Dr Ing hc F Porsche AG

XETRA:P911

Earnings Call Analysis

Porsche Q3 Performance & 2023 Outlook

Porsche AG delivered solid financial results in the first three quarters, with revenue climbing to EUR 30.1 billion, a 13% increase from the previous year, and operating profit hitting EUR 5.5 million at a margin of 18.3%. Looking ahead to 2023, the company projects an operating return on sales between 17% to 19%, assuming sales revenues of EUR 40 billion to EUR 42 billion. The automotive net cash flow margin is expected to range from 10% to 12%, with an EBITDA margin between 25% and 27%. Electrified vehicles are projected to constitute 12% to 14% of new deliveries, depending on the Taycan's supply stability. Reflecting robust cash flow, a dividend policy of 40% and a 50% net profit distribution is planned in the midterm.

Strong Q3 Performance Amid Inflation and Investment Peaks

In the context of inflationary pressures and peak investments aimed at innovation and digitalization, Porsche AG delivered robust third-quarter numbers, maintaining their confidence in their full year guidance for 2023. New product additions and an implementation of their modern luxury strategy contributed to an inspiring quarter for customers. Despite reduced product availability and increased costs, Porsche AG has managed to achieve higher average sales prices and convert prospective clients into satisfied customers.

Forthcoming Product Launches and Strong Incoming Orders

Enthusiasm around Porsche's products is mirrored in its robust incoming orders, laying a strong foundation for upcoming releases such as the all-new Panamera and the 2024 E-Macan. This anticipation ensures sustained interest and sales momentum heading into the next year.

Financial Highlights and Increased Deliveries

Porsche AG reported a 13% increase in group revenue to EUR 30.1 billion, with a notable operating profit of EUR 5.5 billion and a strong margin of 18.3%. The company's vehicle deliveries jumped by 9.6%, with vehicle sales rising in the third quarter by 10% compared to the prior year. The 911 model continues to have the largest order book, which signifies enduring customer loyalty to the brand.

Pricing and Mix Favorability

The average sales price saw an uptick, reaching EUR 118,000 per vehicle for the quarter, driven by a deluxe product mix and strategic pricing—factors that help cement Porsche AG's luxury positioning in the automotive market.

R&D Investments Bearing Fruit

The automotive segment's operating profit for the first nine months of 2023 outperformed the previous year by EUR 500 million, illustrating the positive implications of higher volume and favorable pricing and mix. Significant investments of over EUR 2 billion in research and development, primarily towards electromobility, reinforce Porsche's commitment to innovation and sustainable luxury.

Operational Efficiency and Financial Prudence

Depreciation and amortization costs paired with R&D expenses, both closely align with Porsche's steady 4% spend on automotive revenues. A disciplined capital allocation strategy, combined with operational efficiencies such as inventory reductions, led to a favorable net cash flow of EUR 1.2 billion in Q3. The company targets a net liquidity ratio of 15% to 20% of automotive net revenues and plans to reward shareholders reflecting the robust cash flow generation with a dividend policy of up to 50% distribution of net profit in the midterm.

2023 Outlook and Commitment to Electrification

Porsche AG projects an operating return on sales for 2023 in the range of 17% to 19%. Sales revenues are expected to lie between EUR 40 million to EUR 42 billion, with a net cash flow margin for the Automotive segment projected between 10% and 12% and an automotive EBITDA margin between 25% and 27%. The forecast anticipates that up to 12% to 14% of total new vehicles delivered will be electrified models, depending on a stable supply situation for the Taycan, highlighting Porsche AG's strategic focus on electrification and future mobility.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Investors and Analyst Call regarding the Porsche AG Q3 2023 results. This call will be hosted by Lutz Meschke, Deputy Chairman and member of the Executive Board for finance and IT. All materials such as the investor deck or the quarterly statement are available in the Investors section of the Porsche AG website.

Before we begin, let me remind you that any forward-looking statements to be made during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the Porsche materials. This call will be also be governed by this language. [Operator Instructions]

And now I would like to hand over to Björn Scheib, Head of Investor Relations. Please go ahead.

[Björn Scheib, executive]

So good morning, everyone. Welcome to our analyst investors call on the Q3 numbers of Porsche AG. My name is Björn Scheib and today with me is our CFO and Deputy Chairman of Executive Board, Lutz Meschke.

Today, we would like to give you a brief insight on our business performance about the first 9 months of 2023. And after this, as every quarter, Lutz will take your questions. Lutz, the stage is yours.

