Volkswagen Group | Annual Report 2020

Key Figures

VOLKSWAGE N GROU P

2020

2019

%

Volume Data¹in thousands

Deliveries to customers (units)

Vehicle sales (units)

9,305

9,157

8,900

662.6

10,975

10,956

10,823

671.2

–15.2

–16.4

–17.8

–1.3

Production (units)

Employees at Dec. 31

Financial Data (IFRSs), € million

Sales revenue

222,884

10,607

4.8

252,632

19,296

7.6

–11.8

–45.0

Operating result before special items

Operating return on sales before special items (%)

Special items

–931

9,675

4.3

–2,336

16,960

6.7

–60.1

–43.0

Operating result

Operating return on sales (%)

Earnings before tax

11,667

5.2

18,356

7.3

–36.4

–37.1

Return on sales before tax (%)

Earnings after tax

8,824

14,029

Automotive Division²

Total research and development costs

R&D ratio (%)

13,885

7.6

14,306

6.7

–2.9

Cash flows from operating activities

24,721

18,364

11,065

6.1

30,733

19,898

14,007

6.6

–19.6

–7.7

Cash flows from investing activities attributable to operating activities³

of which: capex

–21.0

capex/sales revenue (%)

Net cash flow

6,357

26,796

6.5

10,835

21,276

11.2

–41.3

+ 25.9

Net liquidity at Dec. 31

Return on investment (ROI) in %

Financial Services Division

Return on equity before tax⁴(%)

8.8

10.8

VOLKSWAGE N AG

2020

2019

%

Volume Data in thousands

Employees at Dec. 31

118.7

119.2

–0.4

Financial Data (HGB), € million

Sales revenue

67,535

6,338

80,621

4,958

–16.2

+ 27.8

Net income for the fiscal year

Dividends (€)

per ordinary share

4.80

4.86

4.80

4.86

per preferred share

1

Volume data including the unconsolidated Chinese joint ventures. These companies are accounted for using the equity method. Prior-year deliveries updated to reflect

subsequent statistical trends.

2

3

4

Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

Excluding acquisition and disposal of equity investments: €17,175 (19,182) million.

Earnings before tax as a percentage of average equity.

This version of the annual report is a translation of the German original. The German takes precedence. All figures shown in the report are rounded, so minor discrepancies may arise from

addition of these amounts. The figures from the previous fiscal year are shown in parentheses directly after the figures for the current reporting period.

Specified vehicle ranges correspond to results obtained through the Worldwide Harmonized Light vehicles Test Procedure (WLTP) on the chassis dynamometer. WLTP value ranges for

series-produced vehicles may vary depending on the equipment. The actual range will deviate in practice depending on various other factors.

To our Shareholders

Letter to our Shareholders

7

Letter to our Shareholders

We have had to perform the greatest balancing act in the Com- We find ourselves in a new playing field – up against com-

pany’s history in recent months – addressing the Covid-19 panies that are entering the mobility market from the world of

pandemic while pushing our transformation into a technol- technology, often with virtually unlimited access to resources

ogy company. Of these two challenges, developing of new through the capital markets. Stock market players still regard

digital products, services and customer interfaces was and still the Volkswagen Group as part of the “old auto” world. By

is of greater existential significance for our Group.

focusing consistently on software and efficiency, we are

working to change this view. The world’s most valuable com-

Data and electricity are driving us now. We are improving the pany will become a mobility company once more – and

charging experience for our electric vehicles. We are providing Volkswagen enjoys one of the best starting positions in the

over-the-air software updates – including new functions and “new auto” competition.

assistance systems. We are establishing new sales processes,

primarily online, and communicating directly with our In the “old world” of vehicle construction, we have achieved an

customers – around the clock, if desired.

excellent standard: the construction quality, appeal and

functionality of our vehicles are better than ever. The only way

Data is the new driving force of prosperity for economies. Its to successfully transform Volkswagen into a digital company

usage strengthens customer orientation and provides safer is by maximizing the return from our traditional business. We

and more convenient mobility. Digital upgrades and addi- intend to reduce the Group’s fixed costs by 5% by 2023.

tional services relating to the entire vehicle are creating new Another area of focus is procurement, where we are working

areas of business that we are developing. Particularly in fully to reduce material costs by 7% over the next two years. The

connected traffic, data will become the basis for autonomous brands are improving their profitability through cost-cutting

driving, thus redefining individual mobility. This is why we are programs. And we are simplifying our portfolio – which is

planning to invest €27 billion, representing about one-fifth of more diversified than ever before – in the right places.

the Group’s total capex expenditure, in digitalization over the

next five years.

Moreover, our focus on sustainable action will strengthen the

Group’s resilience. By 2050 at the latest, our Group will achieve

Two flagship projects will greatly speed up the new focus on net carbon neutrality worldwide – from supply chains to our

software and data in the Volkswagen world. Audi will launch a plants and divisions up to the use of the vehicles by our

new Group-wide software platform as part of the Artemis customers. We have made substantial progress during the

project in 2024, starting with the premium segment. The pandemic. This means one thing in particular – bringing out

Volkswagen brand will follow suit in 2026 with the Trinity more electric vehicles. Overall, the Group tripled its sales of all-

project in the volume segment. These two projects stand for electric vehicles to 231,600 units.

entirely new and completely digitalized electric models. Since

July 2020, our Car.Software Organisation has been program- The premiere of Volkswagen’s ID. family played an important

ming the new vw.os operating system, which will be used for part in this sales growth. Production of the ID.3 and ID.4 began

the first time in Artemis. Today, over 3,500 IT experts work in in Zwickau. Since November 2020, the ID.4 is also being

this organization and this number will rise to 10,000 in five manufactured at two newly constructed factories in China.

years: coding is becoming part of the Volkswagen DNA. In the When production of the ID.4 begins in the United States in

future, we will continue to keep all activities relating to the 2022, the electric SUV will live up to its claim of being the

brains of the car in-house.

electric ‘world car’.

8

Letter to our Shareholders

To our Shareholders

Data and electricity

are driving us now.

–

Herbert Diess –

To our Shareholders

Letter to our Shareholders

9

With 56,000 units delivered, the Volkswagen ID.3 was the into a hospital. In Spain, SEAT manufactured respiratory

Group’s most successful electric vehicle in 2020, followed by equipment. ŠKODA in the Czech Republic and Lamborghini in

the Audi e-tron and the Porsche Taycan. We intend to invest Italy produced surgical masks and face shields. The Group

around €35 billion in e-mobility over the next five years, plus provided €40 million worth of relief supplies, sought out

another €11 billion in the hybridization of our model port- producers in China and arranged transport to Europe.

folio. Five years ago we gave the green light for e-mobility in

the Group through the decision to develop the Modular At the same time, we were able to ensure safe working

Electric Drive Toolkit (MEB). Now this is a core business.

conditions in production with a 100-point plan, maintain

global supply chains, and safeguard our liquidity, primarily

Last year, we significantly lowered the emissions of the through targeted warehouse management. Volkswagen

Group’s fleet in Europe compared with the previous year. In showed itself to be robust and capable of excellent perfor-

2021, when the electric campaign is well underway with mance in a year that saw the biggest crisis in decades. As of the

models such as the ŠKODA Enyaq iV, we will meet the EU’s CO close of the year, the Group recorded around 15% fewer

2

fleet targets and will go from strength to strength in sub- deliveries year-on-year, but saw its global market share

sequent years – until we can trade our excess carbon credits for increase slightly. Operating profit before special items came to

a profit in the near future.

€10.6 billion in 2020. Net liquidity of €26.8 billion – an

increase of 25.9% year-on-year – underscores the Group’s

We continued our 40-year success story in China, primarily outstanding solidity.

with a view to achieving zero-emission mobility. By increasing

our stake in the Volkswagen (Anhui) joint venture to 75%, we I am very proud of what our more than 660,000 employees

are accelerating electrification in our largest market. We have achieved in these challenging times. While balancing the

announced our intention to become the largest shareholder in pandemic and our transformation, we achieved the best

Chinese battery maker Gotion by acquiring 26% of this sentiment rating in the annual employee survey. We have

company. These and other endeavors are helping us to expand implemented positive changes in our corporate culture. This

our battery expertise at a global level.

was also confirmed in September 2020 by the final report of

the team of the US Monitorship, with which we worked for four

The new European Green Deal will increase Volkswagen’s years on improving processes, creating more transparency

battery requirements in 2030. To achieve the political climate and reducing hierarchical thinking in the Group. I would like

targets, all-electric vehicles will have to make up 55% of our to sincerely thank our employees for their hard work. Thanks

deliveries in Europe – significantly more than previously also to you, our shareholders, for your support.

projected. This also means that in addition to our battery

manufacturing facility in Salzgitter, we will need two more In 2021, following changes on the boards of management of

battery plants in Europe. Volkswagen is prepared for this – and our brands and with Murat Aksel, Arno Antlitz and Thomas

supports the Green Deal as well as the Paris Climate Agree- Schmall as new members of the Group Board of Management,

ment.

we are starting out with a new, powerful team. I will consis-

tently remain committed to securing a higher return from our

Our commercial vehicle division TRATON is planning to invest traditional business and concentrating fully on software

1 billion in electrification by 2025. It is important to note that expertise. There is a lot to do at Volkswagen, to decide, to

€

emissions can be reduced faster in freight transport and local change – for we will undergo more transformation in the next

public transport than in the car fleet – using only a fraction of ten years than we did in the last fifty.

the resources. The global champion strategy was advanced in

2020: TRATON established an e-mobility joint venture in Japan The transformation to a climate-neutral, software-driven

and announced the acquisition of US manufacturer Navistar, mobility group will progress quickly in 2021. I look forward to

while Scania launched its first production facility in China. The your continued support on this journey!

groundwork for enhanced efficiency in Germany is being laid

at the same time: MAN started to increase its competitiveness

through restructuring to be better positioned for the trans-

formation, because there will also be electric and self-driving Sincerely,

trucks and buses.

In 2020, a year overshadowed by Covid-19, many of our

employees worked for the common good to help contain the

pandemic. Volkswagen South Africa converted a former factory Herbert Diess

1

2

Report of the Supervisory Board

To our Shareholders

Report of the Supervisory Board

(

in accordance with section 171(2) of the AktG)

Ladies and gentlemen,

The work of the Supervisory Board of Volkswagen AG and its reasons for the deviations so as to enable countermeasures to

committees in fiscal year 2020 focused on the Volkswagen be derived. The Board of Management reported extensively

Group’s strategic direction. The Supervisory Board regularly and promptly, particularly on the impacts of the Covid-19

deliberated on the Company’s position and development in pandemic. It established a crisis management team to deal

the reporting period. We supervised and supported the Board with this issue. Minutes of the meetings of the crisis

of Management in its running of the business and advised it management team were provided to the Chairman of the

on issues relating to the management of the Company in Supervisory Board without delay. The Supervisory Board was

accordance with our duties under the law, the Articles of also provided with detailed information on the effects of the

Association and the rules of procedure. We also observed the Covid-19 pandemic and action taken by the Board of Manage-

relevant recommendations and suggestions of the German ment. At the meetings of the Special Committee on Diesel

Corporate Governance Code (the Code) at all times. The Engines, the Board of Management presented regular reports

Supervisory Board was directly involved in all decisions of on current developments in connection with the diesel issue.

fundamental importance to the Group. Additionally, we

discussed strategic considerations with the Board of Man- In addition, the Chairman of the Supervisory Board consulted

agement at regular intervals.

with the Chairman of the Board of Management at regular

intervals between meetings to discuss important current

The Board of Management complied with its disclosure obli- issues. Apart from the work to address the diesel issue, these

gations, which are set out in the information policy adopted included the Volkswagen Group’s strategy and planning, its

by the Supervisory Board in 2018. The Board of Management business development, and the risk situation and risk man-

provided us with information regularly, promptly and agement, including integrity and compliance issues in the

comprehensively both in writing and orally, particularly on all Volkswagen Group. Within reason, the Chairman of the Super-

matters of relevance to the Company relating to its strategy, visory Board discussed Supervisory Board-specific topics with

business development and the Company’s planning and investors and, in consultation with the Board of Management,

position. This also included the risk situation and risk man- also discussed non-Supervisory Board-specific topics. The

agement. In this respect, the Board of Management also Chairman of the Supervisory Board informed the Supervisory

informed the Supervisory Board of further improvements to Board of such discussions after they had taken place.

the risk and compliance management system. In addition, the

Supervisory Board received information about compliance The Supervisory Board held a total of 13 meetings in fiscal year

and other topical issues by the Board of Management on an 2020. The average attendance rate was around 90.0%. In addi-

ongoing basis. We received the documents relevant to our tion, resolutions on particularly urgent matters were adopted

decisions in good time for our meetings. At regular intervals, in writing or using electronic communications media.

we also received a detailed report from the Board of Manage- Particularly the challenges and restrictions resulting from the

ment on the current business position and the forecast for the Covid-19 pandemic necessitated additional flexibility for the

current year. Any deviations in performance from the plans meetings of the Supervisory Board in fiscal year 2020. The

and targets previously drawn up were explained in detail by Covid-19 pandemic also resulted in travel restrictions and

the Board of Management, either in person or in writing. presented additional challenges for the Supervisory Board

Together with the Board of Management we analyzed the members, who have special responsibilities in business and

To our Shareholders

Report of the Supervisory Board

13

politics. Nevertheless, all members of the Supervisory Board supervision of financial reporting and the financial reporting

except for Dr. Al Abdulla attended over half of the meetings of process, and the examination thereof by the auditors. The

the Supervisory Board and the committees of which they are Audit Committee also discussed the creation of a system to

members. Supervisory Board members who could not attend monitor related-party transactions in line with new require-

a meeting were able to engage with the meeting topics using ments of the Aktiengesetz (AktG – German Stock Corporation

the preparatory documents.

Act).

CO M M IT T E E ACT I V IT I E S

The Special Committee on Diesel Engines is responsible for

In order to discharge the duties entrusted to it, the Supervisory coordinating all activities relating to the diesel issue and

Board has established five committees: the Executive preparing resolutions by the Supervisory Board. To this end,

Committee, the Nomination Committee, the Mediation Com- the Special Committee on Diesel Engines is also provided with

mittee established in accordance with section 27(3) of the regular information by the Board of Management. This Special

Mitbestimmungsgesetz (MitbestG

– German Codetermi- Committee is also entrusted with examining any conse-

nation Act), the Audit Committee and, since October 2015, the quences of the findings. The Chairman of the Special Com-

Special Committee on Diesel Engines. The Supervisory Board mittee on Diesel Engines reports regularly on its work to the

resolved on May 28, 2020 to increase the number of members Supervisory Board. In 2020, the Special Committee on Diesel

of the Executive Committee in light of its growing responsi- Engines met on two occasions to discuss, among other things,

bilities. Since May 29, 2020, the Executive Committee has been reports from the Board of Management on the state of affairs

comprised of four shareholder representatives and four with respect to the diesel issue as well as the latest develop-

employee representatives (previously three). The shareholder ments in the consumer action for model declaratory judg-

representatives on the Executive Committee make up the ment brought by the Verbraucherzentrale Bundesverband

Nomination Committee. The Special Committee on Diesel (Federation of Consumer Organizations) and in various other

Engines is comprised of three shareholder representatives and legal proceedings.

three employee representatives. The remaining two com-

mittees are each composed of two shareholder representatives Furthermore, as a rule, the shareholder and employee repre-

and two employee representatives. The members of these sentatives met for separate preliminary discussions before

committees as of December 31, 2020 are given in the Group each of the Supervisory Board meetings.

Corporate Governance Declaration.

In connection with their seat on the Supervisory Board,

The Executive Committee met 20 times in the reporting members of the Supervisory Board receive support from the

period. At its meetings, the Executive Committee meticulously Company upon induction as well as with respect to education

prepared the resolutions of the Supervisory Board, discussed and training; the Company particularly supports the organi-

the composition of the Board of Management and took zation of seminars and bears the costs thereof. Supervisory

decisions on matters such as contractual issues concerning Board members appointed for the first time are also provided

the Board of Management other than remuneration and with a detailed introduction to topics that apply specifically to

consent to ancillary activities by members of the Board of the Supervisory Board of Volkswagen AG.

Management.

TO P IC S D IS C U S S E D BY T H E SU PE RV ISO RY B OAR D

The Nomination Committee is responsible for proposing The first Supervisory Board meeting of the reporting year took

suitable candidates for the Supervisory Board to recommend place on January 30, 2020 and focused on the strategic

for election to the Annual General Meeting. This committee direction of the Truck & Bus brand group, especially the sale of

met on one occasion in 2020.

shares in RENK AG.

The Mediation Committee did not have to be convened in the The agenda of the Supervisory Board meeting on February 14,

reporting period.

2020 included a report on the latest developments in the

model declaratory proceedings involving the Verbraucher-

The Audit Committee held five meetings in 2020. It focused on zentrale Bundesverband e.V.

the annual and consolidated financial statements, the risk

management system including the effectiveness of the The Supervisory Board held its next meeting on February 28,

internal control system and the internal audit system, and the 2020. Following a detailed examination, we approved the

work performed by the Company’s Compliance organization. consolidated financial statements and the annual financial

In addition, the Audit Committee concerned itself with the statements of Volkswagen AG for 2019 prepared by the Board

Volkswagen Group’s quarterly reports and the half-yearly of Management. We examined the combined management

financial report, as well as with current issues and the report, the combined separate nonfinancial report for 2019

1

4

Report of the Supervisory Board

To our Shareholders

Hans Dieter Pötsch

and the precautionary Report by the Board of Management on global alliance with the Ford Motor Company. The agenda also

Relationships of Volkswagen AG with Affiliated Companies in covered the latest news on the diesel issue.

accordance with section 312 of the AktG (dependent company

report). Upon completion of our examination of the depen- The main topic on the agenda of the Supervisory Board

dent company report, we came to the conclusion that there meeting on June 8, 2020 was the composition of the Board of

were no objections to be raised to the concluding declaration Management, particularly the departure of Dr. Stefan Sommer

by the Board of Management in the dependent company from the Board of Management by mutual agreement.

report. Other agenda items included the current state of affairs

with respect to the diesel issue, financing measures at the At the Supervisory Board meeting on July 7, 2020, we discussed

Volkswagen Group, full acquisition of the shares of AUDI AG the composition of the Board of Management, especially the

(

squeeze out) and the agenda for the 60th Annual General departure of Andreas Renschler from the Board of Manage-

Meeting of Volkswagen AG, particularly resolutions proposed ment by mutual agreement. We also discussed strategic issues

by the Supervisory Board. pertaining to the Truck & Bus brand group.

At the Supervisory Board meetings on April 27 and May 12, The Supervisory Board meeting on July 29, 2020 concentrated

020, we discussed the status of the criminal proceedings on minor amendments to the rules of procedure for the Audit

2

against the Chairman of the Supervisory Board of Volks- Committee and a resolution on conducting the 60th Annual

wagen AG, Hans Dieter Pötsch, and the Chairman of the Board General Meeting of Volkswagen AG as a virtual Annual General

of Management of Volkswagen AG, Dr. Herbert Diess, on sus- Meeting on September 30, 2020.

picion of violation of the Securities Trading Act in connection

with the diesel issue.

At the Supervisory Board meeting on September 25, 2020, we

discussed in detail the final report of the independent monitor

The Supervisory Board convened for its next meeting on and received an updated overview of the integrity and

May 28, 2020. In addition to the composition of the Board of compliance program Together4Integrity. We discussed and

Management and Supervisory Board, particularly with regard decided on strategic decisions for which our consent was

to the enlargement of the Executive Committee and the required, particularly the acquisition of the image processing

appointment of further Executive Committee members, there business of Hella and the Artemis project (development of

were also strategic issues on the agenda. These related to next-generation electric cars). We also prepared the 2020

e-mobility and autonomous driving, including the stepping Annual General Meeting. In addition, we deliberated on the

up of the electric campaign in China through an increased current state of affairs with respect to the diesel issue and the

shareholding in the JAC Volkswagen joint venture and the Investigations against a number of individuals relating to

To our Shareholders

Report of the Supervisory Board

15

remuneration granted to the Chairman of the General and The last Supervisory Board meeting of the reporting year took

Group Works Councils that might have been excessive under place on December 14, 2020. At this meeting, we adopted the

the provisions of the Betriebsverfassungsgesetz (BetrVG – Ger- enhanced remuneration system for Board of Management

man Works Constitution Act). We also discussed the moni- members and discussed additional issues in relation to Board

toring of related-party transactions in line with new require- of Management remuneration. We also covered the com-

ments of the AktG.

position of the Board of Management, especially the appoint-

ment of Mr. Murat Aksel, Dr. Arno Antlitz and Mr. Thomas

On November 7, 2020, the Supervisory Board held a meeting Schmall-von Westerholt as Board of Management members

largely to discuss the strategic direction of the Truck & Bus and a redistribution of responsibilities.

brand group, particularly with regard to the takeover of

Navistar, Inc. by TRATON SE as part of the TRATON Global In the reporting period, we voted in writing on matters such as

Championship strategy.

the extension of Mr. Frank Witter’s appointment as a member

of the Board of Management, the principles for answering

At the Supervisory Board meeting on November 13, 2020, we questions at the virtual Annual General Meeting and the

discussed the principles of the enhanced remuneration request for the court appointment of Ernst & Young GmbH

system for Board of Management members. We also held in- Wirtschaftsprüfungsgesellschaft (EY) as the auditor for the

depth discussions on the Volkswagen Group’s investment and half-yearly financial report and the interim report for the third

financial planning for the period from 2021 to 2025. Another quarter, necessitated by the postponement of the Annual

agenda item for the meeting was the current state of affairs General Meeting.

with respect to the diesel issue. We also submitted the annual

declaration of conformity with the Code together with the

Board of Management.

The following table shows the number of meetings of the full Board and the committees as well as the individual participation

of the members of the Supervisory Board in 2020:

Meetings of the full

Meetings of the Committees

Supervisory Board

Hans Dieter Pötsch

Jörg Hofmann

11 out of 13

13 out of 13

3 out of 13

9 out of 13

12 out of 13

6 out of 6

17 out of 21

19 out of 20

Dr. Hussain Ali Al Abdulla

Dr. Hessa Sultan Al Jaber

Dr. Bernd Althusmann

Kai Bliesener (since June 20, 2020)

Dr. Hans-Peter Fischer

Marianne Heiß

–

2 out of 2

–

13 out of 13

12 out of 13

4 out of 6

–

5 out of 5

–

Johan Järvklo (until May 29, 2020)

Ulrike Jakob

13 out of 13

12 out of 13

13 out of 13

9 out of 13

13 out of 13

–

Dr. Louise Kiesling

–

Peter Mosch

22 out of 22

15 out of 15

27 out of 27

13 out of 13

7 out of 7

23 out of 23

5 out of 5

–

Bertina Murkovic

Bernd Osterloh

Dr. Hans Michel Piëch

Dr. Ferdinand Oliver Porsche

Dr. Wolfgang Porsche

Conny Schönhardt

Athanasios Stimoniaris

Stephan Weil

18 out of 21

–

Werner Weresch

1

6

Report of the Supervisory Board

To our Shareholders

CO N F LICT S O F I N T ERE ST

CO R PORAT E GOVERN ANCE AN D D ECL ARAT ION OF CO N FO RMIT Y

Mr. Hans Dieter Pötsch was a member of the Board of Man- The Supervisory Board meeting on November 13, 2020

agement of Volkswagen AG until October 2015. His move to focused on the implementation of the recommendations and

the Supervisory Board had already been planned irrespective suggestions of the Code in the Volkswagen Group. We dis-

of the diesel issue. In order to avoid conceivable conflicts of cussed the Code’s guidance in detail and issued the annual

interest, Mr. Pötsch always left the meeting room prior to declaration of conformity with the recommendations of the

discussions and resolutions adopted by the Supervisory Board Code in accordance with section 161 of the AktG together with

that might relate to his conduct in connection with the diesel the Board of Management.

issue. In particular, Mr. Pötsch did not participate in the

Supervisory Board meetings on April 27, 2020 and May 12, The joint declarations of conformity by the Board of

2020, in which we discussed the status of the criminal Management and the Supervisory Board are permanently

proceedings against the Chairman of the Supervisory Board available at www.volkswagenag.com/en/InvestorRelations/

and the Chairman of the Board of Management of Volks- corporate-governance/declaration-of-conformity.html. Addi-

wagen AG on suspicion of violation of the Securities Trading tional information on the implementation of the recom-

Act in connection with the diesel issue. Mr. Pötsch left the mendations and suggestions of the Code can be found in the

room when additional information was provided on this topic Group Corporate Governance Declaration.

at the Supervisory Board meeting on May 28, 2020. At the

meeting of the Supervisory Board on February 28, 2020, The Supervisory Board, and particularly the Audit Committee,

Mr. Pötsch and Mr. Stephan Weil did not take part in the also discussed the new provisions of the German Act on the

deliberations and resolution on the termination of the Implementation of the Second Shareholders' Rights Directive

proceedings brought by the Verbraucherzentrale für Kapital- (ARUG II – Gesetz zur Umsetzung der zweiten Aktionärsrechte-

anleger e .V . against resolutions of the 2017 Annual General richtlinie) regarding the treatment of related-party trans-

Meeting approving the actions of Mr. Pötsch and Mr. Weil actions. To this end, the Audit Committee agreed a suitable

among other Board members.

procedure with the Board of Management for ongoing moni-

toring of the Volkswagen Group’s related party transactions.

Starting in autumn 2016, the public prosecutor’s office in The Audit Committee commissioned EY to regularly review, on

Braunschweig launched criminal investigations against a a spot check basis, whether related-party transactions were

number of individuals relating to remuneration granted to the conducted at arm’s length in accordance with proper business

Chairman of the General and Group Works Councils of practice. No disclosures or approval decisions on the part of

Volkswagen AG Mr. Bernd Osterloh, and other works council the Supervisory Board were required for related-party trans-

members that might have been excessive under the provisions actions under statutory provisions in the reporting year.

of the Betriebsverfassungsgesetz (BetrVG – German Works

Constitution Act). In order to avoid conceivable conflicts of

interest, Mr. Osterloh always left the meeting room prior to

discussions and resolutions adopted by the Supervisory Board

that related to remuneration granted to him that might have

been excessive under the provisions of the German Works

Constitution Act. This included the Supervisory Board

meeting on September 25, 2020, for example.

No other conflicts of interest were reported or were discernible

in the reporting period.

To our Shareholders

Report of the Supervisory Board

17

M E M B E R S O F T H E SU P E RV I SO RY B OAR D A N D

B OAR D O F M AN AG E M E N T

2018 and was most recently responsible for Components and

Procurement. He left the Company at his own request and by

Mr. Johan Järvklo, Secretary-General of the European and mutual agreement. Mr. Frank Witter, member of the Board of

Global Group Works Council of Volkswagen AG, stepped down Management responsible for Finance and IT, took over

from his post on the Supervisory Board of Volkswagen AG Components and Procurement on an acting basis. Effective

effective May 29, 2020. Mr. Järvklo had been a member of the January 1, 2021, the Supervisory Board appointed Mr. Murat

Supervisory Board since November 22, 2015. He has been suc- Aksel and Mr. Thomas Schmall-von Westerholt as new

ceeded by Mr. Kai Bliesener, Head of Vehicle Construction and members of the Board of Management. The Supervisory Board

Automotive and Supplier Industry Coordinator at IG Metall, also decided to split the Components and Procurement Board

who was appointed by the court to succeed Mr. Järvklo of Management position into two new Board positions:

effective June 20, 2020.

Technology and Purchasing. Mr. Schmall-von Westerholt is

responsible for Technology effective January 1, 2021. Mr. Aksel

The term of office of Dr. Hussain Ali Al Abdulla on the Super- took over the Purchasing Board position on the same date. In

visory Board of Volkswagen AG duly ended at the close of the addition, the Supervisory Board decided to appoint Dr. Arno

6

0th Annual General Meeting. The Annual General Meeting Antlitz as a member of the Board of Management to replace

elected Dr. Al Abdulla to the Supervisory Board for another full Frank Witter, who is due to leave the Board of Management.

term of office as a shareholder representative. Dr. Arno Antlitz will be responsible for his divisions.

Effective April 1, 2020, Mr. Markus Duesmann took up his post Effective July 15, 2020, Mr. Andreas Renschler left the manage-

as a member of the Board of Management of Volkswagen AG ment boards of Volkswagen AG and TRATON SE by mutual

and as a member and the Chairman of the Board of Manage- agreement. The Truck & Bus brand group, for which

ment of AUDI AG. He succeeded Abraham Schot, who left the Mr. Renschler was responsible on the Volkswagen AG Board

Company by mutual agreement effective March 31, 2020. On of Management, was taken over by Mr. Gunnar Kilian,

the Volkswagen AG Board of Management, Mr. Duesmann is member of the Board of Management for Human Resources

responsible, in particular, for the Premium brand group.

and Truck & Bus.

Effective June 30, 2020, Dr. Stefan Sommer left the Volks- Our sincere thanks go to all of the departing members of the

wagen AG Board of Management. Dr. Sommer had been a Supervisory Board and the Board of Management for their

member of the Board of Management since September 1, work.

1

8

Report of the Supervisory Board

To our Shareholders

AU D IT O F T H E A N N UA L A N D CO N SO L I DAT E D F I NA NCI AL

STAT EM ENT S

including the dependent company report, the document-

tation relating to the combined management report, and also

In line with our proposal, the Annual General Meeting of the audit reports prepared by the auditors and the report from

Volkswagen AG on September 30, 2020 elected Ernst & Young EY on the external content-related audit of the combined

GmbH Wirtschaftsprüfungsgesellschaft (EY) as auditors and separate nonfinancial report for 2020 in good time for their

Group auditors for fiscal year 2020. The auditors audited the meetings on February 25 and February 26, 2021, respectively.

annual financial statements of Volkswagen AG, the con- The auditors reported extensively at both meetings on the

solidated financial statements of the Volkswagen Group and material findings of their audit and were available to provide

the combined management report and issued unqualified additional information. The Chairman of the Audit Com-

audit reports in each case.

mittee was also in close contact with the auditors, including

between the meetings and during preparation for the Audit

The Supervisory Board also commissioned EY to conduct an Committee meetings.

external limited assurance review of the content of the

combined separate nonfinancial report for 2020.

Taking into consideration the audit reports and the discussion

with the auditors, and based on its own conclusions, the Audit

In addition, the auditors analyzed the risk management and Committee prepared the documents for the Supervisory

internal control system, concluding that the Board of Man- Board’s examination of the consolidated financial statements,

agement had taken the measures required by section 91(2) of the annual financial statements of Volkswagen AG, the com-

the AktG to ensure early detection of any risks endangering bined management report, the dependent company report

the continued existence of the Company. The Report on and the combined separate nonfinancial report for 2020, and

Relationships of Volkswagen AG with Affiliated Companies in reported on these at the Supervisory Board meeting on

accordance with section 312 of the AktG (dependent company February 26, 2021. Following this, the Audit Committee

report) for the period from January 1 to December 31, 2020 recommended that the Supervisory Board approve the annual

submitted by the Board of Management was also audited by and consolidated financial statements. We examined the

the auditors, who issued the following opinion: “In our documents in depth in the knowledge and on the basis of the

opinion and in accordance with our statutory audit, we certify report by the Audit Committee and the audit report, as well as

that the factual disclosures provided in the report are correct in talks and discussions with the auditors. We came to the

and that the Company’s consideration concerning legal conclusion that the documents are due and proper and that

transactions referred to in the report was not unduly high.”

the assessment of the position of the Company and the Group

presented by the Board of Management in the combined

The members of the Audit Committee and the members of the management report corresponds to the assessment by the

Supervisory Board were provided with the documentation Supervisory Board.

relating to the annual and consolidated financial statements,

To our Shareholders

Report of the Supervisory Board

19

We therefore concurred with the auditors’ findings and We would like to express our thanks and particular appre-

approved the annual financial statements and the consoli- ciation to the Board of Management, the Works Council, the

dated financial statements prepared by the Board of Man- management teams and all the employees of Volkswagen AG

agement at our meeting on February 26, 2021, which the and its affiliated companies for their work in 2020. In the face

auditors also attended for the agenda items relating to the of the new and unprecedented challenges brought by the

annual and consolidated financial statements, the dependent Covid-19 pandemic, they all showed great personal commit-

company report and the combined management report. The ment and responsibility, thereby making a decisive contri-

annual financial statements are thus adopted. Upon com- bution to the successful 2020 fiscal year that the Volkswagen

pletion of our examination of the dependent company report, Group can look back on.

there are no objections to be raised to the concluding

declaration by the Board of Management in the dependent

company report. We reviewed the proposal on the appro-

priation of net profit submitted by the Board of Management,

taking into account in particular the interests of the Company

and its shareholders, and endorsed the proposal. EY conducted

an external audit of the content in the combined separate

nonfinancial report for 2020 to attain limited assurance and

issued an unqualified report. At our meeting on February 26, Wolfsburg, February 26, 2021

2

021, EY also took part in the discussions on the agenda items

relating to the combined separate nonfinancial report for

020. Upon completion of its own independent examination

of the combined separate nonfinancial report for 2020, the Hans Dieter Pötsch

Supervisory Board did not have any objections. Chairman of the Supervisory Board

2

Divisions

Brands and Business Fields

23

Brands and Business Fields

The Volkswagen Group was heavily impacted by the Covid-19 pandemic in

fiscal year 2020, which led to lower unit sales, sales revenue and profit.

The diesel issue resulted in negative special items.

GROU P STRU CTU RE

The Volkswagen Group consists of two divisions: the Automotive Division and the Financial Services Division.

The Automotive Division comprises the Passenger Cars, Commercial Vehicles and Power Engineering business

areas. Activities of the Automotive Division comprise in particular the development of vehicles, engines and

vehicle software, and the production and sale of passenger cars, light commercial vehicles, trucks, buses and

motorcycles, as well as businesses for genuine parts, large-bore diesel engines, turbomachinery, special gear

units and propulsion components. Mobility solutions are gradually being added to the range. The Ducati brand

is allocated to the Audi brand and thus to the Passenger Cars Business Area. The Financial Services Division’s

activities comprise dealer and customer financing, vehicle leasing, direct banking and insurance activities, fleet

management and mobility services.

2

4

Brands and Business Fields

Divisions

In this chapter, we present the key volume and financial data relating to the Group brands and to Volkswagen

Financial Services. In light of the considerable importance of the development of business in the world’s largest

single market for the Volkswagen Group, we also report on business developments and the results of our

activities in China in this chapter.

The production figures and deliveries to customers are differentiated by vehicle brands and their models

that carry the corresponding brand logo. Unit sales figures contain vehicles sold by respective brand com-

panies, including models of other Group brands. In some cases, there are marked differences between delivery

figures and unit sales as a result of our business development in China.

KEY FIGU RE S BY M A RKET

In 2020, the Covid-19 pandemic had a strong impact on business at the Volkswagen Group and its brands; this

led to lower figures in terms of unit sales, sales revenue and profit throughout the Group. The Volkswagen Group

generated an operating profit before special items of €10.6 (19.3) billion in the reporting year. Special items

resulting from the diesel issue weighed on operating profit in the amount of €–0.9 (–2.3) billion.

The Volkswagen Group’s unit sales fell to 9.2 (11.0) million vehicles in the past fiscal year due to the

pandemic. Sales revenue declined by 11.8% to €222.9 billion.

In the Europe/Other markets region, unit sales decreased by 19.1% year-on-year to 3.9 million vehicles. The

impact of the Covid-19 pandemic acted as a drag on business, particularly from the end of the first quarter

onwards. Sales revenue fell to €133.5 (154.0) billion due to volume effects. Moreover, exchange rate effects had a

negative impact, while a favorable mix made a positive contribution.

In the North American markets, the negative effects caused by the spreading of the SARS-CoV-2 virus

became apparent somewhat later, namely at the beginning of the second quarter. At 744 thousand vehicles in

the reporting period, our unit sales there were down 22.1% on the previous year’s figure. Sales revenue

amounted to €36.8 (43.4) billion.

In the markets of the South America region, we sold 471 thousand vehicles in the year 2020. This was 22.4%

less than in the previous year. The Covid-19 pandemic dampened demand in the second and third quarter in

particular. Declining volumes and an unfavorable exchange rate trend resulted in sales revenue falling by 23.6%

to €8.6 billion.

In the Asia-Pacific region, the first to be affected by the Covid-19 pandemic at the beginning of the

year, demand increased again as the year went on. In fiscal year 2020, the Volkswagen Group’s unit sales

–

€

including those of the Chinese joint ventures – amounted to 4.0 (4.5) million vehicles. Sales revenue rose to

44.3 (44.0) billion. This figure does not include the sales revenue of our equity-accounted Chinese joint

ventures.

Hedging transactions relating to sales revenue in foreign currency decreased the Volkswagen Group’s sales

revenue by €345 million in the reporting year. In the previous year, they increased sales revenue by €11 million.

Divisions

Brands and Business Fields

25

K EY F IG U R E S BY B RA N D A N D B U S I N E S S F I E L D

VEHICLE SALES

2020

SALES REVENUE

2020

OPERATING RESULT

Thousand vehicles/€ million

2019

2020

2019

Volkswagen Passenger Cars

Audi

2,835

1,017

849

484

11

3,677

1,200

1,062

667

12

71,076

49,973

17,081

9,198

2,049

26,086

9,358

11,521

10,838

3,640

–

88,407

55,680

19,806

11,496

2,092

454

2,739

756

3,785

4,509

1,660

445

ŠKODA

SEAT

–339

20

Bentley

65

Porsche Automotive¹

Volkswagen Commercial Vehicles

Scania Vehicles and Services²

MAN Commercial Vehicles

Power Engineering

VW China³

Other⁴

265

345

73

277

456

101

143

–

26,060

11,473

13,934

12,663

3,997

4,021

–454

748

4,210

510

1,506

402

118

–

–631

–268

–

159

3,577

–418

–

4,048

–685

–

–26,573

38,637

–

–30,931

37,957

–

759

–917

2,960

19,296

–2,336

16,960

13,748

12,188

1,653

–93

Volkswagen Financial Services

Volkswagen Group before special items

Special items

2,803

10,607

–931

9,675

6,664

7,224

–79

–

Volkswagen Group

9,157

8,965

191

–

10,956

10,713

243

222,884

182,106

156,311

22,156

3,640

40,778

252,632

212,473

182,031

26,444

3,997

Automotive Division⁵

of which: Passenger Cars Business Area

Commercial Vehicles Business Area

Power Engineering Business Area

Financial Services Division

–

–482

3,012

–

40,160

3,212

1

2

3

Porsche (including Financial Services): sales revenue €28,695 (28,518) million, operating profit before special items €4,176 (4,396) million.

Scania (including Financial Services): sales revenue €11,950 (14,391) million, operating profit €855 (1,648) million.

The sales revenues and operating profits of the joint venture companies in China are not included in the figures for the Group.

These Chinese companies are accounted for using the equity method and recorded a proportionate operating profit of €3,602 (4,425) million.

In operating profit, mainly intragroup items recognized in profit or loss, in particular from the elimination of intercompany profits; the figure includes

depreciation and amortization of identifiable assets as part of purchase price allocation, as well as companies not allocated to the brands.

Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

4

5

KEY FIGU RE S BY M A RKET

VEHICLE SALES

2020

SALES REVENUE

2020

Thousand vehicles/€ million

2019

Europe/Other markets

North America

3,929

744

4,856

956

133,499

36,810

8,632

153,999

43,351

11,297

43,974

11

South America

Asia-Pacific¹

471

607

4,012

–

4,538

–

44,288

–345

Hedges on sales revenue

Volkswagen Group¹

9,157

10,956

222,884

252,632

1

The sales revenue of the joint venture companies in China is not included in the figures for the Group and the Asia-Pacific market.

2

6

Volkswagen Passenger Cars

Divisions

In 2020, Volkswagen Passenger Cars celebrated the debut of the ID.3, the first model

based on the Modular Electric Drive Toolkit. The brand also expanded its portfolio of

electric vehicles through the addition of an all-electric SUV, the ID.4.

B U SI N E S S D EV E LOPM E NT

+

The Volkswagen Passenger Cars brand aims to move you, and as such the TRANSFORM 2025 strategy centers on

a global model initiative through which the brand aims to lead innovation, technology and quality in the

volume segment.

In fiscal year 2020, Volkswagen Passenger Cars launched the ID.3, the first model based on the Modular

Electric Drive Toolkit (MEB). This efficient and fully connected all-electric car represents a milestone on the path

towards zero-emission mobility for a broad customer base. Following on its heels in late 2020 was the ID.4, the

brand’s first fully electric SUV. Powerful proportions, sleek lines and a sculptured rear are the hallmarks of its

exterior and give the all-rounder an outstanding aerodynamic quality. The interior impresses with generous

space, puristic design and sustainable upholstery materials. The ID.4 is to be built and sold in the core markets

of Europe and China in the future and later on in the United States as well. There were several additions to the

popular Golf family in the reporting period. These derivatives, based on the eighth generation of the bestselling

model, include the spacious Golf Estate, the robust Golf Alltrack and the sporty, iconic Golf GTI. With the Arteon

Shooting Brake, Volkswagen Passenger Cars brought out a new body version of the Arteon series in 2020 that is

a completely new interpretation of the estate concept and expands the brand’s model range in the mid-size

segment. In addition, the brand pushed the electrification of its portfolio with the introduction of plug-in

hybrid versions of the Golf, Tiguan, Arteon, Arteon Shooting Brake and Touareg models.

The Volkswagen Passenger Cars brand delivered 5.3 million vehicles worldwide in fiscal year 2020 (–15.1%).

Sales figures were below the previous year’s level in almost all markets due to the pandemic. Sales of the T-Cross

increased, thus bucking the trend, and the new Atlas Cross Sport was also very popular.

The Volkswagen Passenger Cars brand sold 2.8 (3.7) million vehicles in the reporting year. The difference

between deliveries and unit sales is mainly due to the fact that the vehicle-producing joint ventures in China are

not attributed to the companies in the Volkswagen Passenger Cars brand.

The Volkswagen Passenger Cars brand produced 5.1 (6.2) million vehicles worldwide in 2020. At the Zwickau

plant, the last vehicle with a combustion engine rolled off the assembly line in 2020. With the ID.3 and the ID.4,

only electric models from Volkswagen Passenger Cars are produced there now, and models from the Audi and

SEAT brands are to follow in the future.

SA LE S R EVEN U E AN D EA RN I NG S

The Volkswagen Passenger Cars brand’s sales revenue fell by 19.6% year-on-year in 2020 to €71.1 billion. Oper-

ating profit before special items decreased to €0.5 (3.8) billion. Lower fixed costs and better price positioning

were unable to compensate for the impact of lower volumes due to the Covid-19 pandemic or for negative

exchange rate effects. The operating return on sales before special items amounted to 0.6 (4.3)%. The diesel

issue gave rise to special items of €–0.8 (–1.9) billion.

5

.1 million

Vehicles produced worldwide

Divisions

Volkswagen Passenger Cars

27

PRO DU CT IO N

VOLKSWAGE N PA S SEN GER CA RS B RAN D

Units

2020

2019

2020

2019

%

Tiguan

754,276

477,892

467,765

422,908

416,209

408,528

329,263

285,824

285,299

178,954

174,966

165,681

149,781

117,471

65,730

64,259

59,786

56,833

55,899

41,146

41,136

32,142

12,184

10,344

6,487

910,926

543,706

706,052

541,715

514,698

679,351

345,077

274,071

328,069

183,648

244,132

68,612

136,899

151,241

92,903

50

Deliveries (thousand units)

Vehicle sales

5,328

2,835

6,279

3,677

–15.1

–22.9

–17.8

–19.6

Passat/Magotan

Polo/Virtus

Jetta/Sagitar

Lavida

Production

5,081

6,184

Sales revenue (€ million)

71,076

88,407

Operating result before

special items

454

0.6

3,785

4.3

–88.0

Golf

Operating return on sales (%)

Bora

T-Cross

T-Roc

Atlas/Teramont

Santana

JETTA

Tharu/Taos

Gol

Lamando

ID.3

up!

108,676

90,366

51,868

54,941

52,859

25,681

44,275

13,750

–

Touran

Arteon/CC

Saveiro

Touareg

Sharan/Viloran

Fox/Suran

Phideon

ID.4

Beetle

–

20,580

6,184,146

5

,080,763

DEL I VERI ES BY MA RKET

in percent

ID.3

Europe/Other markets 28.1 %

North America

South America

8.8 %

7.4 %

Asia-Pacific 55.8 %

i

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2

8

Audi

Divisions

Audi aspires to spearhead the Group both technically and technologically. A fascinating

new electric vehicle – the e-tron Sportback – was presented in the reporting period.

B U SI N E S S D EV E LOPM E NT

“Vorsprung” is Audi’s global brand promise that is currently being redefined by the brand with the four rings, as

it moves away from the narrow focus on technical feasibility and towards a new approach, where the customer

is at the center. In developing innovative technologies, Audi plays an influential role in the Group, not least with

the Premium Platform Electric (PPE) for all-electric premium vehicles. With Artemis, Audi has also created an

agile unit for new vehicle projects. The initial focus of the team of passionate specialists, who have been given a

large degree of freedom, is to develop a highly efficient electric car. As such, Artemis is also to be the pilot and

role model for the future development of vehicle projects in the Group. In the reporting period, Audi rolled out

the second model in its e-tron product line. The Audi e-tron Sportback is a dynamic SUV coupé that combines

the power of a spacious SUV with the elegance of a four-door coupé and the progressive character of an electric

car. The all-electric drive provides up to 300 kW (408 PS) of power, while the high-performance version, the

e-tron S Sportback, is capable of delivering up to 370 kW (503 PS). The e-tron Sportback’s digital matrix LED

headlights are a new optional feature now available for the first time in a large-scale production vehicle. The

light is broken down into tiny pixels and can be controlled with exceptional precision. This makes safe lane

centering easier on narrow stretches of road and shows the position of the vehicle in the lane. Production of the

all-electric e-tron GT commenced at the end of the year 2020. The Q4 e-tron and the Q4 Sportback e-tron will

expand the portfolio of electric vehicles in 2021. New model generations were launched in the popular A3 series

during the reporting year.

Amid a difficult market environment, the Audi brand delivered a total of 1.7 million vehicles to customers

in 2020 (–8.3%). The recovery of important core markets in the second half of the year was able to largely

compensate for the volume losses that occurred in the first half of the year due to the pandemic.

Unit sales made by the Audi brand in the reporting period came to 1.0 (1.2) million vehicles. The Chinese

joint venture FAW-Volkswagen sold a further 656 (620) thousand locally produced Audi vehicles. The Q3, A6 and

e-tron models were in especially high demand. Unit sales at Automobili Lamborghini S.p.A. amounted to

7

,460 (8,290) vehicles.

In 2020, Audi produced 1.7 (1.8) million units worldwide. Lamborghini manufactured 7,250 (8,664) vehicles.

SA LE S R EVEN U E AN D EA RN I NG S

The Audi brand’s sales revenue in fiscal year 2020 amounted to €50.0 (55.7) billion. The decrease in volumes and

negative exchange rate effects reduced operating profit before special items to €2.7 (4.5) billion. Reduced fixed

costs, the deconsolidation effect from the divestment of Autonomous Intelligent Driving GmbH (AID) as well as

other effects from the Audi.Zukunft and Audi Transformation Plan programs had a positive effect. The diesel

issue resulted in special items of €–0.2 billion in the reporting year. The operating return on sales before special

items was 5.5 (8.1)%. The financial key performance indicators for the Lamborghini and Ducati brands are

included in the financial figures for the Audi brand.

€

50 billion

Sales revenue in 2020

Divisions

Audi

29

PRO DU CT IO N

AU DI B RA N D

Units

2020

2019

2020

2019

%

Audi

A4

Deliveries (thousand units)

Audi

1,700

1,693

7

1,854

1,846

8

–8.3

243,566

275,888

206,482

271,679

219,662

124,346

65,574

62,099

56,786

43,157

37,845

20,591

18,083

8,646

323,387

286,365

240,795

232,569

195,566

130,225

63,633

Q5

A3

Lamborghini

–9.4

Vehicle sales

1,017

1,663

49,973

1,200

1,802

55,680

–15.2

–7.7

A6

Production

Q3

Q2

Q7

A1

Sales revenue (€ million)

–10.2

Operating result before

special items

2,739

5.5

4,509

8.1

–39.3

Operating return on sales (%)

81,287

A5

93,077

e-tron

Q8

A8

43,376

44,727

23,826

A7

17,068

TT

14,999

R8

1,517

2,121

1,655,921

1,793,021

Lamborghini

Urus

4,364

1,258

752

5,233

1,495

931

Huracán Coupé

Huracán Spyder

Aventador Roadster

Aventador Coupé

595

219

281

786

7,250

8,664

Audi brand

1,663,171

1,801,685

Ducati, motorcycles

44,827

51,723

DEL I VERI ES BY MA RKET

in percent

e-tron Sportback S

Europe/Other markets 38.7 %

North America 13.2 %

South America

0.8 %

Asia-Pacific 47.3 %

i

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3

0

ŠKODA

Divisions

In 2020, ŠKODA presented its first MEB model, the Enyaq iV, taking the next step

in the Czech brand’s 125-year history in the systematic implementation of its

e-mobility strategy.

B U SI N E S S D EV E LOPM E NT

The ŠKODA models are synonymous with smart understatement, featuring a superior spacious interior, the

highest standards of functionality, excellent value for money and a distinct design. Added to that are a number

of “Simply Clever” ideas and new digital services, all aimed at making customers’ lives easier. ŠKODA AUTO

celebrated its 125th anniversary as a company in 2020, as well as the 115th anniversary of when the company

started automobile production. Founded in 1895, ŠKODA is one of the world’s oldest operating automakers.

In fiscal year 2020, ŠKODA took the next step in the systematic implementation of its e-mobility strategy

and presented the brand’s first all-electric production vehicle, the Enyaq iV. The completely battery-electric

MEB-based SUV boasts emotive and dynamic design language, and its striking ŠKODA profile is also available

with an illuminated radiator grille as an option. It combines rear or all-wheel drive with a range of up to 510 km

that is suited for everyday usability. ŠKODA also continues its emotive design language in the interior: the

innovative SUV features the brand’s typical spaciousness and a completely new concept for the interior. ŠKODA

launched another electric model in 2020 – the Octavia iV with a plug-in hybrid drive, which is also available as a

sporty, dynamic RS version. In the Octavia family, the Octavia G-Tec, which runs on compressed natural gas and

the robust off-road Octavia Scout Combi were also brought onto the market.

The ŠKODA brand delivered 1.0 (1.2) million vehicles worldwide in the reporting period. China remained the

largest individual market. However, deliveries there fell by 38.7%. Sales were also down on the previous year’s

levels in the other markets due to the pandemic, with the exception of Turkey (+56.3%) and Russia (+6.8%).

ŠKODA sold 0.8 (1.1) million vehicles in the past fiscal year. The Scala, Kamiq and Octavia Combi models

were in especially high demand. The difference between figures for deliveries and unit sales is mainly due to the

fact that the vehicle-producing joint ventures in China are not attributed to ŠKODA brand companies.

In fiscal year 2020, ŠKODA produced 0.9 million vehicles worldwide, a decrease of 24.3% versus 2019.

SA LE S R EVEN U E AN D EA RN I NG S

The ŠKODA brand's sales revenue decreased by 13.8% in 2020 to €17.1 billion. Operating profit declined by

€904 million to €756 million. Lower volumes due to Covid-19, negative exchange rate effects and emissions-

related expenses were offset by cost optimization. The operating return on sales amounted to 4.4%, contrasting

with 8.4% in the previous year.

1

25 years

Company history

Divisions

ŠKODA

31

PRO DU CT IO N

ŠKODA B RA N D

Units

2020

2019

2020

2019

%

Octavia

233,902

219,401

172,999

117,825

100,425

80,880

14,482

939

358,356

207,724

203,688

177,163

166,237

102,592

27,306

Deliveries (thousand units)

Vehicle sales

1,005

849

1,243

1,062

1,243

19,806

1,660

8.4

–19.1

–20.0

–24.3

–13.8

–54.4

Rapid/Scala

Karoq/Kamiq/Yeti

Kodiaq

Production

941

Sales revenue (€ million)

Operating result

17,081

756

Fabia

Superb

Operating return on sales (%)

4.4

Citigo

Enyaq iV

–

940,853

1,243,066

DEL I VERI ES BY MA RKET

in percent

Enyaq iV

Europe/Other markets 80.0 %

North America

South America

0.0 %

0.1 %

Asia-Pacific 19.9 %

i

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3

2

SEAT

Divisions

SEAT is a company with two clearly defined brands: SEAT and CUPRA.

Both brands launched a large product initiative in 2020 with the new Leon family

and the Formentor, the first model developed exclusively for CUPRA.

B U SI N E S S D EV E LOPM E NT

The journey of the world-renowned Spanish car company began 70 years ago: SEAT was founded on May 9, 1950

and quickly brought mobility to the whole of Spain. Throughout its 70-year history, the company has demon-

strated that it is capable of reinventing itself time and again and successfully overcoming challenges. SEAT has

harnessed the power of change to transform itself from a pure car manufacturer into a robust technology and

industrial company. An urban mobility hub was opened in the center of Barcelona in 2020 with CASA SEAT. The

software development center SEAT:CODE was also further expanded and hired around 100 new employees.

SEAT is the Group brand with Europe’s youngest customer profile and offers strikingly designed vehicles

“Created in Barcelona.” In 2020, SEAT brought out the new Leon, the brand’s biggest seller. The vehicle impres-

ses with a fresh design, clear lines, harmonious proportions and innovative lighting. The wide range of

advanced drive concepts make the SEAT Leon even more efficient and for the first time, it offers PHEV and mild

hybrid versions. In addition, the Leon is SEAT’s first vehicle with complete digital connectivity.

CUPRA is an unconventional and emotionally-charged brand, which is defined by the progressive design

and the performance of its electric models. Numerous new vehicles were launched in the reporting year:

the CUPRA Leon family, the CUPRA Ateca and the CUPRA Formentor – a powerful SUV and coupé crossover and

the first model developed specifically for CUPRA. With a total of seven high-performance and efficient drive

systems, including two plug-in hybrid versions, its comprehensive connectivity functions and modern safety

and comfort systems, the Formentor is equipped with state-of-the-art technology.

