[Unknown Analyst]

Great. I had some technical issues. So sorry for that. Good morning from my side. And I would like to get -- just try another time to give more color perhaps on the margin staying at 18.2%. And you said there were no special effects on that. But yes, just to understand more higher cost is obvious, but what exactly are the reasons for margin changed at this level, which is very good, but could be better.

[Lutz Meschke, executive]

As I mentioned, Mr. Schwartz, we have seen a very strong performance in the first quarter. We have seen a volume increase. We've seen a continued positive product mix and very positive price effect. In addition, we have seen also continued positive FX effects in the first quarter, and we expect it also for the upcoming months. And of course, we're also able to offset the increased cost with this positive effect. We have seen, of course, inflationary effects. We have seen increases in raw material costs and also increases in our R&D costs. And therefore, we are quite happy to see a very stable return on sales with 18.2%.

And as I've already mentioned, for the entire year, we expect the range of 17% to 19% when it comes to return on sales. We expect also a very strong cash flow margin between 10% and 12%. And if you have a close look on the first quarter, we have shown a cash flow margin of more than 15%. Of course, it was a little bit benefited by tax payment effect of about EUR 250 million, but also without this positive effect, we would have seen a net cash flow margin above 12%, and that's a very strong performance.

And as I already mentioned, yes, we expect a similar development for the entire year and therefore, we will stick to our very ambitious goals when it comes to 2023.

[Sebastian Rudolph, executive]

So despite all challenges in geopolitical area we're quite happy with what we achieved. Jan, do you have a follow-up on this?

[Unknown Analyst]

No, no. Thanks much.

[Sebastian Rudolph, executive]

Okay. Good. Then we jump to [ Markus Klausen ] from Dow Jones.

[Unknown Analyst]

I would like to address the pressures again in the first quarter. The delivery conditions have eased somewhat, but where do you still feel headwinds? And maybe you can say something about the production of the Taycan in particular, as you have been considerable supply bottlenecks recently?

[Lutz Meschke, executive]

Mr. Klausen, thank you for your question. Yes, of course, we see some headwinds when it comes to supply chain disruptions. We have still some issues with the semiconductor supply chain. And of course, when it comes to the Taycan production, we have some issues when it comes to the high voltage heating system. And therefore, the focus in the first quarter when it comes to the Taycan was to deliver spare parts for our existing customers. And therefore, you have seen or we have seen a BEV share of just 11.4%. But now we are in a very steep ramp-up curve together with our supplier when it comes to the high voltage heating system. And therefore, we expect an increase in the BEV share in the upcoming months, and we are very confident to reach the BEV share of 12% to 40% for the entire year.

Yes, that's the main headwind we expect. But as I probably mentioned, we expect also a tailwind when it comes to FX since we have a very flexible and long-term oriented hedging policy in place. And therefore, we are quite confident that we can reach the same -- more or less the same level of tailwind when it comes to FX impact. And what's also very important, our order book is still very good and also the order intake is very robust across all the world regions.

[Sebastian Rudolph, executive]

Then we go from Dow Jones to Bloomberg in [ Monica Raymond ], Monica, please?

[Unknown Analyst]

Mr. Meschke, we saw that Porsche Financial Services was less immune from the impact of inflation and rising interest rates last quarter. And I was wondering if you might say how you expect interest rates and inflation to impact leasing and finance vehicles over the coming quarters?

[Lutz Meschke, executive]

Ms. Raymond, thanks for your questions regarding Porsche Financial Service, it's a very important pillar for us. And of course, yes, we have seen the effect of increased interest rates also in our penetration rate. That's an expected development when it comes to the penetration. And what's very important that we have a very strong residual value management in place. And we have already considered a new interest rate environment when it comes to our residual value setting for the entire year 2023.

Therefore, we expect a very stable penetration rate over the upcoming months now for the Porsche Financial Services Group. Of course, we will have certain differences when it comes to single market. But in the -- all in all, we expect a very stable development of the Porsche Financial Services business. And yes, we are quite confident that we can reach our goals also in this segment.

[Sebastian Rudolph, executive]

I have one more question on the list. So if you have a question, you're a journalist and please lift your fingers. The next question and maybe the last one goes to Marco Engemann with a follow-up question of DPA.