[Lutz Meschke, executive]

Good morning, and welcome, everyone. Thank you for joining us today. We highly appreciate your interest in Porsche. Reflecting our discussions during the last few months, we recognize that there has been some uncertainty with regard to the performance of our company. In particular, after our unit sales in July and August, this triggered some questions if and how we would be able to compensate our pricing before volume strategy in China. Taking a look at our numbers one can see a very robust demand at good pricing from around the group. Yes, our global footprint has become even more balanced.

At the same time, taking a closer look at our earnings and our P&L, one can see 2 effects. We are currently impacted by inflation and peak investments for product, innovation, our brand and the digitalization of our ecosystem. Both have materially impacted our numbers, something we have on our agenda and we will address in our road to [indiscernible] our year-to-date performance and all what we know about Q4 2023, we are very confident about our guidance for the full year 2023. It remains unchanged. After this brief summary, let me start with my quick intro. This quarter, we have continued to inspire our customers not only with the current product lineup, but also with exciting new additions. One year after the IPO, we are well on track in executing our partial modern luxury strategy, increased prices and more tailwind is about to come. We will also use new product launches to improve pricing and we will increase our customization offers. Benefiting from an increased product availability during [indiscernible], we were able to turn more and more soon to be owners into now happy washer drivers. The excitement about our product is also reflected in our incoming orders, especially for the new Cayenne.

The first of our 4 upcoming product launches will be the all new Panamera. I will be presenting the third generation of the 4-door sports car on November 24. It's a good with a completely new exterior and interior, new colors and many more design details. We will also increase electrical performance of the Panamera plug-in hybrid models with regard to driving dynamics, electric speed and charging performance.

And let's not forget the impressive technical highlight of the new Panamera, the active chassis, a system which actively controls dampers and enables a totally new level of driving comp and body control. In addition, the new E-Macan is well underway. We are on track in bringing this very attractive product to market in 2024. As shown in our online Q3 presentation, press feedback on the first test drives has been very good. The E-Macan will be introduced to global markets in a staggered approach as usual to the world premier that will take place early next year.

Let's now turn to the financial results. Group revenue in the first 3 quarters was EUR 30.1 billion. This is an increase of 13% compared to the previous year. Group operating profit was EUR 5.5 million at a margin of 18.3%. The earnings per preferred share for the first 9 months amounted to EUR 4.33.

In the automotive business, on basis of the strong demand for our products, we have produced more vehicles year-to-date than in the same period of last year. Production in Q3 was below sales. As you know, partial stops production during the month of August at all our plants for the summer break. We increased deliveries year-to-date despite the challenging market environment in [Technical Difficulty] this reflects the strong demand by our customers around the globe. Germany, Europe, North America, and the area overseas and emerging markets have grown over proportionally leading to a balance and, therefore, resilient sales mix. In the first 3 quarters, we delivered more than 242,000 vehicles. This corresponds to an increase of 9.6% compared to the same period last year. [indiscernible] sales in Q3 2023 increased 2%. After a slow start to the quarter, we benefited from better product availability in September. Thus our vehicle sales increased by 10% to 79,000 in Q3 '23 compared to previous year especially deliveries of our 2-door sports cars and Taycan grew very strongly, benefiting from improving parts availability.

Incoming orders during Q3 stayed robust. Thus the order bank is unchanged on quite a strong level, covering production into 2024. The mix and quality of our orders and order book shows that our customers appreciate our exclusive product offerings. The opportunity to personalize vehicles is highly utilized. As before, the 911 has the largest order book, a strong model mix and the longest waiting time around a year on average across all derivatives.

In uncertain times, we are benefiting from our strong product portfolio and our loyal customer base. Pricing was also robust. However, please note that during Q3 2023 have only in part benefited from the price increases launched midyear. The average sales price on retails this quarter was EUR 118,000 per vehicle. However, this increase is mainly driven by relatively low retail numbers because of the reduced product availability in that period of time. The average price on sales in Q3 2023 was EUR 112,000 slightly higher than last year. Positives were pricing and model mix. While the fewer share of China sales where revenues per vehicle include import tariffs and also taxes had a dilutive effect. Automotive revenues amounted to EUR 27.8 million year-to-date. The operating return on sales for automotive was 18.8%. At EUR 5.2 billion, the automotive segment's operating profit in the first 9 months of 2023 exceeded the prior year figure by around EUR 500 million. This increase was a result of positive impact from increased volume, better pricing and a beneficial mix. Investing in our brand and product innovation to excite our customers is one of our key priorities.