As a result of the Covid-19 pandemic, SEAT’s deliveries to customers fell by 25.6% in fiscal year 2020 to

4

27 thousand vehicles. Sales figures fell year-on-year on almost all markets. The CUPRA brand recorded an

increase of 11.1% to 27 thousand vehicles and was therefore one of the few brands that grew in Europe.

Unit sales at SEAT stood at 484 thousand vehicles in the past fiscal year, down 27.5% on the figure for 2019.

This figure also includes the A1 manufactured for Audi. The Arona and Ateca SUV models and the Leon were in

high demand.

In the reporting year, 406 thousand SEAT and CUPRA vehicles were manufactured; a decrease of 31.3% year-

on-year.

SA LE S R EVEN U E AN D EA RN I NG S

Sales revenue for SEAT in 2020 came to €9.2 billion, falling 20.0% short of the record figure achieved in the

previous year. Operating result decreased to €–339 (445) million, mainly due to lower volumes as a result of the

pandemic. Emissions-related expenses were also an adverse factor. The SEAT brand’s operating return on sales

declined to –3.7 (3.9)%.

7

0 years

SEAT company

Divisions

SEAT

33

PRO DU CT IO N

SEAT

Units

2020

2019

2020

2019

%

Leon

124,323

78,823

76,710

74,564

18,726

14,672

11,041

7,593

153,837

134,611

98,397

130,243

38,721

23,015

–

Deliveries (thousand units)

Vehicle sales

427

484

574

667

–25.6

–27.5

–31.3

–20.0

x

Arona

Ateca

Production

406

592

Ibiza

Sales revenue (€ million)

Operating result

9,198

–339

–3.7

11,496

445

Tarraco

Alhambra

CUPRA Formentor

Mii

Operating return on sales (%)

3.9

11,479

1,506

Toledo

–

406,452

591,809

DEL I VERI ES BY MA RKET

in percent

CUPRA Formentor

Europe/Other markets 95.9 %

North America

South America

Asia-Pacific

3.5 %

0.5 %

0.1 %

i

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3

4

Bentley

Divisions

In 2020, Bentley presented the extensively upgraded and popular Bentayga, which

was rolled out by the British brand five years ago as the first luxury SUV on the market.

In spite of the pandemic, deliveries rose year-on-year.

B U SI N E S S D EV E LOPM E NT

The Bentley brand is defined by exclusivity, elegance and power. In 2020, Bentley unveiled the update to its

successful Bentayga, which was rolled out by the British brand around five years ago as the first luxury SUV on

the market. Like its predecessor, the new Bentayga combines the abilities of a high-performance grand tourer

with the characteristics of a luxury limousine, a spacious family car and an off-roader. The exterior design of

the front and rear adopts the current Bentley design DNA, giving the vehicle a fascinatingly dynamic appear-

ance and an air of elegance. The interior impresses with a next-generation infotainment system that is

seamlessly integrated into the handcrafted dashboard. In addition to the V8 version that features a 405 kW

(

550 PS) twin-turbocharged 4.0 l petrol engine, the Bentayga is also available as the range-topping Bentayga

Speed model with a 467 kW (635 PS) 6.0 l W12 engine, as well as an efficient plug-in hybrid. Bentley likewise

attracted attention in 2020 with the exclusive and strictly limited Bacalar. The two-seater was presented by

Bentley Mulliner, a specialist customization company whose roots date back to the 16th century. The roofless

luxury grand tourer, whose design draws upon the spectacular EXP 100 GT concept car from the year 2019, offers

open-air motoring with a powerful double-turbocharged W12 engine producing 485 kW (659 PS). Exquisite

materials and smart use of technology round off this exclusive vehicle concept.

In spite of the pandemic, deliveries by the Bentley brand in 2020 rose slightly to 11,206 (11,006) units, a new

record figure. Bentley saw growth in the USA (+5.7%) and China (+48.5%).

In fiscal year 2020, Bentley sold 11,296 (11,631) vehicles worldwide. Demand for the new Flying Spur was

particularly strong.

The Bentley brand produced 10,693 vehicles in the reporting period, 14.0% less than in the previous year.

SA LE S R EVEN U E AN D EA RN I NG S

In 2020, Bentley’s sales revenue fell by 2.1% year-on-year to €2.0 billion. Operating profit decreased to

€20 (65) million, mainly due to higher depreciation and amortization charges, one-off expenses for restruc-

turing measures and exchange rate effects. The operating return on sales was 1.0 (3.1)%.

1

.8%

Increase in deliveries in 2020

Divisions

Bentley

35

PRO DU CT IO N

B E NTL EY B RA N D

Units

2020

2019

2020

2019

%

Bentayga

3,946

3,381

1,995

1,244

127

5,232

102

Deliveries (units)

Vehicle sales

11,206

11,296

10,693

2,049

20

11,006

11,631

12,430

2,092

65

+1.8

–2.9

Flying Spur

Continental GT Coupé

Continental GT Convertible

Mulsanne

3,903

2,750

443

Production

–14.0

–2.1

Sales revenue (€ million)

Operating result

–70.1

10,693

12,430

Operating return on sales (%)

1.0

3.1

DEL I VERI ES BY MA RKET

in percent

Bentayga

Europe/Other markets 36.3 %

North America 27.0 %

South America

0.0 %

Asia-Pacific 36.6 %

i

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3

6

Porsche

Divisions

Porsche launched the new Panamera in fiscal year 2020. In spite of the challenges

presented by the Covid-19 pandemic, the sports car manufacturer achieved its strategic

target return.

B U SI N E S S D EV E LOPM E NT

Exclusivity and social acceptance, innovation and tradition, performance and everyday usability, design and

functionality – these are the brand values of sports car manufacturer Porsche. In fiscal year 2020, Porsche

presented its extensively revamped Panamera, which combines the performance of a sports car with the

comfort of an exclusive saloon and now covers an even wider range: with its top model, the 463 kW (630 PS)

Panamera Turbo S, the sports car manufacturer is underscoring its high standard of best-in-class performance.

The Panamera 4S E-Hybrid is a consistent continuation of Porsche’s E-Performance strategy and constitutes a

new addition to the range of plug-in hybrids, offering a completely new drive system with 412 kW (560 PS).

Compared with the previous hybrid models, the all-electric range has been boosted by up to 30%. Porsche

celebrated the world premiere of the 911 Targa 4 and 911 Targa 4S models in 2020, completing its new

generation of the 911 with the third vehicle body variant. The innovative, fully automatic roof system remains a

distinguishing feature on all versions of the Targa; and just like the legendary original Targa model from 1965,

it features the characteristic wide bar as well as an automated retractable roof section above the front seats and

a wraparound rear window. An eight-speed dual-clutch transmission and intelligent all-wheel drive Porsche

Traction Management deliver compelling performance and sporty driving pleasure. In the 911 series, the new

generation of the 911 Turbo S has also been available in Coupé and Cabriolet versions since 2020. The new

range-topping 911 offers unprecedented power, driving dynamics and luxury. It is being launched with a new

3.8 l boxer engine that delivers 478 kW (650 PS) of power, a whopping 51 kW (70 PS) more than its predecessor.

The 911 Turbo S sprints from 0 to 100 km/h in just 2.7 seconds, while top speed is 330 km/h.

Porsche delivered 272 thousand sports vehicles to customers in fiscal year 2020, 3.1% fewer than in the

previous year. China remained the largest single market, and Porsche was able to increase its sales there by 2.6%

to 89 thousand vehicles.

Porsche’s unit sales amounted to 265 thousand vehicles in the reporting period. This was 4.2% fewer than in

the previous year. The 718 and the Taycan saw growth.

Porsche produced a total of 263 thousand vehicles in 2020, 4.1% fewer than in fiscal year 2019.

SA LE S R EVEN U E AN D EA RN I NG S

Porsche Automotive’s sales revenue was on a level with the previous year at €26.1 (26.1) billion in fiscal year

2020. Operating profit decreased by 4.5% to 4.0 billion (prior-year figure before special items); this was

attributable to lower vehicle sales and to cost increases, especially for digitalization and electrification. Changes

in exchange rates also had a negative impact. Despite the Covid-19 pandemic, early countermeasures, cost

discipline and very good market performance in the second half of the year meant it was possible to achieve an

operating return of 15.4 (16.2)% (prior-year figure before special items), which even slightly exceeded the target

return.

1

5.4%

Operating return on sales in 2020

Divisions

Porsche

37

PRO DU CT IO N

POR SC H E AUTO M OTIV E¹

Units

2020

2019

2020

2019

%

Cayenne

Macan

Taycan

82,137

78,490

29,450

28,672

22,655

21,832

63,236

95,293

89,744

1,386

Deliveries (thousand units)

Vehicle sales

272

265

281

277

–3.1

–4.2

–4.1

+0.1

Production

263

274

9

11 Coupé/Cabriolet

18 Boxster/Cayman

37,585

19,263

31,192

274,463

Sales revenue (€ million)

26,086

26,060

7

Operating result before

special items

4,021

15.4

4,210

16.2

–4.5

Panamera

Operating return on sales (%)

2

1

Porsche (Automotive and Financial Services): sales revenue €28,695 (28,518) million,

operating profit (in the prior-year before special items) €4,176 (4,396) million.

DEL I VERI ES BY MA RKET

in percent

Panamera

Europe/Other markets 32.2 %

North America 24.2 %

South America

1.3 %

Asia-Pacific 42.3 %

i

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3

8

Volkswagen Commercial Vehicles

Divisions

The Volkswagen Commercial Vehicles brand celebrated its 25th anniversary in 2020.

The new Caddy was introduced as a completely new version of the bestselling model,

also available for the first time as a California compact camper van.

B U SI N E S S D EV E LOPM E NT

As a leading manufacturer of light commercial vehicles, Volkswagen Commercial Vehicles is making funda-

mental and sustainable changes to the way goods and services are distributed in cities in order to improve

quality of life, especially in inner city areas. That is why the brand is the Volkswagen Group’s leader in autono-

mous driving as well as in mobility services such as Mobility-as-a-Service and Transport-as-a-Service. For these

solutions, Volkswagen Commercial Vehicles will develop special-purpose vehicles such as robo-taxis and robo-

vans in the future to keep the world of tomorrow moving with all its requirements for clean, intelligent and

sustainable mobility. This is what Volkswagen Commercial Vehicle stands for with its brand promise: We trans-

port success, freedom and the future.

The establishment of Volkswagen Commercial Vehicles was announced in Hanover on November 9, 1995

–

then the Group’s fifth brand along with Volkswagen Passenger Cars, Audi, SEAT and ŠKODA. The idea was to

sharpen the focus of the Volkswagen Group’s commercial vehicle activities, bringing product planning, devel-

opment, purchasing, production and sales together under the umbrella of Volkswagen Commercial Vehicles. In

2020, the brand looked back at 25 years of success. Its product highlight was the launch of the new Caddy. The

completely new all-rounder excels as a transporter and family van with high versatility. It is based on the MQB

for the first time. The MQB brings new technologies to the model range such as Travel Assist, Trailer Assist and

the lane-change assistant. For the first time, the Caddy is also available as a Caddy California compact camper

van. This multi-functional, comfortable travel companion with many innovative and detailed solutions com-

pletes the series of camper vans along with the California and the Crafter-based Grand California. With the new

generation of the Multivan, the Amarok’s successor and the all-electric ID. BUZZ, many exciting vehicle projects

are planned in the years to come.

At 372 thousand units, deliveries by Volkswagen Commercial Vehicles in fiscal year 2020 were below the

prior-year (–24.4%). Turkey (+31.7%) and Argentina (+1.9%) registered growth.

Volkswagen Commercial Vehicles sold 345 thousand vehicles in the reporting period, 24.3% fewer than in

the previous year.

In 2020, the Volkswagen Commercial Vehicles brand produced 344 thousand vehicles, falling 28.0% short of

the figure for 2019. Production of the Amarok pickup at the main plant in Hanover ended.

SA LE S R EVEN U E AN D EA RN I NG S

Sales revenue by Volkswagen Commercial Vehicles in fiscal year 2020 amounted to €9.4 (11.5) billion. Operating

result declined to €–454 (510) million due to the pandemic-related fall in volume and the excess emissions

premium that entered into force this year. Moreover, higher upfront expenditures and write-downs for new

products as well as less favorable exchange rates had a negative effect on the operating result. However, product

cost optimizations and mix effects had a positive impact. The operating return on sales fell to –4.9(4.4)%.

2

5 years

Volkswagen Commercial Vehicles brand

Divisions

Volkswagen Commercial Vehicles

39

PRO DU CT IO N

VOLKSWAGE N CO MMERCIA L VE H I CLE S B RAN D

Units

2020

2019

2020

2019

%

Caravelle/Multivan, Kombi

Transporter

Caddy Kombi

Crafter

71,813

66,357

61,998

58,235

48,799

36,343

43,545

96,533

91,585

81,466

72,906

66,780

68,010

477,280

Deliveries (thousand units)

Vehicle sales

372

345

492

456

–24.4

–24.3

–28.0

–18.4

x

Production

344

477

Sales revenue (€ million)

Operating result

9,358

–454

–4.9

11,473

510

Caddy

Amarok

Operating return on sales (%)

4.4

3

DEL I VERI ES BY MA RKET

in percent

Caddy

Europe/Other markets 86.3 %

North America

South America

Asia-Pacific

1.9 %

7.6 %

4.3 %

i

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4

0

TRATON GROUP

Divisions

The TRATON GROUP aims to become a global champion of the commercial vehicle

industry and consistently pursued this goal in 2020. New partnerships are making

future technologies workable for the commercial vehicle business.

B U SI N E S S D EV E LOPM E NT

With its MAN, Scania, Volkswagen Caminhões e Ônibus and RIO brands, TRATON SE aims to become a global

champion of the commercial vehicle industry and drive the transformation of the logistics sector. Its mission is

to reinvent transport for future generations, “Transforming Transportation”.

The TRATON GROUP reached new milestones in its global champion strategy in 2020. In the all-important

North American market, a strategic partnership with the US manufacturer of commercial vehicles Navistar has

existed since 2017. At the end of January 2020, the board of management of the TRATON GROUP decided to take

the next logical step in the US market by submitting a takeover bid for Navistar, thus rising to the challenges

posed by new regulations and dynamically evolving technologies in the fields of digital connectivity, drive

systems and autonomous driving. Combining TRATON’s strong position in Europe and substantial presence in

South America with Navistar’s status in North America provides the opportunity to create a leading company

with global reach and complementary capabilities. In November 2020, the two partners reached an agreement

that TRATON SE would acquire all outstanding shares of Navistar at a cash price of USD 44.50 per share.

Expected to be completed in mid-2021, the transaction is subject to the approval of Navistar shareholders, the

usual closing conditions and regulatory approvals.

Driving innovation is another pillar of the global champion strategy. In the forward-looking field of alter-

native drive technologies and as part of their strategic partnership, TRATON and Hino Motors signed a joint

venture agreement in 2020 in order to plan and provide e-mobility products. The aim is to persue the devel-

opment of electric mobility including battery electric vehicles, fuel cell vehicles and relevant components and

to create a common platform for electric vehicles including software and interfaces. Through their collabo-

ration TRATON and Hino Motors hope to shorten lead times for future e-mobility products with battery and

fuel cell technology.

To play a leading part in the autonomous transport of the future, TRATON also entered into a global

partnership with the US start-up TuSimple in 2020. The partnership is the first of its kind in Europe, bringing

together a global commercial vehicle manufacturer and a producer of technology for highly automated driving

at level 4 autonomy. In a joint development program, TRATON and TuSimple aim to operate a test route

between Södertälje and Jönköping in Sweden where Scania trucks are to drive using level 4 driverless systems

that almost exclusively take over the driving permanently. As part of the partnership, TRATON has also taken a

minority stake in TuSimple.

1

90 thousand

Commercial vehicles delivered in 2020

Divisions

TRATON GROUP

41

P RO D U CT IO N

DELI VER I E S

Units

2020

2019

Units

2020

2019

Trucks

156,297

16,729

18,340

201,115

21,387

15,903

238,405

Trucks

156,378

16,174

17,635

190,187

205,936

21,496

14,789

242,221

Buses

Light Commercial Vehicles

191,366

DEL I VERI ES BY MA RKET

in percent

Strong brands

Europe/Other markets 67.2 %

North America 0.8 %

South America 26.0 %

Asia-Pacific 6.0 %

i

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4

2

Scania

Divisions

Scania unveiled its first fully electric truck in 2020, underpinning its position

as one of the leading companies in the commercial vehicle industry

for alternative drive technologies.

B U SI N E S S D EV E LOPM E NT

The Swedish brand Scania follows its values “Customer first”, “Respect for the individual”, “Elimination of waste”,

“Determination”, “Team Spirit” and “Integrity”. In rolling out its first fully electric truck, Scania underpinned its

position as one of the leading companies in the commercial vehicle industry for alternative drive technologies

in 2020. Scania’s E-Truck was designed for urban operation and has an electric range of up to 250 km. In the

reporting year, Scania also presented a hybrid truck with an electric range of up to 60 km. The new products will

help Scania achieve its climate targets of reducing the carbon footprint from its business activities by 50% by

2025, and cutting emissions from Scania products by 20% in the same period. Vehicles with hydrogen technol-

ogy are also playing their part: the Norwegian wholesaler ASKO is currently testing hydrogen-powered Scania

trucks with fuel cell electric drives.

To electrify its model range, Scania plans to invest well over SEK 1 billion in a battery assembly plant in

Södertälje, Sweden, in the coming years. The plant, which will be built adjacent to the chassis assembly plant in

Södertälje, is to assemble battery modules and packs tailored to Scania vehicles.

To gain a firmer foothold in the Asian and especially the Chinese market, Scania is investing in a wholly

owned truck production facility in Rugao in Jiangsu Province. Series production is scheduled to start in early

2022. In the long term, the company also plans to step up its research and development activities in the world’s

largest commercial vehicle market.

The key figures presented in this chapter encompass Scania’s truck and bus, industrial and marine engine

businesses.

Orders received at the Scania brand increased by 4.7% year-on-year to 93 thousand vehicles in fiscal year

2020. The number of vehicles delivered worldwide fell to 72 (99) thousand due to the pandemic; the number of

buses delivered included in this figure declined to 5 (8) thousand units. Demand for services and replacement

parts was also impacted by the Covid-19 pandemic, but the drop was comparatively smaller. New contracts

signed at Scania Financial Services were also down on the prior-year figure, due mainly to lower unit sales.

Scania manufactured 73 (97) thousand commercial vehicles in the past fiscal year, including 5 (8) thousand

buses.

SA LE S R EVEN U E AN D EA RN I NG S

Scania Vehicles and Services generated sales revenue of €11.5 (13.9) billion in fiscal year 2020. Operating profit

fell by 50.3% to €0.7 billion owing to the pandemic and exchange rate effects; in addition, steps were taken to

realign the production facilities. A favorable product mix and cost savings had a positive effect. The operating

return on sales amounted to 6.5 (10.8)% in the reporting period.

4

.7%

Increase in orders received

Divisions

Scania

43

PRO DU CT IO N

SCA N IA V EH I C L E S A N D SE RV I C E S¹

Units

2020

2019

2020

2019

%

Trucks

Buses

67,106

5,430

89,276

7,719

Orders received

(thousand units)

93

72

89

99

+4.7

–27.5

–27.1

–25.2

–17.3

–50.3

Deliveries

72,536

96,995

Vehicle sales

73

101

Production

73

97

Sales revenue (€ million)

Operating result

Operating return on sales (%)

11,521

748

6.5

13,934

1,506

10.8

1

Scania (including Financial Services): sales revenue €11,950 (14,391) million, operating

profit €855 (1,648) million.

DEL I VERI ES BY MA RKET

in percent

BEV Truck

Europe/Other markets 68.4 %

North America

0.6 %

South America 19.3 %

Asia-Pacific 11.7 %

i

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4

MAN

Divisions

MAN revealed its extensively upgraded truck generation in 2020 and received

the prestigious International Truck of the Year 2021 award for the TGX.

The MAN Lion’s City 18 E all-electric articulated bus starts scheduled operations.

B U SI N E S S D EV E LOPM E NT

Customer focus, enthusiasm for the product, and efficiency are the core values at MAN. In fiscal year 2020 , MAN

revealed its extensively upgraded truck generation, which is consistently designed to meet the changing needs

of the transportation industry, setting the standards for assistance systems, driver orientation and digital

connectivity. The improvements to the drivetrain, aerodynamics and the MAN EfficientCruise efficiency

assistant reduce fuel consumption in the new truck generation by up to 8% compared with the previous gene-

ration. The MAN TGX was named International Truck of the Year 2021 by 24 industry journalists. The award is

one of the most prestigious in the transportation industry.

In the bus segment, the all-electric MAN Lion’s City 18 E optimized for urban transportation was launched

in 2020. The 18-meter articulated bus can carry up to 120 passengers and generates zero local emissions. The

MAN Lion’s City 18 E will begin scheduled operations in 2021 in Barcelona, Spain, and Cologne, Germany.

MAN teamed up with partner companies during the Covid-19 pandemic to convert its TGE model into an

innovative diagnostic vehicle. With the molecular diagnostic PCR test equipment on board the MAN TGE, the

results of nasal or throat swabs are available in just 39 minutes. Up to 800 tests can be carried out per day and

analyzed directly in the vehicle.

In South America, Volkswagen Caminhões e Ônibus expanded its product portfolio in 2020 with its largest

truck model to date. The Meteor is used in the heavy-duty sector, which is enjoying especially strong growth in

the Brazilian market. In addition to the new Meteor, the successful VW Constellation model also celebrated its

premiere with the new generation of the 13 l D26 engine. In 2021 in the field of alternative drive systems,

Volkswagen Caminhões e Ônibus plans to begin with the supply of 100 “e-Delivery” electric trucks to Ambev,

Latin America’s largest beverage company. Ambev intends to deploy the e-Delivery in São Paulo and Rio de

Janeiro starting in the second half of the year.

Incoming orders at MAN Commercial Vehicles decreased in fiscal year 2020 by 11.0% year-on-year to

123 thousand vehicles; the market decline anticipated for 2020 – especially in the EU27+3 region – was exac-

erbated by the Covid-19 pandemic. In America, MAN Commercial Vehicles recorded lower demand with its

Volkswagen Caminhões e Ônibus brand, particularly in Brazil and Mexico. A total of 118 (143) thousand com-

mercial vehicles were delivered to customers, of which 11 (14) thousand were buses.

MAN produced a total of 119 (141) thousand commercial vehicles in 2020, including 11 (14) thousand buses.

SA LE S R EVEN U E AN D EA RN I NG S

Sales revenue at MAN Commercial Vehicles decreased by 14.4% in 2020 to €10.8 billion. The operating result

dropped to €–631 (402) million as a consequence of the pandemic. This was attributable not only to lower

vehicle sales but also to depreciation and amortization charges, as well as additional costs incurred in

connection with the launch of the new truck generation. Measures to achieve consistent cost savings in all

areas were unable to compensate for this decline. The operating return on sales was –5.8 (3.2)%.

8

%

Fuel savings in the new truck generation

Divisions

MAN

45

PRO DU CT IO N

M A N COMME RCI A L VE H IC LE S

Units

2020

2019

2020

2019

%

Trucks

89,191

11,299

18,340

18,830

111,839

13,668

15,903

141,410

Orders received

(thousand units)

123

118

139

143

–11.0

–17.3

–16.0

–14.4

x

Buses

Deliveries

Light Commercial Vehicles

Vehicle sales

118

143

1

Production

119

141

Sales revenue (€ million)

Operating result

Operating return on sales (%)

10,838

–631

–5.8

12,663

402

3.2

DEL I VERI ES BY MA RKET

in percent

TGX

Europe/Other markets 66.6 %

North America 0.9 %

South America 30.0 %

Asia-Pacific 2.5 %

i

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4

6

Volkswagen Group China

Divisions

Volkswagen Group China

In the Chinese market, Volkswagen continued to put all its energies into the strategic

direction of e-mobility in 2020. The negative impact of the Covid-19 pandemic on

business operations remained limited.

B U SI N E S S D EV E LOPM E NT

China remained the largest single market for Volkswagen in 2020. In the Chinese market, the Group offers more

than 160 imported and locally produced models from the Volkswagen Passenger Cars, JETTA, Audi, ŠKODA,

Porsche, Bentley, Lamborghini, Bugatti, Volkswagen Commercial Vehicles, MAN, and Scania brands as well as

motorcycles by the Ducati brand. At 3.8 (4.2) million units (including imports), we delivered fewer vehicles to

customers in 2020 than in the previous year in a Chinese market distinctly weakened by the pandemic.

However, the Volkswagen Group remained the clear number one with Chinese customers with a market share

of 19.3%. New models achieved a good market performance, including the new Volkswagen Passenger Cars

flagship Touareg e-hybrid, the Viloran, the JETTA SUV VS7, the Porsche Taycan and the Audi Q2 and Q3 models.

The new Tayron and Tharu models quickly took the lead in the A-SUV market. As part of the SUV campaign, we

launched ten new models in 2020. They contributed to increased deliveries in the SUV segment and helped us

to maintain our number one position. The new energy vehicle (NEV) segment was the fastest growing segment

in China in 2020. The seven new NEV models increased the Group’s portfolio to 22 electrified models in China.

The premium brands Audi, Porsche and Bentley again delivered strong sales figures, and the young entry-level

brand JETTA also attracted a large number of customers in its first full year of sales.

In spite of the Covid-19 pandemic, Volkswagen continued to put all its energies into the strategic direction

of e-mobility in China in 2020: the two MEB plants in Foshan and Anting celebrated the start of production on

schedule, adding a production capacity of 600,000 units per year to the Group. The ID.4 X model from

SAIC VOLKSWAGEN and the ID.4 CROZZ model from FAW-Volkswagen are the first vehicles whose production

started in 2020. Three further models in the ID. family are to follow in 2021. By 2023, Volkswagen Passenger

Cars will offer eight models in the ID. family on the Chinese market, which plays a decisive role in the Group’s

global e-mobility strategy. In 2020, Volkswagen increased its stake in Volkswagen (Anhui), formerly JAC Volks-

wagen, from 50 to 75%. The investment also included the acquisition of 50% of the shares in JAG, the parent

company of Volkswagen’s joint venture partner JAC. The Volkswagen (Anhui) plant for all-electric vehicles has a

maximum production capacity of 350 thousand units per year and should be finished by the end of 2022.

Series production of MEB-based models should start there in 2023. Volkswagen has found another partner to

secure future requirements for battery capacity for its Chinese e-models: with a 26% stake, Volkswagen (China)

Investment Co. Ltd. wants to become the largest shareholder in Gotion High-Tech Co., Ltd. and thus the first

international automotive manufacturer to directly invest in a Chinese battery supplier. The Audi brand is

working with joint venture partner FAW to jointly establish a company for the production of all-electric vehicles

based on the Premium Platform Electric (PPE) from 2024, the next major step for local production of e-vehicles.

The Group also strengthened the production of electric drive components in China in 2020 in order to be

prepared for rapidly growing demand for e-mobility.

1

9.3%

The Group’s share of the market in China

Divisions

Volkswagen Group China

47

EA RN I N GS

Thousand units

2020

2019

%

€ million

2020

2019

Deliveries

Vehicle sales¹

3,849

3,577

3,575

4,234

4,048

3,948

–9.1

–11.6

–9.5

Operating result (100%)

9,744

3,602

11,110

4,425

Operating result (proportionate)

Production

1

Produced locally.

Our joint ventures produced a total of 3.6 (3.9) million vehi- The proportionate operating result of the joint ventures in

cles in fiscal year 2020. The joint ventures produce both the reporting year stood at €3.6 (4.4) billion. The negative

established Group models and those specially modified for impacts of pandemic-related lower unit sales and more intense

Chinese customers (e.g. with extended wheelbases), as well as market competition were offset by improvements in the mix

vehicles developed exclusively for the Chinese market (such and cost optimization.

as the Volkswagen Lamando, Lavida, New Bora, New Santana

and Teramont).

The figures of the Chinese joint venture companies are

not included in the operating profit of the Group as they are

accounted for using the equity method. Their profits are

included solely in the Group’s financial result on a propor-

tionate basis.

ID.4 family

LO CA L P RO DU CTI ON

Units

2020

2019

Volkswagen Passenger Cars

2,751,717

671,659

3,066,807

614,753

Audi

ŠKODA

Total

151,245

266,377

3,574,621

3,947,937

4

8

Volkswagen Financial Services

Divisions

Volkswagen Financial Services delivered a robust performance in 2020, which proved to

be a difficult year. The diverse product portfolio has been enhanced by the addition of

interesting alternatives for individual mobility.

STRU CTU R E OF VOLKSWAGE N FI N A NCIA L SE RV I CE S

Volkswagen Financial Services comprises dealer and customer financing, leasing, direct banking and insurance

activities, fleet management and mobility services in 48 countries. The key companies are Volkswagen Finan-

cial Services AG and its affiliated companies such as Volkswagen Leasing GmbH, as well as Volkswagen Bank

GmbH, Porsche Financial Services and the financial services companies in the United States and Canada, the

only exceptions being the financial services business of the Scania brand and of Porsche Holding Salzburg.

B U SI N E S S D EV E LOPM E NT

Volkswagen Financial Services and Naturschutzbund Deutschland e.V. (NABU) are expanding their successful

collaboration in the field of nature conservation and climate action. To this end, the provider of financial and

mobility services in the Volkswagen Group is providing €450 thousand for the nature conservation organi-

zation to restore the Aller river in the district of Verden between Hülsen and the mouth of the Weser River. The

aim is to create more natural conditions for the riverbed and floodplain to increase biodiversity, but also to

improve flood protection. Along with moorland protection, the restoration of watercourses is a further focus of

the financial services provider’s involvement.

Volkswagen Financial Services introduced a car subscription service (Auto-Abo) to its customers in 2020,

and in doing so further expanded its mobility offering. Customers can book various vehicle classes and

conclude a contract for a minimum of three months. Thereafter, this contract can be terminated on a monthly

basis. Subscribers pay only for the use of the vehicle and for fuel. All other relevant costs such as registration,

servicing, insurance and taxes are covered by the monthly mobility rate. In the dynamic market for mobility

products, the financial service provider is responding to the customer’s desire for a high degree of flexibility

and comprehensive cost control with its Auto-Abo car subscription service.

Volkswagen Financial Services is supporting the Volkswagen Group’s electric mobility offensive with its

Lease&Care package solution, starting with the sales launch of the ID.3. This product offers customers a choice

of various modular service options, allowing them to maintain full cost transparency when running their new

electric vehicle. Volkswagen Financial Services is deliberately focusing on the advantages of leasing for electric

mobility and assumes that around 80% of Volkswagen Group electric vehicles will be leased or financed through

Financial Services.

Volkswagen Financial Services took over the business travel start-up Voya in 2020, adding business travel

management to its mobility offering for fleet customers. Voya offers a digital travel assistant for companies as a

smartphone app and for desktop use. Given that fleet and travel management are gradually converging in many

companies, Volkswagen Financial Services aims to provide its fleet customers with a corresponding offering

based on Voya in the future.

€

2.8 billion

Operating profit for 2020

Divisions

Volkswagen Financial Services

49

Following its launch in Germany and the United Kingdom, the online platform heycar was successfully rolled

out in Spain in fiscal year 2020. Guaranteed used cars of all major automobile brands will now also be offered in

Spain under the umbrella of Mobility Trader Spain S.L..

The main refinancing sources for Volkswagen Financial Services are money market and capital market

instruments, asset-backed securities (ABS) transactions, customer deposits from the direct banking business

and bank credit lines.

In 2020, Volkswagen Financial Services AG issued three bonds with different terms and a total volume of

€2.15 billion. Due to the Covid-19 pandemic and the related turmoil in the money and capital markets, risk

premiums were higher than in previous issuances. However, the high demand from investors attests to

confidence in the business model.

Other bond transactions were conducted in countries such as the United Kingdom, Japan, Sweden and

Norway. In addition to this, private placements were issued in various currencies.

Volkswagen Bank did not enter into any transactions with unsecured bonds in the reporting period.

In fiscal year 2020, Volkswagen Leasing GmbH placed two ABS transactions secured by lease receivables

with a volume of €1 billion and €1.1 billion, respectively. The issuances met the quality criteria of the STS

Securitization Regulation for particularly high-value securitizations and were oversubscribed several times.

Outside Germany, Volkswagen Financial Services issued a total of six ABS transactions in the United States,

China, Spain and Japan. Driver China eleven represented the successful placement by Volkswagen Financial

Services of its largest-ever auto ABS in Chinese renminbi (RMB). The transaction has a volume of over

RMB 8 billion (around €1.0 billion) in receivables and is backed by financing contracts concluded with Volks-

wagen Finance (China). China is one of the most important markets for Volkswagen Financial Services with a

current contract portfolio of more than 1.2 million units.

Auto-Abo

5

0

Volkswagen Financial Services

Divisions

Volkswagen Financial Services was heavily impacted by the Covid-19 pandemic in fiscal year 2020. To avert and

cushion the economic impact of the pandemic for customers, pinpointed stabilization measures were put in

place together with the Group brands; these included payment deferrals and support for the dealer

organization. The measures taken with the brands to promote sales had a positive effect on vehicle sales as well

as on new contracts at Volkswagen Financial Services.

The number of new financing, leasing, service and insurance contracts signed in fiscal year 2020 fell by

6

1

.9% year-on-year to 7.9 million. As of December 31, 2020, the total number of contracts was 21.9 million, up

.9% from the year before. The number of contracts in the Customer Financing/Leasing area increased by 1.1%

to 11.3 million. There were 10.6 million contracts in the Service/Insurance area, 2.7% more than in the previous

year. With credit eligibility criteria remaining unchanged, the penetration rate, expressed as the ratio of financed

or leased vehicles to relevant Group delivery volumes – including the Chinese joint ventures – was steady at

35.2 (34.2)%.

At the end of the reporting period, Volkswagen Bank GmbH managed 1.4 (1.3) million deposit accounts.

Volkswagen Financial Services employed 14,560 people worldwide, including 7,299 in Germany, as of year-end

020.

2

SA LE S R EVEN U E AN D EA RN I NG S

The sales revenue of Volkswagen Financial Services in the reporting year amounted to €38.6 billion, a slight

increase of 1.8% on the previous year. Operating profit decreased to €2.8 (3.0) billion, particularly due to risk

costs.

VOLKSWAGE N FI NANC IAL SERV IC ES

2020

2019

%

Number of contracts

Customer financing

Leasing

thousands

21,907

6,635

21,498

6,585

+1.9

+0.8

+1.6

+2.7

+5.1

4,692

4,616

Service/Insurance

Lease assets

10,580

49,653

10,297

47,222

€ million

Receivables from

Customer financing

Dealer financing

Leasing agreements

Direct banking deposits

Total assets

69,380

18,448

45,379

27,734

225,608

29,406

187,545

13.0

68,517

23,093

46,276

31,330

223,536

28,428

187,092

12.7

+1.3

–20.1

–1.9

€ million

%

–11.5

+0.9

Equity

Liabilities¹

+3.4

+0.2

Equity ratio

+2.6

Return on equity before tax²

Leverage³

%

8.9

10.8

–17.5

–3.4

6.4

6.6

Operating result

Earnings before tax

Employees at Dec. 31

€ million

2,803

2,960

–5.3

2,577

2,968

–13.2

+1.2

14,560

14,394

1

2

3

Excluding provisions and deferred tax liabilities.

Earnings before tax as a percentage of average equity (continuing operations).

Liabilities as a percentage of equity.

ADDITIONAL IN FORMATION

www.vwfsag.com

Corporate Governance

Group Corporate Governance Declaration

53

Group Corporate Governance

Declaration

The following chapter contains the content of the Group Corporate Governance Declaration

required by sections 289f and 315d of the HGB and the recommendations

and principles of the German Corporate Governance Code.

TH E GE RM AN CO RPORAT E GOVE R NANC E CO DE – A B LU EPRI NT

FOR SU CC ES S FU L CORP O RATE G OVERNA NC E

German Ministry of Justice in the official section of the

Federal Gazette (Bundesanzeiger) on 24 April 2017 was

Corporate governance provides the regulatory framework for complied with in the period from the last Declaration of

corporate management and supervision. This includes a com- Conformity dated 15 November 2019 until the entry into

pany’s organization and values, and the principles and guide- force of the reformed Code in the version dated 16 December

lines for its business policy. The German Corporate Governance 2019 on 20 March 2020, with the exception of the sections

Code (the Code) contains principles, recommendations and and the stated reasons and periods listed below.

suggestions for corporate management and supervision. Its > a) 5.3.2(3) sentence 2 (independence of the Chair of the

recommendations and suggestions were prepared by a dedi-

cated government commission on the basis of the material

provisions and nationally and internationally accepted

standards of sound, responsible corporate governance. In the

interests of best practice, the government commission regu-

larly reviews the Code’s relevance in light of current develop-

ments and updates it as necessary. The Board of Management

and the Supervisory Board of Volkswagen AG base their work

on the principles, recommendations and suggestions of the

Code. We consider good corporate governance to be a key pre-

requisite for achieving a lasting increase in the Company’s

value. It helps strengthen the trust of our shareholders, cus-

tomers, employees, business partners and investors in our

work and enables us to meet the steadily increasing demand

for information from national and international stakeholders.

Audit Committee)

It is unclear from the wording of this recommendation

whether the Chairman of the Audit Committee is “inde-

pendent” within the meaning of section 5.3.2(3) sentence 2

of the 2017 Code. Such independence could be considered

lacking in view of his seat on the Supervisory Board of

Porsche Automobil Holding SE, kinship with other mem-

bers of the Supervisory Board of the company and of

Porsche Automobil Holding SE, his indirect minority inter-

est in Porsche Automobil Holding SE, and business rela-

tions with other members of the Porsche and Piëch

families who also have an indirect interest in Porsche

Automobil Holding SE. However, it is our opinion that

these relationships do not constitute a conflict of interest

nor do they interfere with his duties as the Chairman of the

Audit Committee. This deviation is therefore being

declared purely as a precautionary measure.

> b) 5.4.1(6 to 8) (disclosure regarding election proposals)

With regard to the recommendation in section 5.4.1(6 to 8)

of the 2017 Code according to which certain circumstances

shall be disclosed when the Supervisory Board makes

election proposals to the General Meeting, the guidelines

in the Code are vague and the definitions unclear. Purely as

a precautionary measure, we therefore declare a deviation

from the Code in this respect.

DE CL A RATI ON S O F CON FO RM I TY

(

VAL I D A S OF T H E DATE OF T H E D ECL ARAT IO N)

The Board of Management and the Supervisory Board of

Volkswagen AG issued the annual declaration of conformity

with the Code as required by section 161 of the Aktiengesetz

(

2

“

AktG – German Stock Corporation Act) on November 13,

020 with the following wording:

The Board of Management and the Supervisory Board

declare the following:

The recommendations of the Government Commission of > c) 5.4.5 sentence 2 (a maximum of three supervisory board

the German Corporate Governance Code in the version dated

February 2017 (the 2017 Code) that was published by the

mandates in non-group listed corporations or comparable

companies)

7

5

4

Group Corporate Governance Declaration

Corporate Governance

The Chairman of the Supervisory Board is on the super-

visory boards of three listed companies of the VOLKS-

WAGEN Group, namely VOLKSWAGEN AG, AUDI AG and

TRATON SE, as well as on the Supervisory Board of Bertels-

mann SE & Co. KGaA. He is also Chairman of the Board of

Management of Porsche Automobil Holding SE. Porsche

Automobil Holding SE is not part of the same group as

AUDI AG, VOLKSWAGEN AG and TRATON SE. As it cannot be

ruled out that the supervisory board mandate at Bertels-

mann SE & Co. KGaA would involve similar requirements

agement Board. According to the criteria listed in Recom-

mendation C.7, there is indication of a lack of inde-

pendence if a member of the Supervisory Board was a

member of the Management Board in the two years prior

to their appointment to the Supervisory Board. The

Chairman of the Supervisory Board, who is also the Chair-

man of the committee that addresses Board of Manage-

ment remuneration, transferred directly from the Board of

Management to the Supervisory Board at the time of his

appointment to the Supervisory Board.

to those of a supervisory board mandate in a listed com- > d) Recommendation C.10 sentence 2 (Farther-reaching

pany, and as the precise method of counting the mandates

is unclear, we therefore declare a deviation from section

independence of the Chair of the Audit Committee)

It is unclear from the wording of this recommendation

whether the Chair of the Audit Committee is “independent

from the controlling shareholder” within the meaning of

this recommendation. Such “independence” could be

considered lacking in view of the fact that the Chair of the

Audit Committee, in addition to other members of the

Porsche and Piëch families, who are also related to each

other, has an indirect interest in Porsche Automobil

Holding SE. However, it is our opinion that these relation-

ships do not constitute a conflict of interest nor do they

interfere with his duties as the Chairman of the Audit

Committee. This deviation is therefore being declared

purely as a precautionary measure.

5.4.5 sentence 2 of the 2017 Code as a precautionary mea-

sure. We are, however, confident that the Chairman of the

Supervisory Board of VOLKSWAGEN AG has sufficient time

at his disposal to fulfil the duties related to his mandate.

The Board of Management and the Supervisory Board also

declare the following:

The recommendations of the Government Commission of

the German Corporate Governance Code in the version dated

6 December 2019 (the 2020 Code) that was published by the

1

German Ministry of Justice in the official section of the

Federal Gazette (Bundesanzeiger) on 20 March 2020 was

complied with in the period since the entry into force of this

version of the Code and will continue to be complied with, > e) Recommendation C.13 (Disclosure regarding election

with the exception of the recommendations and their stated

reasons and periods listed below.

proposals)

With regard to this recommendation, according to which

certain circumstances shall be disclosed when the Super-

visory Board makes election proposals to the General

Meeting, the guidelines in the Code are vague and the defini-

tions unclear. Purely as a precautionary measure, we there-

fore declare a deviation from the Code in this respect.

Notwithstanding this, the Supervisory Board will make every

effort to satisfy the requirements of the recommendation.

> f) Recommendation D.1 (Rules of Procedure for the

Supervisory Board)

>

a) Recommendation B.3 (Duration of first-time appoint-

ments to the Board of Management)

As it has done in the past, the Supervisory Board will

determine the duration of first-time appointments to the

Board of Management as it deems fitting for each indi-

vidual case and the good of the company.

>

b) Recommendation C.5 (Mandate ceiling regarding Board

of Management mandate)

The Chairman of the Supervisory Board is on the super-

visory boards of three listed companies of the VOLKS-

WAGEN Group, namely VOLKSWAGEN AG, AUDI AG and

The Rules of Procedure for the Supervisory Board were

published on the Company’s internet site on 6 April 2020.

TRATON SE (also as Chairman), as well as on the Super- > g) Recommendation D.4 (Independence of the Chair of the

visory Board of Bertelsmann SE & Co. KGaA. He is also

Chairman of the Board of Management of Porsche

Automobil Holding SE. Porsche Automobil Holding SE is

not part of the same group as AUDI AG, VOLKSWAGEN AG

and TRATON SE. We are, however, confident that the

Chairman of the Supervisory Board of VOLKSWAGEN AG

has sufficient time at his disposal to fulfil the duties related

to his mandate.

c) Recommendation C.10 sentence 1 (Independence of the

Chair of the Supervisory Board and Chair of the committee)

According to this recommendation of the 2020 Code, the

Chair of the Supervisory Board and the Chair of the com-

mittee that addresses Management Board remuneration

shall be independent from the company and the Man-

Audit Committee)

Regarding justification, we refer to the statements made

above regarding Recommendation C.10 sentence 2. If the

Chair of the Audit Committee is not independent from the

controlling shareholder, according to the definition of

Recommendation C.6, sentence 2, he/she is also not inde-

pendent within the meaning of Recommendation D.4.

> h) Recommendations G.1 and G.2 (Remuneration system

and target total remuneration)

The Supervisory Board introduced a new remuneration

system in 2017, which takes into account all recommen-

dations of the 2017 Code. The recommendations are sig-

nificantly different in the reformed 2020 Code. The remu-

neration system from 2017 does not comply with these

>

Corporate Governance

Group Corporate Governance Declaration

55

amended recommendations in some aspects. The Super- Our listed indirect subsidiaries TRATON SE and MAN SE have

visory Board is planning to introduce a new remuneration also each issued declarations of conformity with the German

system that complies with the amended recommendations Corporate Governance Code. These can be accessed at the

of the 2020 Code. Until this has been carried out, the websites shown below.

deviations will be described here and in the following text.

The suggestions of the 2020 Code are complied with. The

The Supervisory Board has not yet passed a resolution on a following applies to the suggestions that were not imple-

remuneration system within the meaning of Recommen- mented in the past under the 2017 Code: The suggestions

dation G.1. The justification from the Commission on previously contained in section 5.1.2(2) sentence 1 (“Duration

Recommendation G.1 also establishes the following: the of first-time appointments”) and section 4.2.3(2) sentence 9

total remuneration is the sum of all remuneration com- (“No early disbursements of variable remuneration compo-

ponents for the year in question, including the past service nents”) of the 2017 Code have been turned into recommen-

cost within the meaning of IAS 19. This will also apply to dations in the 2020 Code. The deviation from the recommen-

the maximum remuneration. The remuneration ceilings dation on the duration of first-time appointments to the

within our remuneration system were established without Management Board (B.3 in the 2020 Code) is included in the

taking into account pension scheme expenses or fringe above declaration of conformity. The recommendation that

benefits and therefore do not represent maximum remune- variable remuneration components should not be disbursed

ration within the meaning of Recommendation G.1. Using early (G.12 in the 2020 Code) is now complied with. The

the remuneration system in place to date, it is not possible suggestions previously contained in section 2.3.2 sentence 2

to deduce the relative proportions of the individual (“Accessibility of the voting proxy during the Annual General

remuneration components of target total remuneration, Meeting”) and section 2.3.3 (“Broadcast of the Annual General

within the meaning of the recommendation. Furthermore, Meeting”) of the 2017 Code have not been included in the

contrary to Recommendation G.2, the Supervisory Board 2020 Code.

has not yet passed a resolution on specific target total

remuneration for the individual members of the Board of

BOAR D OF M A NAGEMEN T

Management within the meaning of Recommendation G.1. The Volkswagen AG Board of Management has sole responsi-

i) Recommendation G.10 sentence 2 (Four-year commit- bility for managing the Company in the Company’s best

>

ment period)

interests, in accordance with the Articles of Association and

According to this recommendation, granted long-term vari- the rules of procedure for the Board of Management issued

able remuneration components shall be accessible to mem- by the Supervisory Board.

bers of the Board of Management only after a period of four

Accordingly, responsibilities were divided between eight

years. As our current Performance Share Plan has a three- Board of Management positions until December 31, 2020. In

year term and there is a cash settlement at the end of this addition to the Chairman of the Board of Management, which

term, this remuneration component is available to the mem- also includes the Volume brand group, the other Board

bers of the Board of Management after only three years.

j) Recommendation G.11 sentence 2 (Clawback provision)

positions were: Components and Procurement, Finance and

IT, Human Resources and Truck & Bus, Integrity and Legal

>

Contrary to sentence 2 of this recommendation, the Affairs, Premium, Sport & Luxury as well as China. As of

current remuneration system makes no provision for the December 31, 2020, the board member for Finance & IT was

company to retain or reclaim variable remuneration from also responsible for Components and Procurement on a

the members of the Board of Management. ”

temporary basis, and the Chairman of the Board of Manage-

The current declaration of conformity and previous ment was also responsible for China.

declarations of conformity are also published on our website

In December 2020, the Supervisory Board decided to split

www.volkswagenag.com/en/InvestorRelations/corporate-gover up the responsibility for Components and Procurement from

nance/declaration-of-conformity.html.

January 1, 2021, replacing it with two new Board positions:

Purchasing and Technology. The new Technology Board

position will be responsible for all Group Components activi-

ties worldwide, the marketing of the Volkswagen toolkits to

third parties, the development and manufacturing of battery

cells as well as the associated procurement, the areas of

charging and charging systems and the corresponding joint

ventures worldwide.

DECLARATION OF CON FORMITY OF VOLKSWAGEN AG

www.volkswagenag.com/en/InvestorRelations/corporate-governance/declaration-

of-conformity.html

DECLARATION OF CON FORMITY OF TRATON SE

https://ir.traton.com/websites/traton/English/5000/corporate-governance.html

Information on the composition of the Board of Man-

agement can be found in the "Members of the Board of

Management" section.

DECLARATION OF CON FORMITY OF MAN SE

https://www.corporate.man.eu/en/investor-relations/corporate-

governance/corporate-governance-at-man/Corporate-Governance-at-MAN.html

5

6

Group Corporate Governance Declaration

Corporate Governance

Working procedures of the Board of Management

of relevance for the Company particularly with regard to

In accordance with Article 6 of the Articles of Association, strategy, planning, the development of the business, the risk

Volkswagen AG’s Board of Management consists of at least situation, risk management and compliance.

three people, with the precise number determined by the

Supervisory Board. As of December 31, 2020, there were six for dealings with the Supervisory Board. He is in regular

members of the Board of Management. contact with the Chairman of the Supervisory Board and

The Chairman of the Board of Management is responsible

The Board of Management generally meets weekly. Its reports to him on all matters of particular significance with-

rules of procedure require it to meet at least twice a month. out delay.

Meetings of the Board of Management are convened by the

The Supervisory Board has set out the Board of Manage-

Chairman of the Board of Management. The Chairman is ment’s obligations to provide information and reports in an

required to convene a meeting if requested by any member of information policy. The Board of Management must report

the Board of Management. The Chairman of the Board of conscientiously and faithfully to the Supervisory Board or its

Management chairs the Board of Management meetings. In committees. With the exception of the immediate reports

matters of general or fundamental importance, the decisions from the Chairman of the Board of Management to the

are taken by the entire Board of Management. The Board of Chairman of the Supervisory Board on matters of particular

Management takes decisions only after prior debate and/or importance, the Board of Management reports to the Super-

using the written circulation procedure. Resolutions of the visory Board in writing as a rule.

Board of Management are adopted by a majority vote. In the

event of a tie, the Chairman of the Board of Management visory Board must provide its consent. The documents

casts the deciding vote. required for decision-making purposes are provided to the

For transactions of fundamental importance, the Super-

Each Board of Management member manages his Board Supervisory Board members in good time in advance of the

position independently, without prejudice to the collective meeting.

responsibility of the Board of Management. All Board of

Management members must keep each other informed of Diversity concept and succession planning for the Board of Management

events within their Board position.

The Supervisory Board has laid down the following diversity

The Volkswagen Group companies are managed solely by concept for the composition of the Board of Management

their respective managements. The management of each (section 289f(2) no. 6 HGB):

individual company takes into account not only the interest The Supervisory Board must also take diversity into account

of its own company but also the interests of the Group and when considering who would be the best persons to appoint

the individual brands in accordance with the framework laid to the Board of Management as a body. The Supervisory

down by law.

Board understands diversity, as an assessment criterion, to

mean in particular different yet complementary specialist

profiles and professional and general experience, also in the

Board of Management committees

Board of Management committees exist at Group level on the international domain, with both genders being appropriately

following topic areas: investments, digital transformation, represented. The Supervisory Board will also take the

management issues, human resources, integrity and com- following aspects into account in this regard, in particular:

pliance, risk management, products and technology. Along- > Members of the Board of Management should have many

side the responsible members of the Board of Management,

years of management experience.

the relevant central departments and the relevant functions > Members of the Board of Management should, if possible,

of the divisions are represented on the committees.

have experience based on different training and profes-

sional backgrounds.

Cooperation with the Supervisory Board

> The Board of Management as a whole should have tech-

nical expertise, especially knowledge of and experience in

the manufacture and sale of vehicles and engines of any

kind as well as other technical products, and experience in

the international domain.

The Supervisory Board advises and monitors the Board of

Management with regard to the management of the Com-

pany. Through the requirement for the Supervisory Board to

provide consent, it is directly involved in decisions of funda-

mental importance to the Company. In addition, the Super- > The Board of Management as a whole should have many

visory Board of Volkswagen AG and the Board of Manage-

ment regularly discuss factors affecting the strategic

orientation of the Volkswagen Group. The two bodies jointly

years of experience in research and development, pro-

duction, sales, finance and human resources management,

as well as law and compliance.

assess, at regular intervals, the progress made in imple- > Women should comprise a certain proportion of the Board

menting the corporate strategy. The Board of Management

reports to the Supervisory Board regularly, promptly and

comprehensively in both written and oral form on all issues

of Management. Based on the statutory provisions, the

Supervisory Board regularly sets targets for the proportion

of women and deadlines for achieving them.