[Unknown Analyst]

Yes. My question was just be about a confirmation, I guess, around the new model of the Macan. Is it still on track for coming to market in 2024? And could you tell us in which timeframe, maybe at the early beginning in the first quarter of the year of 2024? Or is it more like Q2 or Q3? I guess you are starting production in the back end of this year? Could you tell us a little bit about that?

[Lutz Meschke, executive]

Yes, Mr. Engemann. Thank you for your question. So Macan is in its final testing phase, and we are very confident that the delivery to customers will start in 2024. The exact timing depends on the customers' region based on our stage market introduction. Yes, as I've already mentioned, we are quite confident that we can stick to our launch plan. And as I already mentioned, yes, we are in the final testing phase halfway is more or less finished so far, but we have some software bugs to solve. But in general, we are confident that you will see -- or that we will see a very successful start of the E-Macan in 2024 across all world regions.

[Sebastian Rudolph, executive]

Because of this, what -- as said, we are not communicating on A or B is in 2024 and -- with the E-Macan. And with this, we go to the financial part -- [ Patricia Munsen ].

[Unknown Analyst]

Two questions, please. One is you attribute higher profits and sales to a favorable price mix. Does this simply mean that demand is booming for more expensive cars? Or are customers spending more fitting their cars? It would be great if you could give some color on this. And then Mr. Meschke, I believe you came back from Shanghai, not long ago, and it would be great to here, what struck you when you were out there in terms of the Chinese markets and on what Porsche must do ahead there to maintain its market share?

[Lutz Meschke, executive]

Yes, Patricia. We have seen, yes, a strong product mix in the first quarter of '23, and we expect the same development also in the upcoming months. We have a very high model share in place so far and a very high internalization rate. And that's also when it comes to our [ best ] strategy, we will focus on very good product mix. We will focus on a high individualization rate. And of course, we want to use our pricing potential when it comes to the condition to BEV starting now with E-Macan in '24 and then followed by the 718. And we will see a price increase when it comes to the base model for the E-Macan and 718 compared to the combustion engine car by [ 10% to 15% ].

And we will have a clear focus on luxury product, but also on customer experiences beyond the car. It's important that our customers, first of all, in China can experience some special events in Porsche communities that we offer them very convenient, fast charging solutions. We start now in Europe with exclusive fast-charging solutions and also in China and was also very important is the sustainability aspect first of all when it comes to the younger generation. And when it comes to female buyers, sustainability is a very important aspect, not only the ecological part but also the social part our customers expect that we did some of our success back to the society.

And therefore, we count on or we rely on an entire ecosystem, starting with a luxury product over very, yes, attractive customer experiences and as I've already mentioned, sustainability. And all these aspects are very important. I've already mentioned it for China. You have asked for my impression when it comes to China, we have seen a very, very strong development of local brands when it comes to [ mass ] market when it comes to premium. And yes, we a very positive rebound of the entire economy. And we think in opportunities when it comes to our brand, and therefore, we are very confident that we can see also a very positive development for our market share when it comes to BEV business.

Yes, we see a lot of potential when it comes to number of high net worth individuals is expected to grow as the net high worth individuals is growing significantly over the upcoming years, you see additional potential when it comes to SUV business. And you know we spend more than 50% of lower cost in the SUV segment. And of course, we are a leader in the luxury segment of BEVs. And therefore, we see for our brand in the luxury business, a lot of additional potential also in China.

[Sebastian Rudolph, executive]

And to add on this, Lutz, we communicated in April, the delivery in Q1 and Porsche was up by 21% compared to previous year. So this comes into what Lutz said from his impression of China.

And with this, we close the Q&A session for the journalist. Thank you very much for asking and thanks Lutz for your fruitful answers. And now I hand over to my colleague, Björn Scheib, Head of Investor Relations. Björn, the floor is yours.

[Björn Scheib, executive]

Thank you very much. And now we would love to start the Q&A session for the analysts and investors. With the following sequence first question will be coming from Tim of Deutsche Bank and we continue with George of Goldman and then we've got the Dorothee of Exane. As I see a quite sizable number of people in the queue, it would be great if you could limit yourself to 1 or 2 questions. And with this, Tim, the line is yours.

[Tim Rokossa, analyst]

I would have 2, please. The first one is, and this may very well be semantics, but obviously, some of us noticed that -- we did notice that you changed your wording on the order intake situation from very high with the full year result presentation to "high" only in the Q1 result. Is there anything that we should read into this? Has the order situation slowed down a little bit? Is it actually unchanged and this really is just semantics? So obviously an unquantified KPI.