For 75 years, the Porsche brand has had a consistent and unique DNA like no other, thanks to the clearly defined brand and product identity. All our sports cars have an unmistakable character. It is our task to transfer these values into the age of electromobility and digitalization. Year-to-date, we booked higher sales and marketing expenses. This returned to the pre-covered level by increasing our activities to strengthen our brand with events such as our 75-year anniversary and our motor sport engagement.

In addition, we accelerated our broad-based digitalization initiatives, for example, the update of our well-known car configurator. At the same time, we incurred higher costs in the preparation of the 4 upcoming product launches in the next quarters. This is a unique cluster in the history of Porsche launch calendars. We spent more than EUR 2 billion net on research and development. The highest number in 9 months in the company's history. Most of the R&D expenses in the reporting period were due to the conversion of the product range towards electromobility. The R&D ratio was 7.3%. Capitalized R&D amounted to EUR 1.7 billion in the first 9 months of 2023. As mentioned, the increase is due to the rising expenditure for ongoing projects, which are close to being ready for series product. Depreciation and amortization of capitalized development costs amounted to EUR 691 million. The expense of R&D at EUR 1.1 billion or slightly higher than last year, equaling around 4% of automotive revenues, which is at last year's level.

Automotive EBITDA in the first 9 months rose by 11% to EUR 7.1 billion, corresponding to an automotive EBITDA margin of 25.5%. [indiscernible] automotive net cash flow in our automotive business of EUR 3.4 billion and a net cash flow margin of 12.2% in the first 9 months of 2023.

In Q3, the cash flow from our operational business benefited from a reduction in inventories, mainly because of the increased number of new Cayenne arriving at the dealers. The cash flow from investing activities reflects our increased spending for our transformation with focus on technological excellence, product innovation and the entire Porsche ecosystem. Not to forget the 4 new products that will be introduced in the next quarters. In total, we achieved a net cash flow of EUR 1.2 billion in the third quarter. All businesses of Porsche contributed to this result.

Financial Services revenue amounted to EUR 2.52 billion in the first 9 months. The operating profit of the Financial Services segment decreased to EUR 0.23 billion. The decline was mainly due to the valuation of interest rate hedging transactions and derivatives outside hedge accounting in the context of regular refinancing activities.

As discussed in previous quarters, this is part of our regular refinancing activities while the credit quality of our book is still very strong. Reversals in loan loss provisions were lower than in the same period of the previous year, drivers that also impacted on Porsche financial services results in the last quarter. Our financial services penetration in the first 9 months was 40%, which it was 160 basis points lower than last year. This development reflects that we pass on the market terms in our offers.

At the end of the third quarter, our automotive net liquidity was at EUR 6.6 billion. As you may remember from our capital allocation discussions during the IPO process, we are targeting a net liquidity ratio of 15% to 20% of automotive net revenues.

Let's move on to the outlook for 2023. Porsche is benefiting from its strong global customer base. In Q4 2023, we expect improved product availability and continued robust pricing while costs will stay inflated. For the full year, 23 Porsche AG Group confirms its forecast published in the combined management report also regarding the highlighted conditions. Based on these 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 EUR 40 million 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 electrified vehicles to account for up to 12% to 14% of total new vehicles delivered to customers. However, this target requires a continued stable supply situation for the Taycan. Porsche is pursuing a disciplined capital allocation strategy. As of today, reflecting on our expected robust automotive net cash flow generation, we intend to have our shareholders participate with the outlined dividend policy of 40%, distribution of 50% of net profit is planned in the midterm.

Before we will start with the Q&A session, let me summarize. Unchanged our products remain in high demand and our order bank covers our production in 2024. In addition, Porsche Base is preparing for one of the biggest product offenses in its history, which will further strengthen our product offering. However, as with any product launch, we have to pay attention to industrial [Technical Difficulty] and stability of the supply chain, especially regarding new suppliers to the brand. We also carefully monitor the potential implications from the growing geopolitical tensions. Further details of our 2024 outlook will be shared within our full year disclosure in March next year.

Overall, we have a clear strategy for the future of Porsche, which we are continually enforcing. Our priorities are improving the quality of results at a higher price point and disciplined sales growth. Furthermore, the review of our strategy for example, the derivatives portfolio. Additionally, we will keep investing in our brand and our ecosystem such as charging hubs and new point of sale concept. Combined with the stringent efficiency management, this will lead us to the successful execution of our road to '20.

