Annual Report 2023

Notes

36. Financial risk management and financial instruments

1. Hedging guidelines and financial risk management principles

The principles and responsibilities for managing and controlling the risks that could arise from financial instruments are defined by the Board of Management and monitored by the Supervisory Board. General rules apply to the Group-wide risk policy; these are oriented on the statutory requirements and the “Minimum Requirements for Risk Management by Credit Institutions”.

Group Treasury is responsible for operational risk management and the control of risks from financial instruments. The Group Board of Management Committee for Risk Management is regularly informed about current financial risks. In addition, the Group Board of Management and the Supervisory Board are regularly updated on the current risk situation. The MAN Energy Solutions, Porsche AG, Porsche Holding Salzburg and TRATON GROUP subgroups and the Financial Services Division are in part included in Group Treasury’s operational risk management and control for risks relating to financial instruments and also have their own risk management structures.

For more information, see the section on financial risks in the Report on Risks and Opportunities of the group management report.

2. Credit and default risk

The credit and default risk arising from financial assets involves the risk of default by counterparties, and therefore comprises at a maximum the amount of the claims under carrying amounts receivable from them and the irrevocable credit commitments. The maximum potential credit and default risk is reduced by collateral held and other credit enhancements. Collateral is held predominantly for financial assets in the “at amortized cost” category. It relates primarily to collateral for financial services receivables and trade receivables. Collateral comprises vehicles and assets transferred as security, as well as guarantees and real property liens. Cash collateral is also used in hedging transactions.

For level 3 and level 4 financial assets with objective indications of impairment as of the reporting date, the collateral provided led to a reduction in risk by €1.3 billion (previous year: €1.1 billion). Collateral of €6 million (previous year adjusted: €34 million) has been accepted for assets measured at fair value through profit or loss.

Significant cash and capital investments, as well as derivatives, are only entered into with national and international banks. Credit and default risk is limited by a limit system based primarily on the equity base of the counterparties concerned and on credit assessments by international rating agencies. Financial guarantees issued also give rise to credit and default risk. The maximum default risk is determined by the guarantee amount. The corresponding amounts are presented in the Liquidity risk section.

There were no material concentrations of risk at individual counterparties or counterparty groups in the fiscal year due to the global allocation of the Group’s business activities and the resulting diversification. There was a slight change in the concentration of credit and default risk exposures to the German public banking sector as a whole that has arisen from Group-wide cash and capital investments as well as derivatives: the portion attributable to this sector was 9.3% at the end of 2023 compared with 6.0% at the end of 2022. Any existing concentration of risk is assessed and monitored both at the level of individual counterparties or counterparty groups and with regard to the countries in which these are based, in each case using the share of all credit and default risk exposures accounted for by the risk exposure concerned. This analysis excludes the items of Chinese companies in which Volkswagen holds an interest of 50% or less.

Credit and default risk exposures at the end of 2023 accounted for 18.1% for Germany, compared with 15.2% at the end of 2022, and for 17.5% for China as against 14.0% at the end of 2022. There were no other material concentrations of credit and default risk exposures in individual countries.

Loss allowance

The Volkswagen Group consistently uses the expected credit loss model of IFRS 9 for all financial assets and other risk exposures.

The expected credit loss model under IFRS 9 takes in both loss allowances for financial assets for which there are no objective indications of impairment and loss allowances for financial assets that are already impaired. For the calculation of impairment losses, IFRS 9 distinguishes between the general approach and the simplified approach.

Under the general approach, financial assets are allocated to one of three stages, plus an additional stage for financial assets that are already impaired when acquired (stage 4). Stage 1 comprises financial assets that are recognized for the first time or for which the probability of default has not increased significantly. The expected credit losses for the next twelve months are calculated at this stage. Stage 2 comprises financial assets with a significantly increased probability of default, while financial assets with objective indications of default are allocated to stage 3. The lifetime expected credit losses are calculated at these stages. Stage 4 financial assets, which are already impaired when acquired, are subsequently measured by recognizing a loss allowance on the basis of the accumulated lifetime expected losses. Financial assets classified as impaired on acquisition remain in this category until they are derecognized.

The Volkswagen Group applies the simplified approach to trade receivables and contract assets with a significant financing component in accordance with IFRS 15. The same applies to receivables under operating or finance leases accounted for under IFRS 16. Under the simplified approach, the expected losses are consistently determined for the entire life of the asset.

The tables below show the reconciliation of the loss allowance for various financial assets and financial guarantees and credit commitments:

CHANGES IN GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS MEASURED AT AMORTIZED COST

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2023

 

137,947

 

12,423

 

2,063

 

20,746

 

368

 

173,548

Foreign exchange differences

 

−2,068

 

−41

 

18

 

−170

 

2

 

−2,258

Changes in consolidated group

 

−354

 

–

 

–

 

184

 

–

 

−170

Changes

 

14,054

 

−613

 

−532

 

2,941

 

−19

 

15,831

Modifications

 

5

 

1

 

0

 

–

 

0

 

6

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

3,512

 

−3,450

 

−62

 

–

 

–

 

0

Stage 2

 

−5,756

 

5,834

 

−78

 

–

 

–

 

0

Stage 3

 

−664

 

−314

 

978

 

–

 

–

 

0

Classified as held for sale

 

15

 

–

 

–

 

1

 

–

 

16

Carrying amount at Dec. 31, 2023

 

146,691

 

13,839

 

2,388

 

23,703

 

351

 

186,972
CHANGES IN LOSS ALLOWANCE FOR FINANCIAL ASSETS MEASURED AT AMORTIZED COST

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2023

 

904

 

740

 

1,134

 

519

 

26

 

3,323

Foreign exchange differences

 

−15

 

−2

 

12

 

−1

 

2

 

−5

Changes in consolidated group

 

0

 

–

 

–

 

22

 

–

 

22

Newly extended/purchased
financial assets (additions)

 

688

 

–

 

–

 

242

 

6

 

936

Other changes within a stage

 

−189

 

−174

 

153

 

8

 

11

 

−191

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

34

 

−99

 

−19

 

–

 

–

 

−85

Stage 2

 

−118

 

336

 

−36

 

–

 

–

 

183

Stage 3

 

−225

 

−71

 

607

 

–

 

–

 

311

Financial instruments derecognized during the period (disposals)

 

−217

 

−117

 

−160

 

−159

 

−11

 

−664

Utilization

 

–

 

–

 

−315

 

−21

 

−12

 

−348

Changes to models or risk parameters

 

28

 

41

 

4

 

18

 

4

 

96

Classified as held for sale

 

–

 

–

 

–

 

0

 

–

 

0

Carrying amount at Dec. 31, 2023

 

890

 

654

 

1,380

 

628

 

25

 

3,578
CHANGES IN GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS MEASURED AT AMORTIZED COST1

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2022

 

115,232

 

23,918

 

1,978

 

19,589

 

404

 

161,121

Foreign exchange differences

 

454

 

268

 

49

 

38

 

3

 

811

Changes in consolidated group

 

203

 

4

 

15

 

206

 

–

 

428

Changes

 

24,875

 

−13,174

 

−634

 

916

 

−38

 

11,945

Modifications

 

2

 

0

 

0

 

0

 

−1

 

0

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

3,163

 

−3,116

 

−47

 

–

 

–

 