And then secondly, when we think about the automotive margin, which looks I fully agree with you, this is a pretty decent result, but at the same time, we see very strong results from a lot of carmakers in Q1. It's just been a generally very strong and profitable reporting season for them. Should we see this as the peak margin that you are able to reach in the current environment before the Road to 20 program really hits in and the BEV rollout actually starts to increase? Or would you say that there is still room for you to improve a little bit, should the supply chain stabilize a little bit more FX comes into favor and all these type of things?

[Lutz Meschke, executive]

Tim, thank you for your questions. Yes, our order book, it's still very high. As I already mentioned, we are very satisfied with the strong order backlog. And you have seen also in the first quarter, a very strong order intake across all world regions. Some models here is still -- there is increase of order bank. It's very important to announce that. And we see we have some safe offers for the next quarters. And therefore, we are very confident that we can reach our targets when it comes to very ambitious targets when it comes to the entire year 2023. We have shown now return on sales margin of 18.2% and the automotive business reached 18.5%.

I think that's a very positive result. And with all the headwinds we have already mentioned with the supply chain disruption, still ongoing supply chain as such when it comes to semiconductors with some issues when it comes to the limited parts availability for the Taycan. And we will -- we expect that this situation will ease in the course of the year 2023, we can be very positive for the entire year. And I can say that the order intakes in the first quarter are above our expectations.

And therefore, you can see that our expectations for the entire year 2023 should be fulfilled. And yes, of course, we will benefit also from a strong tailwind when it comes to FX and all these aspects will support our business in the upcoming months. And this is a strong order backlog in the entire world, we can be sure that we reach our targets.

[Björn Scheib, executive]

You also had a question concerning the supply chain as far as I understood?

[Tim Rokossa, analyst]

I think that was okay. Lutz just answered that the supply chain is improving. That's what I was after, but still remains...

[Björn Scheib, executive]

I want to add this part. When Porsche is talking supply chain, we don't talk commodities. From the discussions that I had with a couple of you this morning, it's totally true that chips and steel and rubber and some commodities are increasing with respect to supply chains when Porsche talk supply chain, we talk about the luxury business. And here, we talk about the specific parts and components that our customers are ordering for the personalization of the vehicles. From that point of view, here, we still recognize disruptions. This is important to mention. We are not talking commodities.

So the next one in the row would be George and thereafter its Dorothee.

[George Galliers-Pratt, analyst]

I had 2 questions, one on the recently launched Cayenne and the second one on Financial Services. Just starting with the Cayenne, I do note that on your online configurators, there seems to be a lot more customization available on this car versus prior generations, particularly with respect to exclusive manufacturer. Is this part of Porsche's strategy going forward in terms of enabling customers to increasingly customize their vehicles, thereby hopefully leading to a much stronger mix for you in outer years. And is the level of customization on the Cayenne indicative of what we should expect on all future models?

The second question I had was with regards to Financial Services. Obviously, a solid performance in terms of the EBIT in Q1. We have seen some volatility, however, in the earnings evolution there. Could you perhaps just give some insight into, a, what's driven the volatility in recent quarters; and b, what your expectations are through the rest of the year? And related to that, are you seeing any drop in penetration rates as APRs increase?

[Lutz Meschke, executive]

Yes. Thank you, George. I will start with your first question regarding Cayenne. It's a very important question when it comes to our entire strategy? As I already mentioned, for us, it's very important that we offer our customers a luxury product, combined with very ambitious customer experiences focusing on sustainability. And when it comes to the luxury product, a clear focus on individualization possibilities.

It's crucial that we as a luxury brand offers our customers the most personal car because when you want to stay with your high premium fees in the luxury segments. And of course, then you have to offer the best product and the best customization possibilities. And our target is not to grow volume-wise, but value driven. And therefore, we want to increase our product mix. We want to grow when it comes to the expansion of our product range upwards with the K1 in the top-end SUV segment.

And of course, we want to, yes, also tap into new customer pools. First of all, we see a huge potential when it comes to younger generations and when it comes to female buyers. And therefore, the expectations when it comes to a luxurious product is a little bit different than we have seen it -- we see that in the Western world. There's a strong focus on individualization. There's a strong focus also on digitalization aspects. And therefore, we invest heavily in connectivity and digitalization, first of all, in China, Therefore, we decided to establish digital hubs there in order to work together with the local tech companies in order to meet the needs and requirements of the local customers there.