Corporate Governance

Group Corporate Governance Declaration

57

>

The Board of Management should also have a sufficient 65th birthday. Board of Management members may be

mix of ages.

appointed to serve beyond their 65th birthday until no later

The aim of the diversity concept is for the Board of Manage- than their 68th birthday, provided this is agreed by a two-

ment members to embody a range of expertise and perspec- thirds majority of the Supervisory Board.

tives. This diversity promotes a good understanding of

Volkswagen AG’s organizational and business affairs. Partic-

SU P ERV IS ORY B OA RD

ularly, it enables the members of the Board of Management The Volkswagen AG Supervisory Board performs its role

to be open to new ideas by avoiding groupthink. In this way, it through its members working together. It advises and moni-

contributes to the successful management of the Company.

tors the Board of Management with regard to the manage-

In deciding who should be appointed to a specific Board ment of the Company and, through the requirement for the

of Management position, the Supervisory Board takes into Supervisory Board to provide consent, is directly involved in

account the interests of the Company and all the circum- decisions of fundamental importance to the Company.

stances of the specific case. In taking this decision and in

Information on the composition of the Supervisory Board

long-term succession planning, the Supervisory Board orients and the Supervisory Board committees and their chairs as

itself on the diversity concept. The Supervisory Board is of well as on the terms of office of the individual Supervisory

the view that the diversity concept is reflected by the current Board members can be found in the "Members of the Super-

composition of the Board of Management. The members of visory Board and committees" section. Further information

the Board of Management have many years of professional on support for Supervisory Board members upon induction

experience, particularly in an international context, and and with respect to education and training as well as on the

cover a broad spectrum of educational and professional back- work of the Supervisory Board and the Chairman of the

grounds. The Board of Management as a whole has out- Supervisory Board’s discussions with investors can be found

standing technical knowledge and many years of collective in the Report of the Supervisory Board.

experience in research and development, production, sales,

finance and human resources management, as well as law Overview

and compliance. There is also a sufficient mix of ages and a The Supervisory Board of Volkswagen AG consists of 20

gender balance that meets the requirements set by the Super- members, half of whom are shareholder representatives. In

visory Board.

accordance with Article 11(1) of the Articles of Association of

The Supervisory Board also took into account the Volkswagen AG, the State of Lower Saxony is entitled to

diversity concept that it had laid down upon appointing both appoint two of these shareholder representatives for as long

of the new members of the Board of Management Murat as it directly or indirectly holds at least 15% of the Company’s

Aksel and Thomas Schmall-von Westerholt with effect from ordinary shares. The remaining shareholder representatives

January 1, 2021. Both of the new members of the Board of on the Supervisory Board are elected by the Annual General

Management complement the existing broad spectrum of Meeting.

educational and professional backgrounds and have out-

standing knowledge and expertise in the areas that have been employee representatives elected by the employees in accor-

assigned to them – Purchasing and Technology.

dance with the Mitbestimmungsgesetz (MitbestG – German

The other half of the Supervisory Board consists of

Long-term succession planning within the meaning of Codetermination Act). A total of seven of these employee

Recommendation B.2 of the 2020 Code is achieved through representatives are Company employees elected by the

regular discussions between the Chairman of the Board of workforce; the other three employee representatives are trade

Management and the Chairman of the Supervisory Board as union representatives elected by the workforce.

well as regular discussions in the Executive Committee. The

The Chairman of the Supervisory Board is generally a

contract terms for existing Board of Management members shareholder representative, and the Deputy Chairman is

are discussed, along with potential extensions and potential generally an employee representative. Both are elected by the

successors. In particular, the discussions look at what know- other members of the Supervisory Board.

ledge, experience and professional and personal competen-

The business of the Supervisory Board is managed by a

cies should be represented on the Board of Management with dedicated office of the Supervisory Board Chairman. The

regard to the corporate strategy and current challenges, and Chairman of the Supervisory Board ensures the indepen-

to what extent the current composition of the Board of Man- dence of the office of the Supervisory Board Chairman and its

agement already reflects this. Long-term succession planning staff and exercises the right to appoint and supervise staff in

is based on the corporate strategy and corporate culture and consultation with the responsible Board of Management

takes into account the diversity concept determined by the members.

Supervisory Board.

The Supervisory Board appoints the Board of Manage-

As a rule, members of the Board of Management should ment members and, on the basis of the Executive Commit-

be appointed for a term of office ending no later than their tee’s recommendations, decides on a clear and compre-

5

8

Group Corporate Governance Declaration

Corporate Governance

hensible system of remuneration for the Board of Man- Supervisory Board meetings. If he is unable to do so, the

agement members. It presents this system to the Annual Deputy Chairman performs these tasks.

General Meeting for approval every time there is a material

change, but at least once every four years.

The Supervisory Board is only quorate if at least ten

members participate in passing the resolution. The Chairman

Each member of the Supervisory Board of Volkswagen AG of the Supervisory Board or of the relevant committee

is obliged to act in the Company’s best interests. Supervisory decides the form of the meeting and the voting procedure for

Board members are not permitted to delegate their respon- the Supervisory Board and its committees. Should the Chair-

sibilities to others.

man so decide in individual cases, meetings may also be held

Every Supervisory Board member is obliged to disclose using telecommunications technology, or members may

any conflicts of interest to the Chairman of the Supervisory participate in meetings using this technology. The Chairman

Board without delay. In its report to the Annual General may also decide that members can participate in the Super-

Meeting, the Supervisory Board informs the Annual General visory Board’s decision making in writing, by telephone or in

Meeting of any conflicts of interest that have arisen and how another, similar form. Supervisory Board resolutions require

these were dealt with. Material and not merely temporary a majority of votes cast, unless legislative provisions or the

conflicts of interest on the part of a Supervisory Board mem- Articles of Association stipulate otherwise. Decisions to estab-

ber should result in a termination of the member’s mandate.

lish or relocate production sites require a two-thirds majority

Supervisory Board members should not hold board or of the Supervisory Board members. If a vote results in a tie,

advisory positions at major competitors of Volkswagen AG or the vote is repeated. If this vote is also tied, the Chairman of

major competitors of a company dependent on Volks- the Supervisory Board casts two votes. Minutes must be taken

wagen AG and should not be in a personal relationship of each meeting of the Supervisory Board and its committees.

involving a major competitor.

Minutes of a meeting must record the time and location of

Members of the Supervisory Board receive appropriate the meeting, the participants, the items on the agenda, the

support from the Company upon induction as well as with material content of the discussions and the resolutions

respect to education and training. Education and training adopted.

measures are outlined in the Report of the Supervisory Board.

In individual cases, the Supervisory Board may decide to

call upon experts and other appropriate individuals to advise

on individual matters.

Working procedures of the Supervisory Board

As a rule, the Supervisory Board adopts its resolutions in

meetings of all its members. It must hold at least two Supervisory Board committees

meetings in both the first and second halves of the calendar In order to discharge the duties entrusted to it, the Super-

year. The Supervisory Board generally holds five meetings a visory Board has established five committees: the Executive

year. The main topics of these meetings are described in the Committee, the Nomination Committee, the Mediation

Report of the Supervisory Board.

Committee established in accordance with section 27(3) of

The Chairman of the Supervisory Board coordinates the the Mitbestimmungsgesetz (MitbestG – German Codeter-

work within the Supervisory Board. He represents the mination Act), the Audit Committee and, since October 2015,

interests of the Supervisory Board externally and represents the Special Committee on Diesel Engines. The Executive

the Company to the Board of Management on behalf of the Committee currently comprises four shareholder represen-

whole Supervisory Board. Within reason, the Chairman of the tatives and four employee representatives and the Special

Supervisory Board discusses Supervisory Board-specific Committee on Diesel Engines three shareholder represen-

topics with investors and, in consultation with the Board of tatives and three employee representatives, respectively. The

Management, may also discuss non-Supervisory Board- shareholder representatives on the Executive Committee

specific topics. More details can be found in the Report of the make up the Nomination Committee. The remaining two

Supervisory Board.

To underline the importance of environmental sustain- representatives and two employee representatives.

ability, social responsibility and good corporate governance, At its meetings, the Executive Committee meticulously

committees are each composed of two shareholder

the Supervisory Board has appointed an ESG (environmental, prepares the resolutions of the Supervisory Board, discusses

social and governance) officer. This role is currently per- the composition of the Board of Management and takes

formed by Hans Dieter Pötsch.

decisions on matters such as contractual issues concerning

The Supervisory Board should meet regularly also the Board of Management other than remuneration and

without the Board of Management. Each Supervisory Board consent to ancillary activities by members of the Board of

meeting generally ends in a debate. Board of Management Management. The Executive Committee supports and advises

members are not present during this part of the meeting. The the Chairman of the Supervisory Board. It works with the

Chairman of the Supervisory Board convenes and chairs the

Corporate Governance

Group Corporate Governance Declaration

59

Chairman of the Board of Management to ensure long-term > In addition, at least four of the shareholder representatives

succession planning for the Board of Management.

should be persons who, in line with the criteria of Recom-

mendations C.7 to C.9 of the 2020 Code, are independent

within the meaning of Recommendation C.6 of the 2020

Code.

The Nomination Committee proposes suitable candidates

for the Supervisory Board to recommend to the Annual

General Meeting for election. Before presenting such pro-

posals, it ensures that the candidates can commit the > At least three of the seats on the Supervisory Board should

expected time to their role and identifies the personal and

business relationships of the candidates to Volkswagen AG

be held by people who make a special contribution to the

diversity of the Board.

and its Group companies, to Volkswagen AG’s corporate > Proposals for election should not normally include persons

bodies and to shareholders who directly or indirectly hold who have reached the age of 75 on the date of the election.

more than 10% of the voting shares in Volkswagen AG. In its The above criteria have been met. Numerous members of the

proposals to the Supervisory Board, the Nomination Com- Supervisory Board embody the criterion of internationality

mittee also takes into account the requirement for the Super- to a particularly high degree; various nationalities are repre-

visory Board to adhere, in its proposals to the Annual General sented on the Supervisory Board and numerous members

Meeting, to the specific targets it has set for the composition have international professional experience. Several members

of the Supervisory Board and to the profile of skills and of the Supervisory Board contribute to the Board’s diversity

expertise it has decided on for the Board as a whole; the to a particularly high degree, especially Ms. Hessa Sultan

Nomination Committee also takes into account the diversity Al Jaber, Ms. Marianne Heiß, Ms. Bertina Murkovic and

concept for the composition of the Supervisory Board.

Mr. Hussain Ali Al Abdulla. The Supervisory Board comprises

The Mediation Committee has the task of submitting members of various generations. Independent Supervisory

proposals to the Supervisory Board for an appointment or Board members within the meaning of Recommendation C.6

revocation of appointment if there is no majority for the of the 2020 Code currently comprise at least the following:

relevant measure on the Supervisory Board in the first vote. Ms. Hessa Sultan Al Jaber, Mr. Hussain Ali Al Abdulla,

The majority involves at least two-thirds of all Supervisory Mr. Bernd Althusmann and Mr. Stephan Weil.

Board members.

In addition, the Supervisory Board has decided on the

Among other things, the Audit Committee discusses the following profile of skills and expertise for the full Board: The

auditing of financial accounting, including the annual and Supervisory Board as a whole must collectively have the

consolidated financial statements, as well as monitoring of knowledge, skills and professional expertise required to

the accounting process, and the examination thereof by the properly perform its supervisory function and assess and

auditors. It also discusses compliance, the effectiveness of the monitor the business conducted by the company. For this,

risk management system, internal control system and the members of the Supervisory Board must collectively be

internal audit system. In addition, the Audit Committee par- familiar with the sector in which the Company operates. The

ticularly concerns itself with the Volkswagen Group’s quar- key skills and requirements of the Supervisory Board as a

terly reports and half-yearly financial report.

whole include, in particular:

The Special Committee on Diesel Engines is responsible > Knowledge of or experience in the manufacture and sale of

for supporting the investigations in connection with the

manipulation of emissions figures for Volkswagen Group

all types of vehicles and engines or other technical

products,

diesel engines and preparing Supervisory Board resolutions > Knowledge of the automotive industry, the business model

for necessary consequences at Supervisory Board level. To

and the market, as well as product expertise,

this end, the Special Committee on Diesel Engines is provided > Knowledge in the field of research and development, par-

with regular information by the Board of Management. The

ticularly of technologies with relevance for the Company,

Chairman of the Special Committee on Diesel Engines reports > Experience in corporate leadership positions or in the

regularly on the Committee’s work to the Supervisory Board.

supervisory bodies of large companies,

>

Knowledge in the areas of governance, law or compliance,

Objectives for the composition of the Supervisory Board, profile of

skills and expertise and diversity concept

> Detailed knowledge in the areas of finance, accounting, or

auditing,

In view of the Company’s specific situation, its purpose, its > Knowledge of the capital markets,

size and the extent of its international activities, the Super- > Knowledge in the areas of controlling/risk management

visory Board of Volkswagen AG strives to achieve a compo-

and the internal control system,

sition that takes the Company's ownership structure and the > Human resources expertise (particularly the search for and

following aspects into account:

selection of members of the Board of Management, and the

succession process) and knowledge of incentive and

remuneration systems for the Board of Management,

>

At least three members of the Supervisory Board should be

persons who embody the criterion of internationality to a

particularly high degree.

6

0

Group Corporate Governance Declaration

Corporate Governance

>

Detailed knowledge or experience in the areas of codeter-

mination, employee matters and the working environment

in the Company.

Meeting. The Supervisory Board also recommends to

employee representatives and unions (which have the right

to submit proposals in employee representative elections)

and the State of Lower Saxony (which has a right to appoint

Supervisory Board members) that the diversity concept,

composition targets and profile of skills and expertise

should be taken into account. The same applies to individu-

als entitled to make proposals should a court-appointed

replacement be necessary.

The Supervisory Board has also specified the following

diversity concept for its composition:

>

The Supervisory Board must be comprised such that its

members collectively have the knowledge, skills, and

professional experience needed to properly perform their

duties.

>

It has therefore set targets for its composition that also The current composition of the Supervisory Board fulfills

take into account the recommendations of the German both the diversity concept and the profile of skills and

Corporate Governance Code. The targets set by the Super- expertise. The Supervisory Board collectively has outstanding

visory Board for its composition also describe the concept knowledge of the manufacture and sale of vehicles and

through which the Supervisory Board as a whole strives to engines, of the automotive sector and of the technologies

achieve a diverse composition (diversity concept in accor- relevant for Volkswagen AG. Moreover, numerous Super-

dance with section 289f(2) no. 6 of the HGB). Attention visory Board members have extensive experience in manage-

should also be generally paid to diversity when seeking rial and supervisory functions. All the relevant expertise in

qualified individuals to strengthen the specialist and the further individual areas specified in the profile of skills

managerial expertise of the Supervisory Board as a whole and expertise is represented on the Supervisory Board.

in line with these targets. In preparing proposals for Further details can be found in the curriculum vitae of the

appointments to the Supervisory Board, it should be con- Supervisory Board members. The curriculum vitae of the

sidered in each case how the work of the Supervisory Board members of the Supervisory Board are available online at

will benefit from a diversity of expertise and perspectives www.volkswagenag.com/en/group/executive-bodies.html.

among its members, from professional profiles and

In their proposal to the Annual General Meeting in 2020

experience that complement one another (including in the for the election of a new Supervisory Board member, the

international domain) and from an appropriate gender Nomination Committee and Supervisory Board took into

balance. A wide range of experience and specialist know- account the diversity concept, specific composition targets

ledge should be represented on the Supervisory Board. In and profile of skills and expertise. The composition targets,

addition, the Supervisory Board should collectively have an diversity concept and profile of skills and expertise were also

extensive range of opinions and knowledge in order to taken into account in the appointment of a new Supervisory

develop a good understanding of the status quo and the Board member by the employee representatives in 2020.

longer-term opportunities and risks in connection with the

Company’s business activities.

Self-evaluation of the Supervisory Board

>

In proposing candidates to the Annual General Meeting for The Supervisory Board regularly evaluates every two years

the election of shareholder representatives to the Super- how effectively the Board and its committees are performing

visory Board, the Supervisory Board should take its diver- their tasks. This initially involves distributing a questionnaire

sity concept into account in such a way that the corres- to all Supervisory Board members, in which they are able to

ponding election of these candidates by the Annual give their view of the effectiveness of the work of the Super-

General Meeting would contribute to the implementation visory Board and its committees and suggest possible improve-

of this concept. However, the Annual General Meeting is ments. Following analysis of the questionnaires, the findings

not obliged to accept the candidates nominated.

and potential improvements are usually discussed at the next

>

The aim of the diversity concept is for the Supervisory regular meeting of the full Board. The most recent self-evalu-

Board to embody a range of expertise and perspectives. ation took place from late 2019 to early 2020.

This diversity promotes a good understanding of Volks-

wagen AG’s organizational and business affairs. It also

DI SC LO SU RE S U N DER T H E EQUA L PA RT IC I PAT IO N ACT

enables the Supervisory Board members to challenge the The statutory quota of at least 30% women and at least 30%

Board of Management’s decisions constructively and to be men has applied to new appointments to the Supervisory

more open to new ideas by avoiding groupthink. In this Board of Volkswagen AG since January 1, 2016 as required by

way, it contributes to the effective supervision of the the Gesetz für die gleichberechtigte Teilhabe von Frauen und

management.

Männern an Führungspositionen in der Privatwirtschaft und

>

The Supervisory Board and Nomination Committee, in im öffentlichen Dienst (Führpos-GleichberG – German Act on

particular, are called upon to implement the profile of skills the Equal Participation of Women and Men in Leadership

and expertise and the diversity concept within the context Positions in the Private and Public Sectors). Shareholder and

of their candidate proposals to the Annual General employee representatives have resolved that each side will

Corporate Governance

Group Corporate Governance Declaration

61

meet this quota separately. The shareholder representatives

have met the quota of at least 30% women and at least 30%

cial interests or that involve major breaches of the Volks-

wagen Group’s ethical principles.

men since the 56th Annual General Meeting on June 22, 2016. > Business and human rights. Volkswagen fully recognizes its

The employee representatives have met the quota since the

end of the 57th Annual General Meeting on May 10, 2017.

Both the shareholder and the employee representatives

fulfilled the quota on December 31, 2020.

In accordance with the rules pertaining to the proportion

of females on the Board of Management as defined by the

FührposGleichberG, the Supervisory Board set a target quota

of 11.1% for the period after December 31, 2016. The new

corporate responsibility for human rights. We essentially

orient ourselves on the UN (United Nations) Guiding

Principles on Business and Human Rights that are available

on the website of the UN (United Nations Global Compact),

the content of which particularly relates to the Universal

Declaration of Human Rights and the core conventions of

the ILO (International Labor Organization) that can be

accessed on the website of the ILO.

deadline set for achievement of this target is December 31, > Risk management and internal control system. A compre-

2

021. The proportion of female members on the Board of

hensive risk management and internal control system

(RMS/ICS) helps the Volkswagen Group deal with risks in a

responsible manner. The organizational design of the

Volkswagen Group’s RMS/ICS is based on the internation-

ally recognized COSO framework for enterprise risk man-

agement (COSO: Committee of Sponsoring Organizations

of the Treadway Commission) and can be accessed on the

COSO website. Uniform Group principles are used as the

basis for managing risks in a transparent and appropriate

manner.

Management at Volkswagen AG as of December 31, 2020 was

16.7%, thus meeting the target quota.

For the proportion of women in management in accor-

dance with the FührposGleichberG, Volkswagen AG has set

itself the target of 13.0% women in the first level of

management and 16.9% women in the second level of

management for the period up to the end of 2021. As of

December 31, 2020, the proportion of women in the active

workforce at the first level of management was 10.9 (11.4)%

and at the second level of management it was 16.7 (16.4)%.

Voluntary commitments and principles

REMU N ERAT ION REPO RT

The Volkswagen Group has committed itself to sustainable,

Extensive explanations of the remuneration system and the transparent and responsible corporate governance.

individual remuneration of the members of the Board of We coordinate our sustainability activities across the

Management and Supervisory Board can be found in the entire Group and have put in place a forward-looking system

Remuneration Report of the 2020 annual report, in the notes of risk management and a clear framework for dealing with

to Volkswagen’s 2020 consolidated financial statements and environmental issues in a future-oriented manner, for

in the notes to the 2020 annual financial statements of Volks- employee responsibility and for social commitment across

wagen AG.

our brands and in the regions in which we operate.

Voluntary commitments and principles that apply across

the Group are the basis and backbone of our sustainability

management. These documents are publicly accessible on the

Company’s internet site in the section entitled “Sustain-

ability.”

CORP ORATE PRACT ICE S APPL I E D I N ADD ITI ON TO STATUTORY

REQU I REME NT S

Compliance & risk management

To ensure the Volkswagen Group’s lasting success, we use

forward-looking risk management and a uniform Group-wide Code of Collaboration and Together4Integrity

framework based on the compliance management system. The Code of Collaboration, along with our integrity and

This includes:

compliance program Together4Integrity (T4I), is a central

+

>

Compliance. Adherence to statutory provisions, internal pillar of the Group strategy TOGETHER 2025 . This Code

company policies, ethical principles and our own values in describes how collaboration is to take place within the Group

order to protect the Company and its brands. and between individuals in their day-to-day work. Its core

>

Whistleblower system. The Volkswagen whistleblower sys- values are encapsulated in the terms “genuine”, “straight-

tem is the central point of contact for reporting potential forward”, “open-minded”, “as equals” and “united”. T4I brings

cases of serious rule-breaking in the Volkswagen Group. It together all activities relating to integrity, culture, compli-

focuses on investigating serious infringements that could ance, risk management and human resources management,

cause major damage to the Company’s reputation or finan- creating a common path toward a new corporate culture.

6

2

Group Corporate Governance Declaration

Group Management Report

ME MB ER S O F TH E B OAR D OF

M A NAGEME NT

(

Appointments: as of December 31, 2020

or the leaving date from the Board of

Management of Volkswagen AG)

DR.-ING. HERBERT DIESS (*1958)

Chairman (since April 13, 2018),

Chairman of the Brand Board of Management

of Volkswagen Passenger Cars (until June 30, 2020),

Volume brand group,

GUNNAR KILIAN (*1975)

Human Resources and Truck & Bus

(since July 15, 2020)

ABRAHAM SCHOT (*1961)

Chairman of the Board of Management of AUDI AG,

Premium brand group

1

January 1, 2019 – March 31, 2020¹

Nationality: Dutch

April 13, 2018 , appointed until 2023

Nationality: German

APPOINTMENTS:

China

1

July 1, 2015 , appointed until 2023

 Wolfsburg AG, Wolfsburg

DR.-ING. STEFAN SOMMER (*1963)

Components and Procurement

September 1, 2018 – June 30, 2020¹

Nationality: German

Nationality: Austrian

Appointments:

ANDREAS RENSCHLER (*1958)

Chairman of the Board of Management of TRATON SE,

Truck & Bus brand group



FC Bayern München AG, Munich

MURAT AKSEL (*1972)

February 1, 2015 – July 15, 2020¹

HILTRUD DOROTHEA WERNER (*1966)

Purchasing (since January 1, 2021),

Nationality: German

Integrity and Legal Affairs

1

January 1, 2021 , appointed until 2023

Appointments (as of July 15, 2020):

 Deutsche Messe AG, Hanover

February 1, 2017 , appointed until 2022

Nationality: German

OLIVER BLUME (*1968)

THOMAS SCHMALL-VON WESTERHOLT (*1964)

Technology (since January 1, 2021),

FRANK WITTER (*1959)

Finance and IT,

Chairman of the Executive Board of

Dr. Ing. h.c. F. Porsche AG,

Chairman of the Board of Management of

Volkswagen Group Components,

Components and Procurement

(acting, July 1 – December 31, 2020)

Sport & Luxury brand group

1

April 13, 2018 , appointed until 2023

January 1, 2021 , appointed until 2023

October 7, 2015 , appointed until 2021

Nationality: German

Nationality: German, Brazilian

Nationality: German

MARKUS DUESMANN (*1969)

Chairman of the Board of Management of AUDI AG,

Premium brand group

1

April 1, 2020 , appointed until 2025

Nationality: German

As part of their duty to manage and supervise the

Group’s business, the members of the Board of

Management hold other offices on the supervisory

boards of consolidated Group companies and other

significant investees.





Membership of statutory supervisory boards in

Germany.

1 Beginning or period of membership of the Board of

Management.

Comparable appointments in Germany and abroad.

Corporate Governance

Group Corporate Governance Declaration

63

M E M B E R S O F T H E SU P E RV I S O RY B OA R D

A N D CO M P O SI TI ON OF TH E COM M ITT E E S

(

Appointments: as of December 31, 2020

or the leaving date from the Supervisory Board

of Volkswagen AG)

HANS DIETER PÖTSCH (*1951)

Chairman (since October 7, 2015),

Chairman of the Executive Board and

Chief Financial Officer of Porsche Automobil

Holding SE

DR. HUSSAIN ALI AL ABDULLA (*1957)

DR. BERND ALTHUSMANN (*1966)

Board Member of the Qatar Investment Authority

Minister of Economic Affairs, Labor, Transport and

Digitalization for the Federal State of Lower Saxony

1

April 22, 2010 , elected until 2025

1

Nationality: Qatari

December 14, 2017 , delegated until 2022

Appointments:

Nationality: German

1

October 7, 2015 , elected until 2021

 Gulf Investment Corporation, Safat/Kuwait

(Board member)

Appointments:

Nationality: Austrian

 Deutsche Messe AG, Hanover (Deputy Chairman)

 Container Terminal Wilhelmshaven JadeWeserPort-

Marketing GmbH & Co. KG, Wilhelmshaven

(Chairman)

Appointments:

 Qatar Investment Authority, Doha

(Board member)





AUDI AG, Ingolstadt

Autostadt GmbH, Wolfsburg

 Qatar Supreme Council for Economic Affairs and

Investment, Doha

Bertelsmann Management SE, Gütersloh

Bertelsmann SE & Co. KGaA, Gütersloh

Dr. Ing. h.c. F. Porsche AG, Stuttgart

TRATON SE, Munich (Chairman)

Wolfsburg AG, Wolfsburg

 JadeWeserPort Realisierungs GmbH & Co. KG,

Wilhelmshaven (Chairman)

(Board member)

 JadeWeserPort Realisierungs-Beteiligungs GmbH,

Wilhelmshaven (Chairman)

DR. HESSA SULTAN AL JABER (*1959)

Former Minister of Information and Communications

Technology, Qatar

 Niedersachsen Ports GmbH & Co. KG, Oldenburg

(Chairman)

Porsche Austria Gesellschaft m.b.H., Salzburg

1

(

Chairman)

Porsche Holding Gesellschaft m.b.H., Salzburg

Chairman)

June 22, 2016 , elected until 2024



Nationality: Qatari

KAI BLIESENER (*1971)

(

Appointments:

Head of Vehicle Construction and

Automotive and Supplier Industry Coordinator

at IG Metall



Porsche Retail GmbH, Salzburg (Chairman)

VfL Wolfsburg-Fußball GmbH, Wolfsburg

 Malomatia, Doha (Chairwoman)

 MEEZA, Doha

1

(

Deputy Chairman)

 Qatar Satellite Company (Es'hailSat), Doha

June 20, 2020 , appointed until 2022

(Chairwoman)

Nationality: German

JÖRG HOFMANN (*1955)

 Trio Investment, Doha (Chairwoman)

Deputy Chairman (since November 20, 2015),

First Chairman of IG Metall

DR. JUR. HANS-PETER FISCHER (*1959)

Chairman of the Board of Management of Volkswagen

Management Association e.V.

1

November 20, 2015 , appointed until 2022

1

Nationality: German

January 1, 2013 , appointed until 2022

Appointments:

Nationality: German



Robert Bosch GmbH, Stuttgart

Appointments:



Volkswagen Pension Trust e.V., Wolfsburg





Membership of statutory supervisory boards in

Germany.

1 Beginning or period of membership of the

Supervisory Board.

Comparable appointments in Germany and abroad.

6

4

Group Corporate Governance Declaration

Corporate Governance

MARIANNE HEIß (*1972)

BERTINA MURKOVIC (*1957)

Chairwoman of the Works Council of Volkswagen

Commercial Vehicles

DR. JUR. FERDINAND OLIVER PORSCHE (*1961)

Member of the Board of Management of Familie

Porsche AG Beteiligungsgesellschaft

Chief Executive Officer of BBDO Group

Germany GmbH, Düsseldorf

1

February 14, 2018 , elected until 2023

May 10, 2017 , appointed until 2022

August 7, 2009 , elected until 2024

Nationality: Austrian

Nationality: German

Appointments:

Nationality: Austrian

Appointments:



AUDI AG, Ingolstadt

 MOIA GmbH, Berlin

 AUDI AG, Ingolstadt

Porsche Automobil Holding SE, Stuttgart

 Dr. Ing. h.c. F. Porsche AG, Stuttgart

 Porsche Automobil Holding SE, Stuttgart

 Porsche Holding Gesellschaft m.b.H., Salzburg

 Porsche Lizenz- und

BERND OSTERLOH (*1956)

JOHAN JÄRVKLO (*1973)

Chairman of the General and Group Works Councils

of Volkswagen AG

Secretary-General of the European and

Global Group Works Council of Volkswagen AG

November 22, 2015 – May 29, 2020¹

Nationality: Swedish

1

January 1, 2005 , appointed until 2022

Handelsgesellschaft mbH & Co. KG, Ludwigsburg

Nationality: German

Appointments:

DR. RER. COMM. WOLFGANG PORSCHE (*1943)

Chairman of the Supervisory Board of

Porsche Automobil Holding SE;



Autostadt GmbH, Wolfsburg

ULRIKE JAKOB (*1960)

Deputy Chairwoman of the Works Council of

Volkswagen AG,

 TRATON SE, Munich

 Wolfsburg AG, Wolfsburg

Chairman of the Supervisory Board of

Dr. Ing. h.c. F. Porsche AG

 Allianz für die Region GmbH, Braunschweig

 Porsche Holding Gesellschaft m.b.H., Salzburg

 SEAT, S.A., Martorell

1

Kassel plant

April 24, 2008 , elected until 2023

1

May 10, 2017 , appointed until 2022

Nationality: Austrian

Nationality: German

 ŠKODA Auto a.s., Mladá Boleslav

Appointments:



VfL Wolfsburg-Fußball GmbH, Wolfsburg

 AUDI AG, Ingolstadt

DR. LOUISE KIESLING (*1957)

 Volkswagen Group Services GmbH

 Dr. Ing. h.c. F. Porsche AG, Stuttgart (Chairman)

 Porsche Automobil Holding SE, Stuttgart

(Chairman)

Entrepreneur

 Volkswagen Immobilien GmbH, Wolfsburg

1

April 30, 2015 , elected until 2021

Nationality: Austrian

DR. JUR. HANS MICHEL PIËCH (*1942)

 Familie Porsche AG Beteiligungsgesellschaft,

Salzburg (Chairman)

Lawyer in private practice

1

PETER MOSCH (*1972)

August 7, 2009 , elected until 2024

 Porsche Cars Great Britain Ltd., Reading

 Porsche Cars North America Inc., Atlanta

 Porsche Greater China, consisting of:

Porsche (China) Motors Limited, Shanghai

Porsche Hong Kong Limited, Hong Kong

 Porsche Holding Gesellschaft m.b.H., Salzburg

 Schmittenhöhebahn AG, Zell am See

Chairman of the General Works Council of AUDI AG

Nationality: Austrian

1

January 18, 2006 , appointed until 2022

Appointments:

Nationality: German

 AUDI AG, Ingolstadt

Appointments:

 Dr. Ing. h.c. F. Porsche AG, Stuttgart

 Porsche Automobil Holding SE, Stuttgart

(Deputy Chairman)



AUDI AG, Ingolstadt (Deputy Chairman)

Audi Pensionskasse – Altersversorgung der

AUTO UNION GmbH, VVaG, Ingolstadt

Audi Stiftung für Umwelt GmbH, Ingolstadt

 Porsche Cars Great Britain Ltd., Reading

 Porsche Cars North America Inc., Atlanta



Porsche Greater China, consisting of:

Porsche (China) Motors Limited, Shanghai

Porsche Hong Kong Limited, Hong Kong

Porsche Holding Gesellschaft m.b.H., Salzburg

Schmittenhöhebahn AG, Zell am See

Volksoper Wien GmbH, Vienna







Membership of statutory supervisory boards in

Germany.

1 Beginning or period of membership of the

Supervisory Board.

Comparable appointments in Germany and abroad.

Corporate Governance

Group Corporate Governance Declaration

65

CONNY SCHÖNHARDT (*1978)

COMMITTEES OF THE SUPERVISORY BOARD

AS OF DECEMBER 31, 2020

Union Secretary to the board of IG Metall

1

June 21, 2019 , appointed until 2022

Nationality: German

Members of the Executive Committee

Hans Dieter Pötsch (Chairman)

Jörg Hofmann (Deputy Chairman)

Peter Mosch

ATHANASIOS STIMONIARIS (*1971)

Chairman of the Group Works Council of MAN SE,

MAN Truck & Bus SE and TRATON SE

Bertina Murkovic

1

May 10, 2017 , appointed until 2022

Bernd Osterloh

Nationality: German

Dr. Hans Michel Piëch

Dr. Wolfgang Porsche

Stephan Weil

Appointments:



MAN SE, Munich

MAN Truck & Bus SE, Munich

MAN Truck & Bus Deutschland GmbH, Munich

Rheinmetall MAN Military Vehicles GmbH, Munich

TRATON SE, Munich (Deputy Chairman)

Members of the Mediation Committee established

in accordance with section 27(3) of the

Mitbestimmungsgesetz (German

Codetermination Act)

STEPHAN WEIL (*1958)

Minister-President of the Federal State of

Lower Saxony

Hans Dieter Pötsch (Chairman)

Jörg Hofmann (Deputy Chairman)

Bernd Osterloh

1

February 19, 2013 , delegated until 2022

Stephan Weil

Nationality: German

Members of the Audit Committee

Dr. Ferdinand Oliver Porsche (Chairman)

Bernd Osterloh (Deputy Chairman)

Marianne Heiß

WERNER WERESCH (*1961)

Member of the Executive Committee of the Works

Council of Porsche Automobil Holding SE and

Chairman of the General and Group Works Councils

of Dr. Ing. h.c. F. Porsche AG

Conny Schönhardt

1

February 21, 2019 , appointed until 2022

Members of the Nomination Committee

Hans Dieter Pötsch (Chairman)

Dr. Hans Michel Piëch

Nationality: German

Appointments:



Dr. Ing. h.c. F. Porsche AG, Stuttgart

Dr. Wolfgang Porsche

Stephan Weil

Special Committee on Diesel Engines

Dr. Wolfgang Porsche (Chairman)

Dr. Bernd Althusmann

Peter Mosch

Bertina Murkovic

Bernd Osterloh

Dr. Ferdinand Oliver Porsche





Membership of statutory supervisory boards in

Germany.

1 Beginning or period of membership of the

Supervisory Board.

Comparable appointments in Germany and abroad.

6

Remuneration Report

Corporate Governance

Remuneration Report

(

Part of the Group Management Report)

This chapter describes the main elements of the remuneration system for the Board of

Management. In addition, the Remuneration Report details the individualized remuneration of the

Board of Management and the Supervisory Board, broken down into components, as well as

individualized pension provision disclosures for the members of the Board of Management.

PRI N CI PLE S OF B OARD OF M A NAG EMEN T RE MU N E RATIO N

stantial parts of the enhanced remuneration system will

Matters involving the remuneration system and the total apply from January 1, 2021. The remainder of the enhanced

remuneration of each individual member of the Volks- remuneration system will apply from the time of reappoint-

wagen AG Board of Management are decided on by the Super- ment and for first time appointees to the Board of Manage-

visory Board on the basis of the Executive Committee’s ment. The enhanced remuneration system particularly

recommendations.

implements environmental, social and governance targets

At the beginning of 2017, the Supervisory Board of (ESG targets), introduces penalty and clawback rules for

Volkswagen AG resolved to adjust the remuneration system variable remuneration components and extends the assess-

of the Board of Management with effect from January 1, 2017. ment period for performance share plans to four years.

The system for remuneration of the Board of Management

was approved by the Annual General Meeting on May 10, should be appropriate and attractive in the context of the

017 with 80.96% of the votes cast. The adjustment, in which Company’s national and international peer group. Criteria

The level of the Board of Management remuneration

2

the Supervisory Board was assisted by renowned, indepen- include the tasks of the individual Board of Management

dent external remuneration and legal consultants, resulted in member, their personal performance, the economic situ-

an alignment with the Group strategy. In addition to the ation, and the performance of and outlook for the Company,

statutory requirements of the Aktiengesetz (AktG – German as well as how customary the remuneration is when mea-

Stock Corporation Act), the Supervisory Board took into sured against the peer group and the remuneration structure

account the recommendations of the German Corporate that applies to other areas of Volkswagen. In this context,

Governance Code (the Code) in the version dated February 7, comparative studies on remuneration are conducted on a

2017 in the existing remuneration system. In particular, the regular basis.

remuneration structure is focused on ensuring sustainable

business development. The Supervisory Board revised the

COMP O N E NT S O F BOAR D O F M A N AG EM EN T RE MU N ERATI O N

remuneration system for the members of the Board of In this chapter, we provide an overview of the Board of

Management in fiscal year 2020 and adopted the enhanced Management’s remuneration system in the reporting year

remuneration system on December 14, 2020 with effect from before going into the components of the remuneration for

January 1, 2021. The enhanced remuneration system imple- the reporting period.

ments the requirements of the AktG as amended by the

German Act on the Implementation of the Second Share- Overview of the remuneration system

holders' Rights Directive (ARUG II – Gesetz zur Umsetzung der The remuneration system of the Board of Management com-

zweiten Aktionärsrechterichtlinie) and takes into account the prises non-performance-related and performance-related

recommendations of the Code in the version dated December components. The performance-related remuneration consists

19, 2019 (that took effect on March 20, 2020). The Supervisory of an annual bonus with a one-year assessment period and a

Board will submit the revised remuneration system to the long-term incentive (LTI) in the form of a performance share

Annual General Meeting for approval in 2021 in line with the plan with a forward-looking three-year term. The perfor-

requirements of the AktG as amended by the ARUG II. For mance share plan is linked to business development in the

Board of Management members already appointed, sub- next three years and is thus based on a multiyear, forward-

Corporate Governance

Remuneration Report

67

looking assessment that reflects both positive and negative Performance-related remuneration

developments. The non-performance-related component The performance-related/variable remuneration consists of

creates an incentive for individual members of the Board of an annual performance-related bonus with a one-year assess-

Management to perform their duties in the best interests of ment period and a long-term incentive (LTI) in the form of a

the Company and to fulfill their obligation to act with proper performance share plan with a forward-looking three-year

business prudence without needing to focus on merely short- term (long-term incentive components). The components of

term performance targets. The performance-related com- performance-related/variable remuneration reflect both posi-

ponents, dependent among other criteria on the financial tive and negative developments.

performance of the Company, serve to ensure the long-term

impact of behavioral incentives.

Annual bonus

If 100% of the targets agreed with each of the members of The annual bonus is based upon the result for the respective

the Board of Management are achieved, the annual target fiscal year. Operating profit achieved by the Volkswagen

remuneration for each member will amount to a total of Group plus the proportionate operating profit of the Chinese

€

4,500,000 (corresponding to a fixed remuneration of joint ventures form half of the basis for the annual bonus,

1,350,000, a target amount from the annual bonus of with operating return on sales achieved by the Volkswagen

1,350,000 and a target amount from the performance share Group making up the second half. Each of the two compo-

plan of €1,800,000). The annual target remuneration for the nents of the annual bonus are only payable if certain thresh-

Chairman of the Board of Management amounts to a total of olds are reached or exceeded.

€

9,000,000 (fixed remuneration of €2,125,000, a target amount

from the annual bonus of €3,045,000, and a target amount reduced by up to 20% (multiplier of 0.8) or increased by up to

from the performance share plan of €3,830,000). 20% (multiplier of 1.2) by the Supervisory Board, taking into

The calculated payment amount may be individually

Board of Management members who also have duties as account the degree of achievement of individual targets

members of other corporate bodies within the Volkswagen agreed between the Supervisory Board and the respective

Group generally do not receive separate remuneration for these. member of the Board of Management, as well as the success

Annual minimum remuneration of €3.5 million (sum of of the full Board of Management in transforming the Volks-

fixed remuneration, annual bonus, LTI and any special wagen Group by transferring employees to new areas of

payments) was contractually agreed with Mr. Sommer. This activity.

applied pro rata for fiscal year 2020 due to his departure from

the Board of Management.

The payment amount for the annual bonus is capped at

180% of the target amount for the annual bonus. The cap

arises from 150% of the maximum financial target achieve-

ment and a performance factor of a maximum of 1.2. For

Non-performance-related remuneration

The non-performance-related remuneration comprises fixed fiscal year 2020, the Supervisory Board has established the

remuneration and fringe benefits. The fringe benefits result performance factor of 1.2 for existing Board of Management

from noncash benefits and include in particular the use of members. This was primarily due to the Board of Manage-

operating assets such as company cars and the payment of ment members’ outstanding pandemic management and the

insurance premiums. Taxes due on these noncash benefits fact that complete attainment of the transformation target

are mainly borne by Volkswagen AG.

would have been expected under non-pandemic-related

The fixed level of remuneration is reviewed regularly and conditions.

adjusted if necessary.

The annual bonus is payable following approval of the

Mr. Duesmann received compensation of entitlements lost consolidated financial statements for the respective financial

due to his change of employer in the amount of €7.3 million.

year. Deferral is generally not allowed.

6

8

Remuneration Report

Corporate Governance

COM P O N E NT 1: OP E RAT I NG RE SU LT I NCLU D I NG

CH I N E SE J OI NT V ENTU RE S (P ROP ORT IO NATE )

COMPO N E NT 2: OPERAT I NG RETU RN O N SA L ES

€

billion

2019

2020

%

2019

2020

Maximum threshold

00% level of target

25.0

17.0

9.0

25.0

17.0

9.0

Maximum threshold

100% level of target

Minimum threshold

Actual

8.0

6.0

4.0

6.7

118

8.0

6.0

4.0

4.3

58

1

Minimum threshold

Actual

21.4

127

13.3

53

Target achievement (in %)

Corporate Governance

Remuneration Report

69

Performance share plan – long-term incentive (LTI)

P E RFO RM A N CE P E RI OD 2 0 1 7– 2 0 1 9

The LTI is granted to the Board of Management annually in

the form of a performance share plan. Each performance

period of the performance share plan has a term of three

years. At the time the LTI is granted, the annual target

€

2017

2018

2019

amount under the LTI is converted on the basis of the initial Maximum threshold

reference price of Volkswagen’s preferred shares into perfor- 100% level of target

mance shares of Volkswagen AG, which are allocated to the Minimum threshold

respective member of the Board of Management purely for Actual

calculation purposes. The conversion is performed based on Target achievement (in %)

the unweighted average of the closing prices of Volkswagen’s

30.0

20.0

10.0

22.69

113

30.0

20.0

10.0

23.63

118

30.0

20.0

10.0

26.66

133

preferred shares for the last 30 trading days preceding

January 1 of a given fiscal year. At the end of each year, the

number of performance shares is determined definitively for

one-third of the three-year performance period based on the

degree of target achievement for the annual earnings per

Volkswagen preferred share (EPS – earnings per share per

P E RFO RM A N CE P E RI OD 2 0 1 8– 2 0 2 0

€

2018

2019

2020

preferred share in €). A prerequisite for this is that a threshold Maximum threshold

30.0

20.0

10.0

23.63

118

30.0

20.0

10.0

26.66

133

30.0

20.0

10.0

16.66

83

is reached.

100% level of target

Minimum threshold

Actual

Target achievement (in %)

P E RFO RM A N CE P E RI OD 2 0 1 9– 2 0 2 1

€

2019

2020

Maximum threshold

30.0

20.0

10.0

26.66

133

30.0

20.0

10.0

16.66

83

100% level of target

Minimum threshold

Actual

Target achievement (in %)

P E RFO RM A N CE P E RI OD 2 0 2 0– 2 0 2 2

€

2020

Maximum threshold

30.0

20.0

10.0

16.66

83

100% level of target

Minimum threshold

Actual

Target achievement (in %)

7

0

Remuneration Report

Corporate Governance

After the end of the three-year term of the performance share The payment amount under the performance share plan is

plan, a cash settlement takes place. The payment amount limited to 200% of the target amount. The payment amount

corresponds to the final number of determined performance is reduced by 20% if the average ratio of capex to sales

shares, multiplied by the closing reference price at the end of revenue or the R&D ratio in the Automotive Division of the

the three-year period plus a dividend equivalent for the last three years is smaller than 5%. The Supervisory Board

relevant term. The closing reference price is the unweighted may cap the LTI in the event of extraordinary developments.

average of the closing prices for Volkswagen’s preferred

If the employment contract of a member of the Board of

shares for the 30 trading days preceding the last day of the Management concludes prior to the end of the performance

three-year performance period. The dividend equivalent period due to extraordinary termination based on good

corresponds to the dividends distributed during the holding cause, or if the member of the Board of Management starts

period on a genuine Volkswagen preferred share.

working for a competitor (also referred to as “bad-leaver

The performance share plan is focused exclusively on cash cases”), the non-vested performance shares will expire. For

payment. Stock options are not part of the Volkswagen AG members of the Board of Management who held their seat as

remuneration system. Consequently, there is no obligation to of December 31, 2016, this rule only applies in the event of a

hold shares for members of the Board of Management.

reappointment or new appointment.

In connection with the appointment of the Chairman of

the Board of Management, the employment contract of

Mr. Diess was terminated by mutual agreement in 2018 and a

new employment contract was entered into, whereby the

expiry rule described above applies from the 2018 to 2020

performance period onwards. In connection with the

reappointment of Mr. Witter, the expiry rule applies from the

PERFORMANCE-PERIOD

2

017 – 2019

2018 – 2020

2019 – 2021

2020 – 2022

Initial reference price

Closing reference price

Dividend equivalent

127.84

177.44

169.42

149.14

147.08

– ¹

177.44 2020 to 2022 performance period onwards.

– ¹

In the introductory phase of the performance share plan,

the members of the Board of Management who were Board

members as of December 31, 2016 generally received advances

of 80% of their target amount for the 2017 to 2019 and 2018

to 2020 performance periods. Mr. Blume receives corres-

2017

2018

2019

2020

2.06

3.96

4.86

–

3.96

4.86

–

4.86

4.86 ponding advances for the performance periods 2018 to 2020

proportionate) and 2019 to 2021. The two advances will each

(

1

Determined at the end of the performance period.

be paid after the first year of the performance period. Final

settlement is based on actual achievement of targets at the

end of the relevant three-year performance period.

Corporate Governance

Remuneration Report

71

CALCULATION OF THE PAYMENT AMOUNT FROM THE PERFORMANCE SHARE PLAN

TARGET

PERFORMANCE MEASUREMENT

PRICE PERFORMANCE

LTI

AND DIVIDENDS

÷

Provisional

Final number determined for 1/3

of provisional performance shares

multiplied by annual target achievement EPS

per preferred share

Final

Closing reference price

plus dividend

=

Initial

Payment

amount

performance shares

(number)

×

reference price

(number)

over term

⅓

×

Target achievement EPS per preferred share

Fiscal year 1

Fiscal year 2

Fiscal year 3

I N F ORM AT IO N O N TH E PE RF ORM A NCE SHA RE S

PERFORMANCE PERFORMANCE

-

PERIOD

-PERIOD

2018 – 2020

PERFORMANCE-PERIOD

2019 – 2021

PERFORMANCE-PERIOD

2020 – 2022

2

017 – 2019

Number of

performance

Number of

performance

Number of

performance

Number of

performance

shares allocated

at the grant date

shares allocated

at the grant date

shares allocated

at the grant date

Fair value

at the grant date

shares allocated

at the grant date

Fair value

at the grant date

€

Herbert Diess

Oliver Blume

Markus Duesmann (since April 1, 2020)

Gunnar Kilian

Andreas Renschler (until July 15, 2020)

Abraham Schot (until March 31, 2020)

Stefan Sommer (until June 30, 2020)

Hiltrud Dorothea Werner

Frank Witter

14,080

19,212

7,614

–

7,614

10,624

–

3,541

10,624

69,853

26,040

12,238

–

12,238

111,706

3,350,046

1,574,419

–

1,574,419

14,370,977

21,585

10,144

7,608

10,144

5,495

2,536

–

10,144

77,800

3,584,837

1,684,716

1,088,933

1,684,716

912,610

–

14,080

–

421,179

–

12,907

14,080

55,147

1,684,716

12,746,420

Total

Comprehensive

income 2020

arising from

performance

shares

Comprehensive

income 2019

arising from

performance

shares

Provision as of Intrinsic value as of

€

Dec. 31, 2020

Dec. 31, 2019

Herbert Diess

Oliver Blume

Markus Duesmann (since April 1, 2020)

Gunnar Kilian

Andreas Renschler (until July 15, 2020)

Abraham Schot (until March 31, 2020)

Stefan Sommer (until June 30, 2020)

Hiltrud Dorothea Werner

Frank Witter

6,019,320

775,860

321,159

3,247,860

3,351,992

2,398,671

–

4,025,798

3,550,948

23,691,608

2,060,142

355,226

–

1,387,226

3,351,992

2,398,671

–

1,935,604

2,501,995

13,990,856

4,300,115

1,231,600

321,159

1,231,600

– 235,112

110,408

– 707,720

1,963,018

– 1,644,971

6,570,097

3,504,374

984,260

3,687,200

3,490,713

1,614,937

–

1,614,937

1,713,961

3,925,694

1,317,674

2,852,956

2,054,256

18,585,127

–

2,016,260

5,572,774

3,925,694

1,415,440

5,019,403

6,981,087

29,419,292

3,879,394

–

2,782,969

3,879,394

14,228,957

Total

7

2

Remuneration Report

Corporate Governance

The number of performance shares equals the provisional remuneration cap is exceeded, the variable components will

performance shares allocated at the grant date of the perfor- be reduced proportionately.

mance share plan. The fair value as at the grant date was

determined using a recognized valuation technique.

Regular review and adjustment

To determine the amount of the obligation, the pro- The Supervisory Board regularly reviews and, if necessary,

visional performance shares determined or allocated for the adjusts the level of the total remuneration, the total remu-

performance periods 2018 to 2020, 2019 to 2021 and 2020 to neration cap and the individual targets. Among other things,

2022 were taken into account. The intrinsic value of the the Supervisory Board performs a vertical comparison with

obligation was calculated in accordance with IFRS 2 and the remuneration and employment terms of the Company’s

corresponds to the amount that the members of the Board of employees and a horizontal comparison with the remuner-

Management would have received if they had stepped down ation and employment terms of other companies’ man-

on December 31, 2020. Only the nonforfeitable (vested) agement board members. The Supervisory Board uses an

performance shares at the reporting date are included in the appropriate peer group of other companies to assess how

calculation. The intrinsic value was calculated based on the customary the Board of Management members’ specific total

unweighted average share price for the last 30 trading days remuneration is when measured against other businesses.

(

Xetra closing prices of Volkswagen’s preferred shares) This peer group is regularly reviewed and adjusted, most

preceding December 31, 2020, taking the dividends paid per recently in February and December 2020. The peer group

preferred share during the performance period into account. currently comprises the following companies: BMW, Daimler,

The net value of all amounts recognized in income for the Ford, General Motors, PSA Groupe, Nissan Motor Corporation,

performance shares in fiscal year 2020 is recorded in Toyota, BYD, Tesla (excluding CEO), hp, IBM, Uber, SAP,

“Comprehensive income 2020 arising from performance Samsung, General Electric, Siemens, Hitachi and Boeing.

shares” according to the IFRSs. Those members who left

during the year were shown pro rata.

Other agreements

Members of the Board of Management are entitled to pay-

ment of their normal remuneration for six months in the

Phantom preferred shares

The phantom preferred shares for the remuneration withheld event of illness. In the event of disability, they are entitled to

for 2015 formed part of the Board of Management remu- the retirement pension.

neration until they were paid out in 2019. In fiscal year 2019,

Surviving dependents receive a widow’s pension of

changes in the value of the phantom shares led to the 66 ⅔% and orphans’ benefits of 20% of the former member of

recognition of expenses of €0.1 million.

the Board of Management’s pension. Contracts with

members of the Board of Management whose first term of

office began after April 1, 2015, provide for an entitlement –

Total remuneration cap

In addition to the cap on the individual variable components in line with the principles of the works agreement that also

of the remuneration for the members of the Board of applies to employees of Volkswagen AG covered by collective

Management, the annual benefits received according to the agreements – to a widow’s pension of 60%, an orphan’s

Code in the version dated February 7, 2017, consisting of benefit of 10% for half-orphans and an orphan’s benefit of

fixed remuneration and the variable remuneration com- 20% for full orphans, based in each case on the former

ponents (i.e. annual bonus and performance share plan) for member of the Board of Management’s pension.

one fiscal year may not exceed an amount of €10,000,000 for

Members of the Board of Management and the Super-

the Chairman of the Board of Management and €5,500,000 visory Board generally have the opportunity to obtain loans

for each member of the Board of Management. If the total from Group companies.

Corporate Governance

Remuneration Report

73

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T I N ACCO RDAN C E WI TH T H E G ER M AN COMME RCI A L COD E

2

020

2019

Non-performance-

incentive

Total

€

component

remuneration

Herbert Diess

2,322,725

1,420,701

8,475,236²

1,435,899

802,746

417,122

809,815

1,472,776

1,421,549

–

2,027,285

1,038,796¹

674,097

898,796

466,563

–

3,584,837

1,684,716

1,088,933

1,684,716

912,610

421,179

–

7,934,847

4,144,213

10,238,266

4,019,411

2,181,919

838,301

9,850,742

4,894,440

–

Oliver Blume

Markus Duesmann (since April 1, 2020)

Gunnar Kilian

4,938,205

5,085,259

5,285,583

5,344,523

4,940,663

4,888,285

166,574

Andreas Renschler (until July 15, 2020)

Abraham Schot (until March 31, 2020)

Stefan Sommer (until June 30, 2020)

Hiltrud Dorothea Werner

Frank Witter

–

809,815

898,796

–

1,684,716

–

4,056,288

4,005,061

–

Members of the Board of Management who left in the

previous year

Total

18,578,569

6,903,129

12,746,420

38,228,118

45,394,272

1

2

Includes a special bonus by Porsche AG in the amount of €140,000.

Includes compensation of entitlements lost due to a change of employer in the amount of €7.3 million.

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF

M A NAGEME NT I N ACCORDA NCE WIT H T H E GE RM AN COR P ORAT E

GOVE RNAN CE CO DE

The amounts shown as “Benefits granted” in the Board of

Management remuneration tables in accordance with the

Code in the version dated February 7, 2017 are based on 100%

The amounts shown as “benefits received” in the Board of of the targets for the annual bonus and on the fair value at

Management tables in accordance with the Code in the the grant date for the performance share plan. In the case of

version dated February 7, 2017 correspond, in principle, to the performance share plan, the respective tranches are only

the amounts paid out for the fiscal year in question.

payable to the Board of Management members at the end of

In 2020, Mr. Blume received an advance on the target the respective performance period (except for the advance

amount for the 2019 to 2021 performance period. In accor- described above). It is not until this time that the tranches are

dance with the Code, this was reported in the tables in 2019 available to the Board of Management members. However, the

as benefits for the fiscal year.

tranches are shown as “Benefits granted” in the fiscal year in

which they are allocated.