0

Stage 2

 

−4,707

 

4,794

 

−87

 

–

 

–

 

0

Stage 3

 

−532

 

−264

 

796

 

–

 

–

 

0

Classified as held for sale

 

−742

 

−7

 

−6

 

−2

 

–

 

−757

Carrying amount at Dec. 31, 2022

 

137,947

 

12,423

 

2,063

 

20,746

 

368

 

173,548

1

Prior-year figures adjusted (see disclosures on IFRS 17 in the “Effects of new and amended IFRSs” section).
CHANGES IN LOSS ALLOWANCE FOR FINANCIAL ASSETS MEASURED AT AMORTIZED COST1

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2022

 

828

 

675

 

1,212

 

492

 

49

 

3,257

Foreign exchange differences

 

10

 

17

 

35

 

8

 

2

 

71

Changes in consolidated group

 

10

 

–

 

–

 

−17

 

–

 

−7

Newly extended/purchased financial assets (additions)

 

557

 

–

 

–

 

225

 

10

 

793

Other changes within a stage

 

53

 

41

 

90

 

6

 

−27

 

162

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

37

 

−109

 

−34

 

–

 

–

 

−106

Stage 2

 

−89

 

296

 

−51

 

–

 

–

 

156

Stage 3

 

−138

 

−53

 

458

 

–

 

–

 

267

Financial instruments derecognized during the period (disposals)

 

−232

 

−131

 

−205

 

−152

 

−5

 

−724

Utilization

 

–

 

–

 

−373

 

−47

 

−11

 

−431

Changes to models or risk parameters

 

23

 

11

 

8

 

4

 

9

 

54

Classified as held for sale

 

−156

 

−7

 

−5

 

0

 

–

 

−168

Carrying amount at Dec. 31, 2022

 

904

 

740

 

1,134

 

519

 

26

 

3,323

1

Prior-year figures adjusted (see disclosures on IFRS 17 in the “Effects of new and amended IFRSs” section).
CHANGES IN DEFAULT RISK POSITIONS OF FINANCIAL GUARANTEES AND CREDIT COMMITMENTS

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2023

 

9,960

 

3,529

 

318

 

222

 

14,029

Foreign exchange differences

 

0

 

20

 

0

 

0

 

20

Changes in consolidated group

 

−178

 

–

 

–

 

–

 

−178

Changes

 

473

 

−928

 

−151

 

−130

 

−736

Modifications

 

–

 

–

 

–

 

–

 

–

Transfers to

 

 

 

 

 

 

 

 

 

 

Stage 1

 

36

 

−36

 

0

 

–

 

0

Stage 2

 

−99

 

101

 

−1

 

–

 

0

Stage 3

 

−5

 

−3

 

8

 

–

 

–

Carrying amount at Dec. 31, 2023

 

10,185

 

2,683

 

174

 

92

 

13,134
CHANGES IN LOSS ALLOWANCE FOR FINANCIAL GUARANTEES AND CREDIT COMMITMENTS

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2023

 

34

 

19

 

23

 

32

 

108

Foreign exchange differences

 

0

 

0

 

0

 

0

 

0

Changes in consolidated group

 

0

 

–

 

–

 

–

 

0

Newly extended/purchased financial assets (additions)

 

10

 

–

 

–

 

0

 

10

Other changes within a stage

 

−4

 

−8

 

18

 

−21

 

−15

Transfers to

 

 

 

 

 

 

 

 

 

 

Stage 1

 

1

 

−1

 

–

 

–

 

0

Stage 2

 

−1

 

1

 

–

 

–

 

0

Stage 3

 

−3

 

0

 

6

 

–

 

3

Financial instruments derecognized during the period (disposals)

 

−10

 

−1

 

0

 

−2

 

−14

Utilization

 

–

 

–

 

−3

 

–

 

−3

Changes to models or risk parameters

 

–

 

–

 

0

 

–

 

0

Carrying amount at Dec. 31, 2023

 

27

 

10

 

44

 

10

 

90
CHANGES IN DEFAULT RISK POSITIONS OF FINANCIAL GUARANTEES AND CREDIT COMMITMENTS

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2022

 

12,032

 

3,858

 

312

 

228

 

16,430

Foreign exchange differences

 

−54

 

−54

 

0

 

1

 

−107

Changes in consolidated group

 

−108

 

–

 

–

 

–

 

−108

Changes

 

−1,862

 

−314

 

−3

 

−7

 

−2,186

Modifications

 

–

 

–

 

–

 

–

 

–

Transfers to

 

 

 

 

 

 

 

 

 

 

Stage 1

 

92

 

−92

 

0

 

–

 

0

Stage 2

 

−136

 

137

 

−1

 

–

 

0

Stage 3

 

−5

 

−6

 

10

 

–

 

–

Carrying amount at Dec. 31, 2022

 

9,960

 

3,529

 

318

 

222

 

14,029
CHANGES IN LOSS ALLOWANCE FOR FINANCIAL GUARANTEES AND CREDIT COMMITMENTS

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

Total

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2022

 

43

 

20

 

20

 

7

 

90

Foreign exchange differences

 

1

 

0

 

0

 

0

 

1

Changes in consolidated group

 

0

 

–

 

–

 

–

 

0

Newly extended/purchased financial assets (additions)

 

14

 

–

 

–

 

0

 

14

Other changes within a stage

 

2

 

0

 

0

 

26

 

28

Transfers to

 

 

 

 

 

 

 

 

 

 

Stage 1

 

0

 

−2

 

0

 

–

 

−1

Stage 2

 

−1

 

1

 

–

 

–

 

1

Stage 3

 

0

 

0

 

3

 

–

 

3

Financial instruments derecognized during the period (disposals)

 

−24

 

−2

 

−1

 

0

 

−27

Utilization

 

–

 

–

 

0

 

0

 

0

Changes to models or risk parameters

 

−1

 

0

 

0

 

–

 

−1

Carrying amount at Dec. 31, 2022

 

34

 

19

 

23

 

32

 

108
CHANGES IN GROSS CARRYING AMOUNTS OF LEASE RECEIVABLES AND CONTRACT ASSETS

 

 

SIMPLIFIED APPROACH

€ million

 

2023

 

2022

 

 

 

 

 

Carrying amount at Jan. 1

 

57,015

 

55,515

Foreign exchange differences

 

374

 

−889

Changes in consolidated group

 

−232

 

294

Changes

 

6,869

 

2,240

Modifications

 

8

 

3

Classified as held for sale

 

–

 

−149

Carrying amount at Dec. 31

 

64,035

 

57,015
CHANGES IN LOSS ALLOWANCE FOR LEASE RECEIVABLES AND CONTRACT ASSETS

 

 

SIMPLIFIED APPROACH

€ million

 

2023

 

2022

 

 

 

 

 

Carrying amount at Jan. 1

 

1,713

 

1,297

Foreign exchange differences

 

17

 

−4

Changes in consolidated group

 

−162

 

5

Newly extended/purchased financial assets (additions)

 

510

 

611

Other changes

 

−224

 

307

Financial instruments derecognized during the period (disposals)

 

−400

 

−297

Utilization

 

−82

 

−71

Changes to models or risk parameters

 

−32

 

14

Classified as held for sale

 

–

 

−149

Carrying amount at Dec. 31

 

1,341

 