And yes, that's a focus of our ambitious strategy, high customization rates and the most luxurious product possible. And you will see it also with the upcoming model launches there's a clear focus on higher customization rates. And as I've already mentioned, the entire strategy is focusing on a luxurious environment for our customers. And therefore, we decided to heavily invest in the electrification and digitalization of our product in the upcoming years. When it comes to the Cayenne model launch now, the new Cayenne. You will see also a huge step forward when it comes to driving dynamics when it comes to the electric range of the car. You will see electric range of above 80 kilometers and that's a huge step forward compared to the existing models.

Okay. The second question was regarding Porsche Financial Service. You mentioned the impact on the operating income. I've already mentioned that we have seen a certain impact from the interest rate side, we have reflected, of course, these interest effects also in our leasing rates. And therefore, we have seen a slight difference compared to the penetration rate 2022. Now we have a penetration rate of almost 42%. That's absolutely in line is our expectations.

And what's also very important to know is that when it comes to off-lease disposals in 2023, we don't expect a significant impact because we have already considered all these topics in our residual value settings. And therefore, there is no surprise when it comes to the upcoming months for our Porsche Financial Services business.

[Björn Scheib, executive]

So the next in the row then would be Dorothee from Exane. After, we take Jose of JPMorgan and then Patrick of UBS.

[Hanna Dorothee Cresswell, analyst]

I have 2, if I may. The first is just coming back to the order book and the second is around the Taycan. On the order book, do you think you could share any detail on the order book by model so for which products or the order book is largest and where it is smaller? And then with regards to the Taycan, could you tell us if there have been any changes in the Taycan residual values that you've become aware of in the recent weeks? Because obviously, the competitive dynamics, specifically in the BEV segment is somewhat in flux at the moment.

[Lutz Meschke, executive]

Yes. Please understand that we don't want to comment on individual model lines when it comes to the order books. But of course, we have different waiting times when it comes to different world regions and model lines. For instance, for in the 911, the customer has to wait more than 1 year in the U.S.A. and in the overseas regions. And when this comes to the SUVs in China, you have to wait for a couple of months. And therefore, you can see that there are difference between model lines and regions. But in total, we have a very, very strong order book in place.

And when it comes to the Taycan, the Taycan is a success story from the first day onwards. We see a very strong residual values in all the different world regions. And the slight reduction in the BEV share is only caused by supply chain disruptions and to limited parts availability, the demand for the Taycan is still very high in all the different world regions.

[Björn Scheib, executive]

By the way, as Lutz said...

[Lutz Meschke, executive]

Yes, when it comes to the entire year for the Taycan, of course, we confirm our sales targets with a BEV share between 12% and 14%.

[Björn Scheib, executive]

So the next on the road then would be Jose and Patrick, and after Patrick, we'd take Stephen of Societe Generale.

[Jose Asumendi, analyst]

It's Jose from JPMorgan. Congrats on the solid results. A couple of questions, please. First one, capitalized R&D. Can you give a bit more guidance how to think about this journey throughout the year and also into 2024? That will be the first topic. Second topic, can you discuss a bit how you want to protect or enhance the profitability of the business as you launch the Macan BEV? And how should we think about pricing on electric vehicles? That equation of launching electric cars and increasing prices to be able to obviously offset the incremental cost of the battery, how is that for you an opportunity? And how do you think about it?

[Lutz Meschke, executive]

Yes. Thank you, Jose. Yes, when it comes to R&D, the capitalized R&D, of course, is depending on the product launch cycle. And please understand that we don't want to comment on the product launch cycle of Porsche in detail because of competitive reasons. But you can expect a similar level of capitalized R&D also in the upcoming months and also in 2024. When it comes to the pricing of the E-Macan, I have already mentioned that we will increase the prices when it comes to the base models for the E-Macan by about 10% to 15% compared to the combustion engine car in the same model year. And of course, we will do it in the same or similar way when it comes to the product launch of E-Boxster.