7

4

Remuneration Report

Corporate Governance

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T (B EN E FI TS REC EIVED A N D B E N E FIT S GRA NTE D) I N ACCORDA NCE

WIT H T H E G E RM A N COR P ORAT E G OV E RNA N CE CO DE I N TH E V E R S I ON DATE D FEB RUA RY 7, 20 1 7

HERBERT DIESS

Chairman of the Board of Management of Volkswagen AG,

Chairman of the Brand Board of Management of Volkswagen Passenger Cars (until June 30, 2020),

Volume brand group,

China

Benefits received

2020

Benefits granted

€

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

2,125,000

87,694

2,212,694

4,288,002

540,445

–

2,125,000

87,694

2,212,694

3,045,000

3,350,046

–

2,125,000

197,725

2,322,725

3,045,000

3,584,837

–

2,125,000

197,725

2,322,725

5,481,000

7,660,000

–

Fringe benefits

197,725

2,322,725

2,027,285

1,785,168

–

197,725

Total

2,322,725

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2017–2019)

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Phanton shares

–

3,350,046

–

3,584,837

–

7,660,000

–

540,445

7,041,141

1,354,053

8,395,194

–

Total

6,135,178

1,568,053

7,703,231

8,607,740

1,354,053

9,961,793

8,952,562

1,568,053

10,520,615

2,322,725

1,568,053

3,890,778

15,463,725

1,568,053

17,031,778

Pension expense

Total remuneration

OLIVER BLUME

Chairman of the Board of Management of Dr. Ing. h.c. F. Porsche AG,

Sport & Luxury brand group

Benefits received

Benefits granted

€

2020

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

1,350,000

70,701

1,420,701

1,038,796

–

1,350,000

68,936

1,350,000

68,936

1,350,000

70,701

1,350,000

70,701

Fringe benefits

70,701

Total

1,418,936

1,901,085

1,440,000

–

1,418,936

1,500,000

1,574,419

–

1,420,701

1,350,000

1,684,716

–

1,420,701

2,430,000

7,200,000

–

One-year performance-related remuneration¹

Multiyear performance-related remuneration

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Total

–

1,440,000

–

1,574,419

–

3,600,000

11,050,701

997,938

–

1,684,716

4,455,417

997,938

5,453,355

–

2,459,497

997,938

3,457,435

4,760,021

808,544

5,568,565

4,493,355

808,544

5,301,899

1,420,701

997,938

2,418,639

Pension expense

Total remuneration

12,048,639

1

In 2019, Mr. Blume was granted a performance-related bonus payment by Porsche AG up to an amount of €150,000, which led to benefits received of €140,000 in 2020. The bonus

payment was not taken into consideration in the remuneration from Volkswagen AG.

Corporate Governance

Remuneration Report

75

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T (B EN E FI TS REC EIVED A N D B E N E FIT S GRA NTE D) I N ACCORDA NCE

WIT H T H E G E RM A N COR P ORAT E G OV E RNA N CE CO DE I N TH E V E R S I ON DATE D FEB RUA RY 7, 20 1 7

MARKUS DUESMANN

Chairman of the Board of Management of AUDI AG,

Premium brand group

Joined: April 1, 2020

Benefits received

2020

Benefits granted

€

2019

2020

2019 (minimum)

2019 (maximum)

Fixed remuneration

8,277,583¹

–

8,277,583

197,653

8,277,583

197,653

8,475,236

–

8,277,583

197,653

Fringe benefits

197,653

8,475,236

674,097

–

Total

8,475,236

1,012,500

1,088,933

10,576,669

849,934

8,475,236

1,822,500

2,700,000

12,997,736

849,934

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2020–2022)

Total

–

9,149,333

849,934

9,999,267

8,475,236

849,934

9,325,170

Pension expense

Total remuneration

11,426,603

13,847,670

1

Includes compensation for entitlements lost due to a change of employer in the amount of €7.3 million, which is not taken into consideration in the total remuneration cap.

GUNNAR KILIAN

Human Resources and Truck & Bus (since July 15, 2020)

Benefits received

Benefits granted

€

2020

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

1,350,000

85,899

1,435,899

898,796

–

1,350,000

112,701

1,462,701

1,901,085

–

1,350,000

112,701

1,462,701

1,350,000

1,574,419

–

1,350,000

85,899

1,350,000

85,899

Fringe benefits

85,899

Total

1,435,899

1,350,000

1,684,716

–

1,435,899

2,430,000

3,600,000

–

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Total

–

1,574,419

–

1,684,716

4,470,615

1,170,535

5,641,150

–

3,600,000

7,465,899

1,170,535

8,636,434

2,334,695

1,170,535

3,505,230

3,363,786

886,559

4,250,345

4,387,120

886,559

5,273,679

1,435,899

1,170,535

2,606,434

Pension expense

Total remuneration

7

6

Remuneration Report

Corporate Governance

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T (B EN E FI TS REC EIVED A N D B E N E FIT S GRA NTE D) I N ACCORDA NCE

WIT H T H E G E RM A N COR P ORAT E G OV E RNA N CE CO DE I N TH E V E R S I ON DATE D FEB RUA RY 7, 20 1 7

ANDREAS RENSCHLER

Chairman of the Board of Management of TRATON SE,

Truck & Bus brand group

Left: July 15, 2020

Benefits received

2020

Benefits granted

€

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

731,250

71,496

802,746

466,563

1,785,168

–

1,350,000

259,755

1,609,755

1,901,085

990,754

–

1,350,000

259,755

1,609,755

1,350,000

1,574,419

–

731,250

71,496

802,746

731,250

912,610

–

731,250

71,496

802,746

1,316,250

1,950,000

–

Fringe benefits

71,496

Total

802,746

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2017–2019)

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Phanton shares

–

1,574,419

–

912,610

–

1,950,000

–

990,754

4,501,594

5,025,570

9,527,164

–

Total

3,054,477

–

4,534,174

5,025,570

9,559,744

2,446,606

–

802,746

–

4,068,996

–

Pension expense

Total remuneration

3,054,477

2,446,606

802,746

4,068,996

ABRAHAM SCHOT

Chairman of the Board of Management of AUDI AG,

Premium brand group

Left: March 31, 2020

Benefits granted

Benefits received

2020

€

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

337,500

79,622

417,122

–

1,350,000

460,079

1,810,079

1,901,085

–

1,350,000

460,079

1,810,079

1,350,000

1,574,419

–

337,500

79,622

417,122

–

337,500

79,622

417,122

–

337,500

79,622

417,122

–

Fringe benefits

Total

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Total

–

421,179

–

900,000

–

421,179

838,301

56,049

894,350

–

900,000

1,317,122

56,049

1,373,171

417,122

56,049

473,171

3,711,164

2,222,572

5,933,736

4,734,498

2,222,572

6,957,070

417,122

56,049

473,171

Pension expense

Total remuneration

Corporate Governance

Remuneration Report

77

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T (B EN E FI TS REC EIVED A N D B E N E FIT S GRA NTE D) I N ACCORDA NCE

WIT H T H E G E RM A N COR P ORAT E G OV E RNA N CE CO DE I N TH E V E R S I ON DATE D FEB RUA RY 7, 20 1 7

STEFAN SOMMER

Components and Procurement

Left: June 30, 2020

Benefits received

2020

Benefits granted

€

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

675,000

1,350,000

519,019

1,869,019

1,901,085

–

1,350,000

519,019

1,869,019

1,350,000

1,574,419

–

675,000

Fringe benefits

134,815

Total

809,815

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Total¹

–

1,574,419

–

809,815

447,742

1,257,557

4,019,019

761,437

4,780,456

4,793,438

761,437

5,554,875

809,815

447,742

1,257,557

809,815

447,742

1,257,557

809,815

447,742

1,257,557

Pension expense

Total remuneration

1

Benefits received for 2019 included a top-up amount on the minimum remuneration of €3.5 million.

HILTRUD DOROTHEA WERNER

Integrity and Legal Affairs

Benefits received

Benefits granted

€

2020

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

1,350,000

122,776

1,472,776

898,796

2,956,624

–

1,350,000

115,159

1,465,159

1,350,000

1,574,419

–

1,350,000

122,776

1,472,776

1,350,000

1,684,716

–

1,350,000

122,776

1,472,776

2,430,000

3,600,000

–

Fringe benefits

115,159

122,776

Total

1,465,159

1,472,776

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2017–2019)

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2022)

Total

1,901,085

–

1,574,419

–

1,684,716

4,507,492

1,149,571

5,657,063

–

3,600,000

7,502,776

1,149,571

8,652,347

5,328,196

1,149,571

6,477,767

3,366,244

956,364

4,322,608

4,389,578

956,364

5,345,942

1,472,776

1,149,571

2,622,347

Pension expense

Total remuneration

7

8

Remuneration Report

Corporate Governance

REMU N ERAT ION OF TH E MEMB E R S OF T H E B OAR D OF M A NAG EMEN T (B EN E FI TS REC EIVED A N D B E N E FIT S GRA NTE D) I N ACCORDA NCE

WIT H T H E G E RM A N COR P ORAT E G OV E RNA N CE CO DE I N TH E V E R S I ON DATE D FEB RUA RY 7, 20 1 7

FRANK WITTER

Finance and IT

Components and Procurement (acting July 1, 2020 – December 31, 2020)

Benefits received

2020

Benefits granted

€

2019

2020

2020 (minimum)

2020 (maximum)

Fixed remuneration

1,350,000

62,781

1,412,781

1,901,085

249,128

–

1,350,000

62,781

1,412,781

1,350,000

1,574,419

–

1,350,000

71,549

1,421,549

1,350,000

1,684,716

–

1,350,000

71,549

1,421,549

2,430,000

3,600,000

–

Fringe benefits

71,549

1,421,549

898,796

1,785,168

–

71,549

Total

1,421,549

One-year performance-related remuneration

Multiyear performance-related remuneration

LTI (performance share plan 2017–2019)

LTI (performance share plan 2018–2020)

LTI (performance share plan 2019–2021)

LTI (performance share plan 2020–2021)

Phanton shares

–

1,574,419

–

1,684,716

–

3,600,000

–

249,128

3,562,994

886,120

4,449,114

–

Total

4,105,513

1,008,664

5,114,177

4,337,200

886,120

5,223,320

4,456,265

1,008,664

5,464,929

1,421,549

1,008,664

2,430,213

7,451,549

1,008,664

8,460,213

Pension expense

Total remuneration

Corporate Governance

Remuneration Report

79

PO ST- EMP LOYM E NT B EN EFI T S

result in modules of what is, in principle, a lifelong pension in

In the event of regular termination of their service on the line with the arrangements that also apply to employees

Board of Management, the members of the Board of Man- covered by collective agreements.

agement are entitled to a pension, including a surviving

The individual pension modules vest immediately upon

dependents’ pension, as well as the use of company cars for payment to Volkswagen Pension Trust e .V . Instead of a life-

the period in which they receive their pension. The agreed long pension, benefits can optionally be paid out as a lump

benefits are paid or made available when the Board of Man- sum or in installments when the beneficiary reaches retire-

agement member reaches the age of 63, or in ment age – currently 63 at the earliest. Volkswagen AG has

Mr. Duesmann’s case when he reaches the age of 65. From assumed responsibility for pension entitlements due to

July 16, 2022, Mr. Renschler is entitled to a pension of 70% of Mr. Witter from the time before his service with the Company.

his fixed level of remuneration in 2017.

On December 31, 2020, the pension obligations for

For the members of the Board of Management of Volks- members of the Board of Management in accordance with

wagen AG appointed before February 24, 2017 with a defined IAS 19 amounted to €36.6 (60.5) million. €7.7 (13.7) million

contribution pension scheme, a contribution rate of 50% of was added to the provision in the reporting period in

the fixed remuneration applies. For the members of the accordance with IAS 19. Other benefits such as surviving

Board of Management of Volkswagen AG appointed after dependents’ pensions and the use of company cars are also

February 24, 2017 with a defined contribution pension scheme, factored into the measurement of pension provisions. The

a contribution rate of 40% of the fixed remuneration applies. pension obligations measured in accordance with German

The resulting amount will be credited to the pension account. GAAP amounted to €26.6 (44.8) million. €6.4 (14.5) million

Ms. Werner, Mr. Blume, Mr. Diess, Mr. Duesmann, Mr. Kilian, was added to the provision in the reporting year in accor-

Mr. Schot, Mr. Sommer and Mr. Witter received a defined con- dance with German GAAP.

tribution plan, which is based in principle on a works agree-

Retired members of the Board of Management and their

ment that also applies to the employees of Volkswagen AG surviving dependents received €35.9 (14.5) million in the year

covered by collective agreements and includes retirement, now ended. Obligations for pensions for this group of

invalidity and surviving dependents’ benefits. A pension persons measured in accordance with IAS 19 amounted to

contribution in the amount of 50% of the fixed level of €396.3 (373.7) million, or €317.8 (300.5) million measured in

remuneration for Ms. Werner, Mr. Diess and Mr. Witter and accordance with German GAAP.

in the amount of 40% of the fixed level of remuneration

A one-year post-contractual restraint on competition has

for Mr. Blume, Mr. Duesmann, Mr. Kilian, Mr. Schot and been agreed with Mr. Duesmann. For the duration of this

Mr. Sommer is paid to Volkswagen Pension Trust e.V. at the post-contractual restraint, Mr. Duesmann will receive com-

end of the calendar year for each year they are appointed to pensation. The compensation will count towards current

the Board of Management. The annual pension contributions benefits from the pension scheme.

8

0

Remuneration Report

Corporate Governance

EA RLY T ERM I NAT ION B E N EF IT S

Under the termination agreement with Mr. Schot, he will

If the appointment to the Board of Management is termi- participate in the 2019 to 2021, 2020 to 2022 and 2021 to

nated for cause through no fault of the Board of Management 2023 performance periods without any pro rata reductions. It

member, the claims are limited to a maximum of two years’ has been agreed with Mr. Renschler that the tranche for the

remuneration, in accordance with G.13 sentence 1 of the 2020 to 2022 performance period will be reduced on a pro

Code (severance payment cap).

rata basis in line with the date of his departure (July 15, 2020)

No severance payment is made if the appointment to the and that no bad-leaver case will apply. It has been agreed with

Board of Management is terminated for good reason for Mr. Sommer that the performance shares allocated to him for

which the Board of Management member is responsible. The the 2018 to 2020, 2019 to 2021 and 2020 to 2022 performance

members of the Board of Management are also entitled to a periods will expire.

pension and to a surviving dependents’ pension as well as the

Please refer to notes 46 and 48 to the consolidated

use of company cars for the period in which they receive their financial statements and the notes to the annual financial

pension in the event of early termination of their service on statements of Volkswagen AG for more detailed individual

the Board of Management.

disclosures relating to members of the Board of Management

The post-contractual restraint on competition agreed who left the Company in fiscal year 2020.

with Mr. Duesmann will also generally apply in the event of

early termination. The compensation will count towards any

settlement.

P E N SIO N S OF T H E M E M B E R S O F T H E B OA RD O F M A NAG E M E N T I N 20 2 0 (P RIO R- YEA R FIG U R E S I N B RACK E TS )

Present values as of

December 31¹

€

Pension expense

Herbert Diess

1,568,053

7,694,544

(5,592,969)

3,023,360

(1,743,034)

849,934

(–)

(

1,354,053)

Oliver Blume

997,938

(808,544)

Markus Duesmann (since April 1, 2020)

Gunnar Kilian

849,934

(–)

1,170,535

3,702,669

(2,102,717)

–

(886,559)

Andreas Renschler (until July 15, 2020)

Abraham Schot (until March 31, 2020)

Stefan Sommer (until June 30, 2020)

Hiltrud Dorothea Werner

Frank Witter

–

(

5,025,570)

56,049

(29,609,167)

–

(

2,222,572)

447,742

(2,222,572)

–

(

761,437)

1,149,571

956,364)

1,008,664

(1,228,940)

5,071,366

(3,482,194)

16,277,467

(14,474,204)

–

(

(886,120)

–

Members of the Board of Management who left in the previous year

(–)

Total

7,248,486

12,901,219)

36,619,340

(60,455,797)

(

1

The amount is reported in the total amount for defined benefit plans recognized in the balance sheet (see note 29 to the consolidated financial statements).

Corporate Governance

Remuneration Report

81

SU PERV IS ORY B OARD RE MU N ERAT ION

year for the performance of its duties. Memberships of the

Nomination and Mediation Committees established in

accordance with section 27(3) of the Mitbestimmungs-

gesetz (MitbestG – German Codetermination Act) are not

taken into account.

Following its regular review of Supervisory Board remunera-

tion, the Supervisory Board proposed a reorganization of the

remuneration system for the members of the Supervisory

Board to the 2017 Annual General Meeting, which was

approved on May 10, 2017 with 99.98% of the votes cast. The > Committee chairpersons receive double this amount, while

Board of Management and Supervisory Board will submit the

remuneration system for the members of the Supervisory

deputy chairpersons receive one-and-a-half times the

committee remuneration listed previously.

Board to the Annual General Meeting for approval in 2021 in > The work on a maximum of two committees shall be

line with the requirements of the AktG as amended by the

ARUG II. The remuneration of the members of the Supervi-

sory Board of Volkswagen AG is comprised entirely of non-

included in calculating the remuneration. If this maximum

is exceeded the two most highly remunerated functions

shall be decisive for the respective remuneration.

performance-related remuneration components. Remunera- > Supervisory Board members who belonged to the Super-

tion for supervisory board work at subsidiaries continues to

comprise partly non-performance-related and partly perfor-

mance-related components.

visory Board or one of its committees for only part of the

fiscal year receive remuneration on a pro rata temporis

basis.

The following applies to members of the Supervisory > Supervisory Board members receive an attendance fee of

Board of Volkswagen AG with effect from January 1, 2017:

€1,000 for attending a meeting of the Supervisory Board or

one of its committees; if several meetings take place on the

same day, the attendance fee is paid only once.

>

The members of the Supervisory Board will receive fixed

remuneration of €100,000 per fiscal year.

>

The Chairman of the Supervisory Board will receive fixed > The remuneration and attendance fees are each payable

remuneration of €300,000, and his deputy will receive

remuneration of €200,000.

after the end of the fiscal year.

In fiscal year 2020, the members of the Supervisory Board

>

For their work in the Supervisory Board committees, the received €5,341,196 (5,327,155). Of this figure, €2,294,167

members of the Supervisory Board will also receive addi- related to the work of the Supervisory Board and €1,008,889

tional fixed remuneration of €50,000 per committee per related to the work in the committees.

fiscal year provided the committee met at least once per

8

2

Remuneration Report

Corporate Governance

REMU N ERAT ION OF TH E MEMB E R S OF T H E SU PERV IS ORY B OAR D

FIXED

REMUNERA-

TION

WORK IN THE

COMMITTEES

OTHER¹

TOTAL

€

2020

2019

Hans Dieter Pötsch

Jörg Hofmann²

300,000

200,000

100,000

53,056

100,000

500,000

900,000

299,000

103,000

109,000

163,000

59,056

925,500

289,000

105,000

107,000

157,000

–

75,000

24,000

3,000

Hussain Ali Al Abdulla

Hessa Sultan Al Jaber

Bernd Althusmann³

–

50,000

–

9,000

13,000

6,000

2

Kai Bliesener (since June 20, 2020)

Hans-Peter Fischer²

100,000

41,111

–

13,000

89,500

4,000

113,000

239,500

45,111

107,000

250,500

107,000

106,000

107,000

390,500

157,000

387,000

289,000

435,000

433,500

81,389

Marianne Heiß

50,000

–

2

Johan Järvklo (until February 29, 2020)

Ulrike Jakob²

100,000

–

13,000

168,500

21,000

172,000

185,000

164,000

192,390

17,000

324,250

20,000

86,500

–

113,000

368,500

200,444

397,000

314,444

414,000

442,390

167,000

424,250

170,000

186,500

–

Louise Kiesling

Peter Mosch²

–

100,000

79,444

125,000

29,444

150,000

50,000

–

Bertina Murkovic²

Bernd Osterloh²

Hans Michel Piëch

Ferdinand Oliver Porsche

Wolfgang Porsche

2

Conny Schönhardt (since June 21, 2019)

Athanasios Stimoniaris²

Stephan Weil³

482,040

163,000

165,352

82,374

50,000

–

2

Werner Weresch (since February 21, 2019)

Members of the Supervisory Board who left in the previous year

–

Total

2,294,167

1,008,889

2,038,140

5,341,196

5,327,155

1

2

Attendance fees, membership of other Group bodies (non-performance-related: €792,888; performance-related: €571,002).

These employee representatives have stated that they will transfer their Supervisory Board remuneration to the Hans Böckler Foundation in accordance with the guidelines issued by

the German Confederation of Trade Unions (DGB).

3

Under section 5(3) of the Niedersächsisches Ministergesetz (German Act Governing Ministers of the State of Lower Saxony), these members of the Supervisory Board are obliged to

transfer their Supervisory Board remuneration to the State of Lower Saxony as soon as and in so far as it exceeds €6,200 per annum. Remuneration is defined for this purpose as

Supervisory Board remuneration and attendance fees exceeding the amount of €200.

Group Management Report

Goals and Strategies

85

Goals and Strategies

+

With the TOGETHER 2025 strategy, we aim to step up the pace, sharpen the focus

of our strategic projects and follow through on implementation even more systematically.

In so doing, we aim to make the future of mobility even more sustainable

–

for present and future generations.

With the future-oriented program TOGETHER – Strategy 2025 The automotive industry is being shaped particularly by the

announced in 2016, we are seeking to make the Volkswagen transformation to e-mobility and digitalization. We have

Group more focused, efficient, innovative, customer-oriented positioned ourselves to successfully tackle this radical

and sustainable, and systematically geared toward generating change: the strategies of our brands and regions as well as

profitable growth.

We at the Volkswagen Group have set ourselves the goal the TOGETHER 2025+ Group strategy.

of continuing to excite our customers in future and meeting Under the umbrella of the TOGETHER 2025 Group stra-

those of our functional areas are consistently aligned with

+

their diverse needs with an appealing product portfolio of tegy, we have defined five central modules with which we put

impressive vehicles and forward-looking, tailor-made mobil- the focus on corporate governance, improved performance,

ity solutions. Every day, we actively assume and exercise increased brand values, software and excellence in employee

responsibility in relation to the environment, safety and management.

society, and we aim to be a role model in these areas. Integ-

Our Code of Collaboration, along with our integrity and

rity, reliability, quality and passion thus form the basis for compliance program Together4Integrity (T4I), is a central

our work. Using this approach, we aim for technological pillar of the Group strategy. This Code describes how collabo-

leadership in the industry and competitive profitability, while ration is to take place within the Group and between individ-

also striving to be an excellent employer.

uals in their day-to-day work. Its core values are encapsulated

With the TOGETHER 2025⁺Group strategy that we in the terms “genuine”, “straightforward”, “open-minded”, “as

enhanced in 2019, we are increasing the momentum for equals” and “united”. T4I brings together all activities relating

achieving our strategic targets and sharpening our focus. To to integrity, culture, compliance, risk management and

this end, the strategic vision of the Volkswagen Group was human resources, creating a common path toward a new

also revised. By “Shaping mobility – for generations to come”, corporate culture.

we aim to more actively shape the future of mobility while

safeguarding it sustainably – for present and future genera-

tions.

FIVE M ODU LE S O F TH E TOG ET H ER 20 2 5⁺STRAT EGY

Our TOGETHER 2025+ Group strategy comprises consistent

With electric drives, digital connectivity and autonomous strategic decisions and specific modules aimed at safe-

driving, we want to make the automobile cleaner, quieter, guarding the long-term future of the Group and generating

more intelligent and safer. At the same time, our core product profitable growth.

will become more emotive and will offer a completely new

These modules are namely Best Governance, Best Perfor-

driving experience. In this way, the car can continue to be a mance, Best Brand Equity, Software-enabled Car Company

cornerstone of sustainable, individual and affordable mobil- and Excellent Leadership. We continuously review the status

ity in the future. In addition, we are committed to the Paris and progress of these initiatives in order to analyze the target

Agreement on climate protection and are one of the first achievement, importance and suitability of the measures

companies in our industry to commit ourselves to becoming defined. This enables us to tailor these modules to the trans-

a carbon-neutral company by 2050. This includes our vehi- formation underway within our Company.

cles, plants and processes.

8

6

Goals and Strategies

Group Management Report

In the Best Governance module, we are working to create a In the Best Brand Equity module, the focus is on realigning

focused, streamlined corporate structure to manage the and refining the brand portfolio to enable a significant

brands, continually leverage synergies and accelerate deci- increase in the value of our Group brands. We are defining

sion-making processes. We want the Group to be perceived as the profiles, brand missions and core competitors of the

efficiently managed, trustworthy, sustainable and trans- Volkswagen Group brands in a more nuanced and distinctive

parent. To this end, we are intensifying the dialog with our way. This will enable the Group to better serve the market as a

key stakeholders and systematically reviewing whether we are whole. Based on these optimizations, we will decide on the

still the best owner for our various brands and companies. future design, product portfolio and services of each Group

We also want our CO

2

targets to be measurable and our prog- brand – using the needs of our customers as a starting point.

In the Software-enabled Car Company module, we are

ress toward CO neutrality in 2050 to be transparent. We will

2

strive to establish a leading position in our industry in inter- working to make software development one of the Volks-

national ESG rankings – specifically in the fields of environ- wagen Group’s core competencies. To achieve this, we are

ment, social issues and governance – in the future.

pooling existing expertise, substantially strengthening our

The aim of the Best Performance module is to achieve a resources and establishing a dedicated organizational unit.

sustainable increase in our enterprise value by increasing Going forward, all new vehicle models across the Group will

efficiency, productivity and profitability. As a global company, be based on our own cross-brand software platform. This

our size enables us to make increased use of economies of approach will provide the opportunity to leverage synergies

scale. We remain firmly committed to our ambitious targets, between the individual brands and vehicle projects. The aim

work consistently on achieving them and strive to exceed is that the Volkswagen Group and its brands will stand not

them. This will lay the foundations for extensive investment only for the best vehicles but in equal measure for exciting

in our Company, in our employees and in mobility for digital products and services.

present and future generations.

Group Management Report

Goals and Strategies

87

The Excellent Leadership module is based on three main sions is still being determined. The relevance of the KPIs is

areas: communication, human resources development and reviewed at Group level and their focus is continuously

collaboration. To remain competitive and fit for the future, monitored and adjusted as necessary. We report on the

we will accelerate the transformation to a more open, more defined non-financial strategic KPIs in the chapter entitled

partnership-based and more value-based leadership culture. “Sustainable Value Enhancement”.

We are developing digital and dialogue-based communi-

cation formats to enable a more timely flow of information Target dimension: excited customers

and integrate all brands and regions even more strongly. We This target dimension focuses on the diverse needs of our

are completely restructuring management development and customers and on tailor-made mobility solutions. We aspire

training and taking an even more systematic approach to to exceed our customers’ expectations, thus generating maxi-

succession planning so that, at our Group, the right talent is mum customer benefit. This requires not only the best prod-

always in the right position at the right time. We are also ucts, the most efficient solutions and the best service, but

defining clear expectations for the Group’s managers. These also flawless quality and an outstanding image. We want to

involve greater customer focus, more corporate responsi- excite our existing customers, win over new ones and retain

bility, greater effectiveness and focus on results as well as a their loyalty in the long term – because only loyal and faithful

culture of constructive dissent and a positive approach in customers will recommend us to others.

dealing with mistakes. Volkswagen also wants to increase

The strategic KPIs consist of the conquest rate and KPIs

diversity at all levels of the company and is pursuing clear, pertaining to loyalty, customer satisfaction and quality.

measurable targets for raising the proportion of female and

international managers.

Target dimension: excellent employer

To achieve sustainable success, we need skilled and dedicated

employees. We aim to foster their satisfaction and motivation

by means of equal opportunities, an attractive and modern

G OA L S A N D K EY P E R F O RM A N C E I N D I CATO R S O F T H E

GROU P’S STRATE GY

The five strategic modules describe how we want to achieve working environment, and a forward-looking organization of

our vision of sustainable mobility for present and future work. An exemplary leadership and corporate culture forms

generations. We are managing our project using four target the basis for this, allowing us to retain our core workforce and

dimensions, which are also reflected in the Volkswagen attract new talents.

strategy rhombus. The four target dimensions are as follows:

The strategic KPIs of this target dimension cover internal

excited customers, excellent employer, role model for employer attractiveness determined by means of the opinion

environment, safety and integrity, and competitive profita- survey, external employer attractiveness, an external employer

bility. We want to grow sustainably by consistently pursuing ranking as well as the diversity index.

these objectives.

The target dimensions apply throughout the whole Target dimension: role model for environment, safety and integrity

Group. The strategic KPIs that we use to measure how well we Every day, we at the Volkswagen Group assume and exercise

have implemented our Group strategy are dependent on the responsibility in issues relating to the environment, safety

respective business model. After all, the business model for and society. This commitment should be reflected both in

our passenger car-producing brands is different from the our thoughts and actions and in all our decisions. We pay

business model for trucks and buses and also differs from the particular attention to the use of resources and the emissions

business model for our Power Engineering Business Area and of our product portfolio as well as those of our sites and

our services business.

plants, with the goal of continuously improving our carbon

The strategic KPIs of the competitive profitability target footprint and lowering pollutant emissions. Through innova-

dimension have been defined and standardized. As the Group tions and outstanding quality, we aim for maximum product

strategy is currently being specified and enhanced in detail, safety.

the content of some strategic KPIs in the other target dimen-

8

Goals and Strategies

Group Management Report

Our primary objectives in this process include complying The strategic KPIs are operationalized for internal manage-

with laws and regulations, establishing secure processes and ment purposes: target and actual data are derived from

dealing openly with mistakes so that they can be avoided or Volkswagen Group figures.

rectified in the future. In terms of integrity, Volkswagen aims

to become a role model for a modern, transparent and suc-

cessful enterprise.

STRATE G IC K P I S: COM P E TI TIV E P ROFITA B I L ITY

The strategic KPIs of this target dimension consist of the

decarbonization index and fleet CO emissions figures, com-

2

pliance, a culture of dealing openly with mistakes, and

integrity.

2

015

2025

Operating return on sales¹

6.0%

7 to 8%

Target dimension: competitive profitability

Research and development ratio

(

R&D ratio) in the Automotive

Investors judge us by whether we are able to meet our

obligations as regards interest payments and debt repay-

ments. As equity holders, they expect appropriate dividends

and a long-term increase in the value of their shares.

Division

7.4%

6.9%

~6%

Capex/sales revenue in the

Automotive Division

Net cash flow in the Automotive

We make investments with a view to achieving profitable Division

growth and strengthening our competitiveness, thus keeping Payout ratio

the Volkswagen Group on a firm footing in the future and

€8,887 million

negative

>€10 billion

≥ 30%

~10% of

consolidated

sales revenue

Net liquidity in the Automotive

€24,522 million,

11.5%

ensuring it remains an attractive investment option.

The goals we have set ourselves are operational excellence

in all business processes and becoming the benchmark for

the entire industry.

Division

Return on investment (ROI) in the

Automotive Division

–0.2%

>14%

1

2015 before special items.

Group Management Report

Internal Management System and Key Performance Indicators

89

Internal Management System and

Key Performance Indicators

This chapter describes how the Volkswagen Group is managed on the basis of the Group strategy

and the key performance indicators used for this purpose. In addition to financial measures, our

management system also contains nonfinancial key performance indicators.

The Volkswagen Group’s performance and success can be When planning the Company’s future, the individual

measured by both financial and nonfinancial key perfor- planning components are determined on the basis of the

mance indicators. With the Best Performance module of our timescale involved:

+

TOGETHER 2025 Group strategy, we want to improve these > the long-term unit sales plan, which sets out market and

indicators across all areas and along the entire value chain. In

so doing, we aim to sustainably increase the Company’s value

and raise our efficiency, productivity and profitability.

In the following, we first describe the internal manage-

segment growth and then derives the Volkswagen Group’s

delivery volumes from them,

> the product program as the strategic, long-term factor

determining corporate policy,

ment process and then explain the Volkswagen Group’s most > capacity and utilization planning for the individual sites.

significant performance indicators, known as the core The coordinated results of the upstream planning processes

performance indicators.

are used as the basis for the medium-term financial planning:

the Group’s financial planning, including the brands and

business fields, comprises the income statement, cash flow

I NT E R NA L M A NAG E M E N T P ROCE S S I N TH E VOL KSWAG E N G ROU P

Consistent, close integration of the Group and brand and balance sheet planning, profitability and liquidity, as well

strategies with the operational planning process ensures as the upfront investments needed for alternative products

transparency at the Volkswagen Group when it comes to the and the implementation of strategic options in the future.

financial assessment and evaluation of strategic decisions. The first year of the medium-term planning period is fixed

The operational medium-term planning that is conducted and a budget drawn up for the individual months. This is

once a year and generally covers a period of five years is planned in detail down to the level of the operating cost

incorporated into the strategic planning as a key manage- centers.

ment element of the Group.

The budget is reviewed each month throughout the year

Medium-term planning forms the core of our operational to establish the target achievement level. Key internal man-

planning and is used to formulate and safeguard the agement instruments comprise target/actual comparisons,

requirements for realizing strategic projects designed to meet prior-year comparisons, variance analyses and, where

Group targets in both technical and economic terms – and necessary, action plans to ensure targets are met. For the

particularly in relation to earnings, cash flow and liquidity current fiscal year, detailed revolving monthly forecasts are

effects. In addition, it is used to coordinate all business areas prepared for the coming three months and the full year,

with respect to the strategic action areas concerned, namely taking into account the current risks and opportunities. The

functions/processes, products and markets.

focus of intrayear internal management is therefore on

adapting ongoing operations. At the same time, the current

forecast serves as a potential, ongoing corrective to the

medium-term and budget planning that follows on from it.

9

0

Internal Management System and Key Performance Indicators

Group Management Report

CORE P ERF ORM A NCE I N D ICATOR S I N TH E VO LKSWAGEN GROU P

costs in relation to sales revenue. Research and development

The Volkswagen Group’s internal management system is costs comprise a range of expenses, from futurology through

based on nine core performance indicators, which are derived to the development of marketable products. Particular

from our strategic goals:

emphasis is placed on the environmentally friendly orien-

tation of our product portfolio, digitalization and new tech-

nologies. The R&D ratio reflects our activities undertaken to

safeguard the Company’s future viability.

>

Deliveries to customers

Sales revenue

Operating result

Operating return on sales

The ratio of capex (investments in property, plant and

Research and development ratio (R&D ratio) in the Auto- equipment, investment property and intangible assets,

motive Division

excluding capitalized development costs) to sales revenue in

the Automotive Division reflects both our innovative power

and our future competitiveness. It shows our capital expen-

diture – largely for modernizing, expanding, electrifying and

digitalizing our product range and for environmentally

>

Capex/sales revenue in the Automotive Division

Net cash flow in the Automotive Division

Net liquidity in the Automotive Division

Return on investment (ROI) in the Automotive Division

Deliveries to customers are defined as handovers of new friendly drivetrains, as well as for adjusting production

vehicles to the end customer. This figure shows the popu- capacities and improving production processes – in relation

larity of our products and is the measure we use to determine to the Automotive Division’s sales revenue.

our competitive position in the various markets. Deliveries

Net cash flow in the Automotive Division represents the

are closely related to our targets of exciting our customers, excess funds from operating activities available for dividend

being a role model for environment, safety and integrity, and payments, for example. It is calculated as cash flows from

being an excellent employer. One of the most important operating activities less cash flows from investing activities

prerequisites for the Company’s long-term success is a strong attributable to operating activities.

brand portfolio that – on the basis of outstanding quality –

Net liquidity in the Automotive Division is the total of

offers tailor-made mobility solutions with safe, resource- cash, cash equivalents, securities, loans and time deposits not

efficient vehicles, thus meeting the diverse needs of custom- financed by third-party borrowings. To safeguard our busi-

ers. Demand for our products guarantees not only unit sales ness activities, we have formulated the strategic target that

and production, but also full utilization of our sites and the net liquidity in the Automotive Division should amount to

jobs of our employees. The goals we are striving for cannot be approximately 10% of the consolidated sales revenue.

achieved without a skilled, dedicated workforce and a con-

sensus on shared values.

We use the return on investment (ROI) to calculate the

return on invested capital for a particular period in the Auto-

Sales revenue, which does not include the figures for our motive Division, including the Chinese joint ventures on a

equity-accounted Chinese joint ventures, reflects our market proportionate basis, by calculating the ratio of the operating

success in financial terms. Following adjustment for our use result after tax to average invested capital. If the return on

of resources, the operating result reflects the Company’s investment (ROI) exceeds the market cost of capital, the value

actual business activity and documents the economic success of the Company has increased. This is how we measure the

of our core business. The operating return on sales is the ratio financial success of our brands, locations and vehicle

of the operating result to sales revenue.

projects.

The research and development ratio (R&D ratio) in the

Automotive Division shows total research and development

Group Management Report

Structure and Business Activities

91

Structure and Business Activities

This chapter describes the legal and organizational structure of the Volkswagen Group

and explains the material changes in 2020 with respect to equity investments.

OUTLI N E OF TH E LEGA L STRU CTU R E OF TH E GROU P

wagen Commercial Vehicles brands – are independent legal

Volkswagen AG is the parent company of the Volkswagen entities.

Group. It develops vehicles and components for the Group’s

The Automotive Division comprises the Passenger Cars,

brands, but also produces and sells vehicles, in particular Commercial Vehicles and Power Engineering business areas.

passenger cars and light commercial vehicles for the Volks-

The Passenger Cars Business Area essentially consolidates

wagen Passenger Cars and Volkswagen Commercial Vehicles the Volkswagen Group’s passenger car brands and the Volks-

brands. In its capacity as parent company, Volkswagen AG wagen Commercial Vehicles brand. Activities focus on the

holds direct or indirect interests in AUDI AG, SEAT S.A., ŠKODA development of vehicles, engines and vehicle software, the

AUTO a.s., Dr. Ing. h.c. F. Porsche AG, TRATON SE, Volkswagen production and sale of passenger cars and light commercial

Financial Services AG, Volkswagen Bank GmbH and a large vehicles, and the genuine parts business. The product port-

number of other companies in Germany and abroad. More folio ranges from compact cars to luxury vehicles and also

detailed disclosures are contained in the list of shareholdings includes motorcycles, and is supplemented by mobility

in accordance with sections 285 and 313 of the Handels- solutions.

gesetzbuch (HGB – German Commercial Code), which can be

accessed at www.volkswagenag.com/en/InvestorRelations.html prises the development, production and sale of trucks and

and is part of the annual financial statements.

buses from the Scania and MAN brands, the corresponding

The Commercial Vehicles Business Area primarily com-

Volkswagen AG is a vertically integrated energy supply genuine parts business and related services. The commercial

company as defined by section 3 no. 38 of the Energie- vehicles portfolio ranges from light vans to heavy trucks and

wirtschaftsgesetz (EnWG – German Energy Industry Act) and buses. The collaboration between the two commercial vehicle

is therefore subject to the provisions of the EnWG. In the brands is coordinated within TRATON SE, which is listed on

electricity sector, Volkswagen AG generates, sells and distri- the stock exchange.

butes electricity as a group together with its subsidiaries.

The Power Engineering Business Area combines the large-

The Volkswagen AG Board of Management has sole bore diesel engines, turbomachinery, special gear units, and

responsibility for managing the Company. The Supervisory propulsion components businesses. Until October 2020, it

Board appoints, monitors and advises the Board of Manage- also included the business of Renk.

ment; it is consulted directly on decisions that are of funda-

mental significance for the Company.

The activities of the Financial Services Division comprise

dealer and customer financing, vehicle leasing, direct banking

and insurance activities, as well as fleet management and

mobility offerings.

ORGA N IZATIO NA L STRU CTU R E OF TH E GROU P

The Volkswagen Group is one of the leading multibrand

With its brands, the Volkswagen Group is present in all

groups in the automotive industry. The Company’s business relevant markets around the world. The key sales markets

activities comprise the Automotive and Financial Services currently include Western Europe, China, the USA, Brazil,

divisions. All brands within the Automotive Division – with Russia, Poland, Turkey and Mexico.

the exception of the Volkswagen Passenger Cars and Volks-

9

2

Structure and Business Activities

Group Management Report

Volkswagen AG and the Volkswagen Group are managed by Board of Management of Volkswagen AG, as well as with the

the Volkswagen AG Board of Management in accordance with agreements in the brand groups. This allows Group-wide

the Volkswagen AG Articles of Association and the rules of interests to be pursued, while at the same time safeguarding

procedure for Volkswagen AG’s Board of Management issued and reinforcing each brand’s specific characteristics. Matters

by the Supervisory Board.

that are of importance to the Group as a whole are submitted

Accordingly, responsibilities were divided between eight to the Group Board of Management to be agreed upon, to the

Board of Management positions until December 31, 2020. In extent permitted by law. The rights and obligations of the

addition to the Chairman of the Board of Management, which statutory bodies of the relevant brand company remain

also includes the Volume brand group, the other Board unaffected.

positions were: Components and Procurement, Finance and

The Volkswagen Group companies are managed solely by

IT, Human Resources and Truck & Bus, Integrity and Legal their respective managements. The management of each

Affairs, Premium, Sport & Luxury as well as China. As of individual company takes into account not only the interest

December 31, 2020, the board member for Finance and IT was of its own company but also the interests of the Group, the

also responsible for Components and Procurement on a relevant brand group and the individual brands in accor-

temporary basis, and the Chairman of the Board of Manage- dance with the framework laid down by law.

ment was also responsible for China.

In addition, at Group level, Board of Management com-

In December 2020, the Supervisory Board decided to split mittees address key strategic issues relating to products,

up the responsibility for Components and Procurement from technologies, investments, digital transformation, integrity

January 1, 2021, replacing it with two new Board positions: and compliance, risk management, human resources and

Purchasing and Technology. The new Technology Board management issues. We constantly revise and optimize the

position will be responsible for all Group Components activi- committees in order to review their relevance and further

ties worldwide, the marketing of the Volkswagen platforms to increase the efficiency of their decision making. This reduces

third parties, the development and manufacturing of battery complexity and reinforces governance within the Group.

cells as well as the associated procurement, the areas of

charging and charging systems and the corresponding joint TOGETHER 2025+ is fostering our Company’s transformation.

ventures worldwide.

One of its aims is to further improve manageability of the

The Best Governance module of our future program

The Volume brand group comprises the Volkswagen Group and to make even better use of synergy effects. The

Passenger Cars, SEAT, ŠKODA and Volkswagen Commercial establishment of the Car.Software Organisation was just one

Vehicles brands. The Audi, Lamborghini and Ducati brands way of further enhancing management of the Group in the

are brought together in the Premium brand group. Sport & reporting year.

Luxury is comprised of the Porsche, Bentley and Bugatti

brands. Bentley will be allocated to the Premium brand group

as of March 1, 2021. The Truck & Bus brand group is the As part of the planned squeeze-out at AUDI AG under the

umbrella for the Scania and MAN brands. German Stock Corporation Act, Volkswagen AG announced

M ATERIA L CHA N GES I N EQU I TY I NV E STM EN TS

We are convinced that this management model will allow on June 16, 2020 that the cash settlement for the transfer of

better use of existing expertise and economies of scale, boost shares held by minority shareholders had been set at

synergy effects more systematically and accelerate decision €1,551.53 per share. On July 31, 2020, the Annual General

making. In addition, it will prepare the Volkswagen Group for Meeting of AUDI AG approved the squeeze-out under stock

a management structure that is simpler, leaner and more corporation law at AUDI AG and thus the transfer of all

effective, and strengthen the brands, giving them more outstanding Audi shares to Volkswagen AG. This resolution

autonomy. In line with the principle of subsidiarity, decisions took effect upon its entry in the commercial register on

will be taken at the lowest competent level, close to business November 16, 2020. In December 2020, a former shareholder

operations, improving collaboration between the brands and of AUDI AG initiated award proceedings against Volks-

the Group as a whole, leveraging synergies and ensuring that wagen AG at the Munich I Regional Court, asking the court to

management of the Group is a shared undertaking. review the amount of the cash settlement offered by Volks-

Each brand within the Volkswagen Group is managed by a wagen AG.

brand board of management, which ensures the brand's

On October 6, 2020, the Volkswagen Group completed the

independent and self-contained development and business sale of its 76% interest in Renk AG following the required

operations. To the extent permitted by law, the board adheres regulatory approvals. The sale price was €0.5 billion.

to the Group targets and requirements laid down by the

Group Management Report

Structure and Business Activities

93

LEGA L F ACTO RS I N FLU EN CI NG BU SI N E S S

GROU P COR P ORATE GOV ERNA NC E DECL ARATIO N

Like other international companies, the business of Volks- The Group Corporate Governance Declaration can be found

wagen companies is affected by numerous laws in Germany in this annual report and is permanently available on our

and abroad. In particular, there are legal requirements website at www.volkswagenag.com/en/InvestorRelations/cor-

relating to development, products, production and distri- porate-governance/declaration-of-conformity.html.

bution, as well as supervisory, data protection, financial,

company, commercial, capital market, anti-trust and tax

regulations and regulations relating to labor, banking, state

aid, energy, environmental and insurance law.

VOLKSWAGEN AG SHAREHOLDINGS

www.volkswagenag.com/en/InvestorRelations/news-and-publications/

Financial_Statements.html

GROU P CORPORATE GOVERNANCE DECLARATION

www.volkswagenag.com/en/InvestorRelations/corporate-governance/declaration-

of-conformity.html

9

4

Disclosures Required Under Takeover Law

Group Management Report

Disclosures Required Under

Takeover Law

This chapter contains the Volkswagen Group’s disclosures relating to takeover law required by

sections 289a(1) and 315a(1) of the HGB.

CA P ITA L STRU CTU RE

holder one vote at the Annual General Meeting. Furthermore,

Volkswagen AG’s share capital amounted to €1,283,315,873.28 preferred shares entitle the holder to a €0.06 higher dividend

€1,283,315,873.28) on December 31, 2020. It was composed than ordinary shares (further details on this right to preferred

(

of 295,089,818 ordinary shares and 206,205,445 preferred and additional dividends are specified in Article 27(2) of the

shares. Each share conveys a notional interest of €2.56 in the Articles of Association of Volkswagen AG).

share capital.

The Gesetz über die Überführung der Anteilsrechte an der

Volkswagenwerk Gesellschaft mit beschränkter Haftung in

private Hand (VW-Gesetz – Act on the Privatization of Shares

SHA REH OL DER R IGH TS A N D OB LI GATI ON S

The shares convey pecuniary and administrative rights. The of Volkswagenwerk Gesellschaft mit beschränkter Haftung) of

pecuniary rights include in particular the shareholders’ right July 21, 1960, as amended on July 30, 2009, includes various

to participate in profits (section 58(4) of the Aktiengesetz provisions in derogation of the German Stock Corporation

(

AktG – German Stock Corporation Act)), the right to Act, for example on the exercise of voting rights by proxy

participate in liquidation proceeds (section 271 of the AktG) (section 3 of the VW-Gesetz) and on majority voting require-

and preemptive rights to shares in the event of capital ments at the Annual General Meeting (section 4(3) of the VW-

increases (section 186 of the AktG) that can be disapplied by Gesetz).

the Annual General Meeting with the approval of the Special

In accordance with the Volkswagen AG Articles of

Meeting of Preferred Shareholders, where appropriate. Association (Article 11(1)), the State of Lower Saxony is

Administrative rights include the right to attend the Annual entitled to appoint two members of the Supervisory Board of

General Meeting, to speak there, to ask questions, to propose Volkswagen AG for as long as it directly or indirectly holds at

motions and to exercise voting rights. Shareholders can least 15% of Volkswagen AG’s ordinary shares. In addition,

enforce these rights in particular through actions seeking resolutions by the Annual General Meeting that are required

disclosure and actions for avoidance.

by law to be adopted by a qualified majority require a

Each ordinary share grants the holder one vote at the majority of more than four-fifths of the share capital of the

Annual General Meeting. The Annual General Meeting elects Company represented when the resolution is adopted

shareholder representatives to the Supervisory Board and (Article 25(2)), regardless of the provisions of the VW-Gesetz.

elects the auditors; in particular, it resolves on the appro-

priation of net profit, formally approves the actions of the

SHA RE H OL DI NG S EXCE E DI NG 10 % OF VOTI N G RI G HT S

Board of Management and the Supervisory Board, and Shareholdings in Volkswagen AG that exceed 10% of voting

resolves on amendments to the Articles of Association of rights are shown in the notes to the annual financial

Volkswagen AG, capitalization measures and authorizations statements of Volkswagen AG, which are available online at

to purchase treasury shares; if required, it also resolves on the https://www.volkswagenag.com/en/InvestorRelations.html.

performance of a special audit, the removal before the end of The current notifications regarding changes in voting rights

their term of office of Supervisory Board members elected at in accordance with the Wertpapierhandelsgesetz (WpHG –

the Annual General Meeting and the winding-up of the German Securities Trading Act) are also published on this

Company.

Preferred shareholders generally have no voting rights.

However, in the exceptional case that they are granted voting

website.

COM P O S ITI ON O F TH E SU P E RV IS ORY B OA RD

rights by law (for example, when preferred share dividends The Supervisory Board consists of 20 members, half of whom

were not paid in one year and not compensated for in full in are shareholder representatives. In accordance with Article

the following year), each preferred share also grants the 11(1) of the Articles of Association of Volkswagen AG, the

Group Management Report

Disclosures Required Under Takeover Law

95

State of Lower Saxony is entitled to appoint two of these shares are to be issued. The Annual General Meeting also

shareholder representatives for as long as it directly or decides the extent to which shareholders have preemptive

indirectly holds at least 15% of the Company’s ordinary rights to the new shares or bonds. The maximum amount of

shares. The remaining shareholder representatives on the authorized share capital or contingent capital available for

Supervisory Board are elected by the Annual General Meeting. these purposes is determined by Article 4 of the Articles of

The other half of the Supervisory Board consists of Association of Volkswagen AG, as amended.

employee representatives elected by the employees in accor-

At the Annual General Meeting on May 14, 2019, a resol-

dance with the Mitbestimmungsgesetz (MitbestG – German ution was passed authorizing the Board of Management, with

Codetermination Act). A total of seven of these employee the consent of the Supervisory Board, to increase the

representatives are Company employees elected by the work- Company’s share capital by a total of up to €179.2 million

force; the other three employee representatives are trade (corresponding to 70 million shares) on one or more occa-

union representatives elected by the workforce.

sions up to May 13, 2024 by issuing new nonvoting preferred

The Chairman of the Supervisory Board is generally a shares against cash contributions.

shareholder representative elected by the other members of

Further details of the authorization to issue new shares

the Supervisory Board. In the event that a Supervisory Board and their permitted uses may be found in the notes to the

vote is tied, the Chairman of the Supervisory Board has a consolidated financial statements.

casting vote in accordance with the MitbestG.

The goals for the composition of the Supervisory Board M ATERIA L AGR EE M ENT S O F TH E PA REN T COM PANY I N TH E EVE NT

and information about its composition are described in the

Group Corporate Governance Declaration.

OF A CHA NG E O F CONT ROL F OL LOWI N G A TA K E OV E R B I D

At the end of fiscal year 2019, a banking syndicate granted

Volkswagen AG a syndicated line of credit amounting to

€10.0 billion that currently runs until December 2025. With

the new line of credit, the syndicate members were granted

the right to call their portion of the syndicated line of credit

in two cases. A call right exists if one individual or several

STATUTO RY R E Q U I RE M E NT S A N D R E Q U I R E M E NT S O F T H E

ARTI CL ES O F AS S OC IATI ON WI TH REGA R D TO T H E APPOI N TM E NT

AN D RE MOVA L O F BOAR D OF M A NAGEM EN T MEM B ERS A N D TO

AMEN D M EN TS TO TH E A RT ICL ES OF ASSOC IATI ON

The appointment and removal of members of the Board of individuals acting jointly who as of the date of this

Management are governed by sections 84 and 85 of the AktG, agreement exercise control over the Company have legal or

which specify that members of the Board of Management are economic ownership of shares that together make up more

appointed by the Supervisory Board for a maximum of five than 90% of the voting rights of the Company. However, a call

years. Board of Management members may be reappointed right also exists if one individual or several individuals acting

or have their term of office extended for a maximum of five jointly who as of the date of this agreement do not exercise

years in each case. In addition, Article 6 of the Articles of control over the Company obtain control over the Company.

Association of Volkswagen AG states that the number of Such a call right does not exist, however, if one shareholder or

Board of Management members is stipulated by the Super- several shareholders of Porsche Automobil Holding SE or one

visory Board and that the Board of Management must consist or several legal entities from the Porsche or Piëch family

of at least three persons.

directly or indirectly obtains control over the Company.

Volkswagen AG and the Ford Motor Company entered

The Annual General Meeting resolves amendments to the

Articles of Association (section 119(1) of the AktG). In accor- into a Master Collaboration Agreement in January 2019. This

dance with section 4(3) of the VW-Gesetz as amended on agreement sets out a framework of obligations, which are to

July 30, 2009 and Article 25(2) of the Articles of Association of apply to the further co-operation agreements entered into

Volkswagen AG, Annual General Meeting resolutions to between the parties, including those entered into in fiscal

amend the Articles of Association require a majority of more year 2020. It also covers the Development Agreement

than four-fifths of the share capital represented.

concluded in January 2019 for the development of the next-

generation Amarok. The Master Collaboration Agreement

provides for a right of termination with immediate effect in

the event of a Change of Control. A Change of Control has

been defined to mean a change affecting more than 50% of

POWE R S OF T H E BOAR D OF M A NAGEMEN T, I N PA RTICU L A R

CON CE R N I N G T H E I S SU E O F N E W SHA RE S A N D T H E R E P U RC H A S E

OF TR EA SU RY S H ARES

According to German stock corporation law, the Annual the voting rights of one of the companies or a change in the

General Meeting can authorize the Board of Management, for ability to directly or indirectly control the management of

a maximum period of five years, to issue new shares. It can one company through its decision making bodies. The right

also authorize the Board of Management, for a maximum of termination must be exercised within 90 days of the

period of five years, to issue bonds on the basis of which new company becoming aware of a Change of Control.

9

6

Business Development

Group Management Report

Business Development

The global economy recorded negative growth in fiscal year 2020 due to the impact

of the Covid-19 pandemic. Global demand for vehicles was lower than in the previous year.

Amid these challenging market conditions, the Volkswagen Group delivered

9

.3 million vehicles to customers.