1,713
CHANGES IN GROSS CARRYING AMOUNTS OF ASSETS MEASURED AT FAIR VALUE

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

No loss allowance

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2023

 

1,470

 

2,768

 

–

 

–

 

–

 

28,456

 

32,694

Foreign exchange differences

 

−15

 

–

 

–

 

–

 

–

 

−43

 

−57

Changes in consolidated group

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Changes

 

1,230

 

−971

 

–

 

–

 

−56

 

−193

 

10

Modifications

 

–

 

–

 

–

 

–

 

–

 

7

 

7

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Stage 2

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Stage 3

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Carrying amount at Dec. 31, 2023

 

2,685

 

1,797

 

–

 

–

 

−56

 

28,228

 

32,654
CHANGES IN GROSS CARRYING AMOUNTS OF ASSETS MEASURED AT FAIR VALUE

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

No loss allowance

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amount at Jan. 1, 2022

 

2,795

 

1,931

 

–

 

–

 

–

 

23,668

 

28,394

Foreign exchange differences

 

18

 

–

 

–

 

–

 

–

 

73

 

91

Changes in consolidated group

 

–

 

–

 

–

 

–

 

–

 

0

 

0

Changes

 

−438

 

−68

 

–

 

–

 

–

 

4,715

 

4,209

Modifications

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Transfers to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Stage 2

 

−905

 

905

 

–

 

–

 

–

 

–

 

–

Stage 3

 

–

 

–

 

–

 

–

 

–

 

–

 

–

Carrying amount at Dec. 31, 2022

 

1,470

 

2,768

 

–

 

–

 

–

 

28,456

 

32,694

The loss allowance on assets measured at fair value in Stage 1 rose by €6 million (previous year: €0 million) in fiscal year 2023 and those in Stage 2 declined by €2 million (previous year: increase of €1 million), resulting in a closing balance of €12 million (previous year: €8 million). Of this amount, €10 million is attributable to Stage 1 (previous year: €4 million) and €3 million to Stage 2 (previous year €4 million).

The amount contractually outstanding for financial assets that have been derecognized in the current fiscal year and are still subject to enforcement proceedings is €270 million (previous year: €304 million).

Modifications

There were contract modifications to financial assets in the reporting period that did not lead to the derecognition of the asset. These were primarily the result of changes in credit ratings and relate to financial assets for which loss allowances were measured in the amount of the expected lifetime credit losses. For trade and lease receivables, the treatment is simplified by considering the credit rating-based modifications where the receivables are more than 30 days past due. Before the modification, amortized cost amount to €315 million (previous year: €548 million). In the reporting period, contract modifications resulted in net income/net expenses of €– 1 million (previous year: €– 2 million).

As of the reporting date, the gross carrying amounts of financial assets that have been modified since initial recognition and were simultaneously reclassified from stage 2 or 3 to stage 1 in the reporting period amounted to €81 million (previous year: €324 million). As a result, the measurement of the loss allowance for these financial assets was changed from lifetime expected credit losses to 12-month expected credit losses.

Maximum credit risk

The table below shows the maximum credit risk to which the Volkswagen Group was exposed as of the reporting date, broken down by class to which the impairment model is applied:

MAXIMUM CREDIT RISK BY CLASS

€ million

 

Dec. 31, 2023

 

Dec. 31, 20221

 

 

 

 

 

Financial assets measured at fair value

 

4,413

 

4,230

Financial assets measured at amortized cost

 

183,392

 

170,220

Financial guarantees and credit commitments

 

13,044

 

13,921

Not allocated to a measurement category

 

62,346

 

55,090

Total

 

263,196

 

243,460

1

Prior-year figures adjusted (see disclosures on IFRS 17 in the “Effects of new and amended IFRSs” section).

Rating categories

The Volkswagen Group performs a credit assessment of borrowers in all loan and lease agreements, using scoring systems for the high-volume business and rating systems for corporate customers as well as receivables from dealer financing. Receivables rated as good are contained in risk class 1. Receivables from customers whose credit rating is not good but have not yet defaulted are contained in risk class 2. Risk class 3 comprises all defaulted receivables.

The table below presents the gross carrying amounts of financial assets by rating category:

GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS BY RATING CATEGORY AS OF DECEMBER 31, 2023

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

 

 

 

 

 

 

 

 

 

 

Credit risk rating grade 1
(receivables with no credit risk – standard loans)

 

143,891

 

9,504

 

–

 

83,823

 

28

Credit risk rating grade 2
(receivables with credit risk – intensified loan management)

 

5,485

 

6,132

 

–

 

2,610

 

54

Credit risk rating grade 3
(cancelled receivables – non-performing loans)

 

–

 

–

 

2,388

 

1,304

 

214

Total

 

149,376

 

15,637

 

2,388

 

87,737

 

295
GROSS CARRYING AMOUNTS OF FINANCIAL ASSETS BY RATING CATEGORY AS OF DECEMBER 31, 20221

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Simplified approach

 

Stage 4

 

 

 

 

 

 

 

 

 

 

 

Credit risk rating grade 1
(receivables with no credit risk – standard loans)

 

137,035

 

10,549

 

–

 

74,500

 

103

Credit risk rating grade 2
(receivables with credit risk – intensified loan management)

 

2,382

 

4,642

 

–

 

2,150

 

44

Credit risk rating grade 3
(cancelled receivables – non-performing loans)

 

–

 

–

 

2,063

 

1,112

 

221

Total

 

139,417

 

15,191

 

2,063

 

77,762

 

368

1

Prior-year figures adjusted (see disclosures on IFRS 17 in the “Effects of new and amended IFRSs” section).

Furthermore, the default risk exposure for financial guarantees and credit commitments is presented below:

DEFAULT RISK FOR FINANCIAL GUARANTEES AND CREDIT COMMITMENTS AS OF DECEMBER 31, 2022

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

 

 

 

 

 

 

 

 

Credit risk rating grade 1
(receivables with no credit risk – standard loans)

 

10,040

 

2,579

 

–

 

14

Credit risk rating grade 2
(receivables with credit risk – intensified loan management)

 

145

 

104

 

–

 

3

Credit risk rating grade 3
(cancelled receivables – non-performing loans)

 

–

 

–

 

174

 

75

Total

 

10,185

 

2,683

 

174

 

92
DEFAULT RISK FOR FINANCIAL GUARANTEES AND CREDIT COMMITMENTS AS OF DECEMBER 31, 2021

€ million

 

Stage 1

 

Stage 2

 

Stage 3

 

Stage 4

 

 

 

 

 

 

 

 

 

Credit risk rating grade 1 (receivables with no credit risk – standard loans)

 

9,850

 

2,856

 

–

 

87

Credit risk rating grade 2 (receivables with credit risk – intensified loan management)

 

110

 

673

 

–

 

9

Credit risk rating grade 3 (cancelled receivables – non-performing loans)

 

–

 

–

 

318

 

126

Total

 

9,960

 

3,529

 

318

 

222

Collateral that was accepted for financial assets in the current fiscal year was recognized in the balance sheet in the amount of €303 million (previous year: €205 million). This mainly relates to vehicles.