Thank you very much for your attention. I'm very much looking forward to answering your questions now.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] Hand over again to Björn Scheib, Head of Investor Relations.

[Björn Scheib, executive]

So let's start with the Q& session now. And we have overall already a quite long list of people who want to ask questions. So therefore please stay disciplined, limit yourself to 1, maximum 2 questions. And we start with George, Tim.

[George Galliers-Pratt, analyst]

I'm afraid I'm going to use the maximum of 2 questions. The first question I had was with respect to China and the reallocation of production away from China, which seems a smart strategy given market dynamics. Can you give us some insight into how you're thinking about this in terms of how much you want to reduce the allocation to China. I think historically, it's been around 30% of volume in recent years. Do you have a set target in mind such as 20% or are you looking at it on a case-by-case basis? And obviously, reallocating this to other parts of the world, how confident are you that other parts of the world can absorb the volume without compromising Porsche's strongest qualities, namely wait less, less supply than demand and lack of discounting.

The second question I had was just with respect to the distribution and administration costs, which have consistently been 10.5% to 11% of sales over the last 4 years. In Q3, they were almost 200 basis points higher, which we -- if we add back to the 17% margin would have led to you reporting a margin closer to 19% for the quarter. You did touch a bit about it -- in the touch a bit on it in the opening remarks, but can you help us to understand how much of this is permanent? And how much of it is temporary and do you see the historical 10.5% to 11% range is achievable going forward? Indeed, could there even be an opportunity for the ratio to be lower with the degree of operating leverage?

[Unknown Executive]

Let me start with China. We have shown that we are able to compensate the severe situation in China with reduced sales [indiscernible] now in the third quarter by other regions. And if you have a close look on the overall sales development, and you can see we already have already overcompensated the reduction of the Chinese market by more or less all the other regions, we have a very strong sales situation and also a very robust demand situation when it comes to Germany, Europe, the U.S., entire North America and a very strong region overseas and emerging markets. We reduced heavily and very actively the volume in China, we addressed it very early to our dealers.

A couple of months ago, we had a clear approach pricing before volume and we have a very positive reaction within the dealer network in China. We have been in China last week. We had very good talks to the dealer committee and very well understood that we have to focus on exclusivity that we have to focus on better product mix and higher internalization rate and not on volume. And that gives us confidence that we will see a very, very healthy situation when it comes to profitability also within the Chinese dealer network. And when it comes to all the other regions, I already addressed it, we have a very, very strong growth rates in Germany. We have plus 16% in Europe, 23% in overseas and emerging markets, we have an increase of 23% for Q3. And that shows that we have a very well balanced even more balanced sales situation than in the previous years, and that gives us confidence to see also a very good development in the upcoming months. And you mentioned the share of China in the past, it was above 30% now we are talking about 25%, but that's not a real topic. We have to closely monitor the situation. And as I already mentioned, yes, we have to focus on exclusivity on low discounts. As I said, 0 discount. Also in China, that has to be the target and we will proceed this path in the upcoming months, together with our dealers. Coming now to the sales cost and administration cost situation. You are right. We have seen a certain increase, but it's more or less the same level now compared to pre-covid situation, of course, due to the coverage situation and the war in the Ukraine, we cut cost heavily first of all, when it comes to sales and marketing. It was absolutely the right reaction at this point in time. But now it's clear that we have to invest also in the future of our brand, and that means we have to invest in our brand itself and therefore, you can see the steep increase in sales and marketing costs. And of course, it's important to invest in the brand because as I have mentioned, the clear focus is on exclusivity, having a very strong luxury brand. That means it's not the product just itself. It's more at the entire ecosystem. It's all about investing in additional driving experience centers. It's investing in our Porsche communities in the digital hats. It's also necessary to further invest in exclusive fast-charging network, not only in Europe but also in China, very important and therefore, it's necessary to further invest in this direction. But of course, it's very important. It's part of the DNA of Porsche also to identify possible efficiency within the administrative processes also by using artificial intelligence tools. And here, we are on a very good path to get the needed efficiency in the upcoming months and years.

[Björn Scheib, executive]

With this, we come now to the next one, which is Tim of Deutsche. And after Tim, we have Jose of JPMorgan.