And yes, it's an expectation when it comes to the BEV transition that we can achieve also a very high price premium when it comes to the entire [ average ]. We see a lot of potential. We have a proof of concept in place with the Taycan and therefore we are very confident that we see a similar development also when it comes to the transition of the existing combustion engine cars. We achieved a share of first-time Porsche buyers with the Taycan of 60% and of course, we expect also a very high number of new customers when it comes to the transition for the E-Macan and the Boxster that gives us a lot of potential when it comes to the BEV transition.

And that's also very important since we have set a very ambitious goals when it comes to BEV transition, we want to reach a BEV and a plug-in share of more than 50% in 2025 and more than 80% of fully electrified cars in [indiscernible]. And we set out the ambitious goal to reach more than 20% return on sales. And that would mean we have to reach parity between BEV and combustion engine business as soon as possible. And we see high pricing potential of our brand, we see increasing economies of scale when it comes to our BEV platform since we rely on those 2 BEV platforms within Porsche in future. Yes, we will see parity in a couple of years, and that will help us a lot to reach our ambitious goals when it comes to return on sales.

[Björn Scheib, executive]

Before we move on to the question of Patrick, let me also add to this degree. We get the question with respect to the capitalization rate, more or less any quarter. So please understand that this is a reflection of our accounting policies, and this is not artificially said in order to push EBIT. This company is predominantly managing its business with respect to cash conversion and with respect to cash flow. And if you take a look at our historic numbers and the most recent numbers, you see that we have a quite attractive cash conversion. Therefore, we don't focus in our decision-making on the EBIT.

So with this, the next question will come from Patrick, and we will have Stephen. And after Stephen, we'll have Horst of Bank of America.

[Patrick Hummel, analyst]

Yes. My first one, Lutz, very simply put, you've delivered 9% price mix increase year-over-year, roughly, yet your auto EBIT margin is below 25% automotive EBITDA margin. Are you actually happy with that? To be honest, I have to say price/mix, plus 9%. If you had asked me 6 months ago or so I would have said that's incredibly strong outcome. And I would have expected the margin to reflect that, but that's not the case. So I'm just wondering if you're really happy with this underlying performance despite the phenomenal price/mix growth year-over-year?

And the second question on the supply chain. And thanks, Bjorn, for the color you already gave that we're not talking commodities here. But I wonder, can you help us understanding what the root cause of this supply chain bottlenecks still is? I mean the whole world had semiconductor bottlenecks logistics challenges, et cetera. And neither of that seems to be a major thing still. So is it that the suppliers are in some ways, constrained with their own capacity when it comes to the modules required for the individualization? Or what is it that's still holding your supply chain back?

[Lutz Meschke, executive]

Yes, Patrick. I will start with the increase in price mix. We have already mentioned a 9% increase in the top line. And yes, it's a very ambitious goal when it comes to the upcoming year to grow with a CAGR of 7% to 8% in total when it comes to group sales revenue. The main focus is on product mix. It's on a better customization rate. And of course, we will focus also on special additions, first of all, when it comes to the 911. And yes, we will use our huge pricing potential when it comes to BEV transition, as I have already mentioned it.

Volume increase is not our target, but of course, we expect also a volume increase, but a major part of the sales increase will result out of our product mix, specialty additions and higher customization rates and our pricing potential, as I've already mentioned. But nevertheless, we will see also a volume increase. I've already mentioned the very positive growth fundamentals when it comes to the number of high net worth individuals. I expect the growth in SUV sales, the expected development when it comes to luxury BEV cars. And therefore, we will benefit also in this direction.

And yes, therefore, yes, very confident that we can reach our ambitious goals also when it comes to the steep ramp up towards electromobility regarding E-Macan, regarding E-Boxster and then followed by the E-Cayenne.

And when it comes to EBITDA margin, yes, the effect is regarding the depreciation and you have a close look on the development of our operating profit, then you will see that this development is completely in line with the increase in sales. We have seen a slightly disproportional development when it comes to EBITDA, but it's only driven by the relatively flat cost of depreciation. And the depreciation will increase in the upcoming months and years. You will see the inflection point in 2025. And you will see the first time that the depreciation will be higher than the sum of research and development costs and CapEx. And therefore, we are completely in line with our expectations, and we are completely confident to reach our ambitious goals.

When it comes to supply chain, yes, we are still in a situation that we don't have 100% coverage of the semiconductor supply chain. We have some issues when it comes to the Taycan, first of all, regarding our high-voltage heating system. And therefore, we have seen limited parts availability. In the first quarter, we expect that this situation will ease over the upcoming months. And therefore, we stick on our -- to our very ambitious goals when it comes to BEV share between 12% and 14%.