3. Liquidity risk

The solvency and liquidity of the Volkswagen Group are secured by rolling liquidity planning, a liquidity reserve, confirmed credit lines and the issuance of securities on the international money and capital markets. The volume of confirmed bilateral and syndicated credit lines stood at €31.3 billion as of December 31, 2023 (previous year: €27.3 billion), of which €0.4 billion (previous year: €1.0 billion) was drawn down.

Local cash funds in certain countries (e.g. China, Brazil, Argentina, South Africa and India) are only available to the Group for cross-border transactions subject to exchange controls. There are no significant restrictions over and above these. The liquidity risk in Argentina rose considerably as a result of the progressive depreciation of the Argentinian peso, especially in December 2023. It cannot be ruled out that the currency will depreciate further in fiscal year 2024.

The following overview shows the contractual undiscounted cash flows from financial instruments:

MATURITY ANALYSIS OF UNDISCOUNTED CASH FLOWS FROM FINANCIAL INSTRUMENTS

 

 

REMAINING CONTRACTUAL MATURITIES

 

 

 

REMAINING CONTRACTUAL MATURITIES

 

 

€ million

 

up to one year

 

within
one to five years

 

more than five years

 

2023

 

up to
one year1

 

within
one to five years

 

more than five years

 

20221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

116,805

 

111,952

 

23,572

 

252,328

 

86,834

 

108,078

 

24,942

 

219,854

Trade payables

 

30,890

 

11

 

1

 

30,901

 

28,721

 

16

 

0

 

28,738

Other financial liabilities

 

11,374

 

2,135

 

107

 

13,616

 

17,532

 

2,479

 

125

 

20,136

Derivatives

 

81,487

 

88,276

 

10,295

 

180,058

 

79,591

 

87,649

 

10,916

 

178,155

Liabilities associated with assets held for sale

 

18

 

0

 

–

 

19

 

114

 

25

 

–

 

139

 

 

240,575

 

202,373

 

33,974

 

476,922

 

212,792

 

198,247

 

35,983

 

447,023

1

Prior-year figures adjusted (see disclosures on IFRS 17 in the “Effects of new and amended IFRSs” section).

The cash outflows on other financial liabilities include outflows on liabilities for tax allocations amounting to €18 million (previous year: €17 million).

Derivatives comprise both cash flows from derivative financial instruments with negative fair values and cash flows from derivatives with positive fair values for which a gross settlement has been agreed. Derivatives entered into through offsetting transactions are also accounted for as cash outflows. The cash outflows from derivatives for which a gross settlement has been agreed are matched in part by cash inflows. These cash inflows are not reported in the maturity analysis. If these cash inflows were also recognized, the cash outflows presented would be substantially lower. This also particularly applies if hedges have been closed with offsetting transactions.

The cash outflows from obligations from loan commitments and irrevocable credit commitments are presented in the section entitled “Other financial obligations”, classified by contractual maturities.

As of December 31, 2023, the maximum potential liability under financial guarantees amounted to €910 million (previous year: €1,185 million). Financial guarantees are assumed to be due immediately in all cases.

4. Market risk

4.1 Hedging policy and financial derivatives

During the course of its general business activities, the Volkswagen Group is exposed to foreign currency, interest rate, commodity price, equity price and fund price risk. Corporate policy is to limit such risk by means of hedging. Generally, all necessary hedging transactions are executed or coordinated centrally; exceptions include, among others, the MAN Energy Solutions, Porsche AG, Porsche Holding Salzburg and TRATON GROUP subgroups and the Financial Services Division, as well as some regions such as South America and China.

Disclosures on gains and losses from fair value hedges

Fair value hedges involve hedging against the risk of changes in the carrying amount of balance sheet items. As of the reporting date, both hedging instruments and hedged items are measured at fair value in relation to the hedged risk, and the resulting opposite changes in value are recognized in the corresponding income statement item.

The following table shows the gains and losses from fair value hedges by risk type:

DISCLOSURES ON GAINS AND LOSSES FROM FAIR VALUE HEDGES

€ million

 

Dec. 31, 2023

 

Dec. 31, 2022

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

Other financial result

 

−10

 

15

Other operating result

 

−48

 

−18

Hedging currency risk

 

 

 

 

Other financial result

 

–

 

–

Other operating result

 

−45

 

−13

Combined interest rate and currency risk hedging

 

 

 

 

Other financial result

 

–

 

–

Other operating result

 

0

 

0

Disclosures on gains and losses from cash flow hedges

Cash flow hedges are used to hedge against risks of fluctuations in future cash flows. These cash flows may arise from a recognized asset or liability, or from a highly probable forecast transaction. The following table shows the gains and losses from cash flow hedges by risk type:

DISCLOSURES ON GAINS AND LOSSES FROM CASH FLOW HEDGES

€ million

 

2023

 

2022

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

Gains or losses from changes in fair value of hedging instruments within
hedge accounting

 

 

 

 

Recognized in equity

 

−278

 

287

Recognized in profit or loss

 

−4

 

−2

Reclassification from the cash flow hedge reserve to profit or loss

 

 

 

 

Due to early discontinuation of the hedging relationships

 

–

 

–

Due to realization of the hedged item

 

4

 

−8

Hedging currency risk

 

 

 

 

Gains or losses from changes in fair value of hedging instruments within
hedge accounting

 

 

 

 

Recognized in equity

 

467

 

−187

Recognized in profit or loss

 

2

 

−2

Reclassification from the cash flow hedge reserve to profit or loss or inventories

 

 

 

 

Due to early discontinuation of the hedging relationships

 

−91

 

−130

Due to realization of the hedged item

 

362

 

1,472

Combined interest rate and currency risk hedging

 

 

 

 

Gains or losses from changes in fair value of hedging instruments within
hedge accounting

 

 

 

 

Recognized in equity

 

72

 

20

Recognized in profit or loss

 

–

 

1

Reclassification from the cash flow hedge reserve to profit or loss

 

 

 

 

Due to early discontinuation of the hedging relationships

 

–

 

–

Due to realization of the hedged item

 

−57

 

−40

Hedging commodities price risk

 

 

 

 

Gains or losses from changes in fair value of hedging instruments within
hedge accounting

 

 

 

 

Recognized in equity

 

5

 

–

Recognized in profit or loss

 

–

 

–

Reclassification from the cash flow hedge reserve to profit or loss or inventories

 

 

 

 

Due to early discontinuation of the hedging relationships

 

–

 

–

Due to realization of the hedged item

 

1

 

–

The table presents effects taken to equity, reduced by deferred taxes.

The gain or loss from changes in the fair value of hedging instruments used in hedge accounting corresponds to the basis for determining hedge ineffectiveness. The ineffective portion of a cash flow hedge is the income or expense resulting from changes in the fair value of the hedging instrument that exceed the changes in the fair value of the hedged item. This hedge ineffectiveness is attributable to differences in the parameters for the hedging instrument and the hedged item. Such income and expenses are recognized in other operating income/expenses or in the financial result.

The Volkswagen Group uses two different methods to present market risk from nonderivative and derivative financial instruments in accordance with IFRS 7. For quantitative risk measurement, interest rate and foreign currency risk in the Volkswagen Financial Services subgroup is measured using a value-at-risk (VaR) model on the basis of a historical simulation, while market risk in the other Group companies is determined using a sensitivity analysis. The value-at-risk calculation indicates the size of the maximum potential loss on the portfolio as a whole within a time horizon of 60 days, measured at a confidence level of 99%. To provide the basis for this calculation, all cash flows from nonderivative and derivative financial instruments are aggregated into an interest rate gap analysis. The historical market data used in calculating VaR covers a period of four years. The sensitivity analysis calculates the effect on equity and profit or loss by modifying risk variables within the respective market risks.