GLOBAL SP READ OF CORONAVI RU S ( SAR S- COV- 2 )

D EV E LOPM E N T S I N T H E G LO BA L E CO N O MY

At the end of 2019, initial cases of a potentially fatal respira- The global spread of the SARS-CoV-2 virus, the associated

tory disease became known in Wuhan, in the Chinese prov- restrictions, and the resulting downturn in demand and

ince of Hubei. This disease is attributable to a novel corona- supply meant that growth in the world economy was nega-

virus. Infections also appeared outside China from mid- tive in 2020, at –4.0 (2.6)%. The average rate of expansion of

January 2020. In Europe, the number of people infected rose gross domestic product (GDP) was far below the previous

continuously in the course of February, and especially in year’s level in both the advanced economies and the emerg-

March and April 2020. While many European countries ing markets. At country level, performance in the reporting

recorded declining numbers of new infections as the second period depended on the extent to which the negative impact

quarter of 2020 progressed, the rate of new infections of the Covid-19 pandemic was already materializing. The

continued to rise in North, Central and South America, Africa governments and central banks of numerous countries

and parts of Asia. In the second quarter, many of the mea- responded in some cases with substantial fiscal and

sures taken to contain the Covid-19 pandemic were gradually monetary policy measures. This meant cuts in the already

eased, especially in Europe. This included partially lifting relatively low interest rates. There was a significant drop in

border controls and travel restrictions and easing lockdowns prices for energy resources, while other commodity prices

as well as the reopening of businesses and public facilities. In increased slightly year-on-year on average. On a global

addition, the European Commission and numerous European average, consumer prices rose at a slower pace than in 2019,

governments approved aid packages to support the economy. and global trade in goods declined in the reporting period.

In other regions, too, governments introduced measures

aimed at shoring up the economy to counteract the enor- Europe/Other Markets

mous disruption to everyday life and economic activity At –7.2 (1.3)%, the economies of Western Europe as a whole,

caused by the Covid-19 pandemic. During the third quarter, recorded a sharp fall in growth in 2020. This trend was seen in

and particularly during the fourth quarter of 2020, many nearly all countries in Northern and Southern Europe. The

regions outside China and around the world saw a renewed

and in some cases very rapid – increase in new infections, including border closures and physical distancing, caused

which led to the easing of restrictions being reversed in deep cuts. In some states, the measures severely restricted

certain situations. everyday life and also had grave economic consequences.

impact of national measures to contain the pandemic,

–

Throughout the whole of 2020, the global spread of the Governments of many countries in this region subsequently

SARS-CoV-2 virus brought enormous disruption to all areas of started to lift some of the restrictions imposed, spawning a

everyday life and the economy.

gradual economic recovery.

Group Management Report

Business Development

97

E C O NO MI C GRO W T H

Percentage change in GDP

Global economy

Western Europe

Germany

USA

China

88

44

00

–

4

8

2

016

2017

2018

2019

2020

Due to the renewed increase in case numbers in many coun- enacted to support the economy led to improved confidence

tries as the year went on, several of these measures were among consumers and companies as the year progressed.

tightened again, or at least left in place. In addition, the However, it only occasionally matched the previous years’

uncertain outcome of the Brexit negotiations between the levels.

United Kingdom and the European Union (EU) generated

uncertainty in fiscal year 2020, as did the related question of North America

what form this relationship would take in the future.

US economic output declined by –3.6 (2.2)% in the reporting

The economies in Central and Eastern Europe reported year as rates of infection soared. To strengthen the economy

a marked decline in the real absolute GDP in 2020 at in light of the disruption caused by the Covid-19 pandemic,

–3.7 (2.5)%, with economic output falling by –3.4 (2.9)% in the US government passed comprehensive stimulus pack-

Central Europe and by –4.0 (2.0)% in Eastern Europe. The ages. The US Federal Reserve cut interest rates twice, along-

same trend was observed in Russia; economic output in side other measures to support the economy. The weekly

Eastern Europe’s largest economy contracted by –4.1 (1.3)%.

number of people filing new claims for unemployment

Turkey was unable to sustain the recovery seen in the first benefits rose by several million before declining but still

quarter, with GDP growth declining to 0.2 (1.0)% for 2020 as a remaining at a relatively high level. This was reflected accord-

whole but remaining in positive territory. South Africa’s GDP ingly in the unemployment rate, which more than doubled

trend declined sharply in the reporting period to –7.3 (0.2)% year-on-year to 8.1 (3.7)% in the reporting period. GDP fell by

amid persistent structural deficits and political challenges.

–5.7 (1.9)% in neighboring Canada and by –9.0 (0.0)% in

Mexico.

Germany

Germany’s economic output showed a significantly negative South America

trend in the reporting year at –5.3 (0.6)%. The labor market Brazil’s economy recorded a decline of –4.6 (1.4)% in 2020,

was in a favorable situation at the start of the year, but the resulting from the dynamic rate of infection caused by the

pandemic led many companies to introduce short-time Covid-19 pandemic. At –11.1 (–2.1)%, the economic downturn

working (Kurzarbeit) throughout the course of the year. The in Argentina intensified amid continued high inflation and

temporary easing of restrictions in everyday life and eco- substantial depreciation of the local currency compared with

nomic activity as well as government assistance packages the previous year.

9

8

Business Development

Group Management Report

E X C HA NGE RA T E MO V E ME NT S FRO M DE C E MBE R 2 0 1 9 T O DE C E MBE R 2 0 2 0

Index based on month-end prices: as of December 31, 2019 = 100

EUR to GBP

EUR to USD

EUR to CNY

EUR to JPY

1

10

05

00

9 95 5

D

J

F

M

A

M

J

A

S

O

N

D

Asia-Pacific

the mixed trends in sales volumes in the markets in 2020.

The Chinese economy, which had been exposed to the nega- These measures included tax cuts or increases, incentive pro-

tive effects of the Covid-19 pandemic earlier than other grams and sales incentives, as well as import duties.

economies and benefited from a relatively small number of

In addition, non-tariff trade barriers to protect the respec-

new infections as the year progressed, recorded positive tive domestic automotive industries made the movement of

growth rates from the second quarter onwards, expanding by vehicles, parts and components more difficult.

2

.1 (6.1)% overall. Growth in India fell sharply to –8.9 (4.2)%

amid relatively high infection rates. Japan also recorded Europe/Other Markets

negative growth of –5.4 (0.3)% compared with the same In Western Europe, the number of new passenger car regis-

period of the previous year owing to the negative impact of trations in the reporting period was down substantially by as

the Covid-19 pandemic.

much as –24.5% on the prior-year figure, at 10.9 million

vehicles. The negative impact from the spread of the SARS-

CoV-2 virus was noticeable in all countries in the region as

early as March. After the drastic decline at the beginning of

TRE N D S I N TH E M A RKET S FO R PA S SEN GER CA RS A N D

LIG HT CO MME RC IAL VE H I CLE S

In fiscal year 2020, the global market volume of passenger the second quarter, recovery started in the months that

cars fell significantly below the prior-year level due to the followed, and by the end of the third quarter, figures even

Covid-19 pandemic, decreasing to 67.7 million vehicles matched those of the prior year. The fourth quarter of 2020

(–15.2%). This marked a decline for the third year in a row. All witnessed a lateral movement in the market, keeping vol-

regions were affected by this slump. The overall markets of umes noticeably below the previous year’s level. New regis-

Western Europe, South America and Africa recorded above- trations saw declines on a similar scale in all major individual

average losses, while the decline in Asia-Pacific and the markets and were in negative territory at year-end: France

Middle East was smaller in percentage terms.

(–25.4%), Italy (–27.9%), the UK (–29.4%) and Spain (–32.1%).

The volume of new registrations of light commercial

Global demand for light commercial vehicles in the

reporting period was down significantly on the previous year. vehicles in Western Europe fell significantly below the prior-

year figure, essentially due to the pandemic.

Sector-specific environment

In the Central and Eastern Europe region, the market

The sector-specific environment was influenced significantly volume of passenger cars in fiscal year 2020 was down 15.9%

by fiscal policy measures, which contributed considerably to on the prior-year level at 2.8 million vehicles. Following the

Group Management Report

Business Development

99

slump in the second quarter and the recovery in the third 2020. In December, a new recovery set in and the previous

quarter, the volume of new vehicle registrations flatlined in year’s figure was exceeded. The market volume in the USA

the fourth quarter and was moderately short of the previous remained markedly lower than the 2019 level, falling to

year’s figure. The development of demand in the reporting 14.6 million units (–14.5%). The decline affected both the

period differed from market to market. In Central Europe, the passenger car segment (–28.3%) and light commercial vehi-

number of new registrations dropped substantially by 23.3% cles (–11.9%) such as SUVs and pickup models. In the

to 1.1 million units. By contrast, the decline in sales of Canadian automotive market, the Covid-19 pandemic signifi-

passenger cars in Eastern Europe (–10.1%) was weaker, due in cantly accelerated the downward trend that began in 2018

particular to demand in Russia slowing less sharply (–8.8%).

(–19.7%). In Mexico, sales of passenger cars and light com-

Registration volumes for light commercial vehicles in mercial vehicles declined sharply (–28.0%), falling short of the

Central and Eastern Europe were down significantly year-on- prior-year figure for the fourth year in a row.

year. In Russia, the number of vehicles sold in the reporting

period was also significantly lower than in the previous year.

South America

At 0.6 million units, the volume of the passenger car In the markets of the South America region, the volume of

market in Turkey in the reporting period was up by over 50% new registrations for passenger cars and light commercial

on the very low prior-year level. The increase in demand was vehicles in 2020 was much lower (–28.1%) at 3.1 million units

boosted in particular by the strong growth in the third following the drastic decline in the second quarter, a strong

quarter of 2020. In South Africa, the pandemic meant that the recovery in the third quarter and a lateral movement in the

number of new passenger car registrations was down sharply fourth quarter, though falling short of the levels recorded in

on the comparatively poor results of the previous year the previous year. The South America region saw the most

(

–30.4%).

severe negative impact of the Covid-19 pandemic on the

automotive markets in terms of percentage. In Brazil, the

recovery in vehicle demand that began in 2017 was inter-

Germany

New passenger car registrations in Germany in fiscal year rupted in the reporting year; at 2.0 million vehicles (–26.7%),

020 fell significantly short of the previous year’s high level, the number of new registrations was sharply lower than in

2

declining to 2.9 million units (–19.1%). Exacerbated by the the prior-year period. Exports of vehicles manufactured in

Covid-19 pandemic and its fallout, demand for passenger cars Brazil continued to decline, falling by –24.3% to 324 thou-

fell to its lowest level since the German reunification despite sand. In the Argentinian market, too, the spread of the SARS-

a temporary reduction in value-added tax and higher pur- CoV-2 virus negatively impacted the demand for passenger

chase premiums for electric vehicles.

cars and light commercial vehicles. In 2020, there was a sharp

Owing to the mandated temporary shutdowns driven by –26.6% fall in sales to 0.3 million units.

the pandemic and weak demand in important foreign mar-

kets, domestic production and exports in the reporting Asia-Pacific

period again fell short of the comparable prior-year figures: In the Asia-Pacific region, too, the reporting period was

passenger car production decreased by –24.6% to 3.5 million adversely impacted by the spread of the SARS-CoV-2 virus.

vehicles, largely due to the –24.1% drop in passenger car After the very sharp decline in the first three months, the

exports to 2.6 million units.

rapid rebound in the second quarter and a return to prior-

Demand for light commercial vehicles in Germany in the year levels in the third quarter, demand in the last quarter of

reporting period was significantly lower than in 2019.

2020 was moderately up on the previous year. The market

volume of passenger cars was noticeably lower than the

prior-year level at 30.9 million units (–9.6%). This was also

North America

At 17.1 million vehicles, sales of passenger cars and light partly due to developments in the Chinese passenger car

commercial vehicles (up to 6.35 tonnes) in North America in market, where the volume of demand fell distinctly short of

fiscal year 2020 were down significantly on the prior-year the previous year to 19.9 million units (–6.5%) as a result of

figure (–15.9%). The negative effects of the Covid-19 pan- the Covid-19 pandemic. Following the severe losses in the

demic were also very noticeable in this region. After a drastic first three months of 2020, there were clear signs of a

decline in demand at the beginning of the second quarter recovery in the overall market there as the year went on. In

and a steady recovery in the months that followed, until the India, sales of passenger cars dwindled significantly year-on-

prior-year level was reached in September, the region year, falling by –17.3% to 2.3 million units. In the Japanese

witnessed volatile market performance in the last quarter of passenger car market, vehicle demand in the reporting period

1

00

Business Development

Group Management Report

of 3.8 million units (–11.2%) was down markedly on the predominantly by the global impact of the Covid-19 pan-

previous year due not only to the Covid-19 pandemic, but demic and uncertainty about future emissions regulations,

also to the increase in VAT as of October 1, 2019.

and in merchant shipping by the negative impact of the

There was a significant year-on-year decline in demand ongoing trade disputes between the USA and China. Demand

for light commercial vehicles in the Asia-Pacific region. for cruise ships virtually ceased entirely due to the difficult

Registration volumes in China, the region’s dominant market liquidity situation, resulting from the Covid-19 pandemic.

and the largest market worldwide, fell distinctly year-on-year. The passenger ferry segment – similarly affected by a loss of

The number of new vehicle registrations was significantly revenue resulting in part from project postponements – was

below the previous year’s level in Japan and drastically lower also impacted by a decline in demand. The special market for

in India.

government vessels, which is driven by state investment, con-

tinued on a stable trajectory. In the offshore sector, the

existing overcapacity and low oil prices virtually stifled

TRE N D S I N TH E M A RKET S FO R COMME RC IAL V EH ICLE S

In the markets that are relevant for the Volkswagen Group, investment in offshore oil production. China, South Korea

global demand for mid-sized and heavy trucks with a gross and Japan remained the dominant shipbuilding countries,

weight of more than six tonnes was down substantially year- accounting for a global market share of around 85% mea-

on-year in fiscal year 2020 due to the spread of the SARS-CoV-2 sured in terms of the number of ships. Since market volumes

virus: 460 thousand new vehicles were registered (–20.1%). are still low, all sectors in the marine market were continuing

Despite the ongoing uncertainty generated by the Covid-19 to experience significant competition and strong pricing

pandemic, a recovery could be seen in almost all of the pressure as a result.

markets that are relevant for the Volkswagen Group in the

second half of 2020 compared with the first six months.

The market for power generation was unable to continue

its growth trend in 2020 due to the Covid-19 pandemic and

In the 27 EU states excluding Malta, but plus the United declined significantly overall. Most projects were postponed

Kingdom, Norway and Switzerland (EU27+3), the number of as a result of the spread of the SARS-CoV-2 virus and the

new truck registrations was sharply down on the prior-year pandemic-related uncertainty, with some being canceled

figure, dropping –27.4% to a total of 273 thousand vehicles. altogether. Due to the collapse in oil prices and low equip-

Registrations in Germany, the largest market in this region, ment prices, there was a short-term rise in demand for stock

fell substantially year-on-year. The previously anticipated engines run on HFO (heavy fuel oil) in developing countries,

downturn in the market for 2020 was amplified by the Covid- though the trend away from oil-fired power plants towards

19 pandemic, especially in the second quarter of the year. The dual-fuel and gas-fired power plants continued. Demand for

Russian market also deteriorated noticeably as a consequence new energy solutions such as hydrogen, battery or solar

of the Covid-19 pandemic and the related economic fallout. technologies remained high, with a strong trend towards

Turkey saw new registrations more than double compared to greater flexibility and decentralized availability. Due to the

an admittedly very low prior-year figure. By contrast, the negative consequences of the SARS-CoV-2 virus, inventories

South African market declined considerably. In Brazil, the in the reporting period increased, intensifying continued

largest market in the South America region, demand for pressure from competition and pricing.

trucks was significantly below the level seen in the previous

year as a result of the pandemic.

In 2020, the market for turbo machinery showed a signifi-

cant deterioration year-on-year. The Covid-19 pandemic had

Demand for buses in the markets that are relevant for the a delayed negative impact on demand for turbo compressors

Volkswagen Group was much lower than in the previous year in the raw materials, oil, gas and processing industry and

as a consequence of the pandemic. All key markets within the varied in severity depending on market segment and region.

EU27+3 contributed to this trend, with the market for Investments in oil production facilities remained at the prior-

coaches in particular virtually grinding to a halt. Demand was year level despite substantial, short-term price fluctuations.

very much lower in Brazil and was less than half the prior- Demand for turbo compressors for industrial gases also

year level in Mexico.

remained slightly below the previous year’s level. By contrast,

demand in the raw materials and processing industry

dropped substantially. As a consequence of the Covid-19 pan-

TRE N D S I N TH E M A RKET S FO R P OWE R EN GI N EER I NG

The markets for power engineering are subject to differing demic, nearly all regions except for China recorded a severe

regional and economic factors. Consequently, their business downturn in demand compared with the previous year. The

growth trends are mostly independent of each other.

steam and gas turbine business continued to be dominated

In 2020, the marine market contracted to a significantly by overcapacity on the part of electricity producers. In

lower level than in the previous year. Demand was curbed addition, the pandemic-induced uncertainty and the con-

Group Management Report

Business Development

101

tinued pressure from competition and pricing compared period. Lower interest rates led to an increase in cash

with the prior-year period brought about a substantial dip in purchases. Non-vehicle loans were also used to buy vehicles.

demand.

A drop in demand for new vehicles has been seen across

The after-sales business for diesel engines performed the entire North American region as a consequence of the

positively on the whole in 2020 compared with the previous Covid-19 pandemic. In the United States, however, demand

year, benefiting from a continued increase in interest in long- for financial services rose slightly and increased as a pro-

term maintenance contracts and retrofitting solutions. The portion of vehicle sales. A shift from lease to financing con-

Covid-19 pandemic reduced demand for standard products, tracts was observed here along with an increase in sales of

however, and decisions about capital-intensive modifications used vehicles. The proportion of lease and financing con-

were delayed owing to cash-flow difficulties on the part of the tracts in Canada in 2020 was also up on the prior-year level.

customers. After undergoing a marked recovery in the pre- Absolute numbers of contracts decreased, however, due to

vious year, the after-sales market for turbo machinery col- the decline in deliveries. A downward trend was observed in

lapsed sharply in 2020 due to the Covid-19 pandemic. Here, Mexico, both for the absolute number of financing contracts

too, capital-intensive modifications were postponed or can- and for the percentage share, which was attributable in part

celed due to financial difficulties.

to the currently limited fleet business.

In South America, demand for vehicles and automotive

financial services in the reporting year was down on the

TRE N D S I N TH E M A RKET S FO R FI NANC IAL SERV IC ES

Demand for automotive financial services was at a high level previous year. It recovered at the end of 2020 after dipping in

in 2020, particularly in the first three months, due in part to the second and third quarters as a consequence of the

the persistently low key interest rates in the main currency pandemic. In Brazil, the trend toward fleet business and long-

areas. Nevertheless, the Covid-19 pandemic put pressure on term leases continued to strengthen, with the number of

the demand for financial services in almost all regions during long-term lease contracts exceeding the prior-year level. In a

the reporting period. The effects of the Covid-19 pandemic difficult macroeconomic environment, customers in Argen-

were noticeable worldwide, especially in the second quarter tina purchased their vehicles mostly in cash; demand for

of 2020. Markets for automotive financial services staged a automotive financial services decreased year-on-year.

partial recovery in the third and fourth quarters.

China’s passenger car market started to recover from the

The European passenger car market was affected by the Covid-19 pandemic from the second quarter of 2020

Covid-19 pandemic especially in the second quarter of 2020, onwards. The easing of restrictions continuously led to

which led to a significant decline in demand in the auto- increasing numbers of new contracts being signed for auto-

motive business over the reporting period as a whole. Amid motive-related financial services, which were up slightly

this challenging market environment, the share of lease and overall on the prior-year level. In Japan, the effects of the

financing contracts to vehicle sales was expanded further in Covid-19 pandemic were perceptible in the form of weaker

the European markets although the absolute number of new car sales, with a related fall in demand for financing and

contracts declined year-on-year. Demand increased for leasing products. In India, demand for financial services was

integrated mobility services such as parking, refueling and below the previous year but rose again in the course of the

charging. The business with after-sales products such as year as lending rates in the new and used vehicle segments

servicing, maintenance and spare parts agreements, as well stabilized.

as automotive-related insurance was maintained at the prior-

year level in the current market environment.

The Covid-19 pandemic also led to substantial declines in

demand for new and used vehicles in the commercial vehi-

Germany saw a year-on-year drop in the number of loan- cles business area in 2020. As a result, there was an equal fall

financed and leased new vehicles in 2020 due to the chal- in the number of lease and financing contracts in Europe;

lenges of the Covid-19 pandemic. In the leasing business with however, there was a rise in the penetration rate of these

individual customers, the shift from financing to lease financial products in Brazil.

contracts that began in 2019 continued.

In South Africa, demand for financing and insurance N E W G ROU P M O DE L S I N 2 0 20

products stabilized in the second half of 2020 after declining Thanks to a broad portfolio of products – from small cars to

in the first half, but was down year-on-year in the reporting super sports cars in the passenger car segment, and from

1

02

Business Development

Group Management Report

pickups to heavy trucks and buses in the commercial vehicles The SEAT brand launched the successors to the Leon and the

segment, as well as motorcycles – covering almost all key Leon Sportstourer in 2020. Moreover, both the SEAT brand

segments and body types, Volkswagen Group customers are and CUPRA expanded their product ranges through the

able to choose the vehicle tailored to their needs. In fiscal addition of two plug-in hybrid versions of the Leon in each

year 2020, we added further attractive vehicles to this range, case. The Ateca received a comprehensive product upgrade at

whereby one focus was on electric vehicles.

both SEAT and CUPRA. CUPRA enhanced its model range by

In 2020, the Volkswagen Passenger Cars brand brought adding its first completely standalone model, the Formentor

out the compact ID.3, the first vehicle based on the Modular SUV coupé.

Electric Drive Toolkit (MEB). It also expanded its range of

Following the unveiling of the all-electric Taycan in the

electric vehicles by adding the new ID.4, an all-electric SUV preceding fiscal year, Porsche launched new Taycan deriva-

designed for urban use. The first vehicles from the ID. family tives in 2020 including the top-of-the range Turbo S. The

have suitable ranges and come fitted with forward-looking updated Panamera was also released. The Cayenne GTS Coupé

equipment such as the augmented reality head-up display. rounds off the Cayenne family.

2020 also saw the launch of the eighth generation of the new

In the growing SUV segment, Bentley launched the

Golf including its derivatives, the Golf GTI, Golf R and Golf extensively upgraded Bentayga in fiscal year 2020. Presented

Estate. The up!, the Tiguan and the Arteon all received in 2019, the successor to the Flying Spur luxury saloon is now

product upgrades. The T-Roc Cabriolet and the Arteon also available with a V8 engine. The luxurious spearhead of

Shooting Brake were also rolled out, the latter combining the model series became available at the end of 2020 with the

exclusivity and practicability at a high level. In addition, the Continental GT Mulliner.

first Tiguan R model was launched. The Volkswagen Passen-

ger Cars brand continued rolling out its plug-in hybrid drive has been on the market as the upgraded EVO model.

offensive with derivatives of the Golf and Touareg. In the USA, Bugatti presented the DIVO hyper sports car in 2020,

Since 2020, Lamborghini’s Huracán RWD with rear-wheel

the successful Atlas received an update and the Atlas Cross limited to only 40 vehicles. The new Chiron Pur Sport also

Sport was launched. In the South American market, the Nivus celebrated its market premiere.

SUV coupé developed in Brazil was rolled out along with

The Volkswagen Commercial Vehicles brand completely

sporty versions of the Polo and Virtus models. In the Chinese redesigned the Caddy, which now boasts technologies from

market, the new Tiguan X and Tayron X crossover models the Modular Transverse Toolkit (MQB).

cater to the growing demand for lifestyle vehicles. The

Scania reached a milestone in the electrification of the

Viloran seven-seater van, designed to meet the needs of brand in 2020: a plug-in hybrid drive is now also available for

regional markets and customers, and the Tacqua compact the L and P series, a purely electric drive system was pres-

SUV were also launched. The CC and the Phideon were ented for these models.

upgraded. The electrification offensive was continued with

MAN brought out the visually and technically revamped

the electric Tharu, and the Tayron as a plug-in hybrid. JETTA TGX, which received the International Truck of the Year 2021

brought out the VS7 SUV.

award for its reliability and efficiency.

The Audi brand also added further all-electric vehicles to

Ducati introduced the new Streetfighter V4 in 2020 as

its product range in fiscal year 2020. The Audi e-tron well as updated models of the Panigale V2 and V4, the

Sportback, for example, celebrated its market launch with a Multistrada 1260S Grand Tour and the Diavel 1260S. The Icon

new interpretation of the coupé design. The range of plug-in Dark expanded the Scrambler family.

hybrid vehicles was also expanded. Audi also introduced S

models of the Q7 and Q8 in 2020 and, for the first time, also

VOLKSWAGE N GROU P DELIV ER I E S

of the electric vehicles e-tron and e-tron Sportback. In The Volkswagen Group delivered 9,305,372 vehicles to cus-

addition, successors to models from the A3 series that is tomers worldwide in fiscal year 2020. The decrease of 15.2%

especially popular with customers were brought out. The A5, or 1,669,925 units year-on-year was due almost exclusively to

Q2 and Q5 model series were updated.

the Covid-19 pandemic and the measures taken worldwide to

e

Launched in early 2020, the all-electric Citigo iV kicked contain its spread. Sales figures for both the Passenger Cars

off the electrification of the ŠKODA portfolio. In addition, the Business Area and the Commercial Vehicles Business Area

successor models from the popular Octavia series celebrated declined as a result of the fall in demand. The chart on the

their market launch. The Octavia and the Superb are also page after next illustrates the trend in deliveries from month

available as plug-in hybrids, both as a saloon and as an estate. to month, comparing each monthly figure to the same

Along with these, the Rapid received an update in China and month of the previous year. Deliveries of passenger cars and

Russia.

commercial vehicles are reported separately in the following.

Group Management Report

Business Development

103

VOLKSWAGE N GROU P DELIV ER I E S ¹

Deliveries in Europe/Other Markets

In Western Europe, the Volkswagen Group delivered 2,848,861

passenger cars and light commercial vehicles to customers in

fiscal year 2020 in a substantially contracting overall mar-

ket. This was 21.5% fewer than in the previous year. The

2

020

2019

%

Passenger Cars

Commercial Vehicles

Total

9,115,185

190,187

10,733,077

242,220

–15.1 increasing spread of the SARS-CoV-2 virus and the measures

–21.5 taken to contain it sent demand for Group vehicles into a

–15.2 tailspin during the first quarter and at the beginning of the

second quarter. All of the major individual markets demon-

strated very similar declines in demand for Group vehicles.

By the end of the first half of the year, the declines had

tapered off. In the second half of the year, demand for Group

vehicles in individual markets was once again up on a

monthly basis compared with the relevant prior-year figure.

9,305,372

10,975,297

1

Prior-year deliveries have been updated to reflect subsequent statistical trends.

The figures include the Chinese joint ventures.

G LOBA L DEL IV E R I E S BY T H E PA S S E NGE R CA R S B U S I N E S S A REA

With its passenger car brands, the Volkswagen Group is The Group models with the highest volume of demand were

present in all relevant automotive markets around the world. the Golf, Polo, T-Roc and Tiguan from the Volkswagen Pas-

The key sales markets currently include Western Europe, senger Cars brand. In addition, the T-Cross from Volkswagen

China, the USA, Brazil, Russia, Poland, Turkey and Mexico.

Passenger Cars, the Q3 Sportback, Q7 and e-tron from Audi,

Global demand for Volkswagen Group passenger cars and the Scala and Kamiq from ŠKODA, the Mii electric from SEAT,

light commercial vehicles fell in the reporting year by 15.1% and the Porsche Cayenne Coupé and Porsche Taycan, all of

year-on-year to 9,115,185 units as a consequence of the which had been introduced as new or successor models over

debilitating market conditions arising from the uncertainty the course of the previous year, were very popular with

and the measures taken worldwide to tackle the Covid-19 customers. Some of the models successfully launched on the

pandemic. In connection with the pandemic, our deliveries to market during the reporting year as new or successor models

customers were affected by differing temporal and geo- were the up!, T-Roc Cabriolet, Golf, Tiguan and Arteon

graphical effects. Following in some cases drastic losses at the Shooting Brake and the first all-electric production models,

end of the first quarter and the start of the second quarter, the ID.3 and ID.4, from Volkswagen Passenger Cars, the A3

demand for Group models recovered as the reporting year saloon, A3 Sportback, A5 and e-tron Sportback from Audi, the

e

went on, with declines becoming weaker. We registered Citigo iV, Superb iV and Octavia from ŠKODA, the Leon,

declining demand year-on-year in nearly all regions. The sole Leon Sportstourer and Ateca from SEAT and the Caddy from

exception was the Middle East region, largely driven by the Volkswagen Commercial Vehicles. The Volkswagen Group’s

positive trend in sales figures in Turkey. Bentley was the only share of the passenger car market in Western Europe rose to

Volkswagen Group brand that did not fall short of its prior- 23.7 (22.8)%.

year figures.

With a decline of 14.9%, the number of vehicles handed

Our e-mobility offensive had a positive impact on Group over to customers in the reporting year in the Central and

sales: we delivered 231,624 fully electric vehicles to customers Eastern Europe region fell less sharply than the global

globally – more than three times as many as in 2019. Our average. This was largely attributable to the trend in

plug-in hybrid models were also very popular with custom- deliveries in Russia, which almost reached the prior-year

ers; sales amounted to 190,644 vehicles. The Group’s most level. Demand developed encouragingly for the T-Cross from

successful all-electric vehicles included the ID.3, the e-Golf Volkswagen Passenger Cars, for the Audi Q3 Sportback, for

and the e-up! from Volkswagen Passenger Cars as well as the ŠKODA’s Scala, Kamiq and Karoq models and for the Porsche

Audi e-tron and Porsche Taycan. The Passat and the Golf from Cayenne Coupé. The Volkswagen Group’s share of the pas-

Volkswagen Passenger Cars, the Audi Q5, the ŠKODA Superb senger car market in the Central and Eastern Europe region

and the Porsche Cayenne were among the most popular plug- increased to 22.0 (21.5)%.

in hybrid models.

In a significantly declining overall global market, our from the catch-up effects in the overall market, raising the

passenger car market share increased slightly to 13.0 (12.9)%.

number of vehicles handed over to customers in 2020 by

In Turkey, the Volkswagen Group continued to benefit

The table at the end of this section gives an overview of 54.8% compared with the previous year. The Passat saloon

passenger car deliveries to customers of the Volkswagen was the most sought-after Group model from the Volkswagen

Group in the regions and the key individual markets. The Passenger Cars brand. In the sharply contracting South

trends in demand for Group models in these markets and African market, the number of Group models sold fell by

regions are described in the following sections.

1

04

Business Development

Group Management Report

V O L KSW A GEN GRO U P DEL I V ERI ES BY MO NT H

Vehicles in thousands

2

020

019

1

,100

,000

9

90 00 0

80 00 0

70 00 0

60 00 0

50 00 0

8

7

6

5

4 40 00 0

J

F

M

A

M

J

A

S

O

N

D

28.9%. The Polo from Volkswagen Passenger Cars continued whole. The impact of the Covid-19 pandemic became appar-

to be the most frequently sold Group model there.

ent in this region somewhat later, intensifying at the begin-

ning of the second quarter. The month-on-month declines

diminished again as the year went on. The Group’s market

Deliveries in Germany

In Germany, demand for vehicles from the Volkswagen Group share was 4.6 (4.7)%. The Tiguan Allspace and Jetta from

was down 19.6% year-on-year at 1,065,811 units in 2020 in an Volkswagen Passenger Cars were the most sought-after Group

overall market that was suffering a significant decline. As models in North America.

with the overall market in Western Europe, the decrease was

In the considerably weaker US market, the Volkswagen

attributable to the negative impact of the spread of the SARS- Group delivered 12.1% fewer vehicles to customers in fiscal

CoV-2 virus. The Group models with the highest volume of year 2020 than in the prior-year period. The Group models to

demand were the Golf and Passat Estate from the Volkswagen record the greatest increases included the Passat and Arteon

Passenger Cars brand. Also in high demand from customers from Volkswagen Passenger Cars, the Audi Q3 and e-tron, and

were the T-Cross from Volkswagen Passenger Cars, the Q3 the Porsche 911 Cabriolet. The Atlas and the Atlas Cross Sport

Sportback, Q7 and e-tron from Audi, the Scala and Kamiq from the Volkswagen Passenger Cars brand, Audi’s A4, A5, Q7

from ŠKODA, the Mii electric from SEAT, and the Porsche and e-tron Sportback models, and the Porsche Taycan and

Cayenne Coupé and Porsche Taycan, all of which had been Cayenne Coupé were successfully launched on the market as

introduced as new or successor models over the course of the new or successor models during the reporting period.

previous year. Seven Group models led the Kraftfahrt-Bundes-

In Canada, the number of deliveries to Volkswagen Group

amt (KBA – German Federal Motor Transport Authority) regis- customers fell by 25.6% year-on-year in 2020. The market as a

tration statistics in their respective segments: the Golf, T-Roc, whole experienced a lesser decline during this period. The

Tiguan, Touran, Passat, Porsche 911 and Caddy. In addition, Audi Q3 in particular recorded encouraging growth in

the Golf continued to top the list of the most popular passen- demand.

ger cars in Germany in terms of registrations.

In the Mexican market, which was diminishing sharply

overall, the Volkswagen Group delivered 30.8% fewer vehicles

to customers in the reporting year than in the previous year.

Deliveries in North America

In North America, demand for Volkswagen Group models fell The Group models with the highest volume of demand were

by 17.3% year-on-year to 784,299 units in the reporting year, the Vento and Jetta from the Volkswagen Passenger Cars

a decrease largely mirroring the trend in the market as a brand.

Group Management Report

Business Development

105

W O RL DW I DE DE L I V E RI E S O F T HE MO ST SU C C ESSFUL GRO U P MO DE L RA NGE S I N 2 0 2 0

Vehicles in thousands

Tiguan

Polo

591

488

485

481

450

439

350

296

Passat

Golf

Lavida

Jetta

Bora

T-Cross

Deliveries in South America

Deliveries in the Asia-Pacific region

In the South American passenger car and light commercial In fiscal year 2020, the Volkswagen Group saw demand taper

vehicles market, which recorded a strong contraction overall, off in the overall market of the Asia-Pacific region, which

the number of Group models delivered to customers in fiscal witnessed a noticeable decline due primarily to the Covid-19

year 2020 was down by 20.2% year-on-year to 440,326 units. pandemic, and handed over 4,110,782 vehicles to customers,

The effects of the Covid-19 pandemic became apparent in this 9.1% fewer than in the year before. The Group’s market share

region somewhat later, intensifying at the beginning of the in the Asia-Pacific region amounted to 13.2 (13.1)%.

second quarter before weakening again on a monthly basis

China, the world’s largest single market and the main

over the rest of the year. The new T-Cross that was launched growth driver of the Asia-Pacific region for many years, was

in the previous year and the Gol from Volkswagen Passenger distinctly weaker in the past fiscal year, mainly due to the

Cars were the Group models in highest demand. The Nivus spread of the SARS-CoV-2 virus. The Volkswagen Group

SUV coupé was successfully launched on the market in the delivered 9.1% fewer vehicles to customers there than in the

reporting year. The Volkswagen Group’s share of the passen- preceding year. Following very high declines in volumes in

ger car market in South America rose to 14.1 (12.7)%.

the first quarter, we recorded a slight increase in most of the

The recovery of the Brazilian market was interrupted by following months compared with the respective prior-year

the outbreak of the Covid-19 pandemic. The Volkswagen figure. The T-Cross and Teramont X from the Volkswagen

Group delivered 20.0% fewer vehicles to customers there than Passenger Cars brand, the VA3 and VS5 from the JETTA brand,

in the previous year. Along with the Gol and the Polo, the new the Audi A6L and Audi Q8, the ŠKODA Kamiq GT and the

T-Cross from Volkswagen Passenger Cars was in especially Porsche Cayenne Coupé, all of which had been introduced as

high demand.

new or successor models over the course of the previous year,

In Argentina, the number of vehicles delivered to Volks- were in especially high demand. In addition, the Tayron and

wagen Group customers in 2020 was 18.4% down on the the Tharu from Volkswagen Passenger Cars, the Audi Q2L,

prior-year figure in a sharply declining overall market. The Q2L e-tron and Q5, and the Porsche Panamera saloon saw

Gol and T-Cross from Volkswagen Passenger Cars and the encouraging growth in demand. The Tacqua, Golf, Tayron X,

Amarok from Volkswagen Commercial Vehicles saw the Tiguan X, CC, Viloran and Phideon models from Volkswagen

highest demand of all Group models.

Passenger Cars, the VS7 from the JETTA brand, the Audi Q7

and Audi e-tron and the ŠKODA Rapid were successfully

launched on the market as new or successor models in the

reporting year.

1

06

Business Development

Group Management Report

In the Indian passenger car market, which registered a In a significantly weaker overall market in Japan, the number

significant decline, the Volkswagen Group saw 44.9% less of Group models handed over to customers in fiscal year

demand in the reporting year than in the preceding year. The 2020 decreased by 15.6% year-on-year. The Group model to

Polo from the Volkswagen Passenger Cars brand and the record the highest demand was the Volkswagen T-Cross.

Rapid from ŠKODA were the most sought-after Group models

there.

PA S SEN GER CA R DELI VER I E S TO C U STOME R S BY M A RKET ¹

DELIVERIES (UNITS)

020

CHANGE

2

2019

(%)

Europe/Other Markets

Western Europe

of which: Germany

France

3,779,778

2,848,861

1,065,811

222,522

409,064

239,167

213,700

652,813

112,589

221,811

126,883

278,104

121,129

64,693

4,712,746

3,628,314

1,324,942

307,847

544,117

310,944

305,494

766,810

136,377

223,454

165,530

317,622

78,251

– 19.8

– 21.5

– 19.6

– 27.7

– 24.8

– 23.1

– 30.0

– 14.9

– 17.4

– 0.7

United Kingdom

Italy

Spain

Central and Eastern Europe

of which: Czech Republic

Russia

Poland

– 23.3

– 12.4

+ 54.8

– 28.9

– 17.3

– 12.1

– 25.6

– 30.8

– 20.2

– 20.0

– 18.4

– 9.1

Other Markets

of which: Turkey

South Africa

North America

of which: USA

Canada

90,968

784,299

574,822

83,531

948,275

654,118

112,247

181,910

551,734

420,880

70,496

Mexico

125,946

440,326

336,773

57,555

South America

of which: Brazil

Argentina

Asia-Pacific

of which: China

India

4,110,782

3,844,679

28,423

4,520,322

4,228,841

51,541

– 9.1

– 44.9

– 15.6

– 15.1

– 8.3

Japan

66,935

79,268

Worldwide

9,115,185

5,328,029

1,692,773

1,004,816

427,035

11,206

10,733,077

6,279,007

1,845,573

1,242,767

574,078

11,006

Volkswagen Passenger Cars

Audi

ŠKODA

– 19.1

– 25.6

+ 1.8

SEAT

Bentley

Lamborghini

Porsche

7,430

8,205

– 9.4

272,162

77

280,800

82

– 3.1

Bugatti

– 6.1

Volkswagen Commercial Vehicles

371,657

491,559

– 24.4

1

Prior-year deliveries have been updated to reflect subsequent statistical trends. The figures include the Chinese joint ventures.

Group Management Report

Business Development

107

COMME RCIAL VE H IC LE DE LIV ER I E S

Deliveries in Turkey increased to 2,681 (707) vehicles in fiscal

In the period from January to December 2020, the Volks- year 2020. Trucks accounted for 2,457 units and buses for

wagen Group handed over 21.5% fewer commercial vehicles 99 units, while 125 vehicles from the MAN TGE van series

to customers worldwide than in the previous year. We were sold. In South Africa, deliveries of Volkswagen Group

delivered a total of 190,187 commercial vehicles to custom- commercial vehicles decreased by 30.2% year-on-year to a

ers. Trucks accounted for 156,378 units (–24.1%) and buses total of 3,111 units; of this figure 2,789 were trucks and 322

for 16,174 units (–24.8%). A total of 17,635 (14,788) vehicles were buses.

from the MAN TGE van series were delivered. The decline in

Sales in North America declined in fiscal year 2020 to

the truck and bus business was due to a slump in our core 1,502 vehicles (–53.3%), which were delivered almost exclu-

markets, which was exacerbated by the ongoing uncertainty sively to customers in Mexico; of this figure 1,110 units were

generated by the Covid-19 pandemic.

trucks and 392 were buses.

In the 27 EU states excluding Malta, but plus the United

Deliveries in South America fell to a total of 49,372 vehi-

Kingdom, Norway and Switzerland (EU27+3), sales were down cles (–13.1%), of which 42,283 were trucks and 7,089 were

by 26.0% on the same period of the previous year to a total of buses. Sales in Brazil decreased by 17.5% in fiscal year 2020.

105,131 units, of which 81,727 were trucks and 6,098 were Of the units delivered, 35,738 were trucks and 5,117 were

buses. Here, the MAN brand delivered 17,306 light commer- buses.

cial vehicles.

In the Asia-Pacific region, the Volkswagen Group sold

In Russia, sales fell by 16.2% year-on-year to 8,486 units, 11,420 vehicles to customers in the reporting period; among

comprising 8,267 trucks and 219 buses.

these, 10,331 were trucks and 1,075 were buses. Overall, this

was 14.4% less than in the previous year.

COMME R C IAL VE H IC LE DE L IV ER I E S TO CU STO M ER S BY M A RK ET¹

DELIVERIES (UNITS)

020

CHANGE

2

2019

(%)

Europe/Other Markets

of which: EU27+3

of which: Germany

Russia

127,893

105,131

31,859

8,486

168,831

142,058

39,059

10,123

707

– 24.2

– 26.0

– 18.4

– 16.2

x

Turkey

2,681

South Africa

North America

of which: Mexico

South America

of which: Brazil

Asia-Pacific

3,111

4,455

– 30.2

– 53.3

– 53.4

– 13.1

– 17.5

– 14.4

– 21.5

– 27.5

– 17.3

1,502

3,219

1,498

3,218

49,372

40,855

11,420

190,187

72,085

118,102

56,826

49,551

13,344

242,220

99,457

142,763

Worldwide

Scania

MAN

1

Prior-year deliveries have been updated to reflect subsequent statistical trends.

1

08

Business Development

Group Management Report

DE LI V E R I E S I N T H E P OWE R E NG I N E E R I N G SE G M E NT

VOLKSWAGE N GROU P FI NA NCIA L SERV IC ES

Orders in the Power Engineering segment are usually part of The Financial Services Division covers the Volkswagen

major investment projects. Lead times typically range from Group’s dealer and customer financing, leasing, banking and

just under one year to several years, and partial deliveries as insurance activities, fleet management and mobility offer-

construction progresses are common. Accordingly, there is a ings. The division comprises Volkswagen Financial Services

time lag between incoming orders and sales revenue from the and the financial services activities of Scania and Porsche

new construction business.

Holding Salzburg. It also includes the contracts concluded by

Sales revenue in the Power Engineering segment was our international joint ventures in its figures.

largely driven by Engines & Marine Systems and Turbo-

The Financial Services Division’s products and services

machinery, which together generated more than two-thirds were popular in fiscal year 2020, although the Covid-19

of overall sales revenue. Until October 2020, this included the pandemic weighed on demand. At 8.6 (9.3) million, the num-

business of Renk.

ber of new financing, leasing, service and insurance contracts

worldwide was below the previous year’s level. The ratio of

leased or financed vehicles to Group deliveries (penetration

rate) in the Financial Services Division’s markets increased to

ORD ER S RE CEI VE D I N T H E PA SSEN GER CA R S SEGM ENT I N

WE ST ER N EU ROP E

In the reporting year, orders received in Western Europe fell 35.5 (34.5)% as the Group’s deliveries fell at a higher rate than

by 17.8% compared with the previous year as a result of the the number of contracts signed. As of December 31, 2020, the

pandemic. All key markets fell short of the previous year’s total number of contracts was 24.1 million, up 1.8% from

level. The scale of decline varied from country to country: year-end 2019. The number of contracts in the customer

while Germany was markedly down on the previous year, the financing/leasing area climbed 1.2% to 11.9 million, while it

United Kingdom, France, Italy and Spain were significantly or increased by 2.4% to 12.2 million in the service/insurance area.

sharply below the equivalent prior-year figure.

In Europe/Other Markets, the financial services business

was impacted by the Covid-19 pandemic, particularly in the

second quarter. The number of new contracts signed here in

ORD ER S RE CEI V E D FOR COMM ERC IAL VE H I CLE S

Orders received for mid-sized and heavy trucks, for buses and 2020 fell by 9.4% to 6.3 million. The penetration rate was

for commercial vehicles from the MAN TGE van series 50.1 (48.5)%. At 17.6 million, the total number of contracts at

decreased by 4.8% year-on-year to 216,251 vehicles in 2020. the end of the reporting year slightly exceeded the 2019

The decline was attributable to both the truck and bus figure of 17.5 million. The customer financing/leasing area

markets. The overall market downturn expected for 2020 was accounted for 7.6 million of these contracts (–1.3%), while

amplified by the uncertainty arising from the Covid-19 10.0 million (+2.3%) related to the service/insurance area.

pandemic, especially in the second quarter of the year.

At 936 thousand, the number of new contracts signed in

However, there was a noticeable recovery in the second half North America was 2.1% down on the previous year. The ratio

of 2020.

of leased or financed vehicles to Group deliveries in North

America was 67.0 (59.3)%. The number of contracts here on

December 31, 2020 was 3.1 million, an increase of 2.2% com-

ORD ER S RE CEI VE D I N T H E P OWE R ENGI N EE RI NG SEGMEN T

The long-term performance of the Power Engineering busi- pared with the previous year. The customer financing/leasing

ness is determined by the macroeconomic environment. area accounted for 1.9 million contracts (+4.7%) and 1.2 mil-

Individual major orders lead to fluctuations in incoming lion contracts (–1.7%) were owing to the service/insurance area.

orders during the year that do not correlate with these long-

term trends.

The South America region was impacted by the Covid-19

pandemic in the second and third quarter in particular. The

Orders received in the Power Engineering segment in number of new contracts signed here in the reporting year

020 amounted to €3.4 (4.3) billion. Engines & Marine Systems fell to 318 (386) thousand. The penetration rate declined to

2

and Turbomachinery generated more than two-thirds of the 32.7 (38.4)%. The total number of contracts as of Decem-

order volume in a persistently difficult market environment. ber 31, 2020 increased by 2.6% year-on-year to 721 thousand.

Until October 2020, this included the business of Renk.

The contracts mainly related to the customer financing/

In the marine business, for example, orders for 30 dual leasing area.

fuel engines were placed in 2020 in a project for five ice-

breaking LNG tankers. In the power plant business, orders

were won for 35 engines of different types with an aggregate

output of 350 MW. For turbomachinery, we received several

orders for compressor trains and floating production and

storage units, as well as two engineering orders for carbon

capture and storage in the North Sea.

Group Management Report

Business Development

109

In Asia-Pacific, where the SARS-CoV-2 virus spread first, the In Germany, production contracted by 22.7% to a total of

number of new contracts signed in the past fiscal year rose by 1,633,239 vehicles. The percentage of the Group’s total

5.3% to 1.1 million. The ratio of leased or financed vehicles to production accounted for by Germany fell to 18.4 (19.5)%.

Group deliveries was 17.7 (15.5)%. The total number of

contracts amounted to 2.6 million at the end of the reporting

I NV E NTORI ES

year, 9.1% more than at year-end 2019. The customer finan- Global inventories at Group companies and in the dealer

cing/leasing area grew by 9.6% to 1.9 million contracts, and organization were significantly lower at the end of the

the service/insurance area by 7.8% to 0.7 million contracts.

reporting period than at year-end 2019.

SA LE S TO TH E DEALER O RGA N IZAT ION

E M P LOYE ES

The Volkswagen Group’s unit sales to the dealer organization Including the Chinese joint ventures, the Volkswagen Group

decreased by 16.4% to 9,156,612 units (including the Chinese employed an average of 665,445 people in fiscal year 2020, a

joint ventures) in the reporting year. This decline was decrease of –0.3% year-on-year. In Germany, we employed

essentially due to the negative effects of the Covid-19 pan- 295,133 people on average; at 44.4 (44.1)%, their share of the

demic. Ongoing uncertainty in connection with this and total headcount was slightly above the level of the previous

national measures introduced to contain the pandemic, such year.

as mobility restrictions and store closures, were accompanied

The number of active employees in the Volkswagen

by a fall in customer demand. Above-average decreases in Group fell by 1.3% to 633,364 as of December 31, 2020. In

demand were recorded especially in Europe and in North and addition, 11,272 employees were in the passive phase of their

South America. Overall, the unit sales volumes fell by 16.2% partial retirement and 17,939 young people were in voca-

outside Germany and unit sales decreased by 17.8% in tional traineeships. At the end of the reporting period, the

Germany. At 12.1 (12.3)%, the proportion of the Group’s total Volkswagen Group had a total of 662,575 employees world-

unit sales accounted for by Germany was lower than in 2019.

wide. Due to market conditions and employees leaving the

The Tiguan, Polo, Passat, Golf, Jetta, T-Cross and T-Roc from Group not being replaced, this was slightly below the year- end

the Volkswagen Passenger Cars brand were our biggest sellers 2019 figure. A total of 294,510 people were employed in

last year. The largest increases in unit sales were recorded by Germany (–1.0%) and 368,065 outside Germany (–1.5%).

the e-up, T-Cross and Tharu from the Volkswagen Passenger

Cars brand, the e-tron, A6 saloon and Q3 Sportback from Audi,

the ŠKODA Rapid and the Bentley Flying Spur. The Porsche

Taycan and Boxster also achieved a strong growth rate.

EMPL O YEES BY DI VI SI ON/BUSINESS AREA

as of December 31, 2020

PRO DU CT IO N

In fiscal year 2020, the Volkswagen Group’s global production

declined by 17.8% to a total of 8,900,154 vehicles due to the

measures taken to contain the spread of the SARS-CoV-2

virus. The impact of national measures to contain the pan-

demic led to a disruption of supply chains and consequently

to production stoppages within the Volkswagen Group. The

production figures for the locations in China have seen a

year-on-year recovery since the second quarter of 2020; in

total, our Chinese joint ventures manufactured 9.5% fewer

units than in the year before. By contrast, the delayed impact

of the Covid-19 pandemic at the other locations worldwide

caused declines in production in the first three quarters of

Passenger Cars 545,082

Commercial Vehicles

85,612

14,782

17,099

Power Engineering

Financial Services

2020.

1

10

Shares and Bonds

Group Management Report

Shares and Bonds

Following the sharp fall in share prices triggered by the Covid-19 pandemic, trading in

Volkswagen AG’s ordinary and preferred shares recovered as the year went on, but

fell short of the year-end 2019 figure. To refinance projects connected with e-mobility,

green bonds were successfully placed on the market for the first time.

EQU ITY M A RKE T S AN D P ERF ORM A NCE O F TH E PRI CE OF

VOLKSWAG E N’ S SHA RE S

pandemic placed shares under pressure. In addition, negative

effects arose from the automotive industry’s current period

Following the sharp fall in share prices in the first quarter of of transition that requires large-scale investment. Moreover,

020, which was triggered by the Covid-19 pandemic and its the impending US punitive tariffs on European vehicles, the

2

severe negative economic implications, international stock uncertain outcome of the negotiations on the United King-

markets started to recover during the second quarter, with dom’s exit from the EU Single Market including the form the

some even reporting a strong upward trend. At the end of future relationship takes, and the appreciation of the euro

2

020, many equity markets even recorded closing levels against the US dollar since May 2020 all had a negative

above the prior-year levels.

impact. Positive momentum came from the incipient recov-

The DAX recorded an increase of 3.5% compared with the ery of the Chinese automotive market and investors’ hopes of

end of 2019. After an initially good start to the new financial improved economic activity in the wake of eased restrictions

year with a record high in February, share prices collapsed worldwide, government assistance measures, and hopes that

with the increasing spread of the SARS-CoV-2 virus. Starting the Covid-19 pandemic would subside.

from the low reached in March, the leading German stock

index then again gained in value and recouped its losses in

the fourth quarter. This development was fueled considerably

by economic stimulus measures from central banks and

governments throughout the world and the resulting hopes

of a more rapid global economic recovery. The upward trend

lost momentum in the second half of the year, with the

impact of the second wave of infections weighing on share

price performance, although hopes of a vaccine had a positive

effect.

After the losses incurred in the first quarter of 2020, the

prices of Volkswagen AG’s preferred and ordinary shares also

regained ground in the months that followed, but still fell

short of the year-end 2019 figures by 14% and 2% respec-

tively. Uncertainties surrounding the development of the

global demand for automobiles caused by the Covid-19

VOLKSWAGE N S H ARE KEY FI GU RE S AN D M A R K ET I N DI CE S

FROM JA N UA RY 1 TO D E CE M B E R 31 , 2 0 20

High

Low

Closing

Ordinary share

Preferred share

DAX

Price (€)

Date

183.10

Jan. 10

185.52

Jan. 10

13,790

Dec. 28

509

101.50

Mar. 18

87.20

170.10

Dec. 30

152.42

Dec. 30

13,719

Dec. 30

505

Price (€)

Date

Mar. 18

8,442

Price

Date

Mar. 18

255

ESTX Auto & Parts

Price

Date

Dec. 28

Mar. 18

Dec. 30

Group Management Report

Shares and Bonds

111

P RI C E DE V E L O P ME NT FRO M DE C E MBE R 2 0 1 9 T O DE C E MBE R 2 0 2 0

Index based on month-end prices: December 31, 2019 = 100

Volkswagen ordinary share –1.8%

Volkswagen preferred share –13.5%

DAX +3.5%

EURO STOXX Automobiles & Parts +3.8%

1

10

00

9900

8800

7700

6600

D

J

F

M

A

M

J

A

S

O

N

D

DIV I DE N D PO LI CY

DIV I DE N D YI EL D

Our dividend policy matches our financial strategy. In the

interests of all stakeholders, we aim for continuous dividend

growth that allows our shareholders to participate appropri-

ately in our business success. The proposed dividend there-

fore reflects our financial management objectives – in partic-

ular, ensuring a solid financial foundation as part of the

implementation of our strategy.