[Tim Rokossa, analyst]

Yes. I have 2 questions on the effect of all the model renewals that you will have over the next few quarters that have now started with [indiscernible] obviously renewing quite a few of your vehicles. How shall we think about you reach full year run rate with these cars? Is this a continuous process that will always result in volatility that we have now seen it over the last 2 quarters with respect to your margin for the next, I would say, 4, 5, 6 quarters? Or with the launch of the Cayenne now being obviously a pretty strong hitter and contributed to that. Can we expect that your margin will continuously to go up from here, perhaps even be above in 2024 versus 2023? And then secondly, just like to follow up to George's point, looks on the distribution costs and then also, obviously, when we think about R&D, there is quite a bit of volatility on a quarterly basis here. When we will we come to a point in time where that is now more stable, perhaps do I interpret your remarks correctly that you even say we can see downside potential from here going forward?

[Unknown Executive]

Let me start with product offensive. Yes, we clearly address that we will have the -- yes, biggest, the strongest product offensive in place in the upcoming months. That gives us a lot of tailwind of course. But as you have already mentioned, the introduction will be a continuous process over the upcoming quarters. And therefore, you will see the entire impact of the new products in 2025, but not in 2024 since it's a continuous process. And we will start now with the Panamera, we will have the product launch in the upcoming spring. And then later on, we will launch also new Taycan, the E-Macan and also [indiscernible] sports car. And that gives us, as I already mentioned, a lot of tailwinds when it comes to our strong product. In parallel, of course, we have a lot of new suppliers to Porsche. And therefore, during a phase with product launches, it's absolutely necessary to closely monitor the entire supply chain, the industrialization of the suppliers and the stability of the supply chain.

First of all, we are working in a completely new technological field, and it comes to new models, not with all models, but higher share of the new model. And therefore, it's a very important point to closely monitor the industrialization also of our suppliers. When it comes to FX, then we have a very long-term oriented hedging policy in place. You know it very well. We have a very flexible strategy with a lot of option derivatives in place, and therefore, we can be quite sure that we will have a similar tailwind from FX in '23, as we have already seen in 2022, and we will have also a very robust situation in 2024.

When it comes to research and development costs, we have the situation that we currently have to invest in parallel in electrification and in our combustion engine cars. And in addition, when it comes to the high capitalization rate, you have to take in mind that a lot of projects are close to series production now. I've already mentioned the 4 launches for the new product and therefore, yes, we see a very high capitalization rate, more than 90% in Q3. And of course, we have, yes, a lot of other new derivatives in the pipeline for the upcoming months and years. And therefore, you will see also in the upcoming years, relatively high capitalization rate. We are talking about a capitalization rate of about 70% to 75% in the future.

May I just add to this one. I see from the tax measures just that I get with respect to an outlook on 2024, we have given an outlook on '24 in the intro statement. And please understand, as of today, we will not go beyond the '24 guidance with these state plans. You will see the details in the full year 2023 disclosure, but the intro is the outlook for '24 as it stands.

[Björn Scheib, executive]

So the next one then will be Jose and after Jose, we will have Patrick.

[Jose Asumendi, analyst]

On the first one, I'm aware you don't guide on a quarterly basis, but can you help us [indiscernible] pluses and the minus or the margin in Q4 versus Q3? And should we expect the fourth quarter margin that could be maybe above the first quarter? Or can you elaborate a little bit on the pluses and the minus for the fourth quarter? And then the second question is simple. How do we reengage the Chinese consumers into the Porsche brands, a function of selling electric vehicles, deploying the product portfolio or is there something more structural when it comes to overall premium demand in China?

[Unknown Executive]

Let me start with the margin question. Yes, please understand that we do not guide single quarters. You know it very well. But I think it's fair to assume that the return on sales sequentially. Yes, it will be higher than Q3 as we should benefit from a better product mix and also a better product availability in compared to Q3. But at the same time, we have to assume also unchanged elevated cost levels from our operational business and all this in combination with spending for the upcoming production launches, as I have already mentioned before. And of course, as every year, we also have to assume some year-end effect in addition. I didn't get exactly your question regarding the Chinese consumers, to be honest.

[Jose Asumendi, analyst]

Whether deploying launching electric vehicles in China engage [indiscernible] in China? Or is there anything else a bit more structural when it comes to premium demand in the Chinese market seeing an overall slowdown in demand.