Disclosures on hedging instruments in hedge accounting

The Volkswagen Group regularly enters into hedging instruments to hedge against changes in the carrying amount of balance sheet items. The summary below shows the notional amounts, fair values and base variables for determining the ineffectiveness of hedging instruments entered into to hedge against the risk of changes in carrying amounts in fair value hedges:

DISCLOSURES ON HEDGING TRANSACTIONS IN FAIR VALUE HEDGES IN 2023

€ million

 

Notional amount

 

Other assets

 

Other liabilities

 

Fair value changes to determine hedge ineffectiveness

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swaps

 

52,663

 

366

 

1,773

 

−1,693

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards, currency options, cross-currency swaps

 

6,749

 

67

 

64

 

−31

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

773

 

9

 

67

 

−55
DISCLOSURES ON HEDGING TRANSACTIONS IN FAIR VALUE HEDGES IN 2022

€ million

 

Notional amount

 

Other assets

 

Other liabilities

 

Fair value changes to determine hedge ineffectiveness

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swaps

 

58,170

 

868

 

2,596

 

−2,305

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards, currency options, cross-currency swaps

 

4,384

 

87

 

26

 

40

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

140

 

0

 

–

 

0

In addition, hedges are used to hedge against risks of fluctuations in future cash flows. The table below shows the notional amounts, fair values and base variables for determining the ineffectiveness of hedging instruments designated in cash flow hedges:

DISCLOSURES ON HEDGING TRANSACTIONS IN CASH FLOW HEDGES IN 2023

€ million

 

Notional amount

 

Other assets

 

Other liabilities

 

Fair value changes to determine hedge ineffectiveness

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swaps

 

17,331

 

165

 

62

 

27

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards and cross-currency swaps

 

113,139

 

3,534

 

2,273

 

2,340

Currency options

 

14,231

 

208

 

152

 

31

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

1,273

 

49

 

15

 

26

Hedging commodities price risk

 

 

 

 

 

 

 

 

Commodity forwards/swaps

 

431

 

15

 

6

 

9
DISCLOSURES ON HEDGING TRANSACTIONS IN CASH FLOW HEDGES IN 2022

€ million

 

Notional amount

 

Other assets

 

Other liabilities

 

Fair value changes to determine hedge ineffectiveness

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swaps

 

15,371

 

509

 

30

 

419

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards and cross-currency swaps

 

119,499

 

3,087

 

2,540

 

2,204

Currency options

 

27,342

 

166

 

268

 

−77

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

1,437

 

23

 

17

 

1

Hedging commodities price risk

 

 

 

 

 

 

 

 

Commodity forwards/swaps

 

–

 

–

 

–

 

–

The fair value change used to determine ineffectiveness corresponds to the fair value change of the designated component.

Disclosures on hedged items in hedge accounting

In addition to disclosures on hedging instruments, disclosures are also required on the hedged items, broken down by risk category and type of designation for hedge accounting. Below follows a list of hedged items designated in fair value hedges, separately from those designated in cash flow hedges:

DISCLOSURES ON HEDGED ITEMS IN FAIR VALUE HEDGES IN 2023

€ million

 

Carrying amount

 

Cumulative hedge adjustments

 

Hedge adjustments current period/fiscal year

 

Cumulative hedge adjustments from discontinued hedging relationships

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Financial services receivables

 

18,196

 

293

 

225

 

–

Other financial assets

 

–

 

–

 

–

 

–

Financial liabilities

 

37,503

 

−1,527

 

1,065

 

–

Hedging currency risk

 

 

 

 

 

 

 

 

Financial services receivables

 

–

 

–

 

–

 

–

Other financial assets

 

1,169

 

2

 

2

 

–

Financial liabilities

 

856

 

−5

 

2

 

–

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Financial services receivables

 

–

 

–

 

–

 

–

Other financial assets

 

36

 

0

 

0

 

–

Financial liabilities

 

976

 

116

 

77

 

–
DISCLOSURES ON HEDGED ITEMS IN FAIR VALUE HEDGES IN 2022

€ million

 

Carrying amount

 

Cumulative hedge adjustments

 

Hedge adjustments current period/fiscal year

 

Cumulative hedge adjustments from discontinued hedging relationships

 

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Financial services receivables

 

14,764

 

−156

 

−156

 

–

Other financial assets

 

–

 

–

 

–

 

–

Financial liabilities

 

34,622

 

−2,890

 

−3,061

 

–

Hedging currency risk

 

 

 

 

 

 

 

 

Financial services receivables

 

–

 

–

 

–

 

–

Other financial assets

 

795

 

−5

 

−1

 

–

Financial liabilities

 

1,132

 

−7

 

−23

 

–

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Financial services receivables

 

–

 

–

 

–

 

–

Other financial assets

 

–

 

–

 

–

 

–

Financial liabilities

 

181

 

39

 

39

 

–
DISCLOSURES ON HEDGED ITEMS IN CASH FLOW HEDGES IN 2023

 

 

 

 

RESERVE FOR

€ million

 

Changes in fair value to determine hedge ineffectiveness

 

Active cash flow hedges

 

Discontinued cash flow hedges

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

Designated components

 

25

 

30

 

1

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

1

 

0

Total hedging interest rate risk

 

25

 

31

 

1

Hedging currency risk

 

 

 

 

 

 

Designated components

 

2,338

 

2,320

 

26

Non-designated components

 

–

 

−1,137

 

−24

Deferred taxes

 

–

 

−324

 

−1

Total hedging currency risk

 

2,338

 

859

 

2

Combined interest rate and currency risk hedging

 

 

 

 

 

 

Designated components

 

26

 

−7

 

–

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

2

 

–

Total hedging combined interest rate and currency risk

 

26

 

−5

 

–

Hedging commodity price risk

 

 

 

 

 

 

Designated components

 

10

 

9

 

–

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

−3

 

–

Total hedging commodity price risk

 

10

 

6

 

–
DISCLOSURES ON HEDGED ITEMS IN CASH FLOW HEDGES IN 2022

 

 

 

 

RESERVE FOR

€ million

 

Changes in fair value to determine hedge ineffectiveness

 

Active cash flow hedges

 

Discontinued cash flow hedges

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

Designated components

 

424

 

420

 

0

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

−114

 

0

Total hedging interest rate risk

 

424

 

306

 

0

Hedging currency risk

 

 

 

 

 

 

Designated components

 

2,130

 

1,998

 

−8

Non-designated components

 

–

 

−1,800

 

−11

Deferred taxes

 

–

 

−61

 

6

Total hedging currency risk

 

2,130

 

137

 

−13

Combined interest rate and currency risk hedging

 

 

 

 

 

 

Designated components

 

1

 

−29

 

–

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

9

 

–

Total hedging combined interest rate and currency risk

 

1

 

−20

 

–

Hedging commodity price risk

 

 

 

 

 

 

Designated components

 

–

 

–

 

–

Non-designated components

 

–

 

–

 

–

Deferred taxes

 

–

 

–

 

–

Total hedging commodity price risk

 

–

 

–

 

–

Changes in the reserve

When accounting for cash flow hedges, the designated effective portions of a hedge are recognized in OCI I directly in equity. All changes beyond this in the fair value of the designated component are recognized as ineffectiveness in profit or loss.