The current dividend proposal can be found in the

chapter entitled “Volkswagen AG (condensed, in accordance

with the German Commercial Code)” of this annual report.

The Board of Management and Supervisory Board of Volks-

wagen AG are proposing a dividend of €4.80 per ordinary

share and €4.86 per preferred share for fiscal year 2020. On

this basis, the total dividend amounts to €2.4 (2.4) billion.

The payout ratio is based on the Group’s earnings after tax

attributable to Volkswagen AG shareholders. This amounts to

Based on the dividend proposal for the reporting period, the

dividend yield on Volkswagen ordinary shares is 2.8 (2.8)%,

measured by the closing price on the last trading day in 2020.

The dividend yield on preferred shares is 3.2 (2.8)%.

EA RN I N GS P ER S HARE

Basic earnings per ordinary share were €16.60 (26.60) in

fiscal year 2020. Basic earnings per preferred share were

€16.66 (26.66). In accordance with IAS 33, the calculation is

based on the weighted average number of ordinary and

preferred shares outstanding in the reporting period. Since

the number of basic and diluted shares is identical, basic

earnings per share correspond to diluted earnings per share.

See also “Earnings per share” in the notes to the consoli-

dated financial statements for the calculation of earnings per

share.

29.0% for the reporting period and stood at 18.1% in the

previous year. In our Group strategy, we have set ourselves

the goal of achieving a payout ratio of at least 30%.

1

12

Shares and Bonds

Group Management Report

SHA RE HO L DE R ST RU C T URE A S O F DE C E MBE R 3 1 , 2 0 2 0

VOLKSWAGE N S H A RE DATA

as a percentage of subscribed capital

Ordinary shares

Preferred shares

ISIN

DE0007664005

766400

DE0007664039

766403

Porsche Automobil Holding SE 31.4

WKN

Foreign institutional investors 26.0

Deutsche Börse/Bloomberg

Reuters

VOW

VOW3

Qatar Holding LLC 14.6

State of Lower Saxony 11.8

Private shareholders/Others 12.9

VOWG.DE

VOWG_p.DE

DAX, CDAX,

EURO STOXX,

German institutional investors

3.4

EURO STOXX 50,

EURO STOXX

CDAX, Prime All Automobiles & Parts,

Share, MSCI Euro,

S&P Global 100 Index

Prime All Share,

MSCI Euro

Primary market indices

Exchanges

Berlin, Dusseldorf, Frankfurt, Hamburg,

Hanover, Munich, Stuttgart, Xetra

SHA REH OL DER STRU CTU RE A S OF DECEMB ER 31, 2020

At the end of the reporting period, Volkswagen AG’s sub-

scribed capital amounted to €1,283,315,873.28. The share-

holder structure of Volkswagen AG as of December 31, 2020

is shown in the chart on this page.

The distribution of voting rights for the 295,089,818

ordinary shares was as follows at the reporting date: Porsche

Automobil Holding SE, Stuttgart, held 53.3% of the voting

rights. The second-largest shareholder was the State of Lower

Saxony, which held 20.0% of the voting rights. Qatar Holding

LLC was the third-largest shareholder with 17.0%. The

remaining 9.7% of ordinary shares were attributable to other

shareholders.

Notifications of changes in voting rights in accordance

with the Wertpapierhandelsgesetz (WpHG – German Securities

Trading Act) are published on our website at www.volkswagen

ag.com/en/InvestorRelations/news-and-publications.html.

Group Management Report

Shares and Bonds

113

VOLKSWAG E N S H A RE K EY FI G U RE S

Dividend development

2020

2019

2018

2017

2016

Number of no-par value shares at Dec. 31

Ordinary shares

Preferred shares

Dividend¹

thousands

295,090

206,205

295,090

206,205

295,090

206,205

295,090

206,205

295,090

206,205

per ordinary share

per preferred share

Dividend paid¹

on ordinary shares

on preferred shares

€

4.80

4.86

2,419

1,416

1,002

4.80

4.86

2,419

1,416

1,002

4.80

4.86

2,419

1,416

1,002

3.90

3.96

1,967

1,151

817

2.00

2.06

1,015

590

€ million

425

Share price development²

2020

2019

2018

2017

2016

Ordinary share

Closing

Price performance

Annual high

€

%

€

170.10

– 1.8

183.10

101.50

173.25

+ 24.6

182.50

135.60

139.10

– 17.5

188.00

131.10

168.70

+ 23.4

173.95

128.70

136.75

–3.9

144.20

108.95

Annual low

€

Preferred share

Closing

Price performance

Annual high

Annual low

Beta factor³

€

%

€

152.42

– 13.5

185.52

87.20

1.26

176.24

+ 26.9

184.24

134.76

1.17

138.92

– 16.5

188.50

133.70

1.17

166.45

+ 24.8

178.10

125.35

1.12

133.35

–0.3

138.80

94.00

1.22

€

factor

€ billion

Market capitalization at Dec. 31

81.6

87.5

69.7

84.1

67.9

Equity attributable to Volkswagen AG share-

holders and hybrid capital investors at Dec. 31

Ratio of market capitalization to equity

€ billion

factor

127.0

0.64

121.8

0.72

117.1

0.60

108.8

0.77

92.7

0.73

Key figures per share

2020

2019

2018

2017

2016

Earnings per ordinary share⁴

basic

diluted

€

16.60

26.60

23.57

22.28

10.24

Equity attributable to Volkswagen AG share-

holders and hybrid capital investors at Dec. 31

€

253.44

242.93

233.63

217.13

184.90

Price/earnings ratio⁵

Ordinary share

Preferred share

Dividend yield⁶

Ordinary share

Preferred share

factor

10.2

9.1

6.5

6.6

5.9

7.5

7.3

13.4

13.0

%

2.8

3.2

2.8

3.5

2.3

2.4

1.5

Stock exchange turnover⁷

2020

2019

2018

2017

2016

Turnover of Volkswagen ordinary shares

€ billion

million shares

€ billion

million shares

%

3.1

21.6

49.8

361.2

4.7

3.3

20.9

41.0

266.0

4.6

4.3

28.0

54.1

346.6

5.4

3.5

23.6

45.1

312.3

5.4

3.3

25.4

41.1

347.0

5.0

Turnover of Volkswagen preferred shares

Volkswagen share of total DAX turnover

1

Figures for the years 2016 to 2019 relate to dividends paid in the following year. For

020, the figures relate to the proposed dividend.

Xetra prices.

For the calculation see chapter “Results of Operations, Financial Position and Net

Assets” of this annual report.

4

For the calculation see “Earnings per share” in the notes to the consolidated financial

statements. 2017 figure adjusted (IFRS 9).

Ratio of year-end-closing price to earnings per share.

Dividend per share based on the year-end-closing price.

Order book turnover on the Xetra electronic trading platform (Deutsche Börse).

2

3

5

6

7

1

14

Shares and Bonds

Group Management Report

R E F I NA NC I N G ST R U C T URE O F T HE V O L KSW A GE N GRO U P

as of December 31, 2020

Commercial paper

Bonds

65%

Asset-backed securities

29%

6

%

Money and capital

market instruments

≤

1 year

0%

> 1 to < 5 years

52%

≥ 5 years

18%

3

Maturities

Currencies

EUR

2%

USD

15%

Others

23%

6

0

10

20

30

40

50

60

70

80

90

100

REFI NAN CI NG

sion. In addition to this, private placements were issued in

The Volkswagen Group used a variety of instruments and various currencies and regions.

markets for its refinancing activities in 2020.

Alongside the placement of senior, unsecured bonds,

In September 2020, the Automotive Division of the Volks- asset-backed securities (ABS) transactions were another ele-

wagen Group successfully placed its first green bonds on the ment of our refinancing activities. ABS transactions in the

market, with a principal amount of €2.0 billion and terms of amount of approximately €3.2 billion were publicly placed in

eight and twelve years. The green bonds are based on the Europe. In addition, ABS transactions were issued in the USA,

Green Finance Framework presented in March 2020 for sus- China and Japan.

tainability-oriented financial instruments. The resources will

The Volkswagen Group was also actively involved in the

be allocated specifically to refinancing the Modular Electric commercial paper market with several issuing companies.

Drive Toolkit (MEB) and the new completely battery-electric

vehicles, the ID.3 and ID.4.

The proportion of fixed-rate instruments in the past year

was more than twice as high as the proportion of floating-

We strengthened net liquidity through the placement of rate instruments.

unsecured subordinated hybrid notes with an aggregate

In our refinancing arrangements, we generally aim to

principal amount of €3.0 billion. The notes are perpetual. One exclude interest rate and currency risk as far as possible with

note with a principal amount of €1.5 billion can only be the simultaneous use of derivatives.

canceled by the issuer after five years, while the other with a

The table below shows how our money and capital

principal amount of €1.5 billion cannot be canceled until market programs were utilized as of December 31, 2020 and

nine years have elapsed. The transactions will be partly used illustrates the financial flexibility of the Volkswagen Group:

to refinance the hybrid note with a principal amount of

€1.25 billion that was issued in 2014 and canceled as of

March 24, 2021.

In the US capital market, bonds with an aggregate princi-

pal amount of USD 4.0 billion each were placed with investors

in May and November 2020. Notes with a volume of CAD 1.0

billion were issued in the Canadian refinancing market. In

addition, private placements were placed under the auto-

motive issuance program for the first time since 2015.

Official euro benchmark bonds with an aggregate volume

of €2.15 billion were issued for the Financial Services Divi-

Authorized

volume

€ billion

Amount utilized

on Dec. 31, 2020

€ billion

Programs

Commercial paper

Bonds

43.8

8.2

94.7

15.5

41.1

164.3

of which hybrid issues

Asset-backed securities

92.0

Group Management Report

Shares and Bonds

115

RATI N GS

VOLKSWAGEN AG

VOLKSWAGEN FINANCIAL SERVICES AG

VOLKSWAGEN BANK GMBH

2

020

2019

2018

2020

2019

2018

2020

2019

2018

Standard & Poor’s

short-term

A–2

BBB+

A –2

BBB+

A –2

BBB+

A –2

BBB+

A –2

BBB+

A –2

BBB+

A–2

A–

A –2

A –

A –2

A –

long-term

outlook

negative

stable

negative

stable

negative

Moody’s Investors Service

short-term

P–2

A3

P –2

A3

P –2

A3

P –2

A3

P –2

A3

P –2

A3

P–1

A1

P–1

A1

P –1

A1

long-term

outlook

negative

stable

negative

stable

negative

stable

Volkswagen AG’s syndicated credit line of €10.0 billion agreed In March, Moody’s Investors Service had announced that the

in December 2019 was drawn down during 2020. Further- ratings would be reviewed due to possible effects of the

more, the syndicated credit line was extended by one year by Covid-19 pandemic, but in June subsequently left the short-

making use of the first extension option. There is an option term and long-term ratings for Volkswagen AG and Volks-

to extend the term by a further year until 2026 at the latest, wagen Financial Services AG unchanged at P–2 and A3 and

subject to the banks’ approval. This credit facility was unused those for Volkswagen Bank GmbH at P–1 and A1. The outlook

as of the end of 2020.

for each company was downgraded from “stable” to “negative”.

Of the syndicated credit lines with a total of €12.7 billion

at other Group companies, €1.3 billion has been drawn down. SU STA I NAB I LI TY RATI N GS

In addition, Group companies had arranged bilateral, con- Analysts and investors are referring increasingly to company

firmed credit lines with national and international banks in sustainability profiles when making their recommendations

various other countries for a total of €4.8 billion, of which and decisions. They draw primarily on sustainability ratings

€0.6 billion was drawn down.

to evaluate a company’s environmental, social and gover-

nance performance. At the same time, sustainability ratings

RATI N GS

are instrumental in determining whether we are meeting our

+

In March 2020, rating agency Standard & Poor’s confirmed its goal in relation to the Group strategy TOGETHER 2025 , and

short-term and long-term ratings of A–2 and BBB+ for they provide the basis for implementing internal measures.

Volkswagen AG and Volkswagen Financial Services AG, and of

After the diesel issue became public knowledge, the Volks-

A–2 and A– for Volkswagen Bank GmbH. Due to risks wagen Group was downgraded significantly in the MSCI,

associated with the duration of the Covid-19 pandemic and RobecoSAM, Sustainalytics, oekomISS, VigeoEiris, EcoVadis and

their effects on the global automotive industry, the outlook RepRisk sustainability indices and consequently removed

for Volkswagen AG and Volkswagen Financial Services AG was from sustainability indices such as the Dow Jones Sustain-

downgraded from “stable” to “negative”. The outlook for ability Index and the FTSE4Good Index. In fiscal year 2020,

Volkswagen Bank GmbH was left at “negative”.

Volkswagen continued to have a score of A– in the CDP and a

rating of A in the Water Disclosure Project (WDP).

1

16

Results of Operations, Financial Position and Net Assets

Group Management Report

Results of Operations, Financial

Position and Net Assets

The Covid-19 pandemic had a strong negative impact on business at the Volkswagen Group

in the reporting year, and this led to lower sales revenue and operating profit. Despite

further charges and cash outflows in connection with the diesel issue,

net liquidity in the Automotive Division was above the prior-year figure.

The Volkswagen Group’s segment reporting comprises the four ments are identical to the corresponding business areas. The

reportable segments of Passenger Cars and Light Commercial Financial Services Division corresponds to the Financial

Vehicles, Commercial Vehicles, Power Engineering and Finan- Services segment.

cial Services, in compliance with IFRS 8 and in line with the

Group’s internal management and reporting structures.

At Volkswagen, segment profit or loss is measured on the Special items consist of certain items in the financial

basis of the operating result. statements whose separate disclosure the Board of Manage-

SP E CIA L I TEM S

The reconciliation contains activities and other oper- ment believes can enable a better assessment of our eco-

ations that do not, by definition, constitute segments. These nomic performance.

include the unallocated Group financing activities. Consoli-

In fiscal year 2020, negative special items in connection

dation adjustments between the segments (including the with the diesel issue amounting to €–0.9 (–2.3) billion

holding company functions) are also contained in the recon- affected operating profit in the Passenger Cars Business Area.

ciliation. The purchase price allocations for Porsche Holding These items resulted mainly from legal risks.

Salzburg and Porsche, Scania and MAN are allocated to their

corresponding segments.

CON TR I BUTIO N OF AUTO NOM OU S I NTEL LI GEN T D RIV I NG

The Automotive Division comprises the Passenger Cars On July 12, 2019, Volkswagen announced that, together with

and Light Commercial Vehicles segment, the Commercial Ford Motor Company (Ford), it would be investing in Argo AI,

Vehicles segment and the Power Engineering segment, as well a company that is working on the development of a system

as the figures from the reconciliation. The Passenger Cars and for autonomous driving. The investment involves the pro-

Light Commercial Vehicles segment is combined with the vision of financial resources totaling USD 1.0 billion, spread

reconciliation to form the Passenger Cars Business Area, over several years, and the contribution by Volkswagen of its

while the Commercial Vehicles and Power Engineering seg- consolidated subsidiary Autonomous Intelligent Driving (AID).

K EY FIG U RE S F O R 2 02 0 BY S E G M E NT

Passenger Cars

and Light

Commercial

Vehicles

Commercial

Vehicles Power Engineering

Volkswagen

Group

€

million

Financial Services

40,778

3,012

Total segments

242,557

Reconciliation

–19,673

–1,157

Sales revenue

175,984

8,381

4.8

22,156

–79

3,640

–482

–13.2

147

222,884

9,675

4.3

Segment profit or loss

(operating result)

10,832

as a percentage of sales

revenue

–0.4

7.4

Capex, including capitalized

development costs

15,677

1,309

208

17,340

405

17,745

Group Management Report

Results of Operations, Financial Position and Net Assets

117

Furthermore, Volkswagen acquired existing Argo AI shares which is reported in other operating income. It also resulted

from Ford for a purchase price of USD 500 million, payable in in an increase in net liquidity of €0.4 billion.

three equal annual installments.

The transaction, including the contribution of AID, was

ACQU I SI TIO N OF ALL S HARE S I N N AVI STA R

executed as of June 1, 2020. After proportional profit elimi- In November 2020, TRATON SE and Navistar International

nation, the contribution of AID to Argo AI at fair value Corporation (Navistar), a leading US truck manufacturer,

resulted in noncash income of €0.8 billion, which was recog- announced the signing of a binding merger agreement.

nized in the other operating result. Argo AI will be accounted Under this agreement, TRATON will acquire all outstanding

for as a joint venture and included in the consolidated finan- shares in Navistar not already owned by TRATON in return for

cial statements using the equity method.

cash payment at a price of USD 44.50 per share (total:

approximately USD 3.7 billion). As of December 31, 2020,

TRATON already held a 16.7% interest in Navistar. The

completion of the transaction, through which TRATON will

SQU E EZE -OUT U N DE R TH E GE R M AN STOC K CO RPORAT IO N ACT

AGREE D AT AU D I AG

On July 31, 2020, the Annual General Meeting of AUDI AG become Navistar’s sole owner, is intended for mid-2021. Since

approved the squeeze-out under stock corporation law at the merger agreement contains conditions precedent, the

AUDI AG and thus the transfer of all outstanding Audi shares payment of the purchase price cannot be recorded as a

to Volkswagen AG. This resolution took effect upon its entry liability in the balance sheet at present and is instead

in the commercial register on November 16, 2020. The reported under other financial obligations.

resulting cash outflow of €0.2 billion is presented in the

“

capital transactions with noncontrolling interests” item.

CA P ITA L I NC REA SE AT QUA N TU M SCA P E CORP ORATIO N

In fiscal year 2020, the Volkswagen Group took part in a

capital increase at QuantumScape Corporation, a US-based

SA LE OF I NTE RE ST I N R EN K AG

On October 6, 2020, the Volkswagen Group completed the company that develops solid-state batteries, entering into

sale of its 76% interest in Renk AG following the required forward purchase agreements for new shares. The capital

regulatory approvals. The sale price was €0.5 billion. The contribution comprises two tranches of USD 100 million

transaction generated operating income of €0.1 billion, each. The first tranche was already paid in December 2020.

I NCOME STATEM ENT BY DI VI SI ON

VOLKSWAGEN GROUP

2020

AUTOMOTIVE¹

2020

FINANCIAL SERVICES

2020

€

million

2019

Sales revenue

222,884

–183,937

38,947

–18,407

–9,399

–1,466

9,675

252,632

–203,490

49,142

–20,978

–9,767

–1,437

16,960

6.7

182,106

–150,507

31,599

–17,267

–7,147

–522

212,473

–170,477

41,996

–19,712

–7,522

–1,014

13,748

6.5

40,778

–33,430

7,348

40,160

–33,014

7,146

Cost of sales

Gross profit

Distribution expenses

Administrative expenses

Net other operating result

Operating result

–1,140

–2,252

–944

–1,266

–2,245

–423

6,664

3,012

3,212

Operating return on sales (%)

4.3

3.7

7.4

8.0

Share of profits and losses of equity-accounted

investments

2,756

–765

3,349

–1,953

1,396

2,697

–469

2,227

8,891

–2,228

6,663

–98

3,278

–1,889

1,389

15,137

–3,491

11,646

79

60

–296

–236

2,776

–615

2,161

55

71

–64

7

Interest result and Other financial result

Financial result

1,991

11,667

–2,843

8,824

–43

Earnings before tax

18,356

–4,326

14,029

143

3,219

–836

2,383

64

Income tax expense

Earnings after tax

Noncontrolling interests

Earnings attributable to Volkswagen AG hybrid

capital investors

533

540

533

540

–

Earnings attributable to Volkswagen AG

shareholders

8,334

13,346

6,227

11,027

2,106

2,319

1

Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

1

18

Results of Operations, Financial Position and Net Assets

Group Management Report

SHA RE O F SA L E S REV E NU E BY MA RKE T 2 0 2 0

SHA RE O F SA L E S RE V E NU E BY DI V I SI O N/BUSI NE SS A RE A 2 0 2 0

in percent

Europe (excluding Germany)/ 41 %

Other markets

Germany 19 %

North America 16 %

South America 4%

Asia-Pacific 20 %

Passenger Cars 70 %

Commercial Vehicles 10 %

Power Engineering

2%

Financial Services 18 %

Payment of the second tranche is subject to a technical 4.8 (7.6)%. In addition to lower unit sales due to the

milestone being reached. Since there has meanwhile been a pandemic-related decline in customer demand, turbulence in

merger with a special purpose acquisition company (SPAC), the capital markets meant that the measurement of

which resulted in a listing on the New York Stock Exchange, receivables and liabilities denominated in foreign currencies

the forward purchases are measured with reference to the had a negative effect. One-off expenses for restructuring

share price of QuantumScape Corporation until the con- measures of €0.5 billion also contributed to the reduction in

tribution has been made and the new shares have been profit. Positive factors were lower costs. The contribution of

issued. This measurement and realization resulted in non- the consolidated subsidiary Autonomous Intelligent Driving

cash income of €1.4 billion in fiscal year 2020, which are (AID) to Argo AI, a company that is working on the develop-

reported in the other financial result.

ment of a system for autonomous driving, led to income of

0.8 billion. This figure also includes the income from the

€

RESU LT S OF OP E RATIO NS

sale of Renk. Special items in connection with the diesel issue

weighed on operating profit, reducing this item by €–0.9

(–2.3) billion. The Volkswagen Group’s operating profit was

Results of operations of the Group

In fiscal year 2020, the Volkswagen Group generated sales €9.7 (17.0) billion, while the operating return on sales fell to

revenue of €222.9 billion. The year-on-year decrease of 11.8% 4.3 (6.7)%.

was mainly attributable to falling volumes as a result of the

The financial result increased by €0.6 billion year-on-year

Covid-19 pandemic, as well as the negative effects of changes to €2.0 billion. The interest expenses included in the financial

in exchange rates. Improvements in the mix and in price result were down, mainly for measurement-related reasons

positioning had a positive impact. 80.8 (80.6)% of the Volks- caused by a change in discount rates applied in the measure-

wagen Group’s sales revenue originated abroad.

ment of liabilities, while changes in share prices, also as a

Gross profit amounted to €38.9 billion, €10.2 billion response to the Covid-19 pandemic, weighed on net income

lower than in 2019. This figure also included risk provisions from securities and funds. The share of the result of equity-

for any non-compliance with legal emissions limits. Positive accounted investments was lower than in the previous year.

special items amounting to €0.1 (0.3) billion recognized here The decline was primarily due to lower profit generated by

in both periods due to the reversal of provisions for technical the Chinese joint ventures, which were affected by the spread

measures in connection with the diesel issue had an of the SARS-CoV-2 virus especially in the first quarter of 2020.

offsetting effect. The gross margin stood at 17.5 (19.5)%; The other financial result includes the measurement and

excluding special items, it amounted to 17.4 (19.3)%.

realization of forward purchase agreements for new shares in

The persistent negative impact of the spread of the SARS- QuantumScape Corporation, which led to noncash income of

CoV-2 virus was the main factor driving the €8.7 billion €1.4 billion in fiscal year 2020.

decline in the Volkswagen Group’s operating profit before

The Volkswagen Group’s profit before tax amounted to

special items to €10.6 billion in the reporting year. The €11.7 (18.4) billion. The return on sales before tax decreased

operating return on sales before special items fell to to 5.2 (7.3)%. Income taxes resulted in an expense of

Group Management Report

Results of Operations, Financial Position and Net Assets

119

€

2.8 (4.3) billion in fiscal year 2020, which in turn led to a tax 3.7 (6.5)%. Compared with the previous year, lower unit sales

rate of 24.4 (23.6)%. Profit after tax decreased by €5.2 billion caused by the Covid-19 pandemic had a negative impact, as

to €8.8 billion.

did the measurement of receivables and liabilities denomi-

nated in foreign currencies. One-off expenses for restruc-

turing measures of €0.5 billion also contributed to the reduc-

Results of operations in the Automotive Division

In the period from January to December 2020, the Auto- tion in profit. Positive factors were lower costs as well as the

motive Division recorded sales revenue of €182.1 billion, income from the contribution of AID and from the sale of

down 14.3% on the prior-year period. Profit was weighed Renk; negative special items declined compared with the

down especially by the decline in volumes resulting from the previous year, in which the reversal of impairment losses

Covid-19 pandemic, while changes in exchange rates also had following the remeasurement of development costs had a

a negative effect. In contrast, mix effects and improved price positive impact. The operating profit before special items

positioning made a positive contribution. Since our Chinese decreased by €8.5 billion to €7.6 billion, while the operating

joint ventures are accounted for using the equity method, the return on sales before special items went down to 4.2 (7.6)%.

Group’s business performance in the Chinese passenger car

market is primarily reflected in the Group’s sales revenue performance of our Chinese joint ventures only through

only through deliveries of vehicles and vehicle parts. deliveries of vehicles and vehicle parts and through license

Our operating profit largely benefits from the business

Lower volumes led to a decrease in cost of sales, although income, as the joint ventures are accounted for using the

its ratio to sales revenue rose year-on-year. Positive special equity method and therefore included in the financial result.

items recognized here in both periods due to the reversal of

provisions for technical measures in connection with the

diesel issue had a favorable effect. Higher depreciation and

amortization charges due to the large capex volume of

previous years and provisions for any non-compliance with

legal emissions limits were set against lower research and

development costs recognized in profit or loss. Despite the

reduction in their absolute amount, total research and

RESU LT S OF OP E RATIO NS I N T H E PA S SEN GER CA R S

B U SI N E S S A R EA

€

million

2020

2019

development costs as a percentage of the Automotive Divi- Sales revenue

sion’s sales revenue (research and development ratio or R&D Operating result

ratio) increased to 7.6 (6.7)% in fiscal year 2020 compared to Operating return on sales (%)

the prior-year period, due to the decline in sales revenue. In

156,311

7,224

4.6

182,031

12,188

6.7

addition to new models, our activities focused above all on

the electrification of our vehicle portfolio, a more efficient The Passenger Cars Business Area reported sales revenue of

range of engines, digitalization and new technologies. €156.3 billion in fiscal year 2020, 14.1% less than in the

Factors such as exchange rate effects led to a year-on-year previous year. The year-on-year decrease was mainly attri-

decline in both distribution and administrative expenses in butable to falling volumes as a result of the Covid-19 pan-

the reporting period, although their ratio to sales revenue demic. Moreover, changes in exchange rates had a negative

rose. The other operating result amounted to €–0.5 (–1.0) bil- effect, while the contribution of mix effects and better price

lion. The main items to be recognized here were negative positioning was positive. The Passenger Cars Business Area’s

special items in connection with the diesel issue in an operating profit was down €5.0 billion to €7.2 billion. The

amount of €–1.0 (–2.6) billion. Other adverse factors were the spread of the SARS-CoV-2 virus led to a drop in vehicle sales

negative effects of the measurement of receivables and and caused the measurement of receivables and liabilities

liabilities denominated in foreign currencies and one-off denominated in foreign currencies to have a negative effect.

expenses for restructuring measures. The income from the One-off expenses for restructuring measures also weighed on

contribution of AID to the Argo AI joint venture and from the operating profit. Lower costs and the income from the

sale of the shares in Renk was also included in this item. In contribution of AID led to higher profit. Special items

the prior-year period, the reversal of impairment losses recognized in connection with the diesel issue in an amount

following the remeasurement of development costs had a of €–0.9 (–2.3) billion were lower than in fiscal year 2019. The

positive effect.

prior-year figure had also included the reversal of impair-

The Automotive Division’s operating profit was ment losses following the remeasurement of development

6.7 (13.7) billion in 2020. Its operating return on sales fell to costs. The operating return on sales decreased to 4.6 (6.7)%.

€

1

20

Results of Operations, Financial Position and Net Assets

Group Management Report

RESU LT S OF OP E RATIO NS I N T H E COMME RCIAL VE H IC LE S

B U SI N E S S A R EA

previous year. Due to the Financial Services Division’s busi-

ness model, the negative effect of the Covid-19 pandemic on

sales revenue is less severe here than in the Automotive

Division.

Cost of sales increased by 1.3% to €33.4 billion. When

taken together, distribution expenses, administrative expenses

€

million

2020

2019

Sales revenue

22,156

–79

26,444 and the other operating result were up; their ratio to sales

1,653 revenue also increased overall. The other operating result was

6.3 weighed down particularly by higher risk costs.

Operating result

Operating return on sales (%)

–0.4

The Financial Services Division’s operating profit was

6.2% lower, at €3.0 billion, primarily for pandemic-related

In the period from January to December 2020, the Com- reasons. The operating return on sales amounted to

mercial Vehicles Business Area recorded sales revenue of 7.4 (8.0)%. The return on equity before tax of 8.8 (10.8)% was

€22.2 billion; this was a significant year-on-year drop of down on the prior-year figure.

1

6.2%, due primarily to falling volumes as a result of the

Covid-19 pandemic. Again due mainly to the pandemic- Principles and goals of financial management

related decline in customer demand, as well as exchange rate- Financial management in the Volkswagen Group covers

related factors, the Commercial Vehicles Business Area’s liquidity management, the management of currency, interest

operating result decreased by €1.7 billion to €–0.1 billion rate and commodity price risks, as well as credit and country

year-on-year. Improvements in the mix, in price positioning risk management. It is performed centrally for all Group

and in fixed costs had a beneficial impact. The operating companies by Group Treasury, based on internal guidelines

return on sales fell to –0.4 (6.3)%.

and risk parameters. Some functions of the MAN Energy

Solutions, Porsche Holding Salzburg and TRATON subgroups

are integrated into the financial management. Additionally,

these subgroups have their own financial management struc-

tures.

RESU LT S OF OP E RATIO NS I N T H E POWE R EN GI N EE RI N G

B U SI N E S S A R EA

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 invest-

ment of surplus funds. We use cash pooling to optimize the

€

million

2020

2019

Sales revenue

3,640

–482

–13.2

3,997 use of existing liquidity between the significant companies.

–93 In this system, the balances, either positive or negative,

–2.3 accumulating in the cash pooling accounts are swept daily to

a regional target account and thus pooled. The overriding

aim of currency, interest rate and commodity risk manage-

Operating result

Operating return on sales (%)

Following the sale of Renk as of October 6, 2020, the Power ment is to hedge, using derivative financial instruments and

Engineering Business Area now comprises MAN Energy commodity forwards, the prices on which investment,

Solutions and the purchase price allocation made to the production and sales plans are based when making planning

segment. The result of Renk’s operating activities for 2020 is assumptions and to mitigate interest rate risks incurred in

therefore included in the Power Engineering Business Area financing transactions. In the management of credit and

only for the first nine months.

country risk, diversification is used to limit the Volkswagen

The Power Engineering Business Area generated sales Group’s exposure to the so-called counterparty risk. To

revenue of €3.6 (4.0) billion in the reporting year. The achieve this, counterparty risk management imposes internal

operating loss amounted to €–0.5 (–0.1) billion. The main limits on the volume of business allowed per counterparty

reasons were falling volumes and in particular one-off when financial transactions are entered into. Various credit

expenses for restructuring measures of €0.4 billion. Cost rating criteria are applied in this process. These focus

reductions and improvements in the mix had a positive primarily on the capital resources of potential counterparties,

effect. The operating return on sales was at –13.2 (–2.3)%.

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

Results of operations in the Financial Services Division

The Financial Services Division reported sales revenue of Group Board of Management Committee for Risk Manage-

40.8 billion in fiscal year 2020, 1.5% more than in the ment. For additional information on the principles and goals

€

Group Management Report

Results of Operations, Financial Position and Net Assets

121

of financial management, please refer to the chapter on in the previous year. The figure for fiscal year 2019 had

Financial risk management and financial instruments” in included the acquisition of MAN shares tendered as a result

“

the notes to the consolidated financial statements.

of the termination of the control and profit and loss transfer

agreement, and the cash inflow resulting from the IPO of

TRATON.

FI NA NC IAL PO SI T ION

At the end of the reporting period, the Volkswagen

Group’s cash and cash equivalents reported in the cash flow

Financial position of the Group

The Volkswagen Group’s gross cash flow decreased to statement amounted to €33.4 (24.3) billion.

35.0 (39.9) billion in the reporting year, mainly due to the On December 31, 2020, the Volkswagen Group’s net

€

pandemic-related decline in profit. The change in working liquidity stood at €–137.4 billion, compared with €–148.0 bil-

capital amounted to €–10.1 (–22.0) billion. The effects of the lion at the end of 2019.

Covid-19 pandemic included a reduction in receivables,

including in the financial services business, lower inventories Financial position of the Automotive Division

because of downscaled production, a decline in other pro- In the period from January to December 2020, the Auto-

visions and a smaller rise in liabilities. Cash outflows attri- motive Division’s gross cash flow was €23.6 billion, down

butable to the diesel issue were higher than in fiscal year €5.5 billion on the previous year due to earnings-related

2019. Cash flows from operating activities improved signifi- factors. Working capital, which underwent very different

cantly year-on-year, to €24.9 (18.0) billion. changes in the individual quarters, amounted to €1.1 (1.6) bil-

The Volkswagen Group’s investing activities attributable lion. The effects of the Covid-19 pandemic included lower

to operating activities amounted to €18.4 (20.1) billion in inventories because of downscaled production, a reduction in

fiscal year 2020; this was down on the previous year, mainly receivables as well as lower liabilities and a decline in other

due to lower capex.

provisions. Cash outflows attributable to the diesel issue were

Financing activities accounted for total cash inflows of higher than a year earlier. Consequently, cash flows from

7.6 billion in the reporting year, primarily to boost gross operating activities were down €6.0 billion to €24.7 billion.

€

liquidity; a cash outflow of €–0.9 billion had been recorded in

Investing activities attributable to operating activities

the previous year. Financing activities primarily include the decreased by €18.4 billion to €1.5 billion. Investments in

issuance and redemption of bonds and changes in other property, plant and equipment, investment property and in-

financial liabilities. In June 2020, hybrid notes totaling tangible assets, excluding capitalized development costs

€

3.0 billion were placed successfully. In September 2020, (capex) included in this figure declined by €2.9 billion to

Volkswagen issued green bonds in an amount of €2.0 billion. €11.1 billion. Despite a drop in sales revenue as a result of the

The dividend payment to the shareholders of Volkswagen AG pandemic, the ratio of capex to sales revenue was 6.1 (6.6)%

led to a cash outflow in October 2020 in the same amount as down on the prior-year figure due to a significant fall in

1

22

Results of Operations, Financial Position and Net Assets

Group Management Report

CA SH F LOW STAT EME N T BY DIV I S I ON

VOLKSWAGEN GROUP

AUTOMOTIVE¹

2020

FINANCIAL SERVICES

€

million

2020

2019

2020

2019

Cash and cash equivalents at beginning of period

Earnings before tax

24,329

11,667

–2,646

27,069

806

28,113

18,356

–2,914

24,439

342

18,098

8,891

–2,009

17,798

767

23,354

15,137

–2,187

15,958

320

6,231

2,776

–637

9,272

39

4,759

3,219

–726

8,480

23

Income taxes paid

Depreciation and amortization expense²

Change in pension provisions

Share of the result of equity-accounted investments

Other noncash income/expense and reclassifications³

Gross cash flow

536

460

584

520

–48

–59

–2,461

34,971

–10,070

1,334

712

–734

–2,388

23,642

1,079

1,406

45

–651

29,097

1,636

–345

–1,176

1,564

1,400

–110

303

–73

–83

39,950

–21,966

–674

11,329

–11,148

–72

10,853

–23,603

–329

283

Change in working capital

Change in inventories

Change in receivables

–893

668

Change in liabilities

540

2,297

–138

–214

52

678

733

Change in other provisions

–2

1,304

211

–96

Change in lease assets (excluding depreciation)

Change in financial services receivables

Cash flows from operating activities

–12,914

260

–13,204

–10,796

17,983

–12,966

332

–13,095

–11,099

–12,750

–72

24,901

24,721

30,733

180

Cash flows from investing activities attributable to operating

activities

–18,372

–20,076

–18,364

–19,898

–8

–178

of which: investments in property, plant and equipment,

investment property and intangible assets, excluding

capitalized development costs

–11,273

–6,473

–1,037

6,529

–14,230

–5,171

–913

–11,065

–6,473

–1,188

6,357

–14,007

–5,171

–716

–208

–

–223

–

capitalized development costs

acquisition and disposal of equity investments

Net cash flow⁴

151

–196

–12,928

3,949

3,771

10,413

–

–2,093

–1,069

–21,146

–865

10,835

–5,018

–24,916

–11,278

1,368

172

Change in investments in securities, loans and time deposits

Cash flows from investing activities

–4,319

–22,690

7,637

–3,015

–21,379

2,938

–1,304

–1,312

4,699

–

Cash flows from financing activities

of which: capital transactions with noncontrolling interests

capital contributions/capital redemptions

–238

1,368

–238

2,984

–

2,952

–970

33

970

MAN noncontrolling interest shareholders: compen-

sation payments and acquisition of shares tendered

2

–745

–0

–1,109

243

2

–619

–0

–1,109

205

–

–125

0

–

38

Effect of exchange rate changes on cash and cash equivalents

Change of loss allowance within cash & cash equivalents

Net change in cash and cash equivalents

1

–0

9,103

–3,784

5,660

–5,256

3,443

1,472

Cash and cash equivalents at Dec. 31⁵

Securities, loans and time deposits

Gross liquidity

33,432

32,645

24,329

29,099

23,758

15,868

39,626

–12,830

26,796

18,098

13,458

31,556

–10,280

21,276

9,674

16,777

6,231

15,641

66,078

53,428

26,451

21,872

Total third-party borrowings

Net liquidity⁶

–203,457

–137,380

–201,468

–148,040

–190,627

–164,176

–191,189

–169,316

1

2

3

Including allocation of consolidation adjustments between the Automotive and Financial Services divisions.

Net of impairment reversals.

These relate mainly to the fair value measurement of financial instruments and the reclassification of gains/losses on disposal of noncurrent assets and equity investments to

investing activities.

4

Net cash flow: cash flows from operating activities, net of cash flows from investing activities attributable to operating activities (investing activities excluding change in investments

in securities, loans and time deposits).

5

6

Cash and cash equivalents comprise cash at banks, checks, cash-in-hand and call deposits.

The total of cash, cash equivalents, securities, loans to affiliates and joint ventures as well as time deposits net of third-party borrowings (noncurrent and current financial liabilities).

Group Management Report

Results of Operations, Financial Position and Net Assets

123

capex. Capex was primarily allocated to our production MAN shares tendered as a result of the termination of the

facilities and to models that we launched in 2020 or are control and profit and loss transfer agreement with MAN SE,

planning to launch in 2021, or for which production is set to which was set against the cash inflow resulting from the IPO

start. These are primarily vehicles in the ID. family and in the of TRATON.

Golf, Audi Q4 e-tron, Audi Q6 e-tron, Audi e-tron GT, ŠKODA

At the end of the reporting year, the Automotive Divi-

Enyaq model series, the new generation of the ŠKODA Fabia, sion’s net liquidity was up €5.5 billion, at €26.8 billion.

the SEAT Leon family, as well as the CUPRA Formentor, the Driven by the increase in net liquidity and the decrease in

Porsche Taycan, the Porsche Macan and Bentley’s Bentayga. sales revenue, the Automotive Division’s net liquidity

Other investment priorities included the ecological focus of accounted for 12.0 (8.4)% of consolidated sales revenue in the

our model range, product electrification and digitalization, reporting period.

and our modular toolkits. The increase in capitalized develop-

ment costs to €6.5 (5.2) billion is primarily due to product

impairment tests, which have had to be performed at brand FI NA NC IA L P O SI T ION I N T H E PA S S E NG E R CA R S B U S I N E S S A REA

level since the end of 2019. The “acquisition and disposal of

equity investments” item went up by €0.5 billion to €1.2 bil-

lion as a result of strategic investments in a number of com-

panies, in particular the Argo AI joint venture; this was offset

by the cash provided by the sale of Renk.

€

million

2020

2019

Gross cash flow

21,823

331

25,474

3,053

The Automotive Division’s net cash flow fell by €4.5 bil- Change in working capital

lion to €6.4 billion in the reporting period.

Cash flows from operating activities

22,154

28,528

Financing activities relate to the issuance and redemption Cash flows from investing activities

attributable to operating activities

–16,762

5,392

–20,254

8,273

of bonds and changes in other financial liabilities; the total

Net cash flow

cash inflow in this item was €2.9 billion in fiscal year 2020.

This helped boost gross liquidity and resulted in higher

liabilities to banks. The hybrid notes with a principal amount

of €3.0 billion, which were successfully issued via Volks- Due to the pandemic-related decline in profit, the gross cash

wagen International Finance N .V . in June 2020, led to cash flow generated by the Passenger Cars Business Area was

inflows. The first one is a €1.5 billion note that has a coupon €21.8 billion in fiscal year 2020, having experienced a decline

of 3.5% and can first be called after five years, and the other is of €3.7 billion compared with the previous year. The change

a €1.5 billion note that has a coupon of 3.875% and can first in working capital amounted to €0.3 (3.1) billion. The effects

be called after nine years. Both notes have perpetual of the Covid-19 pandemic included lower inventories, a

maturities and increase equity, net of transaction and other reduction in receivables, lower liabilities and a decline in

costs. An amount of €3.0 billion of the hybrid notes was other provisions. The cash outflows attributable to the diesel

eligible to be classified as a capital contribution and led to a issue were higher in the reporting period than a year earlier.

rise in net liquidity. In addition, the green bonds of €2.0 bil- Cash flows from operating activities were down by

lion issued in September 2020 are included in financing €6.4 billion to €22.2 billion. Investing activities attributable

activities. A dividend of €2.4 (2.4) billion was distributed to to operating activities in the Passenger Cars Business Area

the shareholders of Volkswagen AG in October 2020. The decreased to €16.8 (20.3) billion. Capex was lower, while

“

capital transactions with noncontrolling interests” item capitalized development costs increased. The “acquisition

includes the cash outflow of €0.2 billion for the transfer of all and disposal of equity investments” item went up due to

outstanding Audi shares to Volkswagen AG. In the previous strategic investments in a number of companies, in particular

year, financing activities accounted for cash outflows of the joint venture Argo AI. The Passenger Cars Business Area’s

€

11.3 billion. This figure also included the acquisition of net cash flow declined by €2.9 billion to €5.4 billion.

1

24

Results of Operations, Financial Position and Net Assets

Group Management Report

FI NA NC IA L P O SI T ION I N T H E CO M M ERCIA L VEH IC L ES B U SI N E SS

A R EA

caused by the lower business volume in response to the

decline in demand following the spread of the SARS-CoV-2

virus, the change in working capital amounted to

€–11.1 (–23.6) billion. Cash flows from operating activities

improved by €12.9 billion to €0.2 billion.

€

million

2020

2019

At €0.0 (0.2) billion, investing activities attributable to

Gross cash flow

1,845

159

3,357 operating activities were below the prior-year figure.

–1,249

The Financial Services Division’s financing activities

2,108 relate primarily to the issuance and redemption of bonds and

Change in working capital

Cash flows from operating activities

2,004

Cash flows from investing activities

attributable to operating activities

other financial liabilities; there was a total cash inflow of

–1,328

676

603

€4.7 billion to refinance the business volume in the reporting

Net cash flow

2,711

period, compared with €10.4 billion in the previous year.

At the end of the reporting period, the Financial Services

Division’s negative net liquidity, which is common in the

In the period from January to December 2020, the Com- industry, stood at €–164.2 billion, compared with €–169.3 bil-

mercial Vehicles Business Area’s gross cash flow went down lion on December 31, 2019.

by €1.5 billion to €1.8 billion due to earnings-related factors

driven by the Covid-19 pandemic. The change in working

capital amounted to €0.2 (–1.2) billion. Cash flows from

N E T A SS E T S

operating activities declined by €0.1 billion to €2.0 billion. Consolidated balance sheet structure

Investing activities attributable to operating activities were At the end of fiscal year 2020, the Volkswagen Group had total

up on the previous year, in which the intragroup sale of the assets of €497.1 billion, 1.9% more than at the end of the

power engineering business had led to a cash inflow. Net cash prior year. The rise is mostly attributable to the boost in gross

flow dropped to €0.7 (2.7) billion.

liquidity and the successful issue of hybrid notes in the

second quarter of 2020. It was offset by exchange rate effects.

A chart showing the structure of the consolidated balance

sheet as of the reporting date can be found in this chapter.

The Volkswagen Group’s equity increased by €5.1 billion to

FI NANCIAL POSITION I N THE POWER ENGI N EERI NG BUSI NESS AREA

€128.8 billion. The equity ratio was 25.9 (25.3)%.

As of the end of fiscal year 2020, the Group had off-

€

million

2020

2019

balance-sheet commitments in the form of contingent

Gross cash flow

–25

588

562

265 liabilities in the amount of €8.6 (8.5) billion and in the form

–168 of financial guarantees in the amount of €0.4 (0.4) billion. In

98 addition, there were other financial obligations of €22.0 bil-

lion, which exceeded the prior-year figure of €20.0 billion.

Change in working capital

Cash flows from operating activities

Cash flows from investing activities

attributable to operating activities

–274

289

–247

The contingent liabilities relate primarily to legal risks in

Net cash flow

–150

connection with the diesel issue, as well as to potential

liabilities from tax risks in the Commercial Vehicles Business

In the reporting year, gross cash flow in the Power Area in Brazil. Other financial obligations primarily result

Engineering Business Area declined to €0.0 (0.3) billion year- from purchase commitments for property, plant and equip-

on-year, primarily as a result of a deterioration in profit. Due ment and irrevocable credit commitments to customers.

to a reduction in receivables and restructuring expenses that They also include commitments to invest in the infrastruc-

have not yet led to cash outflows, the change in working ture for zero-emission vehicles and in initiatives to promote

capital amounted to €0.6 (–0.2) billion. Cash flows from access to and awareness of this technology. These commit-

operating activities rose by €0.5 billion year-on-year, to ments were made as part of the settlement agreements in the

€0.6 billion. Investing activities attributable to operating USA in connection with the diesel issue. The other financial

activities increased by 10.6% to €0.3 billion. Net cash flow obligations include an amount of €0.9 billion for this pur-

improved by €0.4 billion to €0.3 billion.

pose. In addition, this item reflects the payment of the

purchase price for the acquisition of all of Navistar’s out-

standing shares totaling around USD 3.7 billion, as the merger

Financial position in the Financial Services Division

In the period from January to December 2020, the Financial agreement between TRATON and Navistar contains condi-

Services Division generated gross cash flow of €11.3 (10.9) bil- tions precedent and the purchase price payment cannot be

lion. Given a decrease in funds tied up in working capital recorded as a liability in the balance sheet at present.

Group Management Report

Results of Operations, Financial Position and Net Assets

125

CON SO LI DATE D B A L A N C E S H E E T BY D I V I SI O N A S O F D E C E M B E R 3 1

VOLKSWAGEN GROUP

AUTOMOTIVE¹

FINANCIAL SERVICES

2020

€

million

2020

2019

2020

2019

Assets

Noncurrent assets

Intangible assets

302,170

67,968

63,884

50,686

82,565

300,608

66,214

66,152

48,938

86,973

156,861

67,781

62,807

1,512

153,736

66,010

65,043

2,084

145,309

187

146,873

204

Property, plant and equipment

Lease assets

1,077

1,110

49,174

82,942

46,853

87,363

Financial services receivables

–377

–390

Investments, equity-accounted investments and

other equity investments, other receivables and

financial assets

37,067

194,944

43,823

58,006

38,044

21,162

33,909

–

32,331

187,463

46,742

58,615

38,620

16,769

25,923

795

25,137

97,236

39,055

–557

20,989

93,081

41,898

–640

11,930

97,708

4,768

58,562

21,033

3,658

9,687

–

11,342

94,382

4,844

59,255

20,817

3,223

6,243

–

Current assets

Inventories

Financial services receivables

Other receivables and financial assets

Marketable securities

Cash, cash equivalents and time deposits

Assets held for sale

17,012

17,503

24,222

–

17,803

13,546

19,679

795

Total assets

497,114

488,071

254,097

246,816

243,017

241,255

Equity and liabilities

Equity

128,783

111,336

15,713

123,651

109,117

12,663

96,733

79,913

15,713

92,774

78,872

12,663

32,050

31,423

–

30,877

30,246

–

Equity attributable to Volkswagen AG

shareholders

Equity attributable to Volkswagen AG hybrid

capital investors

Equity attributable to Volkswagen AG

shareholders and hybrid capital investors

127,049

1,734

121,781

1,870

95,626

1,107

91,535

1,239

31,423

627

30,246

631

Noncontrolling interests

Noncurrent liabilities

Financial liabilities

202,921

114,809

45,081

43,031

165,410

88,648

22,677

54,085

–

196,497

113,556

41,389

41,551

167,924

87,912

22,745

56,896

370

93,523

15,637

44,207

33,680

63,840

–2,806

19,539

47,107

–

90,822

17,592

40,631

32,600

63,220

–7,312

19,603

50,559

370

109,398

99,173

874

105,675

95,965

759

Provisions for pensions

Other liabilities

9,352

101,569

91,454

3,137

6,978

–

8,951

104,703

95,224

3,142

6,337

–

Current liabilities

Financial liabilities

Trade payables

Other liabilities

Liabilities associated with assets held for sale

Total equity and liabilities

497,114

488,071

254,097

246,816

243,017

241,255

1

Including allocation of consolidation adjustments between the Automotive and Financial Services divisions, primarily intragroup loans.

1

26

Results of Operations, Financial Position and Net Assets

Group Management Report

C O NSO L IDA T E D BA L A NC E SHE E T ST RU C T U RE 2 0 2 0

in percent

Noncurrent assets

Current assets

39.2 (38.4)

6

0.8 (61.6)

Total assets

Equity

5.9 (25.3)

Noncurrent liabilities

40.8 (40.3)

Current liabilites

33.3 (34.4)

2

Total equity

and liabilities

0

10

20

30

40

50

60

70

80

90

100

Automotive Division balance sheet structure

the Annual General Meeting, and higher actuarial losses from

As of December 31, 2020, the Automotive Division’s intan- the remeasurement of pension plans reduced equity. Non-

gible assets increased slightly compared with fiscal year 2019, controlling interests are primarily held by the noncontrolling

driven among other factors by a rise in capitalized develop- interest shareholders of TRATON. The equity ratio was

ment costs. Property, plant and equipment declined due to 38.1 (37.6)%.

exchange rate factors and depreciation in excess of additions.

Noncurrent liabilities increased by €2.7 billion to €93.5 bil-

Equity-accounted investments were up as the year-on-year lion. The decrease in noncurrent financial liabilities included

decline in the business results of the Chinese joint ventures in this item was driven primarily by reclassifications from

was offset by resolutions to pay lower dividends and by noncurrent to current liabilities to reflect shorter remaining

additions to the interests held in entities such as Argo AI, maturities and by exchange rate effects; the issuance of green

QuantumScape, Anhui Jianghuai Automobile Group Holdings bonds in September 2020 had an offsetting impact on this

and Northvolt. Noncurrent other receivables and financial item. Pension provisions were significantly higher than the

assets increased. Total noncurrent assets were up €3.1 billion comparative 2019 figure, due mainly to the actuarial remea-

to €156.9 billion.

surement following a change in the discount rate.

Current assets were higher than at the end of 2019,

At €63.8 (63.2) billion, current liabilities were on a level

amounting to €97.2 (93.1) billion. As a result of downscaled with the previous year. Current financial liabilities amounted

production in response to the pandemic and due to exchange to €–2.8 (–7.3) billion due primarily to reclassifications from

rate effects, the inventories included in this item were lower. noncurrent to current liabilities. The figures for the Auto-

The Automotive Division’s securities and cash and cash motive Division also contain the elimination of intragroup

equivalents rose by €8.5 billion to €41.7 billion.

transactions between the Automotive and Financial Services

In the previous year, the “Assets held for sale” item divisions. As the current financial liabilities for the primary

included the carrying amounts of assets to be derecognized Automotive Division were lower than the loans granted to the

as a result of the contribution of AID to the Argo AI joint Financial Services Division, a negative amount was disclosed

venture and those relating to the sale of Renk.

in both periods. Current other liabilities were down, primarily

At the end of the reporting year, the Automotive Divi- due to the effects of the measurement of derivatives and to

sion’s equity amounted to €96.7 billion, 4.3% more than a lower liabilities from buyback transactions. Other provisions

year earlier. The increase was mainly attributable to the profit decreased, due mainly to utilizations in connection with the

generated, the hybrid notes issued in June 2020, and the diesel issue.

positive effects from the measurement of derivatives recog-

At the end of fiscal year 2020, the Automotive Division’s

nized directly in equity. Currency translation, the dividend total assets amounted to €254.1 billion, up 2.9% compared

payment to the shareholders of Volkswagen AG resolved by with the figure on December 31, 2019.

Group Management Report

Results of Operations, Financial Position and Net Assets

127

PA S SEN GER CA R S B U SI N E SS A REA

BA L A NCE SH E E T STRU CTU R E

COM M E RCIA L V E H IC LE S B U S I N E S S A REA

BA L A NCE SH E E T STRU CTU R E

€

million

Dec. 31, 2020

Dec. 31, 2019

€ million

Dec. 31, 2020

Dec. 31, 2019

Noncurrent assets

Current assets

Total assets

130,237

83,180

213,417

81,423

82,263

49,731

126,387

75,459

201,846

75,773

78,679

47,394

Noncurrent assets

Current assets

Total assets

24,777

11,256

36,033

13,389

10,592

12,052

25,143

13,420

38,563

14,115

11,367

13,081

Equity

Noncurrent liabilities

Current liabilities

Noncurrent liabilities

Current liabilities

At the end of 2020, intangible assets in the Passenger Cars At the end of the reporting period, property, plant and

Business Area were higher than at the 2019 balance sheet equipment in the Commercial Vehicles Business Area was up

date. This was attributable among other factors to an increase slightly, while lease assets were down. In total, noncurrent

in capitalized development costs. Exchange rate factors and assets were slightly lower than at the last balance sheet date

depreciation in excess of additions led to a decrease in prop- in 2019, amounting to €24.8 (25.1) billion. Current assets

erty, plant and equipment. Equity-accounted investments declined by 16.1%. The inventories included in this item were

rose compared with December 31, 2019: the year-on-year lower as a result of downscaled production in response to the

decline in the business results of the Chinese joint ventures pandemic. Total securities and cash and cash equivalents

was set against resolutions to pay lower dividends in the decreased in the reporting year. At €36.0 billion, total assets

Chinese joint ventures, as well as additions to the interests were again €2.5 billion lower than in the previous year.

held in entities such as Argo AI, QuantumScape, Anhui

The Commercial Vehicles Business Area’s equity was

Jianghuai Automobile Group Holdings and Northvolt. down on the previous year, amounting to €13.4 (14.1) billion.