And of course, we are focusing on our top end models when it comes to the supply chain we are closely monitoring this situation. First of all, when it comes to models like [ GT3 ], but also when it comes to Taycan since the Taycan is, yes, very important for our strategy for our equity story for our fast-moving transition towards electromobility. And therefore, there is a clear focus on top end models and the Taycan when it comes to the supply chain of -- yes, in the direction of limited parts.

And yes, as I've already mentioned, we will see a better situation when it comes to the high-voltage system starting now in the second quarter. The first quarter, we had a clear focus on the delivery of spare parts to our existing partners. And now we can focus again on serious production when it comes to Taycan and therefore, we don't expect surprises when it comes to BEV share in the entire year 2023.

[Patrick Hummel, analyst]

Just to be clear, on the supply chain side, you talked mainly about Taycan now, which suggests that you can fire on all cylinders for the ICE models in the coming quarters?

[Lutz Meschke, executive]

No, we have also some issues regarding our combustion engine cars. For instance, for the GT3, I have mentioned the semiconductor situation. We are not 100% coverage. And therefore, yes, we have a few [indiscernible] also in the upcoming months when it comes to the supply chain. But nevertheless, we stick on our ambitious targets.

[Björn Scheib, executive]

This is what we mentioned earlier. We don't talk commodities. This is a luxury product over here. And when people individualize the vehicles with sound systems or carbon parts. We don't miss these parts and ship a [ half-finished ] product. Our customers expect that they get the full-fledged product. This is exactly the point why we put this multiple times that we don't talk commodities.

[Patrick Hummel, analyst]

Sure. I totally get that. I'm just surprised that the individualization parts are a bottleneck, but we can take this offline. That's fine.

[Björn Scheib, executive]

Very fine. I'm happy. Now let's speed up a little because we are running out of time. We've got Stephen, Horst and Henning. And to that degree, sorry about this, but we need to keep it disciplined. Please stick to 1 question in order to give everybody a chance to ask a question.

[Stephen Reitman, analyst]

Okay. Yes, Steve Reitman, Societe General. One of the key factors during the IPO process was to talk about entrepreneurial freedom that would be gained from the separation from Volkswagen. Could you maybe give us some example of how Porsche is moving forward in this respect? And how are you able to move faster the entrepreneurial freedom that you've gotten from the separation, please?

[Lutz Meschke, executive]

Thank you, Stephen. That's a very crucial point for the development of our brands to get more independent from the VW Group that was, yes, one of the most important goals when it comes to the IPO of Porsche. Of course, we already benefiting from [ higher speed ] now when it comes to new products when it comes to hiring of new employees. We can focus on strategic fields like battery cell development or software development and that gives us -- I see that gives us access to competencies in this very important strategy field for the future of Porsche.

And in addition, we can use also the synergies within the VW Group in future. And that gives us a more or less unique position in the automotive industry. We can plays on the strengths of a luxury sports company, and we can benefit from synergies with the VW Group. And of course, we will use the synergies and it makes sense for Porsche only in this case, it makes sense when it comes to bundling of purchase volume when it comes to mission pooling and maybe when it comes also to using new platforms regarding the electrification of our model range. And all these aspects together sets us in a very, very unique position.

[Björn Scheib, executive]

Next one would be Horst and then Henning.

[Horst Schneider, analyst]

It's Horst here from Bank of America. Just a few follow-ups or one follow-up. Mainly, that is when I look at your wholesale versus retail sales in the reports. And I'm seeing that there is a gap of something like 3,000, 4,000 units in Q4, but also in Q1 '23. Can you maybe explain why that is? Is it because more vehicles are in transition or basically on boats to customers? Or are you building up here some inventories and if yes, on which models?

[Lutz Meschke, executive]

Horst, thank you for your question. Yes. It's a very important point. Of course, we have seen some impact from the limited availability of parts, as I already mentioned, when it comes to the Taycan or also for top-end models in the 911 range. Therefore, we have seen increase in inventory in the first quarter '23. But we will see a normalization during the course of the entire year since we have more or less one crucial supply chain issues, I've already mentioned high-voltage heating system. We are now on a very good path together with our supplier.