The tables below show a reconciliation to the reserve:

CHANGES IN THE RESERVE FOR CASH FLOW HEDGES (OCI I)

€ million

 

Interest rate risk

 

Currency risk

 

Interest rate/
currency risk

 

Commodity price risk

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at Jan. 1, 2023

 

307

 

1,397

 

−20

 

–

 

1,684

Gains or losses from effective hedging relationships

 

−278

 

733

 

72

 

5

 

533

Reclassifications due to changes in whether the hedged item is expected to occur

 

–

 

−137

 

–

 

–

 

−137

Reclassifications due to realization of the hedged item

 

4

 

−325

 

−57

 

1

 

−377

Balance at Dec. 31, 2023

 

33

 

1,669

 

−5

 

6

 

1,703
CHANGES IN THE RESERVE FOR CASH FLOW HEDGES (OCI I)

€ million

 

Interest rate risk

 

Currency risk

 

Interest rate/
currency risk

 

Commodity price risk

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at Jan. 1, 2022

 

28

 

−665

 

−1

 

–

 

−637

Gains or losses from effective hedging relationships

 

287

 

1,244

 

20

 

–

 

1,551

Reclassifications due to changes in whether the hedged item is expected to occur

 

–

 

−133

 

–

 

–

 

−133

Reclassifications due to realization of the hedged item

 

−8

 

952

 

−40

 

–

 

904

Balance at Dec. 31, 2022

 

307

 

1,397

 

−20

 

–

 

1,684

If expectations about the occurrence of the hedged item change, the arrangement is reclassified by terminating the hedging relationship prematurely. Changed expectations are primarily caused by a change in projections for hedging sales revenue.

Changes in the fair values of non-designated components of a derivative are likewise generally recognized immediately through profit or loss. An exception from this principle is any change in the fair value attributable to non-designated time values of options, to the extent that they relate to the hedged item. Moreover, the Volkswagen Group initially recognizes in equity (hedging costs) changes in the fair values of non-designated forward components in currency forwards and currency hedges attributed to cash flow hedges. This means that the Volkswagen Group recognizes changes in the fair value of the non-designated component respectively parts thereof immediately through profit or loss only if there is ineffectiveness.

The tables below show a summary of changes in the reserve for hedging costs resulting from the non-designated portions of options and currency hedges:

CHANGES IN THE RESERVE FOR HEDGING COSTS – NON-DESIGNATED TIME VALUES OF OPTIONS

 

 

CURRENCY RISK

€ million

 

2023

 

2022

 

 

 

 

 

Balance at Jan. 1

 

−87

 

−80

Gains and losses from non-designated time value of options

 

 

 

 

Hedged item is recognized at a point in time

 

17

 

82

Reclassifications due to changes in whether the hedged item is expected to occur

 

 

 

 

Hedged item is recognized at a point in time

 

1

 

1

Reclassification due to realization of the hedged item

 

 

 

 

Hedged item is recognized at a point in time

 

46

 

−91

Balance at Dec. 31

 

−22

 

−87
CHANGES IN THE RESERVE FOR HEDGING COSTS – NON-DESIGNATED FORWARD COMPONENT AND CROSS CURRENCY BASIS SPREAD (CCBS)

 

 

CURRENCY RISK

€ million

 

2023

 

2022

 

 

 

 

 

Balance at Jan. 1

 

−1,187

 

−287

Gains and losses from non-designated forward elements and CCBS

 

 

 

 

Hedged item is recognized at a point in time

 

−283

 

−1,514

Reclassification due to changes in whether the hedged item is expected to occur

 

 

 

 

Hedged item is recognized at a point in time

 

44

 

2

Reclassifications due to realization of the hedged item

 

 

 

 

Hedged item is recognized at a point in time

 

641

 

611

Balance at Dec. 31

 

−785

 

−1,187

4.2 MARKET RISK IN THE VOLKSWAGEN GROUP (EXCLUDING VOLKSWAGEN FINANCIAL SERVICES SUBGROUP)

4.2.1 FOREIGN CURRENCY RISK

Foreign currency risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) is attributable to investments, financing measures and operating activities. Currency forwards, currency options, currency swaps and cross-currency interest rate swaps are used to limit foreign currency risk. These transactions relate to the exchange rate hedging of material payments covering general business activities that are not made in the functional currency of the respective Group companies. The principle of matching currencies applies to the Group’s financing activities.

Hedging transactions entered into in 2023 as part of foreign currency risk management were amongst others in Australian dollars, Brazilian real, British pound sterling, Chinese renminbi, Hong Kong dollars, Indian rupees, Japanese yen, Canadian dollars, Mexican pesos, Norwegian kroner, Polish zloty, Swedish kronor, Swiss francs, Singapore dollars, South African rand, South Korean won, Taiwan dollars, Czech koruna, Hungarian forints and US dollars.

All nonfunctional currencies in which the Volkswagen Group enters into financial instruments are included as relevant risk variables in the sensitivity analysis in accordance with IFRS 7.

If the functional currencies concerned had appreciated or depreciated by 10% against the other currencies, the exchange rates shown below would have resulted in the following effects on the hedging reserve in equity and on earnings after tax. It is not appropriate to add together the individual figures, since the results of the various functional currencies concerned are based on different scenarios.

The following table shows the sensitivities of the main currencies in the portfolio as of December 31, 2023:

 

 

Dec. 31, 2023

 

Dec. 31, 2022

€ million

 

+10%

 

−10%

 

+10%

 

−10%

 

 

 

 

 

 

 

 

 

Exchange rate

 

 

 

 

 

 

 

 

EUR / USD

 

 

 

 

 

 

 

 

Hedging reserve

 

408

 

−393

 

497

 

−534

Earnings after tax

 

−978

 

978

 

−731

 

717

EUR / GBP

 

 

 

 

 

 

 

 

Hedging reserve

 

1,176

 

−1,182

 

1,309

 

−1,317

Earnings after tax

 

−93

 

87

 

−120

 

121

EUR / CNY

 

 

 

 

 

 

 

 

Hedging reserve

 

754

 

−644

 

1,299

 

−1,310

Earnings after tax

 

−542

 

542

 

−342

 

342

EUR / CHF

 

 

 

 

 

 

 

 

Hedging reserve

 

883

 

−909

 

796

 

−823

Earnings after tax

 

10

 

−10

 

−1

 

1

EUR / SEK

 

 

 

 

 

 

 

 

Hedging reserve

 

191

 

−190

 

171

 

−169

Earnings after tax

 

−234

 

234

 

−67

 

67

EUR / BRL

 

 

 

 

 

 

 

 

Hedging reserve

 

54

 

−54

 

41

 

−41

Earnings after tax

 

−219

 

219

 

−66

 

66

EUR / CAD

 

 

 

 

 

 

 

 

Hedging reserve

 

205

 

−205

 

280

 

−279

Earnings after tax

 

−26

 

26

 

−20

 

20

EUR / JPY

 

 

 

 

 

 

 

 

Hedging reserve

 

190

 

−188

 

160

 

−157

Earnings after tax

 