Overall, noncurrent assets increased by 3.0% compared with Noncurrent liabilities were 6.8% lower overall than on

the end of 2019. Current assets rose by 10.2%. The inventories December 31, 2019. There was a decline in other noncurrent

included in this item were lower as a result of downscaled liabilities. Current liabilities dropped by a total of 7.9%. The

production in response to the pandemic and due to exchange current other liabilities included in this item were lower than

rate effects. Total securities and cash and cash equivalents in on the previous year’s balance sheet date.

the Passenger Cars Business Area significantly exceeded the

figure recorded at the end of 2019. On December 31, 2020, the

Passenger Cars Business Area had total assets amounting to

€213.4 (201.8) billion.

At €81.4 (75.8) billion, the Passenger Cars Business Area’s

equity was up on the figure for December 31, 2019, mainly for

earnings-related reasons. Total noncurrent liabilities were

4.6% higher than at the end of 2019. The noncurrent financial

liabilities included in this item increased, and pension

provisions rose, mainly due to the actuarial remeasurement

following a change in the discount rate. A rise in current

financial liabilities was the main factor driving the 4.9%

increase in current liabilities compared with the end of 2019.

This was offset in particular by lower other provisions, whose

decline was driven by factors such as utilizations in connec-

tion with the diesel issue.

1

28

Results of Operations, Financial Position and Net Assets

Group Management Report

P OWE R E N G I N E E RI N G B U S I N E S S A R EA BA L A N CE S H E E T

STRU CTU R E

On December 31, 2020, the Financial Services Division

accounted for around 48.9 (49.4)% of the Volkswagen Group’s

assets.

At the end of the reporting year, the Financial Services

Division’s equity stood at €32.0 billion, 3.8% more than a year

earlier. Negative exchange rate effects were offset by positive

€

million

Dec. 31, 2020

Dec. 31, 2019

Noncurrent assets

Current assets

Total assets

1,847

2,800

4,647

1,922

668

2,206 earnings. The equity ratio was 13.2 (12.8)%.

Noncurrent liabilities increased by 3.5% overall, mainly

6,408 due to a rise in noncurrent financial liabilities and higher

2,885 other provisions. A reduction in current financial liabilities,

777 offset by higher other current liabilities, led to a net decrease

2,746 in total current liabilities.

4,202

Equity

Noncurrent liabilities

Current liabilities

2,057

Deposits from the direct banking business amounted to

€28.9 (32.5) billion, and were therefore below the figure

The Power Engineering Business Area’s intangible assets and recorded at the end of 2019.

property, plant and equipment were lower on December 31,

2020 than on the prior-year balance sheet date. Noncurrent

RETU R N ON I NVE STMEN T (RO I) A N D VA LU E CO NT RI BUTI ON

assets dropped by a total of 16.3%. Current assets decreased The Volkswagen Group’s financial target system centers on

by 33.4%, with a significant reduction in the cash and cash continuously and sustainably increasing the value of the

equivalents included in this item. In the previous year, the Company. In order to ensure the efficient use of resources in

“Assets held for sale” item had included the carrying the Automotive Division and to measure the success of this,

amounts of assets derecognized as a result of the sale of Renk we have been using a value-based management system for a

completed in October 2020. As a result, total assets in the number of years, with return on investment (ROI) as a relative

1

Power Engineering Business Area went down to indicator and value contribution , a key performance indi-

€

4.6 (6.4) billion at the end of fiscal year 2020.

cator linked to the cost of capital, as an absolute performance

At the end of 2020, the Power Engineering Business Area’s measure.

equity amounted to €1.9 (2.9) billion. Overall, noncurrent

The return on investment serves as a consistent target in

liabilities were lower than a year earlier. Current liabilities strategic and operational management. If the return on

also declined compared with the end of 2019. The financial investment exceeds the market cost of capital, there is an

liabilities included here fell significantly, while other pro- increase in the value of the invested capital and a positive

visions went up because of provisions recognized for restruc- value contribution. The concept of value-based management

turing measures. Current liabilities as of the end of 2019 had allows the success of the Automotive Division and individual

also included the carrying amounts of the liabilities of Renk, business units to be evaluated. It also enables the earnings

which were derecognized as a result of the sale of Renk in power of our products, product lines and projects – such as

2020.

new plants – to be measured.

Financial Services Division balance sheet structure

Components of value contribution

1

On December 31, 2020, the Financial Services Division had Value contribution is calculated on the basis of the operating

total assets of €243.0 (241.3) billion, slightly more than at the result after tax and the opportunity cost of invested capital.

balance sheet date in 2019.

The operating result shows the economic performance of

Noncurrent assets declined by 1.1% to €145.3 billion com- the Automotive Division and is initially a pre-tax figure.

pared with the end of the prior year; the property, plant and Based on our companies’ income tax rates, which vary from

equipment included in this item was virtually unchanged. country to country, we assume an overall average tax rate of

Lease assets increased, while non-current financial services 30% when calculating the operating result after tax.

receivables were down because volumes and exchange rates

were affected by the Covid-19 pandemic.

Current assets expanded to €97.7 (94.4) billion. Current

financial services receivables were lower than at the end of

2019, primarily for pandemic-related reasons. At €13.3 bil-

lion, total securities and cash and cash equivalents in the

Financial Services Division exceeded the figure recorded at

the end of 2019 by €3.9 billion.

1

The value contribution corresponds to the Economic Value Added (EVA®). EVA® is a

registered trademark of Stern Stewart & Co.

Group Management Report

Results of Operations, Financial Position and Net Assets

129

The cost of capital is multiplied by the average invested

capital to give the opportunity cost of capital. Invested capital

is calculated as total operating assets reported in the balance

sheet (property, plant and equipment, intangible assets, lease

assets, inventories and receivables) less non-interest-bearing

CO ST OF CA PI TA L AFTER TA X I N T H E AUTOM OT IVE DIVI SI ON

%

2020

2019

liabilities (trade payables and payments on account received). Risk-free rate

Average invested capital is derived from the balance at the Market risk premium

–0.2

7.5

0.0

7.5

beginning and the end of the reporting period.

Volkswagen-specific risk premium

2.0

1.3

As the concept of value-based management only com- (Volkswagen beta factor)

prises our operating activities, assets relating to investments Cost of equity after tax

in subsidiaries and associates and the investment of cash Cost of debt

funds are not included when calculating invested capital. Tax

Interest charged on these assets is reported in the financial Cost of debt after tax

(1.26)

9.3

(1.17)

8.8

1.4

1.9

–0.4

1.0

–0.6

1.3

result.

Proportion of equity

66.7

33.3

6.5

66.7

33.3

6.3

Proportion of debt

Determining the current cost of capital

Cost of capital after tax

The cost of capital is the weighted average of the required

rates of return on equity and debt.

The cost of equity is determined using the Capital Asset

Pricing Model (CAPM).

RETU R N ON I NVE STMEN T (RO I) A N D VA LU E CO NT RI BUTI ON I N

TH E R EPO RT I NG PERI OD

This model uses the yield on long-term risk-free Bunds,

increased by the risk premium attaching to investments in At €7,450 (13,019) million, the Automotive Division’s operating

the equity market. The risk premium comprises a general profit after tax, including the proportionate operating profit

market risk and a specific business risk.

The general risk premium of 7.5% reflects the general risk figure in fiscal year 2020, mainly due to the persistently

of a capital investment in the equity market. negative impact of the spread of the SARS-CoV-2 virus. In

of the Chinese joint ventures, was down on the prior-year

The specific business risk – price fluctuations in Volks- addition particularly to the decline in revenue resulting from

wagen preferred shares – is modeled in comparison to the the pandemic-related fall in customer demand, turbulence in

MSCI World Index when calculating the beta factor. The MSCI the capital markets led to negative effects from the mea-

World Index is a global capital market benchmark for surement of receivables and liabilities denominated in

investors.

foreign currencies. One-off expenses for restructuring mea-

The analysis period for the beta factor calculation spans sures also reduced earnings. A positive impact was made by

five years with annual beta figures calculated on a weekly lower costs. In addition, income was generated from the

basis followed by the subsequent calculation of the average. A contribution of AID to the Argo AI joint venture and from the

beta factor of 1.26 (1.17) was determined for 2020.

sale of Renk. Negative special items weighed on the operating

The cost of debt is based on the average yield for long- profit, but to a lesser extent than in the previous year. The

term debt. As borrowing costs are tax-deductible, the cost of effect of purchase price allocation on earnings and assets is

debt is adjusted to account for the tax rate of 30%.

not taken into account as this cannot be influenced by

A weighting on the basis of a fixed ratio for the fair values management in the course of business operations.

of equity and debt gives an effective cost of capital for the

Automotive Division of 6.5 (6.3)% for 2020.

In the reporting year, the invested capital fell to

€114,907 (116,016) million, partly due to exchange rates. The

decrease was due primarily to lower inventory levels and

lower property, plant and equipment, offset by higher capi-

talized development costs.

1

30

Results of Operations, Financial Position and Net Assets

Group Management Report

The return on investment (ROI) is the return on invested tunity cost of invested capital, the operating result after tax

capital for a particular period based on the operating result – which was negatively impacted by the pandemic – led to a

after tax. Due to earnings-related factors as a result of the negative value contribution of €–54 (5,691) million.

Covid-19 pandemic, ROI declined year-on-year; at 6.5 (11.2)% More information on value-based management is contained

it was below our defined minimum required rate of return on in our publication entitled “Financial Control System of the

invested capital of 9%.

Volkswagen Group”, which can be downloaded from our In-

At €7,504 (7,328) million, the opportunity cost of capital vestor Relations website: www.volkswagenag.com/en/Investor

invested capital multiplied by cost of capital) slightly Relations/news-and-publications/More_Publications.html.

(

exceeded the prior-year figure. After deduction of the oppor-

RETU R N ON I NVE STMEN T (RO I) A N D VA LU E CO NT RI BUTI ON I N T H E AUTOMOT IVE D I VISIO N¹

€

million

2020

2019

Operating result after tax

Invested capital (average)

Return on investment (ROI) in %

Cost of capital in %

7,450

114,907

6.5

13,019

116,016

11.2

6.5

6.3

Opportunity cost of invested capital

Value contribution

7,504

–54

7,328

5,691

1

Including proportionate inclusion of the Chinese joint ventures (including the relevant sales and component companies) and allocation of consolidation adjustments between the

Automotive and Financial Services Divisions.

Group Management Report

Results of Operations, Financial Position and Net Assets

131

SUMM A RY OF BU SI N ESS DEVELOPMENT A N D ECONOM IC P OSITION

The research and development costs reflect our activities to

The Board of Management of Volkswagen AG considers busi- safeguard the Company’s future viability; despite the coun-

ness development and the economic position to have been termeasures taken, the R&D ratio in the Automotive Division

positive overall given the context created by the extensively came to 7.6% and, as ultimately expected, was therefore

and persistently negative impact of the spread of the SARS- higher than in the previous year owing to the decline in sales

CoV-2 virus.

Throughout the entire reporting period, the Covid-19

revenue caused by the pandemic.

Due to a significant fall in capex, the Automotive Divi-

pandemic had a strong impact on business at the Volkswagen sion’s ratio of capex to sales revenue declined to 6.1% and

Group and led to lower figures in terms of deliveries, sales was within the originally expected range. At €6.4 billion, the

revenue and profit, as well as to deviations from the original net cash flow came in clearly positive despite the Covid-19

forecast. In this environment, which was also dominated by pandemic, the year-on-year decline was driven particularly by

fierce competition, technological change in our industry and the lower profits and by higher cash outflows attributable to

growing environmental awareness, we delivered 9.3 million the diesel issue. Net liquidity improved beyond the forecast to

vehicles to customers. The Group’s sales revenue also fell sig- €26.8 billion, partly due to the successful placement of hybrid

nificantly by 11.8% as a result of lower volumes and exchange notes.

rate effects. This reduced operating profit before special items

The return on investment (ROI) in the Automotive Division

to €10.6 billion. At 4.8%, the operating return on sales before decreased to 6.5% as a consequence of the pandemic and fell

special items fell short of the originally forecast range of short of the minimum required rate of return on invested

6.5 to 7.5%. The operating return on sales, including special capital.

items related to the diesel issue, amounted to 4.3%.

FORE CA ST V E R SU S ACTUA L F IG U R E S

Original forecast

for 2020

Adjusted forecast

for 2020

Actual 2019

Actual 2020

Deliveries to customers (units)

Volkswagen Group

11.0 million around the prior-year level

considerable decline

9.3 million

Sales revenue

€252.6 billion

7.6%

6.7%

€19.3 billion

€17.0 billion

increase of up to 4%

6.5–7.5%

considerable decline

positive, <6.5%

severe decline, positive

€222.9 billion

4.8%

4.3%

€10.6 billion

€9.7 billion

Operating return on sales before special items

Operating return on sales

Operating result before special items

Operating result

6.5–7.5%

in forecast range

Passenger Cars Business Area

Sales revenue

Operating return on sales before special items

Operating return on sales

Operating result before special items

Operating result

€182.0 billion

8.0%

6.7%

€14.5 billion

€12.2 billion

moderate increase

6.5–7.5%

in forecast range

considerable decline

in forecast range, <6.5%

severe decline

€156.3 billion

5.2%

4.6%

€8.2 billion

€7.2 billion

severe decline

Commercial Vehicles Business Area

Sales revenue

Operating return on sales

Operating result

€26.4 billion

6.3%

€1.7 billion

moderate decline

4.0–5.0%

in forecast range

considerable decline

in forecast range, <4.0%

severe decline

€22.2 billion

–0.4%

€–79 million

Power Engineering Business Area

Sales revenue

€4.0 billion

at prior-year level

considerable decline

€3.6 billion

Operating result

€–93 million

smaller loss considerably higher loss

€–482 million

Financial Services Division

Sales revenue

Operating result

R&D ratio in the Automotive Division

Capex/sales revenue in the Automotive Division

€40.2 billion around the prior-year level

€3.2 billion around the prior-year level

at prior-year level

considerable decline

increase, >6.5%

€40.8 billion

€3.0 billion

7.6%

6.7%

6.6%

6.0–6.5%

at prior-year level

6.1%

noticeable decline,

clearly positive

distinct increase around the prior-year level

considerable decline,

positive

Net cash flow in the Automotive Division

Net liquidity in the Automotive Division

€10.8 billion

€21.3 billion

€6.4 billion

€26.8 billion

Return on investment (ROI) in the

Automotive Division

11.2%

slight increase, >9% decline, positive, <9%

6.5%

1

32

Volkswagen AG

Group Management Report

Volkswagen AG

(Condensed, in accordance with the German Commercial Code)

Unit sales of Volkswagen AG in 2020 were down on the previous year due to

the negative impact of the Covid-19 pandemic, while profit increased.

A N N UA L RE SU LT

Gross profit on sales fell accordingly to €4.1 (5.9) billion.

Additional special items in connection with the diesel issue

amounting to €0.8 billion were recognized in fiscal year 2020. expenses were down €0.7 billion on the prior-year figure.

This was mainly due to further provisions for legal risks. The net other operating result was €1.3 billion higher, at

Special items had an impact of €–0.8 (–1.8) billion on net €0.4 billion. The rise was due particularly to lower expenses

At €7.3 billion, distribution, general and administrative

other operating result.

for legal and litigation risks.

At €67.5 billion, sales in the reporting period were down

The €0.7 billion increase in the financial result to

16.2% year-on-year largely due to the pandemic and the €9.8 billion resulted mainly from lower write-downs of long-

measures taken to contain the spread of the SARS-CoV-2 term financial assets.

virus. Sales generated abroad accounted for a share of €40.7

Taxes on income declined to €–0.7 (–1.2) billion, particu-

billion or 60.3%. Cost of sales decreased by 15.1% to €63.4 bil- larly due to lower current tax expense and tax refunds for

lion.

prior years, taking net income for fiscal year 2020 to

6.3 (5.0) billion.

€

I NCOME STATEM ENT O F VO LKSWAGEN AG

BA L A NCE SH E ET OF VO LKSWAGE N AG AS OF DEC E MB ER 3 1

€

million

2020

2019

€ million

2020

2019

Sales

67,535

–63,418

4,117

80,621

–74,700

5,921

Fixed assets

130,377

6,542

120,823

5,554

Cost of sales

Gross profit on sales

Inventories

Receivables¹

38,766

8,803

35,856

5,639

Distribution, general and administrative

expenses

–7,269

–7,948

Cash-in-hand and bank balances

Total assets

184,488

39,549

18

167,872

35,629

18

Net other operating result

Financial result¹

398

9,787

–693

6,338

855

–914

9,115

–1,215

4,958

0

Equity

Special tax-allowable reserves

Long-term debt

Medium-term debt

Short-term debt

Taxes on income

43,086

36,348

65,487

39,206

35,983

57,036

Earnings after tax

Net income for the fiscal year

Retained profits brought forward

Appropriations to revenue reserves

Net retained profits

–3,165

4,028

–1,685

3,273

1 Including prepaid expenses.

1

Including write-downs of long-term financial assets.

Group Management Report

Volkswagen AG

133

N ET A SS ET S AN D FI NA NCIA L PO SI TIO N

DIV I DE N D PO LI CY

Total assets amounted to €184.5 billion on December 31, Our dividend policy matches our financial strategy. In the

020, up €16.6billion on the prior-year figure. Property, plant interests of all stakeholders, we aim for continuous dividend

2

and equipment was up by €0.6 billion, with capital expendi- growth that allows our shareholders to benefit appropriately

ture exceeding depreciation charges. The rise in financial from our business success. The proposed dividend therefore

assets to €121.6 (112.8) billion was mainly the result of an reflects our financial management objectives – in particular,

increase in shares held in affiliated companies.

Fixed assets accounted for a share of 70.7 (72.0)% of total mentation of our strategy.

assets. In our Group strategy, we have set ourselves the goal of

ensuring a solid financial foundation as part of the imple-

Current assets (including prepaid expenses) amounted to achieving a payout ratio of at least 30%. The payout ratio is

54.1 (47.0) billion on December 31, 2020. Inventories went based on the Group’s earnings after tax attributable to Volks-

€

up due primarily to the addition of precious metals. Receiv- wagen AG shareholders. This amounts to 29.0% for the

ables were higher, mainly because of financing provided to reporting period and stood at 18.1% in the previous year.

subsidiaries. Cash instruments increased, driven mostly by

raising restricted short-term time deposits.

DIV I DE N D PROP OSA L

At the end of the reporting period, equity was at €39.5 bil- In fiscal year 2020, net retained profits amounted to

lion; the increase was due particularly to the positive net €4.0 billion. The Board of Management and Supervisory

income for the year. The equity ratio was 21.4 (21.2)%.

Board are proposing to pay a total dividend of €2.4 billion, i.e.

Other provisions decreased by €1.5 billion to €19.9 €4.80 per ordinary share and €4.86 per preferred share.

21.4) billion due mainly to the utilization of provisions in

(

connection with the diesel issue. Provisions for pensions and

similar obligations rose by €1.2 billion to €19.0 billion, pri-

marily as a result of a change in measurement inputs, while

provisions for taxes increased by €0.5 billion to €4.3 billion.

The €12.5 billion increase in total liabilities (including

deferred income) to €101.7 billion is attributable primarily to

higher liabilities to affiliated companies.

Volkswagen AG’s cash funds, comprising cash instru-

ments with a maturity of less than three months, less bank

liabilities repayable on demand and cash pooling liabilities,

improved year-on-year from €–7.6 billion to €–5.1 billion.

The interest-bearing portion of debt amounted to €89.8 (78.2)

billion. In our assessment, given the context created by the

extensive and persistent negative impact of the spread of the

SARS-CoV-2 virus, the economic position of Volkswagen AG is

just as positive overall as that of the Volkswagen Group.

PROPO SAL O N T H E APPROP RIATI ON OF N ET PROF IT

€

2020

Dividend payout on subscribed capital

2,418,589,589.10

(€1,283 million)

of which on: ordinary shares

preferred shares

1,416,431,126.40

1,002,158,462.70

1,609,493,827.80

4,028,083,416.90

Balance (carried forward to new account)

Net retained profits

E M P LOYE E PAY A N D B E N E F I T S AT VOL KSWAG E N AG

€

million

2020

%

2019

%

Direct pay including cash benefits

Social security contributions

Compensated absence

Retirement benefits

7,477

1,379

1,099

634

70.6

13.0

10.4

6.0

8,421

1,502

1,310

682

70.7

12.6

11.0

5.7

Total expense

10,588

100.0

11,916

100.0

1

34

Volkswagen AG

Group Management Report

V E H I C L E SA L E S

EXPEN DI TU RE O N ENV I RO NME NTA L PROTE CTIO N

Volkswagen AG sold a total of 1,941,821 (2,580,553) vehicles When measuring expenditure on environmental protection,

in fiscal year 2020. This decrease is essentially due to the a distinction is made between investments and operating

negative impact of the Covid-19 pandemic. Vehicles sold costs for production-related environmental protection mea-

abroad accounted for a share of 64.9 (67.6)%.

sures. Of our total investments, only those that are spent

exclusively or primarily on environmental protection are

included in environmental protection investments. We dis-

PROD U CT IO N

Volkswagen AG produced a total of 792,393 vehicles at its tinguish here between additive and integrated investments.

vehicle production plants in Wolfsburg, Hanover and Emden Additive environmental protection measures are separate

in the reporting period (–25.9%).

measures upstream or downstream of the production pro-

cess. In contrast to additive environmental protection mea-

sures, integrated measures already reduce the environmental

E M P LOYE ES

As of December 31, 2020, a total of 118,673 (119,204) people impact during the production process. In 2020 we invested

were employed at the sites of Volkswagen AG, excluding staff primarily in climate protection and in soil and water pol-

employed at subsidiaries. Of this figure, 4,848 (5,029) were lution control.

vocational trainees. 6,210 (5,254) employees were in the

passive phase of their partial retirement.

The recognized operating costs relate to measures that

protect the environment against harmful factors by avoiding,

Female employees accounted for 17.8 (17.6)% of the reducing, or eliminating emissions by the Company. Resources

workforce. Volkswagen AG employed 7,002 (6,551) part-time are also conserved. For example, these include expenditures

workers. The percentage of foreign employees was 6.4 (6.4)%. incurred to operate equipment that protects the environ-

In the reporting period, 83.1 (83.2)% of the employees in ment, as well as expenditures for measures not relating to

Volkswagen AG’s production area were in possession of such equipment. As in previous years, the emphasis in 2020

vocational or additional training. The proportion of gradu- was on sewage and waste management.

ates was 20.7 (20.1)% in the same period. The average age of

employees in fiscal year 2020 was 44.5 (44.2) years.

RES EARCH A N D DEVE LOPM EN T

Volkswagen AG’s research and development costs as defined

in the German Commercial Code amounted to €5.9 (6.1) bil-

lion in the reporting period. 13,547 (13,378) people were

employed in this area at the end of the reporting period.

VOLKSWAGE N AG EX P E N D ITU R E O N E NV I RO NM E NTA L P ROTE CTIO N

€

million

2020

2019

2018

2017

2016

Investments

4

9

13

17

11

Operating costs

225

233

230

227

223

Group Management Report

Volkswagen AG

135

O P E RA T I NG C O ST S FO R E NV I RO NME NT A L P RO T E C T ION A T V O L KSW A GE N A G 2 0 2 0

Share of environmental protection areas in percent

Sewage management

Waste management

Air pollution control

29.8

28.5

15.2

13.7

7.8

Soil and water

pollution control

Climate protection

Species and

landscape conservation

2.6

Protection against

noise and vibration

2.4

0

10

20

30

40

50

60

70

80

90

100

B U SI N E S S DEV E LOPM E NT O F VOL KSWAG E N AG

D E P E N DE NT CO M PA NY R E P O RT

As the parent of the Volkswagen Group, Volkswagen AG is The Board of Management of Volkswagen AG has submitted

fundamentally subject to the same expected developments to the Supervisory Board the report required by section 312

and risks and opportunities. The forecast is explained in of the Aktiengesetz (AktG – German Stock Corporation Act)

the chapter entitled “Report on Expected Developments” and issued the following concluding declaration:

and the risks and opportunities in the chapter entitled

“

Report on Risks and Opportunities” of this annual report.

“We declare that, based on the circumstances known to us at

the time when the transactions with affiliated companies

within the meaning of section 312 of the German Stock

RI SKS A RI S I NG F ROM FI NA N CIA L I N STRU M E N T S

Risks for Volkswagen AG arising from the use of financial Corporation Act (AktG) were entered into, our Company

instruments are generally the same as those to which the received appropriate consideration for each transaction. No

Volkswagen Group is exposed. An explanation of these risks transactions with third parties or measures were either

can be found in the chapter “Report on Risks and Oppor- undertaken or omitted on the instructions of or in the

tunities” of this annual report.

interests of Porsche or other affiliated companies in the

reporting period.”

The Annual Financial Statements of Volkswagen AG (in accordance with the German

Commercial Code) can be accessed from the electronic company register at

www.unternehmensregister.de.

1

36

Sustainable Value Enhancement

Group Management Report

Sustainable Value Enhancement

Our goal is to run our business responsibly along the entire value chain. Everyone should benefit

from this – our customers, our employees, the environment and society. With our vision

+

“

Shaping mobility – for generations to come”, part of our TOGETHER 2025 Group strategy,

we aim to make mobility sustainable for present and future generations.

The main financial key performance indicators for the master these challenges and become a leading company for

Volkswagen Group are described in the “Results of Oper- individual mobility in this electric and connected age.

ations, Financial Position and Net Assets” chapter. Nonfinan-

Protecting the climate is currently the greatest global

cial key performance indicators also provide information on challenge affecting all three sustainability dimensions. We

the efficiency of our Company’s value drivers. These include want to provide our own highly unique answer to this and

the processes in the areas of research and development, have decided on an ambitious decarbonization program.

procurement, production, marketing and sales, information With the implementation of this program, we want to be a

technology and quality assurance. In all of these processes, net-carbon-neutral company by 2050. We are assuming a pio-

we are aware of our responsibility towards our customers, neering role by making this voluntary commitment based on

our employees, the environment and society. In this chapter the Paris Climate Agreement. We are guided in this by the

we provide examples of how we want to increase the value of specifications of the Task Force on Climate-Related Financial

our Company in a sustainable way.

Disclosures (TCFD) For more information, please see our

Sustainability Report for fiscal year 2020.

SU STA I NA B I LI TY

In the field of digitalization, we also want to help shape

Sustainability means maintaining intact environmental, the transformation and are pressing ahead with develop-

social and economic systems with long-term viability at a ments in our vehicles and mobility services on the one hand

global, regional and local level. The Volkswagen Group can and in our operating processes and management on the

influence these systems in various ways and actively takes other. The digital transformation requires us not just to

responsibility to make a contribution to their sustainability. develop new technologies and be able to harness them, but

We have thus developed a sustainable style of company man- also to devise a forward-looking human resources strategy

agement and put in place the necessary management struc- that takes our employees along this path of change, trains

tures.

We have anchored our goal to sustainably shape mobility

them accordingly, and ensures that their jobs are secure.

for present and future generations in our Group strategy Parameters and guiding principles

+

TOGETHER 2025 . In addition, we want to be an excellent Our actions are determined by the Volkswagen Group Essen-

employer and a role model for the environment, safety and tials as the foundation of values and the basis for our shared

integrity. Sustainability is thus at the center of our corporate corporate culture. The Volkswagen Group Essentials support

actions.

managers and employees in overcoming legal and ethical

A particular challenge when implementing our strategic challenges that arise in their daily work. At the same time, we

goals on all levels of the value chain is the complexity of our are guided in our activities by a large number of internal

Company, with its twelve brands, more than 660 thousand guidelines on sustainability.

employees and 118 production sites. At the same time, we are

On this basis, our objective is to attain that the Volks-

guiding our Group through the furthest-reaching process of wagen Group’s actions are in line with international agree-

change in its history. The transformation sweeping our entire ments and frameworks such as the Sustainable Development

industry is dominated especially by the transition to e-mobil- Goals (SDGs) of the United Nations (UN), the declarations of

ity, digitalization and new mobility services. We want to the International Labour Organization (ILO), the principles

Group Management Report

Sustainable Value Enhancement

137

and conventions of the Organization for Economic Co-oper-

ation and Development (OECD) and the UN covenants on

basic rights and freedoms.

Management and coordination

The structure and workflows of Group-wide sustainability

management were expanded in the reporting period. The

related structures, processes and responsibilities are codified

in a separate Group policy. We view sustainability manage-

ment as a continuous improvement process. The core ele-

ments include assumption of overall responsibility for

sustainability by the Chairman of the Board of Management

of Volkswagen AG, specification of the competence of the

responsible Board members for specific sustainability man-

agement concepts and implementation of the Group Sustain-

ability Steering Committee as a top management committee.

The members of this steering committee include managers

from central Board of Management positions and repre-

sentatives of the brands and the Group Works Council. The

steering committee defines concrete strategic goals and

programs, establishes measures for uniform further develop-

ment of sustainability management across divisions, brands

and regions and decides on fundamental sustainability

issues. It also handles the enhancement of Group-wide sus-

tainability management. The offices of the Group Sustain- tainability Council and the Stakeholder Panel. The latter took

ability Steering Committee are the responsibility of the a break in 2020 due to the pandemic. In addition, we offer our

Group’s Sustainability function.

stakeholders a broad range of opportunities for interaction

and feedback channels including regular discussion panels

with stakeholders, stakeholder surveys and international

Strategic stakeholder management

Our stakeholders are individuals, groups, or organizations cooperative projects.

who have an influence on or are influenced by the course or

the result of corporate decisions. Our customers and employ- Sustainability Council

ees are at the center of our stakeholder network. Based on our The Sustainability Council set up in 2016 provides assistance

annual stakeholder assessment, we have identified eight to the Volkswagen Group with important, strategic sustain-

more stakeholder groups of equal value around this core. The ability issues and is made up of internationally renowned

Group’s supervisory and advisory bodies such as the experts from the academic world, politics and society. The

Supervisory Board, the Works Council and the Sustainability Council establishes its own working methods and areas of

Council act as a special interface between internal and focus independently, has far-reaching rights for the purposes

external stakeholders. The Monitor appointed by the US of exchanging information, consultation and initiating action,

Department of Justice until the termination of his duties in and consults regularly with the Board of Management,

September 2020 was a stakeholder of the Volkswagen Group top management and the employee representatives. In the

as well.

reporting year, the Volkswagen Group extended its collab-

We understand stakeholder management as systematic, oration with the Sustainability Council by two more years.

continuous interaction with key stakeholder groups in line

In 2020, the agenda for the intensified dialogue between

with our TOGETHER 2025⁺Group strategy. Stakeholder Volkswagen and the Sustainability Council included the CEO

management aims to systematically record expectations and Alliance for Europe’s Recovery, Reform and Resilience, jointly

use feedback from our stakeholders to critically reflect on initiated by the Chairman of the Board of Management of

strategic planning processes.

Volkswagen AG and the Council in support of the EU Green

To be able to systematically incorporate our stakeholders’ Deal, aspects of corporate governance and integrity, decar-

suggestions and recommendations, we have given our stake- bonization, employment in times of advancing digitalization

holder management an organizational structure in the form and e-mobility, and sustainable action in international

of external committees. At Group level, these are the Sus- markets.

1

38

Sustainable Value Enhancement

Group Management Report

The Council also launched two new projects: a research formance management and improvement in environmental,

project on the distribution effects of climate-related fiscal social and governance performance, but it will also boost

and transport policies with the Mercator Research Institute confidence among stakeholders and in the financial markets.

on Global Commons and Climate Change, building on the

To implement the transformation with a holistic approach

preceding project on climate-conscious transport policies, and run our business responsibly along the value chain, we

and a study with the Fraunhofer Institut für Arbeitswirtschaft prioritized four focus areas that are essential for our core

und Organisation (IAO – Fraunhofer Institute for Industrial business.

Engineering) to examine the effects of digitalization and > Decarbonization

e-mobility on employment. The Open Source Lab on Sustain- > Circular economy

able Mobility concluded its work in 2020 with the publication > Responsibility in supply chains and in business

of the project results.

> Workforce transformation

The focus areas are each underpinned by forward-looking

ambition and are developed and implemented within the

Materiality analysis

In 2020, we forged ahead with the overhaul of our materiality framework of programs and initiatives.

analysis begun in the previous year and established a new

binding sustainability strategy with the development of a Corporate citizenship

sustainability narrative for the Volkswagen Group. Some 60 As a good corporate citizen, we aim to be a constant source of

stakeholders were involved in this process, including economic impetus for local structural development and

decision-makers from various business areas and brands as equal opportunities. We have always believed in the impor-

well as representatives of the Sustainability Council.

tance of recognizing our social responsibilities toward our

The materiality process is used to identify and evaluate stakeholders. The main focus of our corporate social engage-

the most important sustainability issues for the Group. The ment activities is on supporting future, educational and

decisive factors here are the impact on the environment and community projects at many of our sites across the world. In

society, stakeholder expectations, the business model of 2020, the brands and companies launched or continued

Volkswagen AG and adherence to legal provisions and inter- around 700 projects and initiatives worldwide.

nationally established reporting standards.

The sustainability strategy developed based on the

materiality analysis focuses on the key sustainability issues

+

within the Group strategy TOGETHER 2025 , which is

supported by the vision “Shaping Mobility – for generations

to come” and the seven Group principles. The sustainability

narrative clearly illustrates how the Volkswagen Group

intends to achieve its overarching strategic objective of sus-

CSR-PROJECTS

tainable growth. Not only will it lay the foundation for per-

https://www.volkswagenag.com/en/sustainability/reporting/cc-projects.html

Group Management Report

Sustainable Value Enhancement

139

TOGETHER4INTEGRITY

1

Integrity and compliance are central

to our business strategy

2

3

Integrity and compliance risks are identiꢀed,

owned, managed and mitigated

Our leaders at all levels across our organization

build and sustain a culture of integrity

4

5

We encourage, protect and value the reporting of

concerns and suspected wrongdoing

We take action and hold ourselves accountable

when wrongdoing occurs

Together4Integrity

We keep our word

HOL I ST IC I NT EGR ITY AN D COMP LI ANCE M A NAGEM ENT SY STEM

product quality or employer attractiveness. T4I is thus one of

Integrity and compliance are major priorities in the Volks- the most extensive change programs in the history of the

wagen Group. Marking the end of the Monitorship, the Chair- Group. In 2020, the Group Board of Management resolved to

man of the Volkswagen AG Board of Management Herbert form the Group Board of Management Integrity and Com-

Diess said: “The end of the Monitorship is not the end of our pliance Committee (K-VAC), which, among other things, takes

journey. I am committed to the continuous improvement of over the tasks of the Group Compliance Committee estab-

our organization and its culture, and so are all my Board of lished during the Monitorship. The main tasks of the

Management colleagues. This mindset is essential to our K-VAC include continuing to develop the ICMS and the cor-

ambition of making safer and more intelligent zero-emission porate culture as well as managing the uniform implemen-

vehicles for today’s customers and for generations to come.” tation of the initiatives combined in T4I across all divisions

We firmly believe that acting with integrity and in com- and brands.

pliance with the rules is vitally important for our Company’s

Through T4I we aim to implement the ICMS by 2025 in

future success. It is for this reason that we have embedded around 850 Group companies in which we hold a majority

integrity and compliance in our Group strategy TOGETHER stake. By the end of 2020, 639 companies had already begun

+

2

025 . Our objective is to act as a role model for integrity and the implementation. This will strengthen Group-wide cor-

compliance and thus deepen the trust of our employees, porate governance and reduce the corresponding risks. The

customers, shareholders and partners – both existing and ICMS is therefore also a substantial contribution to the sus-

future – in our Company.

tainability of the Volkswagen Group. We also want to live up

To achieve this aim, we have been building a compre- to our responsibilities in terms of our influence on com-

hensive and holistic integrity and compliance management panies not controlled by Volkswagen.

system (ICMS) since 2018. This is being rolled out as part of

the Together4Integrity (T4I) program and is based on the five Integrity encourages ethical decision-making

principles of the internationally recognized ECI, which relate An essential role of the ICMS is to introduce integrity as a

to strategy, risk management, a culture of integrity, a speak- strategic key to success in all the Group’s brands and com-

up environment and resolute accountability. In this context panies. This includes integrating integrity into decision-

we are also implementing the measures that we defined making processes. For example, every resolution proposal

based on the recommendations made by the Independent submitted to the Board of Management must highlight the

Compliance Monitor Larry D. Thompson.

extent to which the intended decision is in line with the

T4I aims to establish robust, consistent process standards Group’s integrity and compliance, what risks arise from it

that are anchored in the Group’s corporate policies or organi- and how the risks can be reduced. Similar requirements apply

zational guidelines. The purpose is to give integrity and to Group brands and companies and to Group bodies to

compliance an equally important strategic and operational which the Board of Management has delegated decision-

priority in our Company as, for example, sales revenue, profit, making powers.

1

40

Sustainable Value Enhancement

Group Management Report

Compliance means adherence to rules

training is intended to increase its efficacy. The Code of

We firmly believe that long-term commercial success can Conduct is also taken into account when calculating their

only be achieved if each and every individual complies with variable, performance-related remuneration, which is set as

laws, regulations and commitments. Compliant behavior part of the employee appraisals. Members of the higher levels

must be a matter of course for all Group employees. The of management are annually certified on the Code of

compliance organization provides worldwide support in the Conduct. They confirm that they will comply with the Code of

form of programs, guidelines, processes and practical advice. Conduct and undertake to report any serious regulatory

The compliance Infopoint is a core element of this. This is violations.

available to all employees.

Our compliance organization focuses on preventing

3. Integrity Program

corruption, fraudulent breaches of trust and money laun- The integrity program is designed to reinforce the culture of

dering. Compliance in mergers & acquisitions, noncontrolled integrity. The most important instruments in this program

shareholdings and safeguarding business and human rights include dialogue-oriented communication measures and

are other key areas. In addition, we expedited the integration event formats. These communicate to employees the

of the topic of business and human rights into the ICMS and importance of integrity and motivate employees to behave

accorded the topic vital strategic importance. Here, we follow with integrity even in the face of external pressure.

the UN’s requirements and principles on business and Associated actions include encouraging a culture of handling

human rights due diligence. An investigation of all com- mistakes constructively, more transparency in taking

panies in the Group within the scope of compliance was decisions and a greater willingness to discuss mistakes and

conducted in 2020 with the aim of identifying risks in respect risks openly.

of human rights. Based on the findings, these companies

were given a set of binding measures that they must imple-

ment by December 31, 2021.

4. Risk Management and Internal Controls

This initiative involves operating an effective risk manage-

ment system. Uniform, defined structures should ensure

transparent handling of risks from our business activities

T4I brings together activities from eleven key initiatives

The ICMS defines standards for integrity and compliance. T4I and enable them to be managed. This refers to the annual

is rolling out and implementing these standards uniformly regular governance, risk and compliance (GRC) process

throughout the Group in the form of more than 100 packages focused on systemic risks, the quarterly risk process (QRP)

of measures. The packages of measures are divided into focused on acute risks, the standard ICS (internal control

eleven key initiatives:

system) aimed at safeguarding processes, and root cause

analysis. The initiative to support the QRP also includes the

introduction of the “Riskradar” IT system and training of risk

1

. HR Compliance Policies and Procedures

The focus is on standard HR processes such as recruitment, managers.

training, promotion and remuneration (bonus payments).

For example, integrity and compliance matters have been

5. ICRA and Compliance Organization

included as criteria for the recruitment process and staff This key initiative describes the organization and processes

development measures for managers since 2019. Employ- of the Compliance department at Group level and in the

ment contracts contain integrity and compliance clauses. individual Group companies. It shapes the Company’s com-

Integrity and compliance have also been covered by annual pliance strategy, sets Group-wide standards for the internal

employee appraisals since 2020. Performance-related remu- compliance risk assessment (ICRA) and contains measures for

neration from senior executive positions is now also partly managing and mitigating the compliance risks. The ICRA has

determined by integrity and compliance standards.

been carried out since 2018, with the Group companies being

assigned to different risk categories on the basis of a compre-

hensive questionnaire. To reduce potential risks, we rolled

2

. Code of Conduct

The Volkswagen Group’s Code of Conduct is the key instru- out standardized compliance measures in the relevant busi-

ment for strengthening employees’ awareness of responsible ness units, the scope of which varies depending on the

action and decisions, giving employees support and guid- business units’ individual risk exposure. The degree to which

ance, and finding the right contact persons in cases of doubt. measures have been implemented is reported on a regular

The framework is available online to employees and also to basis, but at least once per year. Business units with a high

external third parties.

risk are regularly monitored by the Divisional Compliance

Every employment contract refers to the Code of Conduct Officer or Regional Compliance Officer and starting in 2021,

and commits the employee to comply with it. Regular audited by an external auditor.

Group Management Report

Sustainable Value Enhancement

141

6

. Whistleblower system and incident response

8. Business partner due diligence

This initiative brings together all measures for the estab- Business partner due diligence entails reviewing the integrity

lishment and operation of the whistleblower system. The and compliance systems of suppliers, service providers and

whistleblower system is the central point of contact for sales partners. This review of existing and potentially new

reporting cases of serious rule-breaking in the Volkswagen business partners is carried out as part of a risk-based, trans-

Group. The aim is to avert damage to the Company and its parent, documented process that is implemented worldwide

employees through the use of binding principles and a clearly using an IT-based tool. This initiative also includes the offer

governed process. An investigation is only initiated after the to assist business partners in meeting the required standards.

information received has undergone a thorough exami- Companies that do not meet the standards defined in the

nation and the latter has identified concrete indications of Volkswagen Code of Conduct for Business Partners should

rule-breaking. The affected parties are treated fairly: the not receive new business.

presumption of innocence applies as long as rule-breaking

has not been proven. They are listened to at an early stage

9. Product compliance

and vindicated if wrongly suspected. Strict confidentiality The product compliance management system (PCMS) shall

and secrecy apply throughout the investigation. Appropriate ensure that our products comply with the legal and regu-

sanctions are applied where misconduct is proven. Whistle- latory requirements of the exporting and importing country,

blowers are protected and their statements are treated external standards and contractually agreed customer require-

confidentially. A wide range of channels is available for ments, as well as internal standards and externally com-

reporting information on misconduct, including anony- municated voluntary commitments throughout their life

mously if preferred.

cycle. We have defined clear roles and responsibilities for

our PCMS with regard to design, implementation and

monitoring.

7

. M & A and NCS Compliance

In the event of planned mergers and acquisitions, the rele-

vant companies are audited according to integrity and 10. Environmental compliance

compliance standards. This prevents a Group company from Statutory environmental regulations and voluntary commit-

being confronted with unidentified integrity or compliance ments are binding at all locations and in all business fields.

risks when acquiring another company. This key initiative The Group’s environmental policy and the environmental

also promotes compliance in non-controlled shareholdings compliance management system stipulate the corresponding

(

NCS), i.e. companies that are not controlled by a Volkswagen requirements and responsibilities for all strategy, planning

Group company as a majority shareholder (excluding Chinese and decision-making processes in the Group brands and

joint ventures). During mergers and acquisitions (M&A) and companies. This also includes a system of metrics to deter-

the supervision of NCSs, strategic, economic and ethical con- mine progress in meeting environmental targets: in the fields

2

siderations are key to the sustainability of investment of renewable energy, CO emissions and resource efficiency.

decisions.

We make allowance for the actual and potential environ-

mental risks and opportunities in our products’ entire life

cycle.

1

1. Anti-corruption

We advocate fairness in business dealings and have a clear

zero-tolerance policy on active or passive corruption. We have

therefore produced Group policies on dealing with gifts and

invitations, donations and sponsorship. This initiative also

includes the development and implementation of trainings

for employees in divisions or companies with a high risk

exposure.

1

42

Sustainable Value Enhancement

Group Management Report

Emphatically developing a culture of integrity

culture of integrity. This Group-wide survey asks whether it is

The holistic integrity and compliance management system possible for each individual to act with integrity. If the answer

being established Group-wide through T4I provides the is no, the relevant manager must identify and clear the

regulatory framework for acting with integrity and in com- possible obstacles together with the team. The question was

pliance with the rules and results in uniform corporate gover- asked in the opinion survey for the first time in 2017 and

nance throughout the Group in relation to integrity and since then, including in the reporting period, has been one of

compliance. It is also advancing the culture of integrity. The the three questions with the highest level of agreement, with

aim is to inspire and motivate employees and strengthen a significant improvement in the value. The level of agree-

their own drive to act with integrity in all situations. Both, ment among employees each achieved an average value in

uniform corporate governance and a mature culture of inte- the highest category of the underlying five-level range.

grity contribute to the effectiveness of the ICMS as a major

factor in the sustainability of the Volkswagen Group.

Contributing to the Group’s strategic indicators

Volkswagen’s corporate culture is founded on the seven To measure the level of target achievement in the area of

Group Essentials. They define how we at Volkswagen want to Integrity & Legal Affairs, we defined a strategic indicator for

work together and thus supplement the Code of Conduct. The the major brands that manufacture passenger cars:

Group Essentials also form the frame of reference for the Role > Compliance, a culture of error management and behaving

Model Program, which encourages dialogue-oriented and

distance-reducing collaboration.

with integrity.

This is based on an evaluation of the answers to three

questions in the opinion survey relating to compliance

with regulations and processes, dealing with risks and

errors and the opportunity to act with integrity. In the case

of negative deviations, the affected departments develop

and implement measures. The indicator continuously

improved on the previous good figure until 2020. On

average, the level of agreement among employees was in

the highest category of the underlying five-level range.

T4I inspires and motivates employees, especially with

launch events and perception workshops. Both events are

held in each Group or brand company at the start of the

implementation of T4I and involve both employees and

managers across hierarchies as players in the change process.

The perception workshops are primarily about the actual

practice of integrity and compliance – measured by the

perception of employees. Here, representatively selected

employees and managers give their assessment of this As an additional measuring tool, we use the Integrity Index

practice and discuss opportunities for improvement. The developed by independent business ethicists from the

perception workshops will be repeated annually until the key Technical University of Munich. Based on more than 100

initiatives have been fully implemented. They measure the criteria in the categories of: the compliance & infrastructure,

progress of the relevant company with regard to integrity and working atmosphere & integrity culture, products & custom-

compliance and show where further action is needed.

ers, society, and partners & markets; it gives a comprehensive

picture of an organization’s integrity. The integrity index was

started in 2019 as a pilot project for Volkswagen Passenger

Monitoring of implementation and effectiveness

Methods of impact monitoring and progress measurement Cars Germany and Audi (German sites). The scientists found

are an integral part of our ICMS. The planning and reporting that both of the brands examined exhibited a “good”

system of the T4I program provides information on the integrity level overall.

implementation status of all packages of measures at any

The findings were used in the reporting year in a struc-

time. It is used for reporting to the Board of Management and tured follow-up process to derive and implement improve-

the boards of the Group and brand companies as well as for ment measures together with the respected departments.

monitoring potential delays and initiating countermeasures.

In addition to the recurring perception workshops, our Further information on the topics of integrity and com-

annual employee opinion survey shows the progress in our pliance can be found in the Group Sustainability Report 2020.

Group Management Report

Sustainable Value Enhancement

143

Independent Compliance Monitorship successfully completed

Thompson also served as Independent Compliance Auditor

In September 2020, the Independent Compliance Monitor, and issued his third and final audit report in June 2020. That

Larry D. Thompson, certified that Volkswagen has fulfilled its report established that there had been no new violations of

obligations under its Plea Agreement with the US Depart- the relevant settlements with the Environment and Natural

ment of Justice (DOJ) to maintain a compliance program that Resources Division of the DOJ, the California Attorney

will prevent, detect and punish violations of anti-fraud and General, the US Environmental Protection Agency (EPA) and

environmental laws. Certification applies to Volkswagen AG the California Air Resources Board.

and its subsidiaries and affiliates with the exception of

Porsche AG and Porsche Cars North America, which were not On September 2, 2019, Volkswagen also announced that the

part of the Monitorship. Over the course of the Monitorship, Company had concluded a settlement agreement with the

which began in 2017 and is now concluded, Volkswagen EPA, which had been the reason for commissioning a second

enhanced and improved its structures, processes and systems auditor for the Volkswagen Group. This agreement was

in many divisions of the company including technical concluded to prevent it from being excluded from public

development, governance, risk management, compliance and contracts in the United States. This second auditorship is

legal functions. Volkswagen expanded the whistleblower scheduled to last three years and will run until August 2022.

system, strengthened processes to prevent corruption and

antitrust violations, and created a due diligence process for

business partners. The Group also flattened hierarchies,

decentralized decision-making and gave more responsibility

to its brands and regional companies.

WH ISTLEBLOWER SYSTEM

https://www.volkswagenag.com/en/group/compliance-and-risk-management/

whistleblowersystem.html

Phone: +49 5361 9 46300

E-mail: io@volkswagen.de

The completion of the Monitorship is not the end of the

process; the Group remains committed to continuous further

improvement of compliance and its corporate culture.

1

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Sustainable Value Enhancement

Group Management Report

C O ₂E MI SSI O NS O F T HE V O L KSW A GE N GRO U P ’S E U RO P E A N ( E U 2 7 + 3 ) NE W P A SSE NGE R C A R FL E E T

in grams per kilometer (NEDC)

¹

2

020

019

018

017

016

100

124

123

122

¹

120

0

20

40

60

80

100

120

140

160

1

Subject to confirmation of CO2 data within the scope of official publication by the European Commission.

RES EARCH A N D DEVE LOPM EN T

2

just 0.8 g CO /km short of its target. Owing to delays in

Forward-looking mobility solutions with brand-defining

products and services would be unthinkable without inno-

vation. This makes our research and development work

essential for sustainably increasing the value of the Company.

Together with our Group brands, we have launched mea-

product launches and contrary to the original planning, it

was not possible to achieve the target despite substantial

improvements compared with 2019. As small volume

manufacturers, the Lamborghini and Bentley brands each

have an independent fleet for the purposes of European

+

sures based on our future program TOGETHER 2025 to link

2

CO legislation and were both above their individual

development activities across the Group. At the heart of this

is an efficient, cross-brand development alliance charac-

terized by a close network of our experts, collaboration on an

equal footing, an innovative working environment and the

pooling of development activities. The aim is to make use of

synergy effects across the Group and act as a role model for

the environment, safety and integrity. The development

alliance plays a major part in driving the Volkswagen Group’s

transformation and helping to make it fit for the future.

In view of this strategic focus, we concentrated in the

reporting period on continuing to develop forward-looking

targets. In the United States, the regulation of fleet

emissions is different to that in Europe, for example in

terms of the underlying test process, the period of evalu-

ation, which corresponds to the model year of the vehicles

rather than the calendar year, and the period for compen-

2

sating for any breaches of CO limits, which comprises

three model years. In fiscal year 2020, we complied with the

regulations that apply to our greenhouse gas account in

the United States, subject to any alternative notification by

the authorities.

mobility solutions, establishing technological expertise to Fuel and drivetrain strategy

strengthen our competitiveness, expanding our range of prod- With a view to the legal regulations on emissions, we are

ucts and services and improving the functionality, quality, currently developing a forward-looking vehicle and drivetrain

safety and environmental compatibility of our products and portfolio: we have set ourselves the objective of increasing

services.

drive system efficiency with each new model generation

We use a strategic indicator in Europe and the United – irrespective of whether it is a combustion engine, a hybrid or

States to evaluate the effectiveness of our measures to reduce a purely electric drive system. The Volkswagen Group closely

CO

2

emissions when driving:

coordinates technology and product planning with its brands

>

CO

2

fleet emissions. The Volkswagen Group’s new passen- so as to avoid breaches of fleet fuel consumption limits, since

ger car fleet in the EU (excluding Lamborghini and Bentley) these would entail substantial excess emissions premiums.

1

emitted an average of 99.9 g CO

2

/km (NEDC) in the reporting Around one in five new Volkswagen Group vehicles world-

period in accordance with the statutory measurement wide is to have a purely electric drive by the year 2025;

bases, thus down 20% on the prior-year figure. The CO depending on market development, this could be over two

pool established together with other manufacturers fell million electric vehicles a year. As part of our electrification

2

Group Management Report

Sustainable Value Enhancement

145

campaign, we aim to offer our customers worldwide around materials, the processes at our suppliers and our own

0 completely battery-electric vehicles by 2030, of which production operations at our sites, the use phase with the

7

production of approximately 20 models has already started. resulting vehicle emissions and the necessary supply of fuel,

In addition, a total of around 60 hybrid models are planned and ultimately the recycling of the vehicle at the end of its life

by the end of the decade, just over half of which are already in cycle. We identify the stages of the life cycle at which

production. By 2030, the Volkswagen Group aims to have improvements will have the greatest effect and develop

electrified its entire model portfolio – from high-volume appropriate solutions. We call this life cycle engineering.

models to premium vehicles. This will mean offering at least Recycling, for example, is an important means of reducing

one electric version – battery electric or hybrid vehicles – of environmental impact and conserving resources. We there-

each of our passenger car models across all Group brands. To fore already take the recyclability of the required materials

this end, in addition to the Modular Electric Drive Toolkit into consideration when developing new vehicles, use high-

(

MEB), we are also developing an all-electric platform for our quality recycled material and avoid pollutants. Under the

premium and sports brands – the Premium Platform Electric European Directive on end-of-life vehicles, passenger cars and

PPE).

light commercial vehicles must be 85% recyclable and 95%

The Volkswagen Group is committed to achieving the recoverable. Our vehicles registered in Europe comply with

(

goals of the Paris Agreement on climate change and intends these standards.

to become a net-carbon-neutral company by 2050.