[Unknown Executive]

It's a very important question. I think in China, it's very important to heavily invest in our brand itself because we want to be attractive for completely new customer groups. First of all, when it comes to the transition to electrification. We are addressing younger people. We are addressing females. That's very important. We already have a very high share of females in China, but there is more potential. And therefore, its important to address investing just investing in your products, but also in the entire ecosystem. And we have to address also the social responsibility of Porsche more than we did in the past. I think it's very important, first of all, for the new customer groups, we want to attract that we give part of our success back to the community that's very important. And when it comes to investments in our brand, it's also necessary to extend our sponsoring ships to be, yes, more affected when it comes to media activities. It's very important. First of all, when it comes to attracting new customer groups. That's crucial for us because the portfolio -- the customer portfolio will change extremely with the transition to electrification and the other point is that the luxury segment in the electrified car segment has to be developed over the upcoming months and years. It's not existing at this point in time. The volume -- the sales volume of cars above EUR 80,000, at this point in time, it's just 20,000 cars. And with Taycan, we have about 25% market share. And of course, this segment has to grow over the upcoming months and years. And we, as Porsche, we have to invest heavily in this development because we want to profit from a very strong luxury segment also in the electrified car segment.

[Björn Scheib, executive]

So the next will be Patrick, yes. And thereafter, we have Horst, of BNP. And taking a look at the time, please focus on one question in order to give also others time for question.

[Patrick Hummel, analyst]

So I hope you can hear me well. I'll focus on the Macan, please. I want to understand how we should think about McCan volumes next year. The electric Macan is going to ramp up, but probably it's a new platform, one should not assume a super steep curve. I guess you will focus on quality of the launch. At the same time, I think the ICE Macan is phasing out by the end of next year in Europe. And also in light of the situation of reallocating the China volumes to the other regions, you probably don't want to push too hard. So the question is simply, should we expect as a base case that overall Macan volumes ICE and electric together, will be down year-over-year in 2024. And the part of that question is related to the pricing. You mentioned before that you want to price the Macan like 10% to 15% above the is ICE Macan. Now we've seen a somewhat lackluster EV demand environment in the Western markets and basically all the attempts of OEMs to price the EV product significantly higher than the ICE product have failed. So I'm just wondering if that is still your strategy to price that vehicle 15% higher or you will price it more closer to ICE Macan and with that, you would accept lower contribution margins of the E-Macan.

[Unknown Executive]

Yes, Patrick, thank you for your question. Let me start. We see Macan question. That's exactly the opposite next year. I think we can expect further growth within the entire model line, Macan, because we will sell the combustion engine, Macan in parallel with the E-Macan, and that will give us additional push when it comes to the Macan model line. You will see or we expect this effect late in 2024 and especially then in 2025 as well. And yes, I think we have additional potential when it comes to further growth in the other world regions like the overseas and emerging markets region first of all, Southeast Asia, but also South America and also India should give us further potential, not in the upcoming months, but in the upcoming years, of course. And therefore, we are very positive that we can overcompensate reduced sales situation in China with all the other world regions. And I have already mentioned that we clearly addressed actively towards our dealers a couple of months ago that volume is not the goal in China. We want to grow price wise and not volume-wise, clear focus on pricing product mix, indigenization and offering entire ecosystem, ecosystem to our customers, that's a focus.

We want to proceed with the strategy to have more fashion retail concept. We want to go more in our cities with our concept, and we want to expand also our fast-charging network and that gives us the confidence that we can still work also in the future with our clear focus on luxury pricing together with luxury products and a luxury ecosystem. You are right. It's a very challenging market environment in China when it comes to the electrified segment, but that's not the way we want to go. We have a clear luxury focus. We addressed it clearly, and we will do it also with the new E-Macan. The planned price increase will stay in place.

[Björn Scheib, executive]

So taking a look at the time, then we take [indiscernible] and Stephen and after this, unfortunately, we need to come to an end, but IR for sure, will take care of the open questions. So [indiscernible], please hurry up [indiscernible]

[Horst Schneider, analyst]

I just have put 1 small follow-up. I'm still scratching my head on the fourth quarter. I know you made already some comments and you don't give detailed guidance for Q4. But nevertheless, I want to try -- can you maybe confirm if you expect rising year-on-year deliveries in the fourth quarter? And can we assume that the capitalization rate stays as high in Q4 as it was in Q3 since you gave already the capitalization rate guidance even for 2024?