−33

 

33

 

−36

 

36

EUR / PLN

 

 

 

 

 

 

 

 

Hedging reserve

 

187

 

−187

 

−72

 

72

Earnings after tax

 

−26

 

26

 

−37

 

37

EUR / AUD

 

 

 

 

 

 

 

 

Hedging reserve

 

169

 

−169

 

262

 

−262

Earnings after tax

 

−44

 

44

 

−31

 

31

EUR / KRW

 

 

 

 

 

 

 

 

Hedging reserve

 

184

 

−179

 

133

 

−133

Earnings after tax

 

−27

 

27

 

−46

 

45

EUR / TWD

 

 

 

 

 

 

 

 

Hedging reserve

 

155

 

−155

 

183

 

−183

Earnings after tax

 

−19

 

19

 

−10

 

10

EUR / MXN

 

 

 

 

 

 

 

 

Hedging reserve

 

122

 

−122

 

73

 

−73

Earnings after tax

 

−10

 

10

 

2

 

−4

EUR / INR

 

 

 

 

 

 

 

 

Hedging reserve

 

−96

 

96

 

−65

 

65

Earnings after tax

 

−7

 

7

 

−13

 

13

CAD / USD

 

 

 

 

 

 

 

 

Hedging reserve

 

−91

 

91

 

−60

 

60

Earnings after tax

 

−11

 

11

 

−8

 

7
4.2.2 INTEREST RATE RISK

Interest rate risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) results from changes in market interest rates, primarily for medium- and long-term variable interest receivables and liabilities. Interest rate swaps and cross-currency interest rate swaps are used to hedge against this risk, partially as fair value or cash flow hedge, and depending on market conditions. Intragroup financing arrangements are mainly structured to match the maturities of their refinancing. Departures from the Group standard are subject to centrally defined limits and monitored on an ongoing basis.

Interest rate risk within the meaning of IFRS 7 is calculated using sensitivity analyses. The effects of the risk-variable market rates of interest on the financial result and on equity are presented, net of tax.

If market interest rates had been 100 bps higher as of December 31, 2023, equity would have been €21 million (previous year: €20 million) lower. If market interest rates had been 100 bps lower as of December 31, 2023, equity would have been €22 million (previous year: €22 million) higher.

If market interest rates had been 100 bps higher as of December 31, 2023, earnings after tax would have been €362 million (previous year: €143 million) lower. If market interest rates had been 100 bps lower as of December 31, 2023, earnings after tax would have been €382 million (previous year: €149 million) higher.

4.2.3 COMMODITY PRICE RISK

Commodity price risk in the Volkswagen Group (excluding Volkswagen Financial Services subgroup) primarily results from price fluctuations and the availability of ferrous and non-ferrous metals, precious metals, commodities required in connection with the Group’s digitalization and electrification strategy, as well as of coal, CO2 certificates and rubber.

Commodity price risk is limited by entering into forward transactions and swaps.

However, not all commodities are suitable for these types of hedges, e.g. because of low market liquidity or a lack of correlation between hedged item and hedging instrument. Likewise, selected commodities were purchased on the spot market, which led to a corresponding increase in inventories. Commodity price risk within the meaning of IFRS 7 is presented using sensitivity analyses. These show what effect changes in the commodity price risk variable would have on earnings after tax and on equity.

If the commodity prices of the hedged nonferrous metals, coal and rubber had been 10% higher (lower) as of December 31, 2023, earnings after tax would have been €648 million (previous year: €954 million) higher (lower).

If commodity prices in hedging transactions to which hedge accounting is applied had been 10% higher (lower) as of December 31, 2023, equity would have been €27 million higher (lower). As of the end of 2022, there were no hedging relationships that qualified for hedge accounting.

4.2.4 EQUITY AND BOND PRICE RISK

The special funds launched using surplus liquidity and the equity interests measured at fair value are subject in particular to equity price and bond price risk, which can arise from fluctuations in quoted market prices, stock exchange indices and market rates of interest. The changes in bond prices resulting from variations in the market rates of interest are quantified in sections 4.2.1 and 4.2.2, as are the measurement of foreign currency and other interest rate risks arising from the special funds and the equity interests measured at fair value. As a rule, risks arising from the special funds are countered by ensuring a broad diversification of products, issuers and regional markets when investing funds, as stipulated by the Investment Guidelines of the Group. In addition, the Investment Guidelines define fixed minimum values, which are to be met by taking suitable risk management measures. In addition, hedgings are executed when market conditions are appropriate.

As part of the presentation of market risk, IFRS 7 requires disclosures on how hypothetical changes in risk variables affect the price of financial instruments. Potential risk variables here are in particular quoted market prices or indices, as well as interest rate changes as bond price parameters.

If share prices had been 10% higher as of December 31, 2023, earnings after tax would have been €290 million (previous year: €107 million) higher and equity would have been €4 million (previous year: €4 million) higher. If share prices had been 10% lower as of December 31, 2023, earnings after tax would have been €270 million (previous year: €65 million) lower and equity would have been €4 million (previous year: €4 million) lower.

4.3 MARKET RISK AT VOLKSWAGEN FINANCIAL SERVICES SUBGROUP

Exchange rate risk in the Volkswagen Financial Services subgroup is mainly attributable to assets that are not denominated in the functional currency and from refinancing within operating activities. Interest rate risk relates to refinancing without matching maturities and the varying interest rate elasticity of individual asset and liability items. The risks are limited by the use of currency and interest rate hedges.

Microhedges are used for interest rate hedging. Fixed-rate assets and liabilities included in the hedging strategy are recognized at fair value, as opposed to their original subsequent measurement at amortized cost. The resulting effects in the income statement are offset by the corresponding gains and losses on the interest rate hedging instruments (swaps). Currency hedges (currency forwards and cross-currency interest rate swaps) are used to mitigate foreign currency risk. All cash flows in foreign currency are hedged.

As of December 31, 2023, the value at risk was €976 million (previous year: €792 million) for interest rate risk and €133 million (previous year: €76 million) for foreign currency risk.

The entire value at risk for interest rate and foreign currency risk at the Volkswagen Financial Services subgroup was €893 million (previous year: €720 million).

5. Methods for monitoring hedge effectiveness

Since the implementation of IFRS 9, the Volkswagen Group determines hedge effectiveness mainly on a prospective basis using the critical terms match method. Retrospective analysis of effectiveness uses a test for ineffectivities in the form of the dollar offset method. Under the dollar offset method, the changes in value of the hedged item expressed in monetary units are compared with the changes in value of the hedging instrument expressed in monetary units.

To this end, the accumulated changes in the fair value of the designated spot component of the hedging instrument and hedged item are compared. If the critical terms do not match, the same procedure is applied to the non-designated component.

