Results of Operations

Results of operations of the Group

In the period from January to December 2023, the Volkswagen Group’s sales revenue amounted to €322.3 billion, up 15.5% on the prior-year figure. This was mainly attributable to a rise in volume and beneficial changes in the price positioning and in the mix. These factors were offset by exchange rate effects. The prior-year period had been impacted to an even greater extent by limited vehicle availability due to parts supply shortages. The Volkswagen Group generated 81.5 (82.6)% of its sales revenue abroad. Gross profit increased by €8.8 billion to €61.0 billion. The gross margin was 18.9 (18.7)%.

In fiscal year 2023, the Volkswagen Group’s operating result of €22.6 (22.1) billion was on a level with the previous year. The operating return on sales was 7.0 (7.9)%. In particular, higher vehicle sales and improved price positioning were set against a rise in product costs (in particular for commodities). The fair value measurement of derivatives to which hedge accounting is not applied (especially commodity hedges) had a negative effect of €−3.2 billion on the operating result in the period from January to December 2023; it had boosted the Group’s earnings by €1.8 billion in the prior-year period, as had beneficial effects of €0.8 billion from derivatives in the Financial Services Division. The deconsolidation of Volkswagen Group Rus and its subsidiaries led to a loss of €0.4 billion in 2023. In the previous year, the result had been impacted mainly by expenses relating to loss allowances and risk provisions due to the direct impact of the Russia-Ukraine conflict and special items in connection with the diesel issue. The financial result increased by €0.7 billion to €0.6 billion. The share of the result of equity-accounted investments was slightly below that of the prior year. In the interest result, higher interest income was not sufficient to offset the rise in interest expenses resulting primarily from changes in the interest rates used to measure provisions. The other financial result was affected in the reporting year among other things by adverse exchange rate effects, especially as a result of the sharp depreciation of the Argentinian peso. This was set against lower non-cash expenses from adjustments to the carrying amounts of investees because of changes in share prices and impairment tests, and against positive net income from securities and funds. In the prior-year period, the impairment loss recognized on the equity investment in Argo AI and changes in share prices affecting net income from securities and funds, particularly as a result of the Russia-Ukraine conflict, had both had a negative impact.

SHARE OF SALES REVENUE BY MARKET 2023

in percent

SHARE OF SALES REVENUE BY DIVISION/ BUSINESS AREA 2023

in percent

The Volkswagen Group’s earnings before tax were up €1.1 billion to €23.2 billion in fiscal year 2023. The return on sales before tax declined to 7.2 (7.9)%. Income taxes resulted in an expense of €5.3 (6.2) billion, which in turn led to a tax rate of 22.7 (28.2)%. Earnings after tax were noticeably up on the previous year, at €17.9 (15.9) billion.

Results of operations in the Automotive Division

The Automotive Division generated sales revenue of €268.2 (232.4) billion in the reporting year. Higher vehicle sales together with improvements in the price positioning and in the mix offset adverse exchange rate effects. In the prior-year period, the adverse impact had by parts supply shortages had been even stronger. Sales revenue in the Passenger Cars, Commercial Vehicles and Power Engineering Business Areas was significantly up on the respective prior-year values. As our Chinese joint ventures are accounted for using the equity method, the Group’s business performance in the Chinese passenger car market is essentially reflected in the Group’s sales revenue only through deliveries of vehicles and vehicle parts.

Cost of sales was up, primarily because of higher volumes, a rise in product costs (in particular for commodities), and an increase in research and development costs recognized in profit or loss; these changes were set against lower depreciation charges of around €1.4 billion following the reassessment and extension of the useful lives of certain items of property, plant and equipment. The ratio of cost of sales to sales revenue declined in the reporting year. Since research and development costs and sales revenue increased by similar percentages in the Automotive Division in the reporting year, their ratio to each other – the research and development ratio (R&D ratio) – was on a level with 2022 at 8.1 (8.1)%. The automotive investment ratio, which combines the R&D and capex ratios, amounted to 13.5 (13.6)% in fiscal year 2023.

In the period from January to December 2023, there was a year-on-year increase in distribution expenses due to factors such as higher logistics costs, as well as in administrative expenses; their respective share of sales revenue went down. The other operating result stood at €−4.1 (1.5) billion. Fiscal year 2023 was weighed down by adverse effects from the fair value measurement of derivatives to which hedge accounting is not applied, especially for commodities. These factors had had a positive impact in the prior-year period.

In the period from January to December 2023, the Automotive Division’s operating result amounted to €18.8 billion, up €2.3 billion on the previous year. The rise is primarily attributable to a rise in vehicle sales and improvements in the price positioning. Effects from the measurement of derivatives to which hedge accounting is not applied, higher product costs, in particular for commodities, and negative exchange rate trends weighed on the operating result. The prior-year period had been marked by positive effects from the fair value measurement of derivatives to which hedge accounting is not applied and by expenses in connection with the Russia-Ukraine conflict. The operating return on sales stood at 7.0 (7.1)%. Our operating result largely benefits from the business performance of our equity-accounted Chinese joint ventures only through deliveries of vehicles and vehicle parts and through license income, as these joint ventures are included in the financial result.

Results of operations in the Financial Services Division

In the period from January to December 2023, the Financial Services Division’s sales revenue amounted to €54.1 billion, an increase of 16.0% over the prior-year figure. Compared with the previous year, cost of sales increased faster than sales revenue, driven in particular by a very strong rise in interest expenses and higher depreciation of the residual values of leased vehicles. As a result, gross profit went down by €1.5 billion to €7.9 billion.

The Financial Services Division’s operating result of €3.8 (5.6) billion was down on the previous year. The decline was mainly the result of higher interest expenses. In addition, derivatives, which had had a beneficial effect in the previous year, had a negative impact in the reporting year. The prior year had been weighed down especially by expenses relating to loss allowances as a direct impact of the Russia-Ukraine conflict. The operating return on sales decreased to 7.0 (12.1)%. The return on equity before tax was 8.8 (14.1)%.

Principles and goals of financial management

Financial management in the Volkswagen Group covers liquidity management, the management of currency, interest rate and commodity price risks, and credit and country risk management. It is performed centrally for all Group companies by Group Treasury, based on internal guidelines and risk parameters. Some functions of the MAN Energy Solutions, Porsche AG, Porsche Holding Salzburg and TRATON GROUP subgroups and of the Financial Services Division are included in the financial management and, in addition, have their own financial management structures.

The goal of financial management is to ensure that the Volkswagen Group remains solvent at all times and, at the same time, to generate an adequate return from the investment of surplus funds. We use a liquidity pooling system to optimize the use of existing liquidity between the significant companies. Among other features of this system, the balances, either positive or negative, accumulating in cash pooling accounts are swept daily into a regional target account and thus pooled. The overriding aim of currency, interest rate and commodity risk management is to hedge, using derivative financial instruments and commodity forwards, the prices on which investment, production and sales plans are based when making planning assumptions and to mitigate interest rate risks incurred in financing transactions. In the management of credit and country risk, diversification is used to limit the Volkswagen Group’s exposure to the so-called counterparty risk. To achieve this, counterparty risk management imposes internal limits on the volume of business allowed per counterparty when financial transactions are entered into. Various credit rating criteria are applied in this process. These focus primarily on the capital resources of potential counterparties, as well as the ratings awarded by independent agencies. The relevant risk limits and the authorized financial instruments, hedging methods and hedging horizons are approved by the Group Board of Management Committee for Risk Management. For additional information on the principles and goals of financial management, please refer to the chapter on “Financial risk management and financial instruments” in the notes to the consolidated financial statements.