[Unknown Executive]

Thank you, Horst, for your question. Yes, it's right. We expect a slightly higher situation when it comes to return on sales in the fourth quarter compared to the third quarter because we have much better availability now for the new Cayenne and this effect will be in place in the fourth quarter and that would help a lot to go run in this direction. And what was the other question? [indiscernible] Regarding volume?

[Horst Schneider, analyst]

Volumes and R&D capitalization.

[Unknown Executive]

Regarding volume, we expect also a better situation due to the better supply chain situation for the Cayenne and also the Taycan because we have also a clear target to achieve at least 1% share of the Taycan at year-end. And when it comes to the capitalization rate, of course, we will see a similar situation compared to Q3 because we have a lot of products to come in the next couple of months. And therefore, all these products are close to series production. And when they are close to series production, then you have to capitalize 100% of the costs regarding [indiscernible]. And therefore, yes, a clear statement, no change at all.

[Horst Schneider, analyst]

It's higher year-on-year deliveries or just sequentially high deliveries?

[Unknown Executive]

Sequentially higher deliveries. [indiscernible] always take into consideration supply chains. Therefore, this is something that we have to monitor.

[Björn Scheib, executive]

The next one will be Dorothee and then we have Stephen.

[Hanna Dorothee Cresswell, analyst]

It's a slightly longer-term one. And really, I just wondered whether you still feel comfortable reaching the 50% ex EV mix target by 2025 of which I think 40% was meant to be pure BEVs because that's obviously quite a big step up from, I think, around 12% this year and also given the launch timing of the Macan later in 2024.

[Unknown Executive]

Yes, that's still our target to reach a 50% share of pe-electrified cars and plug-in cars in the mid of this decade, and we are on a good path right now. Maybe it will not happen in 2025, but early in '26, we should be able to deliver a 50% electrified and plug-in cars because as I already mentioned, there are a lot of new models coming to the market in the upcoming months and years, not only the E-Macan car, but also E-Cayenne and also the E-Boxster and therefore, yes, you will see this effect as we have addressed it before.

[Hanna Dorothee Cresswell, analyst]

You can confirm that the bulk of that is going to [indiscernible] because I remember that chart where it always looks like about 40% EBV.

[Unknown Executive]

Yes. Absolutely. It will go in this direction, it will be about 40% -- maybe slightly higher.

[Björn Scheib, executive]

So the last one then will be Stephen now.

[Stephen Reitman, analyst]

Clearly, when Porsche IPO-ed last year, it came at a substantial premium to other German premium auto makers. And obviously, a lot of it has been weight of the brand value, but also execution and obviously, this year, we've seen a few issues which have certainly been problematic, obviously, a continuation of issues with Taycan. I mean, it's now been solved, I think, but also this issue with the Cayenne, the sales force and things like that. I'm just wondering what guardrails are you putting in place as you enter, as you say, one of the most largest product launch periods the company is actually facing next year in order to actually have a much smooth execution, which I think is obviously has an impact on people's perception of the company and the share price.

[Unknown Executive]

Steven, that's a very important point. You are absolutely right. We struggled a little bit this year with quality issues. First of all, regarding Taycan and Cayenne, we addressed it, also in the last quarter call. And yes, the positive is that we more or less solved all these issues. You can see it also now obviously increasing delivery rate for the new E-Cayenne and also with the growing sales figures regarding Taycan. I think we are in a quite good path to reach [indiscernible] share. And yes, it's a very important aspect when it comes to our luxury strategy to always deliver the best possible quality. And therefore, we have to monitor closely all the upcoming product launches. I addressed it already. The clear focus is on the industrialization and stability of our supply chain. It's so important we have seen in E-Cayenne and also with the Taycan. And therefore, as you said, we'll stop here focus on our luxury strategy on quality and there is no doubt about that there is all these aspects addressed by our task forces.

[Björn Scheib, executive]

So ladies and gentlemen, thank you very much for joining us on our Q3 conference call this morning, your afternoon. It was our pleasure to discuss our results and outlook with you. As earlier indicated, you will find invitations to our upcoming events, such as Panamera World Premier in your inboxes. In this context, we will also provide you with an update on our strategy with respect to intergradation of our vehicles. And also with respect to the global footprint, namely the strategy in the Gulf region and region #5.

With this, for sure, IR stays at your disposal, stay healthy, and we look forward to see you at one of our upcoming next events. Thank you, and bye.

[Operator]

Ladies and gentleman the conference is now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye. RECONNECT