Notional amount of derivatives

The summary below presents the remaining maturities profile of the notional amounts of the hedging instruments, which are accounted for under the Volkswagen Group’s hedge accounting rules, and of derivatives to which hedge accounting is not applied:

NOTIONAL AMOUNT OF DERIVATIVES IN 2023

 

 

REMAINING TERM

 

TOTAL NOTIONAL AMOUNT

€ million

 

up to one year

 

within
one to five years

 

more than
five years

 

Dec. 31, 2023

 

 

 

 

 

 

 

 

 

Notional amount of hedging instruments within hedge accounting

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swap

 

14,174

 

50,233

 

5,587

 

69,993

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps in CNY

 

5,708

 

10,032

 

62

 

15,802

Currency forwards/Cross-currency swaps in GBP

 

12,743

 

7,067

 

–

 

19,810

Currency forwards/Cross-currency swaps in USD

 

12,383

 

21,008

 

1,000

 

34,391

Currency forwards/Cross-currency swaps in CHF

 

2,790

 

8,726

 

60

 

11,576

Currency forwards/Cross-currency swaps in other currencies

 

19,346

 

18,877

 

86

 

38,309

Currency options

 

 

 

 

 

 

 

 

Currency options in USD

 

1,264

 

1,174

 

–

 

2,437

Currency options in CNY

 

4,733

 

1,906

 

–

 

6,639

Currency options in CHF

 

1,274

 

2,462

 

–

 

3,736

Currency options in other currencies

 

583

 

836

 

–

 

1,419

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

1,174

 

872

 

–

 

2,046

Hedging commodity price risk

 

 

 

 

 

 

 

 

Commodity forwards/swaps aluminium

 

146

 

87

 

–

 

234

Commodity forwards/swaps copper

 

43

 

102

 

–

 

145

Commodity forwards/swaps other

 

44

 

8

 

–

 

52

 

 

 

 

 

 

 

 

 

Notional amount of other derivatives

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swap

 

21,553

 

37,648

 

17,178

 

76,379

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps in USD

 

10,370

 

8,605

 

218

 

19,193

Currency forwards/Cross-currency swaps in other currencies

 

16,184

 

3,095

 

0

 

19,279

Currency options

 

 

 

 

 

 

 

 

Currency options in CNY

 

5,529

 

–

 

–

 

5,529

Currency options in other currencies

 

4,087

 

511

 

–

 

4,598

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

2,298

 

12,293

 

3,406

 

17,997

Hedging commodity price risk

 

 

 

 

 

 

 

 

Commodity forwards/swaps aluminium

 

1,263

 

2,535

 

–

 

3,798

Commodity forwards/swaps copper

 

489

 

1,257

 

–

 

1,746

Commodity forwards/swaps nickel

 

1,021

 

2,564

 

218

 

3,803

Commodity forwards/swaps other

 

522

 

126

 

–

 

648
NOTIONAL AMOUNT OF DERIVATIVES IN 2022

 

 

REMAINING TERM

 

TOTAL NOTIONAL AMOUNT

€ million

 

up to one year

 

within one to five years

 

more than five years

 

Dec. 31, 2022

 

 

 

 

 

 

 

 

 

Notional amount of hedging instruments within hedge accounting

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swap

 

13,674

 

52,876

 

6,991

 

73,541

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps in CNY

 

7,654

 

12,682

 

120

 

20,456

Currency forwards/Cross-currency swaps in GBP

 

12,106

 

9,679

 

–

 

21,785

Currency forwards/Cross-currency swaps in USD

 

12,210

 

22,833

 

2,314

 

37,357

Currency forwards/Cross-currency swaps in other currencies

 

18,904

 

25,381

 

–

 

44,284

Currency options

 

 

 

 

 

 

 

 

Currency options in USD

 

3,484

 

2,772

 

–

 

6,256

Currency options in CNY

 

7,005

 

8,689

 

–

 

15,694

Currency options in other currencies

 

1,736

 

3,656

 

–

 

5,392

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

773

 

804

 

–

 

1,577

 

 

 

 

 

 

 

 

 

Notional amount of other derivatives

 

 

 

 

 

 

 

 

Hedging interest rate risk

 

 

 

 

 

 

 

 

Interest rate swap

 

17,835

 

36,775

 

16,380

 

70,991

Hedging currency risk

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps

 

 

 

 

 

 

 

 

Currency forwards/Cross-currency swaps in USD

 

9,060

 

7,431

 

165

 

16,656

Currency forwards/Cross-currency swaps in other currencies

 

16,430

 

2,511

 

0

 

18,941

Currency options

 

 

 

 

 

 

 

 

Currency options in USD

 

3,549

 

644

 

–

 

4,193

Currency options in other currencies

 

280

 

212

 

–

 

492

Combined interest rate and currency risk hedging

 

 

 

 

 

 

 

 

Cross-currency interest rate swaps

 

5,231

 

8,717

 

3,945

 

17,892

Hedging commodity price risk

 

 

 

 

 

 

 

 

Commodity forwards/swaps aluminium

 

979

 

2,390

 

–

 

3,369

Commodity forwards/swaps copper

 

416

 

651

 

–

 

1,067

Commodity forwards/swaps nickel

 

840

 

2,048

 

165

 

3,052

Commodity forwards/swaps other

 

380

 

153

 

–

 

533

Both derivatives closed with offsetting transactions and the offsetting transactions themselves are included in the respective notional amount. The offsetting transactions cancel out the effects of the original hedging transactions. If the offsetting transactions were not included, the respective notional amount would be lower. In addition to the derivatives used for hedging foreign currency, interest rate and price risk, the Group held options and other derivatives on equity instruments at the reporting date, mainly in connection with fund investments. The notional volume with a remaining maturity of less than one year was €19.9 billion (previous year: €17.9 billion). The notional volume with a remaining maturity of more than one year was €4.2 billion (previous year: €4.2 billion) and relates primarily to options in connection with the acquisition of Europcar.

Also in connection with fund investments, the Group held credit default swaps with a notional amount of €32.2 billion (previous year: €17.5 billion).

Existing cash flow hedges in the notional amount of €5.2 billion (previous year: €2.0 billion) were discontinued because of a reduction in the projections. In addition, hedges were to be terminated due to internal risk regulations.

Items hedged under cash flow hedges are expected to be realized in accordance with the maturity buckets of the hedges reported in the table. For cash flow hedges, the Volkswagen Group achieved an average hedging interest rate of 2.93% for hedging interest rate risk. In addition, currency risk was hedged at the following hedging exchange rates for the major currency pairs: EUR/USD at 1.16; EUR/GBP at 0.88; EUR/CNY at 7.39.

The average hedging prices used in commodity price hedging were USD 2,332.15/tonne for aluminum and USD 8,359.11/tonne for copper.

The fair values of the derivatives are estimated using market data at the balance sheet date as well as by appropriate valuation techniques. The following term structures were used for the calculation:

in %

 

EUR

 

AUD

 

CAD

 

CHF

 

CNY

 

CZK

 

GBP

 

JPY

 

SEK

 

USD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate for six months

 

3.6832

 

4.3613

 

4.9060

 

1.5800

 

2.3769

 

6.1629

 

5.1350

 

0.0176

 

4.1596

 

5.1613

Interest rate for one year

 

3.2078

 

4.2061

 

4.5750

 

1.3900

 

2.3105

 

6.3621

 

4.7450

 

0.0713

 

3.7939

 

4.7871

Interest rate for five years

 

2.1805

 

3.9280

 

3.1720

 

1.0675

 

2.5700

 

3.5350

 

3.3822

 

0.4500

 

2.3870

 

3.5555

Interest rate for ten years

 

2.2735

 

4.1830

 

3.1250

 

1.1700

 

2.7700

 

3.4950

 

3.3000

 

0.8438

 

2.3530

 

3.4831
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