And then therefore, we can focus now starting with the second quarter again, on our serious production when it comes to Taycan. And we see also a better situation when it comes to the part situation for our top-end 911 model and therefore, we will see also a normalization for the combustion engine cars starting with the second quarter of 23%.

[Horst Schneider, analyst]

But since we are talking here about finished goods inventory, right? When I talk about the difference between wholesale and retail sales. So that has got nothing got to do with part shortage or not?

[Lutz Meschke, executive]

It's both. It's both. It's unfinished and finished products. It depends on the situation of the car production. Sometimes, we have already filled the pipeline, but the car is still in the property of the Porsche Group. And sometimes the car was not able to finish due to some limited parts availabilities. And therefore, it's a mix of both -- and regarding the availability, I already mentioned that we will see a better situation starting in the second quarter. And therefore, we will see a much better situation when it comes to inventories.

On the one hand, when it comes to unfinished products and on the other hand, when it comes to finished products, it's both. And what's also important when it comes to the difference between wholesale and retail, the wholesale figures includes also the used cars while retailers only report new car sales. That's also a very important reason for the difference between wholesale and retail.

[Horst Schneider, analyst]

I will follow up on that. I don't fully understand that, but I do call beyond on that.

[Björn Scheib, executive]

So the last one in that row will be now Henning of Barclays.

[Henning Cosman, analyst]

Yes, I'd like to actually take a slightly different angle on the margin situation and the evolution in the course of the year with 18.2% now in Q1. I just wanted to reconfirm that the price increases, Lutz, you mentioned 4% to 8% in the key regions in the second half. I just wanted to reconfirm that, that will materialize in the P&L in the second half already. So basically gets applied to the cars and the order book and the ones that you account for in the second half just wanted to reconfirm that. And also the sequence of these limited additions you've mentioned the surprises, anniversary specials also the sequence of those vehicles materializing in the P&L. Can you confirm that, that also affects the second half already?

And then in the context of that, starting with 18.2%, so above in the top half of the full year guidance range already are you not even in a position to confirm now that you would end up in the top half of the full year guidance range in the context of this basis and with the price increases and high-margin limited and special additions ahead for H2?

[Lutz Meschke, executive]

Henning, that's right. The price increase for the new model, yes, not reflected now in the sales of the first quarter, of course, we will start with the price increase in the second half of the year in the U.S. and in Europe. And therefore, you will see this effect then in the second half of this year in the P&L. And of course, this price increase will help a lot to achieve our ambitious targets when it comes to operating income and return on sales. And yes, of course, we see a very, very confident and promising situation regarding our order intake and our strong order backlog.

We expect a strong tailwind from FX, but we cannot be sure that we have the same effect in FX as we had seen in 2022 because we have a flexible hedging strategy in place. We use a lot of option derivatives. Therefore, there is a certain corridor. You have to steer when it comes to hedging. And therefore, yes, we stick to our corridor of 17% to 19% return on sales when it comes to the entire year. And yes, I think that's the [ ambitious ] target regarding the very ambitious market conditions with the ongoing inflationary environment obviously, a situation on the supplier side, we have to be careful. And therefore, I think the range of 17% to 19% is exactly the right corridor the entire year 2023.

[Henning Cosman, analyst]

Sorry, just on the limited editions and anniversary specials, are we expecting some shipments of this in H2 this year already? Or do they get launched this year but ship next year?

[Lutz Meschke, executive]

Yes. But it's a bit early to talk about new special additions. We are in our anniversary year. And yes, we want to show also some surprises, and please understand that it's a bit early to address new models at this stage.

[Björn Scheib, executive]

We now come to an end. As discussed earlier, this is the 75th anniversary of Porsche. And as discussed with a couple of you already we have a number of quite interesting events. And to that degree, I would draw your attention to the 10h of June where we're really hosting a very special location event at the Hockenheimring. So it would be our pleasure if you're able to join us over there because understanding the brand, seeing the brand, but last but not least, also touching the brand is one of the parts which are really decisive to understand the community and the understanding the backbone of our luxury positioning.

So it would be our pleasure if you join us over here and with this, thank you very much to all of you. I'm 100% sure. Sebastian will also say farewell to the journalists. Speak soon.

[Sebastian Rudolph, executive]

Thank you, guys. [Foreign Language] in German, I would say. Have a good day. Stay safe and take care. Bye-bye.

[Björn Scheib, executive]

Thank you also from my side.