To offer sustainable, affordable mobility in the future for Leveraging synergies increases efficiency

as many people around the world as possible, we offer a range When developing vehicles, we cooperate closely with our

of drivetrains with a focus on electrification. From today’s brands to leverage synergies. The joint strategy of our devel-

perspective, conventional combustion engines look set to opment alliance involves, for example, making the Group

continue to make up the lion’s share of drive technology in more competitive and viable in the long term by deploying

the coming years. In the interest of using resources respon- resources more effectively and efficiently in the research and

sibly, it is therefore essential to further enhance this engine development of new mobility-related technologies, products

segment and systematically consolidate it for specific mar- and services. In our Group-wide development alliance, the

kets. Powertrain measures such as significantly more sophis- brands therefore not only work with each other, but also for

ticated exhaust gas purification or mild hybridization of our each other on key technologies, forming cross-brand net-

vehicles, as well as vehicle measures such as optimized aero- works of expertise to address topics of importance for the

dynamics or reduced rolling resistance will be necessary to future. Against this background, responsibilities in Technical

fulfill future emissions standards. With the new Golf 8 we Development were reorganized in 2020 in order to coordinate

offer more efficient and more sustainable mobility in the module development even more efficiently and leverage

volume segment: The Golf’s new petrol mild hybrid drive- synergies in module variance, components, parts and pro-

train significantly reduces fuel consumption compared to its cesses. We consolidated the Group’s activities in and respon-

predecessor.

sibility for the development, procurement and quality assur-

It is more important to us than ever to rigorously pursue ance of all battery cells in a central Center of Excellence under

our modular approach. We are reducing the number of indi- the umbrella of the Volkswagen Passenger Cars brand. In the

vidual modules so that we can make a large product portfolio Center, a pilot line for cell production was put into operation

economically viable. For example, we aim to reduce the in 2019 to build up expertise for the Group in the area of cell

number of versions of conventional combustion engines in design but also throughout the entire value chain.

the Group by more than a third in the long term. This will We also manage our modules centrally to reduce costs,

create capacity for the development and production of new capital expenditure and complexity. We are seeking to reduce

hybrid and electric drives.

expenditure in the modular toolkits, while at the same time

facilitating widespread electrification and a focus on autono-

mous systems. We want to achieve this through a consider-

Life cycle engineering and recycling

Technological innovation for reducing fuel consumption is able reduction in complexity using streamlined platforms

not enough on its own to minimize the effect of vehicles on that synergize but do not overlap. To this end, the individual

the environment. We consider the environmental impact we Group brands draw on the modular toolkits, thus creating

cause throughout the entire life cycle and at all stages of the synergies between the various models of a product line, as

value chain. This includes the manufacturing process with well as across the product lines. By streamlining the toolkits,

the associated extraction of raw materials, the production of we are giving ourselves the financial leeway needed for

1

46

Sustainable Value Enhancement

Group Management Report

developments in the future trends of digitalization and together all of our interests and subsidiaries that develop

autonomous driving. The high-volume passenger car brands software for vehicles and digital ecosystems in the Car.Soft-

have introduced the model-line organization, thus strength- ware Organisation, an independent entity with Group respon-

ening their responsibility for the success of vehicle projects, sibility. This first step involved more than 3,500 employees.

improving project work across different cross-departmental Since mid-2020, experts who used to work in the various

areas, accelerating decision-making and intensifying the Group brands and regions have been working together under

focus on project results.

the umbrella of the Car.Software Organisation.

We are also leveraging synergies by constantly sharing

The Car.Software Organisation is developing software for

best practices, for instance in virtual development and five applications within the Group:

testing. Last but not least, the centralized development and > a uniform vehicle operating system “vw.os” for all Group

consolidation of our IT systems is also helping to strengthen

cooperation across the brands, make development activities

more comparable and reduce the Group’s IT costs.

vehicles as well as their connectivity with the Volkswagen

Automotive Cloud;

> a standardized infotainment platform;

>

all assistance systems including highly automated driving

and parking;

Sustainable mobility, connectivity and automated driving

Mobility of people and goods is a basic prerequisite for eco- > functions for connecting the drivetrain, chassis and

nomic growth and social development, especially in times of charging technology; and

the Covid-19 pandemic. At the same time, natural resources > ecosystems for all the brands’ mobility services and digital

are dwindling and climate change is advancing. This calls for business models.

comprehensive mobility concepts to minimize the environ- From the middle of this decade onwards, all new vehicle

mental impact. Such solutions need to be efficient, sustain- models throughout the Group are to be based on a uniform,

able, crisis-proof, customer-oriented and accessible anytime cross-brand software platform, including the “vw.os” oper-

and anywhere.

ating system and Volkswagen Automotive Cloud, as well as a

We are researching and developing such concepts and uniform architecture. At the end of 2024, this architecture

solutions in our Group-wide alliance: when shaping the will be used for the first time in an Audi model as part of the

future of mobility, we are looking not only at the automobile, Artemis project. It is then to be deployed in high-volume

its components and related services, but at all modes of vehicles to generate economies of scale and thus reduce the

transport and transport infrastructures, at people’s mobility cost of in-vehicle software for all brands.

habits and at other relevant factors. Innovations such as

digital connectivity and automated driving allow for new Pooling strengths with strategic alliances

approaches to solving problems. We strive to utilize these and The aim of our future program TOGETHER 2025 is to trans-

+

thus to play our part in a comprehensive mobility system for form our core business and to establish a mobility solutions

the future and to help shape our industry’s transformation.

business area at the same time. It is decisive to the success of

In its pursuit of autonomous driving, the Volkswagen this plan that we place our innovative strength on even

Group further improved its assistance systems and auto- broader foundations.

mated driving functions and introduced these in vehicles in

Within the Volkswagen Group, we combine technological

2020. The objective is to market highly automated driving innovation activities in the Volkswagen Group Innovation

functions for private vehicles, shared mobility systems and unit. At seven locations worldwide in the USA, Europe and

commercial mobility providers as a core competency of the Asia, employees are working on sustainable solutions for

Group. The Volkswagen Group has presented its vision of an urban and interurban mobility systems in line with our stra-

autonomous mobility system by unveiling the Sedric family, tegic vision “Shaping mobility – for generations to come”.

comprising fully autonomous vehicles for short- and long- Technologies and activities from Volkswagen Group Innova-

distance mobility, as well as sports cars, self-driving delivery tion that are ready for pre-development are regularly trans-

vehicles and heavy trucks. These vehicles will enable new ferred to our Group brands. This means that the areas of

forms of mobility in both cities and rural areas, particularly digitalization, sustainability and e-mobility receive contin-

for user groups that have so far been excluded from access to uous support through innovative projects. In this way, we are

mobility.

creating an agile innovation structure that allows us to

+

As part of the TOGETHER 2025 strategy, we are working initiate new milestone projects with innovative international

with the Software-enabled Car Company module to make soft- partners, even at short notice.

ware development one of the core competencies of the Volks-

Growth in the mobility sector is strongly defined through

wagen Group. Starting on January 1, 2020, we have brought regional innovation activities. Volkswagen therefore concen-

Group Management Report

Sustainable Value Enhancement

147

trates its strategic venture-capital activities and partnerships The strategic partnership with Microsoft enables us to

in the Group’s international innovation ecosystem. This accelerate our transformation into a mobility service pro-

helps us to identify the regional needs of customers more vider with a fully connected vehicle fleet and our Volkswagen

precisely, to adjust our product range correspondingly and to We digital ecosystem. Together, we will press ahead with

establish competitive cost structures. In doing so, we rely to a software development for the automobile of tomorrow and

greater extent than in the past on partnerships, acquisitions new services for our customers, thus comprehensively

and venture-capital investments and manage investment strengthening and expanding our IT expertise and solutions.

selection centrally so as to generate maximum value for the

Battery technology is to become a core competency of the

Group and its brands. It is against this backdrop that we have Volkswagen Group. The battery accounts for 20% to 30% of

formed an alliance with Ford Motor Company with the the cost of materials in electric vehicles; in future, it will be

intention of working together on the development of vans one of the most important components when differentiating

and mid-sized pickups. At the beginning of June 2020, Ford between products. We have already pooled our in-house

Motor Company and Volkswagen AG signed additional expertise in battery cells in a Center of Excellence and at the

contracts within their existing global alliance for light same time intend to accelerate technological change and the

commercial vehicles, electrification and autonomous driving. development of expertise through intelligent partnerships.

The contracts serve as the foundation for a total of three We anticipate that we will need a battery capacity of more

vehicle projects. In addition to the existing collaboration on than 150 GWh a year in the period to 2025 just to equip our

the mid-sized pickup, projects are underway for a city van own electric fleet with lithium-ion batteries. To cover this

and a one-tonne cargo van. In total, the three alliance projects enormous demand, we have defined strategic battery cell

amount to a volume of approximately 8 million vehicles over suppliers for our most important markets and the first MEB

the entire model cycle. In addition, we are investing with Ford models, and we aim to initiate further long-term strategic

in Argo AI, a company that is working on the development of partnerships in China, Europe and the USA. A 16 GWh battery

a system for autonomous driving. This alliance allows both cell factory is to be built in Salzgitter. Looking ahead, we are

car companies to integrate Argo AI’s self-driving system into already preparing for the next generation: we intend to bring

their own models independently of each other. The system is solid-state batteries to market readiness in collaboration with

to make fully automated driving possible, and thus to open our partner QuantumScape.

up new opportunities, particularly for ride-sharing providers

Our Group brands Volkswagen Passenger Cars, Audi and

and delivery services in urban areas through the use of fully Porsche are involved in the pan-European High-Power

automated vehicles. At the start of June 2020, a transaction Charging (HPC) joint venture IONITY, under which a compre-

was completed with Argo AI and Ford on cooperation to hensive charging infrastructure is being built to safeguard

develop autonomous driving. Subsequently, the Volkswagen long-distance mobility: by the end of the reporting year, 325

Group company AID was incorporated into Argo AI. In charging stations were already in operation. By the end of

addition, Ford intends to use the Modular Electric Drive 2021, we plan to have 400 charging stations in place.

Toolkit (MEB) developed by Volkswagen for a zero-emissions

We support the design of the framework conditions for

volume model that should be offered in Europe from 2023. the approval and introduction of our own self-driving system

The aim of the cooperation is to place both Volkswagen and by our active involvement in public projects. The experience

Ford in a position that enables them to improve their com- we are gathering here will benefit the Group brands and thus

petitiveness, tailor their products to better meet the needs of also our customers.

customers worldwide and at the same time to leverage

synergies related to cost and investment.

1

48

Sustainable Value Enhancement

Group Management Report

Key R&D figures

ratio – came to 7.6 (6.7)% due to the fall in sales revenue as a

In fiscal year 2020, we filed 6,795 (7,614) patent applications result of the Covid-19 pandemic. Along with new models, the

worldwide for employee inventions, the majority of them in focus was primarily on the electrification of our vehicle

Germany. The fact that an ever-increasing share of these portfolio, a more efficient range of engines, digitalization and

patents is for important cutting-edge fields underscores our new technologies. The capitalization ratio was 46.6(36.1)%.

Company’s innovative power. These fields include driver Research and development expenditure recognized in profit

assistance systems, automation and connectivity as well as or loss in accordance with IFRSs decreased to €12.1

alternative drive systems.

(13.2) billion.

As of December 31, 2020, our Research and Development

The Automotive Division’s total research and development

costs in the reporting period amounted to €13.9 (14.3) billion departments – including the equity-accounted Chinese joint

and were 2.9% lower than in the previous year; their per- ventures – employed 53,268 people (–3.1%) Group-wide,

centage of the Automotive Division’s sales revenue – the R&D corresponding to 8.0% of the total workforce.

RES EARCH A N D DEVE LOPM EN T CO ST S I N TH E AUTOMOT IVE D IV IS I ON

€

million

2020

2019

Total research and development costs

13,885

6,473

46.6

14,306

5,171

36.1

of which capitalized development costs

Capitalization ratio in %

Amortization of capitalized development costs

Research and development costs recognized in profit or loss

4,644

12,056

4,064

13,199

Sales revenue

182,106

13,885

7.6

212,473

14,306

6.7

Total research and development costs

R&D ratio

Group Management Report

Sustainable Value Enhancement

149

PRO CU R EME NT

globalization and innovation continue to be core issues of

In fiscal year 2020, the main task for Procurement was once this exchange, in addition to existing supply relationships.

again to safeguard supplies, and to help create competitive, FAST partners are prioritized in the cross-divisional inno-

innovative products and optimize cost structures. In addi- vation process in that they are given the opportunity to

tion, we continued to drive digitalized procurement pro- present innovations to representatives from the Procurement

cesses forward.

and Technical development divisions at upper management

level in strategy meetings. FAST partners are invited to attend

relevant innovation events at which they can contribute their

Procurement strategy

+

The Group strategy TOGETHER 2025 stands for more speed, expertise. Where possible, digital communication media were

focus and stringency, within the Procurement division as used for the annual meeting in the reporting year due to the

well, accelerating change even more. The focus in 2020 was spread of the SARS-CoV-2 virus. The program is updated and

on implementing the concepts developed in the procurement refined on an ongoing basis in order to take full advantage of

strategy. Procurement’s key performance indicators were the potential from the FAST initiative in the future as well.

defined as part of a combined system of targets for Group

Components and Procurement. This system of targets now E-mobility

gives greater weight to sustainability aspects in the supply A key task for Procurement is to safeguard supplies for the

chain, alongside the targets for material and investment costs continually growing requirements of the e-mobility offensive

and the timely award of contracts. over the next five to ten years in a sustainable way, and while

Target-costing strategies are becoming increasingly optimizing cost structures.

important in Procurement. They allow costs to be made

Group Procurement puts a particular focus on high-

transparent and concepts to be influenced in the early stage voltage batteries and e-resources. By means of benchmarking

of product development by focusing on calculatory poten- and requirements-based training, we are increasing our

tials. They also provide approaches for worldwide bench- purchasing expertise in this context.

marking and the exchange of best practices.

When awarding contracts to our electric mobility part-

A cross-divisional strategic value chain management has ners, we have laid down requirements as regards sustainable

been implemented to support profitable growth and safe- supplier sources, transparent, traceable supply streams, and

guard the availability of hardware and software that is strate- energy- and carbon-optimized supply chains. We pool global

gically relevant and/or crucial for ensuring supplies. The Stra- demand from the European, American and Asian markets

tegic Value Chain Management committee that has been set and award Group contracts with the aim of achieving cost

up takes strategically important “make, buy or partner” leadership for electric mobility solutions. To this end, we

decisions on a regular basis.

consider diversification in conjunction with dual-supplier

The growing volume of software and the new partners strategies as well as localization of the supplier portfolio for

and suppliers this entails necessitate adjustments to the all core components of the electric vehicle fleet in an effort to

process chain and Procurement’s award criteria. The Corpo- reduce economic and geopolitical risks.

rate Sourcing Committee Digital Car is in charge of awarding

contracts for vehicle and vehicle-related software optimally Digitalization of supply

and on a weekly basis.

We are working systematically to implement a completely

digitalized supply chain. This is intended to help us to

safeguard supply and leverage synergies throughout the

Volkswagen FAST – Supplier network as the basis for success

The FAST (Future Automotive Supply Tracks) initiative from Group in order to take a leading position in terms of cost and

Group Procurement is instrumental in advancing the Volks- innovation. We are therefore creating a shared database and

wagen Group and its supply network in terms of partnerships using innovative technologies to enable efficient, networked

and future viability.

collaboration in real time – both within the Group and with

FAST facilitates the regular exchange of information so our partners. The objective of our functional area strategy for

that both sides are strongly positioned to cope with the Procurement is to standardize transactions with our

future challenges facing the automotive industry. Based on a suppliers in the future and automate them where possible.

set of established criteria, a comprehensive assessment of the This will not only reduce transaction costs but will also

previous year is disclosed to the suppliers so that improve- accelerate business processes. Potential supply risks can be

ments can be made together. Strategic agreements on reported in an automated way in order to identify measures

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and alternatives faster together. The cornerstone for the Sustainability in supplier relationships

future of Procurement was laid in 2018 in the form of Group Successful relationships with our business partners are based

Procurement’s digitalization strategy. This strategy aims not on respecting human rights, compliance with occupational

only to eliminate the weaknesses of Procurement’s IT system health and safety standards, active environmental protection

environment but also to increase the organization’s effective- and combating corruption. These sustainability standards are

ness, efficiency and future viability.

defined in the contractually binding Volkswagen Group

requirements for sustainability in relations with business

partners (Code of Conduct for Business Partners). These

Structure of key procurement markets

Our procurement process is organized at a global level, with a signed documents also contain the expectation that any

presence in the key markets around the world. This enables subsuppliers will be subject to the same standards. We review

us to procure production materials, investments in property, compliance with the requirements, which has been an

plant and equipment, and services worldwide at the quality explicit condition for award of contract since 2019.

required and on the best possible terms. Networking among

In our sustainability rating – introduced in 2019 and

the brands’ procurement organizations enables us to leverage expanded in 2020 – we determine suppliers’ sustainability

synergies across the Group in the various procurement mar- performance by means of self-disclosures and on-site audits.

kets.

By the end of the reporting year, we had obtained 13,041

In addition to the brands’ procurement units, the Volks- ratings for suppliers, covering 76% of the total order volume.

wagen Group operates eight regional offices. In growth mar- Both the validation of the self-assessment questionnaire and

kets, we identify and train local suppliers to generate cost the on-site audits are carried out by selected service pro-

advantages for all Group production sites. In this context, we viders. As a rule, contracts are not awarded to suppliers who

are also focusing on start-ups and software suppliers. In fail to comply with regulations or do not implement these

familiar and established markets, the regional offices support adequately. Tying award decisions to sustainability criteria is

access to the latest technologies and innovations.

one of the strongest levers for enforcing these. We address

existing sustainability risks and violations of sustainability

principles by systematically implementing measures; this

Management of purchased parts and suppliers

Today’s supplier portfolio is characterized by global distri- also includes the upstream supply chain. Depending on the

bution, segmentation and diversification. We address the severity, these may entail the inclusion of stipulations and

challenges this presents by supporting and monitoring the measures in performance specifications for suppliers. Despite

industrialization of suppliers with our procurement supplier the adversities caused by the Covid-19 pandemic, we once

management. This starts with auditing and assessing sup- again stepped up our focus on advanced and continuing

pliers in preparation for the nomination process and training for suppliers; in fiscal year 2020, more than 12

continues with monitoring the maturity of the industriali- thousand suppliers took advantage of the training programs.

zation of purchased parts, to the complete acceptance and

The focus of our activities in 2020 was on decarboni-

confirmation of the required production capacity at the indi- zation, respecting human rights and responsible raw material

vidual supplier locations. The complexity of the components sourcing.

requires regular monitoring of production processes in order

With regard to decarbonization, the Volkswagen Group is

to identify any disruptive factors at an early stage and take striving to continuously reduce greenhouse gas emissions or

action to remedy these. Close cooperation with the quality avoid them altogether over the entire life cycle of a vehicle.

assurance units at the production sites is crucial for a stable The Group’s transformation into a provider of sustainable

supply of purchased parts for our start-up and series pro- mobility solutions and in particular the trend towards

duction vehicle projects. The global supplier management electric mobility are shifting the action required from the

network worked reliably, particulary in the face of the service life of the vehicle to supply chains and the manu-

challenges posed by the Covid-19 pandemic, and supplies to facture of vehicles and components. We are aware of our

vehicle and component plants were largely safeguarded social responsibility and are committed to the 2°C target of

throughout the reporting year. Bottlenecks and supply disrup- the Paris Climate Agreement. We have therefore incorporated

tion occurred globally due to the restrictions on mobility and the use of renewable energy into the specifications for battery

border closures, resulting from the pandemic.

suppliers.

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151

In respecting human rights in our supply chains, we are increased by means of an economical product portfolio that

guided by international agreements and frameworks as is viable for the future, a continuously optimized product

required by the UN Guiding Principles on Business and range and economies of scale exploited across all business

Human Rights and the principles and conventions of the areas. Group Components in the Volkswagen Group is to be

OECD. To comply with these requirements, we launched a responsible for the development and production of battery

human rights due diligence management system in 2020 to systems and electric drives for new electric vehicles as well as

make human rights risks in our supply chain transparent and for the development and pilot production of battery cells and

to mitigate these risks. An additional management system the management of production partners. There are also plans

has been set up to effectively manage the sometimes to reuse the battery cells in innovative reutilization concepts

extensive risks in the raw material supply chains. This sets such as the flexible fast charging station and then to recycle

out in detail the prioritization and processing of the raw them in a climate-friendly manner.

material supply chains that we classify as particularly high

risk. Our current focus is on 16 raw materials. The inclusion

P RO DU CT IO N

of additional transparency requirements for our battery The international, cross-brand production network enables

suppliers in 2020 represented a milestone for responsible raw the process from the supplier to the factory and assembly

material procurement. These requirements include the line, and from the factory to dealers and customers. Enduring

disclosure of the entire upstream supply chain by our battery efficiency is a prerequisite for our competitiveness. To be able

suppliers and is effective for new contracts awarded from to meet the challenges of the future, we rely on holistic

fiscal year 2020 onwards.

optimizations, forward-looking innovations, flexible supply

streams and structures, and an agile team. In fiscal year 2020,

the global vehicle production volume was 17.8% below the

COM P O N E NT S B U SI N E SS

A realignment of the Group-wide components business was previous year’s level, reaching 8.9 million units. This was

+

decided on as part of the Group strategy TOGETHER 2025

primarily attributable to the global spread of the SARS-CoV-2

and implemented as of January 1, 2019. The aim is the further virus and the measures taken to contain the pandemic, such

improvement of future viability and competitiveness by as temporary closures of factories or reduced factory output,

means of cross-brand management of component activities particularly in the first half of 2020, due to interruption to

and an added-value strategy coordinated throughout the supply chains and logistics and closures of dealerships.

Group. Synergies are to be leveraged across both traditional Despite the continuing difficult conditions in many markets,

technologies and topics of the future to advance the production in the second half of 2020 stabilized at close to

transition to electric mobility.

the previous year’s level. To maintain production processes

The components business manages around 75 thousand amid the pandemic conditions and protect our employees,

employees worldwide. The focus of their expertise is the we developed and agreed behaviors and measures as part of

development and manufacture of vehicle components. In our Safe Production Initiative to prevent possible chains of

order to realign these competencies in a future-oriented way, infection between the people working in the network. These

it was decided as part of the Group strategy to combine mainly include the obligation to wear face masks, adherence

components activities around the world into an independent to behavioural rules, particularly regarding social distancing,

corporate entity, Volkswagen Group Components, under the hygiene requirements and ensuring regular ventilation, and

umbrella of Volkswagen AG.

the reorganization of shift models and breaks. We constantly

The entity has been organized into business areas: Engine review the measures taken to contain the Covid-19 pandemic

and Foundry, Transmissions and Electric Drive, Chassis and and adjust them if necessary.

Battery System, Battery Cell and Seats. In each of the busi-

ness areas, innovative power and competitiveness is to be

Productivity increased by 0.8% year-on-year.

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“

Intelligently networked” production strategy

Global production network

Production is supporting the Group strategy TOGETHER 2025⁺The Group’s production network encompasses twelve brands

with its functional area strategy, “Intelligently Networked”. By and 118 production locations, including our Chinese joint

intelligently connecting people, brands and machines, we ventures. Standardizing production with uniform product

aim to pool the strengths and potential of our global concepts, plants, operating equipment and production pro-

production and logistics and take advantage of the resulting cesses is a key factor in our forward-looking production. We

synergy effects. We are guided in this by four strategic goals:

are constantly enhancing our production concepts and

aligning them with new technologies to achieve ambitious

targets in the individual projects.

The flexible production capacity provided by our plat-

forms allows us to leverage synergies, respond to market

>

Versatile production network

Efficient production

Intelligent production processes

Future-ready production

With cross-brand initiatives we have created content clusters challenges, make requirements-based use of the production

in which expert teams work on the strategic topics relevant network and realize multibrand locations. Currently, almost

for production in the Group. Examples include the com- half of the 47 passenger car locations are already multibrand

petitive design of our global production network, the reduc- locations. The Bratislava site continues to serve as a prime

tion and offsetting of environmental impact throughout the example in the Group, producing vehicles for the Volkswagen

production process, and digitalization with its implications Passenger Cars, Audi, Porsche, SEAT and ŠKODA brands.

for production and working processes and for collaboration.

The Volkswagen Group has set itself the goal of becoming

A scenario-based strategy process has been developed in the a world-leading provider of battery electric vehicles by 2025.

course of the transformation phase in production and is The basis for this is the introduction of the Modular Electric

geared to an observation period running until 2040. The Drive Toolkit (MEB), which we are using to complement our

overarching aim is to increase productivity and profitability. range with additional battery-electric vehicles. We have been

We want to ensure that our locations remain competitive by manufacturing battery-electric vehicles based on the MEB in

having our factories work at optimal capacity, enabling us to Zwickau, the Volkswagen Group’s first electric car factory,

manufacture high-quality products that give customers since 2019. One example is the ID.3 from the Volkswagen

maximum benefits at competitive prices.

Passenger Cars brand. In 2020, the portfolio of the MEB

Group Management Report

Sustainable Value Enhancement

153

platform was expanded in Zwickau to include the ID.4 from New technologies and digitalization

Volkswagen Passenger Cars as well as at the Mlada Boleslav 3D printing is still one of the key technologies for Industry

location with the addition of the Enyaq iV from ŠKODA. 4.0 and digitalizing the automotive value chain. These tech-

In order to design multibrand projects and electric mobil- nologies, also dubbed additive manufacturing, are being used

ity to be cost-effective in conjunction with existing concepts, successfully at nearly all Volkswagen Group sites in the

it is necessary to make production flexible and efficient. manufacture of components and also operating equipment.

Making maximum use of potential synergy effects is also a They open up wholly new opportunities in the areas of

decisive factor for the success of future vehicle projects. Using development, design, production and after sales. Due to the

common parts and concepts as well as identical production digital nature of 3D printing, which requires no tools what-

processes enables reduced capital expenditure and provides soever, components and operating equipment can be flexibly

the opportunity to better utilize existing capacities. The implemented directly from digital drawings, and completely

future will also see electric vehicle projects at multibrand new designs and component geometries can be created.

locations such as Hanover.

Developments for large-scale automotive production appli-

cations point to considerable potential for the future. To this

end, Volkswagen leverages the diversity of the Group,

Production locations

Following the sale of Renk, the Volkswagen Group’s pro- achieved through close collaboration between its brands, and

duction network, including our Chinese joint ventures, is cooperates with leading technology providers and research

now comprised of 118 locations in which passenger cars, institutions.

commercial vehicles and motorcycles, as well as powertrains

and components are manufactured.

Augmented reality links the virtual world with the

physical one and, as a mature technology, likewise plays a key

With 66 locations, Europe remains our most important part in the digitalization of the value chain – not least in view

production region for vehicles and components. There are 24 of ongoing restrictions on contact and travel caused by the

sites in Germany alone. The Group has 34 locations in the Covid-19 pandemic. In this regard, there is potential to

Asia-Pacific region, five in North America, nine in South increase efficiency and innovative capability in areas such as

America and four in Africa.

remote support, employee training, quality assurance and

Despite difficult conditions due to the effects of the the development process. Along with the implementation of

Covid-19 pandemic, we carried out 81 production start-ups in new solutions that use data glasses, tablets or projectors as an

the reporting year: 33 for new products and successor prod- output medium, existing augmented reality applications are

ucts and 48 for product upgrades and derivatives.

continuously being rolled out to other Group sites.

The basis for the digitalization of the production system

is often the harnessing of production data. One focus is the

The Group’s production system

The Group’s production system provides methods and tools use of artificial intelligence on image data, the so-called

designed to bring about continuous, sustainable workflow “industrial computer vision”. Here, the Volkswagen Group

improvements at all Group brand and regional sites in developed its own platform for the implementation of

production and production-related environments. When specific projects and is rolling out applications across its

refining the methods, we incorporate new topics and ongoing brands and locations. Examples include checking that vehicle

trends, focusing, for example, on digitalization and the license plates are correct or detecting cracks in the press shop.

switch to electric mobility. Digitalization in particular is

Alongside new technologies, moving the IT architecture

opening up new areas of application, for instance through the over to a cloud-based platform solution will be the main task

use of digital data and models. Furthermore, digitalization in the coming years on the road to digitalized manufacturing.

also provides the opportunity to transpose existing methods For this, the Volkswagen Group is developing, among other

into digital formats and create new, IT-based tools. In this things, the Industrial Cloud in collaboration with Amazon

way, we are taking advantage of the opportunities presented Web Services and the integration partner Siemens. The cloud-

by digitalization and are making increased use of digital based platform with its simplified data exchange is a vital

formats and digital tools in training courses and workshops.

prerequisite for making innovations available rapidly across

The people in the Group play a pivotal role in anchoring all sites. Examples include intelligent robotics, related inline

the production system. We promote a culture of appreciative measuring systems, continuous quality control loops, predic-

cooperation, in which leadership and individual responsi- tive maintenance applications or data analysis functions for

bility are indispensable.

analyzing and comparing cross-plant processes. The cloud-

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based platform can be used to scale new applications directly as well as having a positive effect on the Group’s environ-

to all sites and operate them centrally. The entire project will mental indicators.

take several years to be implemented. Moreover, Volkswagen

is creating its Industrial Cloud as an open platform with the GoTOzero Impact Logistics

goal of incorporating companies from the entire value chain In the joint “goTOzero Impact Logistics” initiative, Group and

in addition to its own locations. In the long term, the Volks- brand logistics departments work together to help achieve

wagen Group aims to integrate its global supply chain with the goals of the goTOzero environmental mission statement.

over 30,000 sites of suppliers and partner companies into the Continuous optimization of the transport network and

cloud, creating a constantly growing, worldwide ecosystem.

logistics processes reduces emissions – this includes the use

In order to identify future innovations and new business of digitalization tools. The use of new low-emission tech-

models along the entire value chain, our open innovation nologies for transporting production materials and vehicles

approach enables an influx of innovative ideas and technol- will also be continuously analyzed and accelerated.

ogies from external start-ups, thus driving forward-looking

The measures the Volkswagen Group is taking to achieve

innovations for our products, services and processes within future carbon-neutral logistics include, for example, moving

the Volkswagen Group.

shipments from road to rail and almost complete avoidance

of CO

through the use of green electricity in rail transport in

2

GoTOzero Impact Factory

Germany in collaboration with Deutsche Bahn AG.

We are planning the production of tomorrow with our func-

Other examples of the use of the railways as a low-emis-

tional area strategy, “Intelligently Networked”. Emissions sion mode of transport are the delivery of battery modules to

levels and the use of resources at Volkswagen Group locations Braunschweig from the supplier in Wrocław, Poland, and the

require particular attention. The goTOzero Impact Factory transport of battery systems from the component site in

program is developing specific steps for more sustainable Braunschweig to the Zwickau plant in order to produce com-

production, with a vision toward creating a factory that has pletely battery-electric vehicles.

no adverse environmental impact.

In addition, Group Logistics is using the world’s first two

We have developed a checklist to help the sites determine roll-on/roll-off (RoRo) charter ships powered by low-pollution

their status on the way to becoming a “Zero-Impact Factory”. liquefied natural gas (LNG) for transporting vehicles across

This currently comprises 140 environmental criteria and thus the North Atlantic.

provides the basis for continuous reduction of energy con-

sumption and CO

2

emissions, for example.

SA LE S AN D M A R KETI NG

To implement such programs, a new management system We regard ourselves as an innovative and sustainable mobil-

will be introduced at all production sites worldwide, linking ity provider for all commercial and private customers world-

the main compliance issues with environmental manage- wide – with a unique product portfolio encompassing twelve

ment. This environmental compliance management system successful brands and innovative financial services.

provides a solid foundation for compliance with all external

and internal rules relating to the environment for instance in passenger car brands agreed on a procedure for integrating

the course of production processes. state-of-the-art products and services into the sales network.

Together with their sales partners and importers, our

We are encouraging networking and communication The priority thereby is the safe handling of customer data

between the brands worldwide in order to leverage synergies. and the way in which this is processed for digital products

Our environmental experts meet regularly in working groups. and services or in connection with the vehicle purchase. The

In addition, we provide our employees with training on the legal requirements for handling customer data have been

topic of environmental protection.

tightened in many countries. At the same time, new Group

We record and catalog environmental measures in an IT vehicles that are permanently connected to the internet are

system and make these available for a Group-wide exchange about to be launched. We are increasingly investing in distri-

of best practices. In the reporting period, around 1,520 imple- bution systems and processes with the goal of further

mented measures in the area of environment and energy digitalizing and improving the individual customer experi-

were documented in this system. They serve to improve ence in all distribution channels.

infrastructure and production processes for passenger cars

The Volkswagen Group’s financial strength and profitabil-

and light commercial vehicles and are incorporated into the ity is attributable to an extensive portfolio of strong brands.

decarbonization index (DCI), for example. These activities are The objective of our strategic Best Brand Equity module is to

beneficial from an environmental and often also from an continuously sharpen the brand profiles, demarcate the

economic perspective

respective vehicle segments that are served by the brands as

Group Management Report

Sustainable Value Enhancement

155

clearly as possible and add to them in a targeted way as

required. Our aim is to achieve high market saturation with

reason why we have measured both external and internal

customer satisfaction in our markets in recent years.

great efficiency and a low level of brand cannibalization. > Customer loyalty. Trust in and loyalty to our services rely

Market positioning is an important element for increasing

brand values. To this end, we have established automobile-

specific customer segmentation to steer the positioning of

our brands which we consistently apply throughout the

strategy and product process.

on customer satisfaction with our product range and

service. For this reason we ascertained the re-entering con-

tract rates in our markets in past years based on product

sales to customers, for financing and lease agreements for

repurchases of new Volkswagen Group vehicles.

Customer satisfaction and customer loyalty

E-mobility and digitalization in Group Sales

The Volkswagen Group aims its sales activities at exciting its As part of our electrification campaign, we aim to offer our

customers. This is our top priority, as satisfied customers customers worldwide around 70 completely battery-electric

remain loyal to our brands and recommend our products and vehicles and approximately 60 hybrid models by 2030. This

services to others. In addition to satisfaction with our prod- campaign will be complemented by vehicle-related, customer-

ucts and services, we value our customers’ emotional connec- focused offerings, such as customized charging infrastructure

tion to our brands. It is important for us to retain customers solutions and mobile online services. The Volkswagen Group

and win new ones. To measure our success in this area, we is thus transforming from an automotive manufacturer into a

compile and analyze two strategic indicators for the passen- mobility service provider. This poses new challenges for sales.

ger car-producing brands:

We are making highly targeted use of the opportunities of

>

Loyalty rate. Proportion of customers of our passenger car digitalization in sales, which include an improved customer

brands who have bought another Group model. Thanks to approach. Our actions are guided by a clearly defined strategy

their faithful customers, the Volkswagen Passenger Cars, that requires extensive cooperation between the brands to

Audi, ŠKODA and Porsche brands have remained in the achieve the greatest possible synergies. Our aim here is to

upper loyalty rankings of the core European markets in create a completely new product experience for the custom-

comparison with their competitors for a number of years. ers of our brands – one which impresses with a seamless

Following a decrease in the loyalty rates between 2016 and communication process, from the initial interest in

2

018, these figures stabilized for the Volkswagen Passenger purchasing a vehicle, to servicing and ultimately to the sale of

Cars, Audi and Porsche brands and have since risen for the used car. In doing so, we are opening up new business

ŠKODA and SEAT. Compared to other manufacturer groups, models relating to every aspect of the connected vehicle – in

the Volkswagen Group continues to hold a top spot in the particular with regard to mobility and other services. Vehicles

core European markets in terms of loyalty.

are becoming an integral part of the customer’s digital world

>

Conquest rate. Newly acquired passenger car customers as of experience.

a proportion of all potential new customers. Here, too, the

We also align our internal processes and structures to the

Volkswagen Group has a top ranking in comparison with methods and new forms of working created by digital inno-

competitors, primarily thanks to the good scores achieved vation. This results to project teams operating across

by the Volkswagen Passenger Cars brand.

different business areas, new forms of cooperation, a more

In the core European markets, the figures of the Volkswagen intensive relationship with the international start-up scene, a

Passenger Cars brand relating to brand image and confidence consolidation of venture capital expertise – as a form of

in the brand stabilized in 2020 above the level for the market supporting innovative ideas and business models – and new

as a whole. Porsche remains in top position in the image lean systems and cloud-based IT solutions.

ranking.

In the financial services business, we use two strategic Fleet customer business

indicators. The two indicators are currently being revised in Business relationships with fleet customers are often long-

light of changes in customer needs and in the product range, term partnerships. In a volatile environment, this customer

the short- and long-term impact of the Covid-19 pandemic group guarantees more stable sales of well-equipped, profit-

and the strategic alignment of financial services in the Volks- able vehicle models than the private customer segment.

wagen Group:

The Volkswagen Group has an established base of busi-

>

Customer satisfaction. A high level of customer satisfaction ness fleet customers, especially in Germany and the rest of

is one of the key objectives of our financial services activi- Europe. Our extensive product range enables us to satisfy

ties. Our goal is to satisfy customers completely. This is the their individual mobility needs from a single source.

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In an overall passenger car market in Germany that declined PrimeServ. The global network of more than 100 PrimeServ

by 19.1% in the reporting year, business fleet customers locations stands for excellent customer focus and offers,

accounted for 16.2 (14.8)% of total registrations. The Volks- among other things, replacement parts of genuine-part

wagen Group’s share of this customer segment slipped to quality, qualified technical service and long-term main-

4

2.1 (44.1)%. Outside Germany, the Group’s share of regis- tenance contracts.

trations by fleet customers in Europe was up slightly at 26.5

25.7)%. This trend shows that fleet customers’ confidence in

(

QUALITY

the Group remains at a high level. We were able to consolidate The quality of our products and services plays a key role in

our strong market position in the fleet customer business in maintaining customer satisfaction. Customers are particu-

Europe.

larly satisfied and loyal when their expectations of a product

or service are met or even exceeded. Appeal, reliability and

service determine quality as it is perceived by the customer

After Sales and Service

In addition to individual service, the timely provision of throughout the entire product experience. Our objective is to

genuine parts is essential to assure passenger car customer positively surprise our customers and inspire enthusiasm in

satisfaction in After Sales. The genuine parts supplied by our all areas, and thus to win them over with our quality.

passenger car brands and the expertise of the service centers

Digitalization was once again the beating heart of our

stand for quality and ensure the safety and value retention of work in the reporting year: we are sharpening our focus on

our customers’ vehicles. With our global after sales network software-based system development, which is a critical factor

including more than 130 of our own warehouses, we are for success in respect of customer satisfaction. Consistent

creating the prerequisites to supply almost all our authorized application of the “Automotive SPICE” process assessment

service facilities around the world within 24 hours. We regard model that we use to improve our processes is particularly

ourselves as a complete provider of all products and services important in our activities. It is a key building block for

relevant to customers in the after sales business. Together meeting the requirements of our customers, as well as those

with our partners, our mission is to ensure the worldwide of the regulatory and legislative bodies.

mobility of our customers. The partner businesses offer the

Volkswagen has been implementing cybersecurity mea-

entire portfolio of services in all vehicle classes. We are sures in the Group for some time now. For example, we have

continuously expanding our range of tailored services in an independent cybersecurity network in place across all

order to improve convenience for our customers and increase regions and Group brands and monitor potential cyber risks.

customer satisfaction.

This enables us to act fast when potential threats arise. The

In the Digital After Sales project, we are modernizing UNECE (United Nations Economic Commission for Europe) has

processes and IT systems in After Sales. By adopting an provided for corresponding certification and homologation

approach that focuses product and service development on in the future to ensure that companies can guarantee that

the specific needs of both dealers and customers, we aim to these aspects are dealt with properly so as to protect the users

reduce the time needed for administrative tasks at the dealers of our vehicles from potential attacks. Our Group pursues the

through automated, interrelated services and also stabilize goal of implementing standards in the areas of both accident

existing IT systems and boost efficiency. Innovative digital prevention and security. We are refining the established

after-sales services will additionally improve the customer processes within the framework of an Automotive Cyber

experience.

Security Management System in keeping with the require-

Around the world, our commercial vehicles business also ments of the UNECE regulation. In this context, Volkswagen is

prides itself on products of quality and on customer focus. implementing comprehensive measures across departments

Our range of trucks, buses and engines is complemented by in the Group. One of these is a Group-wide communications

services that aim to guarantee fuel efficiency, reliability and campaign launched for the Volkswagen Passenger Cars brand

wide vehicle availability. Workshop service and service con- to underline the importance of this issue.

tracts are intended to offer customers a high degree of cer-

tainty, in addition to a high level of quality. We are reducing Strategy of Group Quality

servicing times and costs with a view to the vehicles’ total We review our functional area strategy periodically and

operating costs and helping to retain their value.

coordinate it with the brands. We align our activities with our

In the Power Engineering segment, we help our cus- goal expressed in the motto: “We embody outstanding

tomers to secure the availability of machinery with MAN quality and ensure reliable mobility for our customers

Group Management Report

Sustainable Value Enhancement

157

worldwide.” Group Quality and the brands’ quality organi- Legal and regulatory compliance

zations play an active role at all stages of product emergence The legal and regulatory compliance of our products is para-

and testing, making an important contribution to successful mount in our work. In our processes we employ the principle

product launches, high customer satisfaction and low of multiple-party verification, which involves mutual support

warranty and ex gratia repair costs.

The strategy of Group Quality developed in this context software development is accompanied by quality milestones

comprises the following four goals: at all brands, whereby all systems, components and parts that

We excite our customers with our outstanding quality by directly influence a vehicle’s safety, type approval and

understanding what exactly they perceive as quality and functioning and therefore require particular vigilance are

implementing this in our products. safeguarded through multiple-party verification. At the series

and control between the business units. Among other things,

>

We contribute to competitive products with optimal quality production stage, we are also ensuring that the conformity

costs by ensuring robust processes, thereby reducing the checks on our products are carried out and assessed with the

expense involved in testing each vehicle.

participation of all business units involved. This applies

We make our contribution to sustainability, security and particularly to checks related to emissions and fuel consump-

integrity by embodying and designing high standards of tion.

quality in products and processes.

We are also dedicating increased attention to our quality

We are becoming an excellent employer by promoting the management system, reinforcing the interdisciplinary, pro-

personal development of every single employee even more cess-driven approach throughout the Group. The quality

intensively.

management system in the Volkswagen Group is based on

To achieve our goals, we have defined a variety of work the ISO 9001 standard. This standard must be complied with

packages. All are focused on the topics that are decisive to the for us to obtain type approval for the manufacture and sale of

success of the quality organizations in the Volkswagen our vehicles. We conducted numerous system audits in the

Group.

reporting period to verify that our sites and brands comply

with the requirements of the standard. Particular focus was

placed on assessing the risk of non-compliance with defined

Contributing to the Group’s strategic indicators

We use a strategic indicator to measure the contribution of processes. Our quality management consultants pay atten-

Group Quality at the top level of consideration for the major tion to ensuring that these and other new requirements, as

passenger car-producing brands.

well as official regulations, are implemented and complied

>

Warranty and ex gratia repair payments per vehicle after 12 with; they are supported in this endeavor by a central office

months in service. This indicator shows all warranty and ex in Group Quality.

gratia repair payments for the vehicles produced worldwide

in each production year, expressed in euros per vehicle. All Observing regional requirements

vehicles from the Volkswagen Passenger Cars, Audi, Porsche, Our customers in the different regions of the world have very

ŠKODA, SEAT and Volkswagen Commercial Vehicles brands diverse needs as far as new vehicle models are concerned.

are included in this figure. Extraordinary items resulting Another important task is therefore to identify and prioritize

from initiatives such as recalls or in connection with the these regional factors so that they can be reflected in the

diesel issue are not taken into account. While the figures development of new products and the production of estab-

for the 2017 and 2018 production years remained at a lished vehicle models – together with other important crite-

constant level, it was possible to reduce the allowances for ria such as the quality of locally available fuel, road condi-

vehicles manufactured in 2019 which are within the tions, traffic density, country-specific usage patterns and, last

targeted corridor. Particularly noteworthy is the Volks- but not least, local legislation. We mainly use market studies

wagen Commercial Vehicles brand, the figures for which and customer surveys to determine region-specific customer

improved by more than 10% year-on-year in the 2019 requirements.

production year.

In 2020, the Board of Management decided to replace the our vehicles is at a level commensurate with that of our

Tow-in 12 MIS” strategic indicator with this new indicator, as competitors, we take the needs of our regional customers

In order to be able to ensure that the perceived quality of

“

evaluation of global warranty and ex gratia repair payments into account in our vehicle audits. Every brand works

is a more comprehensive instrument for the economic man- together with the individual regions to decide how its

agement of customer perceptions of product quality.

product is to be positioned there. In this way, we strengthen

1

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Sustainable Value Enhancement

Group Management Report

the brands’ responsibility. So that the vehicle audit returns

comparable results, consistent quality benchmarks apply

across all brands and regions. We are continually adapting

these to changing requirements. For more than 40 years now,

we have been deploying auditors around the world to assess,

from the customer’s perspective, the vehicles that are ready

for delivery and to ensure that these vehicles comply with the

benchmarks defined.

EMPL O YEES BY MA RKET

in percent, as of December 31, 2020

Europe (excluding Germany)/ 31 %

Other markets

Germany 44 %

North America

4%

South America

Asia-Pacific 16 %

4%

E M P LOYE ES

The Volkswagen Group is one of the world’s largest employers

in the private sector. On December 31, 2020, we employed a

total of 662,575 people, which includes the Chinese joint

ventures. This figure represents a 1.3% decrease compared

with the end of 2019. The ratio of Group employees in Ger-

many to those abroad remained largely stable over the past

year; at the end of 2020, 44.4 (44.3)% of the workforce worked

in Germany.

>

Internal employer attractiveness. This indicator is deter-

mined by asking respondents, as part of the opinion

survey, whether they perceive the respective company as an

attractive employer. The target for 2025 is 89.1 out of a

possible total of 100 index points. A score of 88.2 index

points was achieved in the reporting period, contrasting

with 85.6 points in the previous year. The scope of this

survey extends beyond the brands that manufacture

passenger cars.

Human resources strategy and principles of the human resources policy

With the functional area strategy for Human Resources –

“Empower to transform” – the Group is continuing with key

and successful approaches in its human resources policy.

These include the pronounced stakeholder focus in corporate

governance, comprehensive participation rights for employ-

ees, outstanding training opportunities, the principle of long-

term service through systematic employee retention and

remuneration that is fair and transparent. At the same time, > External employer attractiveness. The ability to recruit top

the new human resources strategy is setting innovative

trends. Hierarchies are being dismantled, and modern forms

of working such as agile working – an approach whereby

most of the responsibility for the work organization is

transferred to the teams – are set to be expanded.

talent is of decisive importance, particularly in view of the

Company’s transformation into one of the world's leading

providers of sustainable mobility solutions and the

associated development of new business fields. We use this

strategic indicator once a year to check the positioning of

the major passenger car-producing brands on the labor

markets for graduates. Rankings in surveys conducted by

renowned institutions, in which we aim to achieve top

scores for the Group brands featured, serve as the basis for

this. The Porsche and ŠKODA brands fully met and partly

exceeded their targets in fiscal year 2020, while Volkswagen

Passenger Cars, Volkswagen Commercial Vehicles, SEAT and

Audi missed or only partially achieved them.

> Diversity index. Given the cultural diversity in our global

markets and the growing economic momentum, success in

a highly competitive marketplace requires an ever-wider

range of experience, world views, solutions to problems

and product ideas. The diversity of our workforce provides

potential for innovation in this area, which we aim to make

even better use of in future. As we establish diversity

management across the Group, this strategic indicator

expresses the development of the proportion of women in

management and the internationalization of top manage-

ment as a percentage of the active workforce worldwide.

In particular, it underpins the objective of the human

resources strategy, which is aimed at contributing to an

In the Human Resources division, we are guided within

the framework of our strategy by five overarching objectives:

>

The Volkswagen Group, including all of its brands and com-

panies, aims to be an excellent employer worldwide.

Highly competent and dedicated employees strive for

excellence in terms of innovation, added value and cus-

tomer focus.

>

A forward-looking work organization ensures optimal

working conditions in factories and offices.

An exemplary corporate culture creates an open work

environment that is characterized by mutual trust and

collaboration.

>

The Company’s human resources work is highly employee-

oriented, strives for operational excellence, and yields

strategic value-added contributions.

During the implementation of our future program

+

TOGETHER 2025 , we paid particular attention in the

reporting period to the level of achievement regarding the

goals set by the applicable strategic KPIs. For the passenger

car-producing brands, we compile and analyze the following

information:

Group Management Report

Sustainable Value Enhancement

159

exemplary leadership and corporate culture. The pro- We are also driving large-scale cultural change to achieve

portion of women in management amounted to 15.3% in greater openness and transparency in line with our corporate

2

020 and was one percentage point up on the prior-year strategy. The seven Volkswagen Group Essentials define the

level. We aim to raise this figure to 20.2% by 2025. Our goal shared underlying values and the foundation for cultural

is to increase the level of internationalization in top man- change across all of the brands and companies:

agement, the uppermost of our three management tiers, to > We take on responsibility for the environment and society.

2

5.0% in 2025; in the past fiscal year this was 18.7 (18.4)%. > We are honest and speak up when something is wrong.

One strategic indicator has been defined for the financial > We break new ground.

services business: > We live diversity.

External employer ranking. This involves taking part in > We are proud of the work we do.

>

external benchmarking, in general once every two years. > We not me.

The aim is to position ourselves as an attractive employer > We keep our word.

and derive appropriate measures to achieve a ranking Group-wide activities such as team dialog and the role model

among the top-20 employers by 2025, not just in Europe, program encourage employees to analyze the Group Essen-

but globally. Volkswagen Financial Services AG was tials and incorporate them into all work processes. In the role

represented in various national and international best- model program, managers from all brands improve the cor-

employer rankings the last time it participated in 2019. porate culture together with their staff.

Coming in 11th place, it was among the top European

employers in the “Great Place to Work” employer com- Training and professional development

petition.

The implementation of our Group strategy TOGETHER 2025

At Volkswagen, our capacity for innovation and our com-

petitive position largely depends on the commitment and

+

has been accompanied by a work package that we defined knowledge of our employees, particularly during the trans-

with the Excellent Leadership module under the slogan formation.

“Accelerate the transformation” to drive the change towards

Staff training at Volkswagen is organized according to

an open, cooperative, diverse management culture that vocational groups. These comprise all employees whose tasks

places emphasis on acting with integrity. Communication are based on similar technical skills and who require related

and collaboration will be improved across the brands and expertise in order to perform their jobs. A skills profile lays

regions, open, partnership-based and value-based leadership down the specialist and interdisciplinary skills for each job

will be intensified, management development and training and serves as a guide for training measures.

will undergo fundamental change, and an even more

Volkswagen Group employees have access to a wide range

systematic approach to succession planning will be taken so of training measures – from further training in general

that the Group has the right people available for the right Company-related issues to specific training or personal

positions. In 2020, we overhauled our staff development development programs. Thanks to these opportunities,

system in line with our business requirements and Volkswagen employees are able to further develop and

introduced scouting day management, a new selection steadily deepen their knowledge throughout their working

procedure that will enable us to identify suitable talent for lives. In this process, they are also able to learn from more

selected functions in specialist or executive management experienced colleagues, who pass on their knowledge as

objectively, accurately and promptly. Individual responsi- experts in the vocational group academies. Training mea-

bility, transparency and greater practical relevance already sures are based on the dual training principle, which

characterize the career paths leading to management; the combines theoretical content with practical experience on

evaluation of talented candidates addresses employees from the job by means of specific tasks.

different levels of the hierarchy.

The range of learning opportunities is being expanded

To master the challenges of the transformation, the continuously. Since 2019, the Volkswagen Group Academy

Group and the employee representatives have signed has forged partnerships with renowned external training

agreements for the future that will position the Group’s portals to expand online learning, for example on IT topics.

individual brands more efficiently and also structure The Company has set aside additional funds for the trans-

employee career prospects. The Volkswagen Passenger Cars formation of personnel skills made necessary by digitali-

brand’s roadmap for digital transformation is one example, zation. These resources are used for special training for the

as is the Audi brand’s Audi.Zukunft agreement, both of which groups of employees and departments affected by the trans-

were refined in fiscal year 2020.

formation. In addition, Volkswagen is striking out in new

directions with the Faculty 73 program and is providing in-

house training for the software developers who are needed

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Sustainable Value Enhancement

Group Management Report

for the digital transformation. The academic year started in

2

PROPO RT ION OF WOME N

020 with 100 participants. The program is designed for as of December 31

employees and also external applicants with IT affinity and

an interest in software development.

%

2020

2019

Vocational training and cooperative education

The core component of training at Volkswagen is vocational Employees

training or, for young people eligible to enter university, Vocational trainees¹

cooperative education (dual study programs combining Graduate recruits²

university studies with on-the-job training). As of the end of Total management

17.0

20.5

32.5

15.1

17.3

11.6

7.0

16.8

21.4

31.7

14.2

16.2

10.8

6.8

2020, the Volkswagen Group trained 17,939 young people. We Management

have introduced the principle of dual vocational training at Senior management

many of the Group’s international locations over the past few Top management

years and are continuously working on improvements. Once

1

2

Excluding Scania.

Volkswagen AG

a year, Volkswagen honors its highest-achieving vocational

trainees in the Group with the Best Apprentice Award.

Even after their vocational training has been completed,

young people at the start of their careers are encouraged to

continue their professional development in our Company. At equality. We are working continuously to develop family-

Volkswagen AG, for example, we developed the AGEBI+ friendly working time models and to increase the number of

program, which promotes fully qualified vocational trainees women in management positions. In line with the Gesetz für

who are eligible for university and wish to combine a degree die gleichberechtigte Teilhabe von Frauen und Männern in

program in subjects that are relevant to Volkswagen’s future – Führungspositionen in der Privatwirtschaft und im öffent-

such as electrical engineering, chemistry or computer science lichen Dienst (German Act on the Equal Participation of

–

with closely related practical experience.

Women and Men in Leadership Positions in Private and

Public Sectors), Volkswagen AG is aiming to have a 13.0%

share of women at the first management level and 16.9% at

Development of university graduates

Volkswagen offers two structured entry and development the second management level by the end of 2021. As of

programs for university graduates and young professionals. December 31, 2020, the proportion of women in the active

In the StartUp Direct trainee program, graduate trainees gain workforce at the first level of management was 10.9 (11.4)%

an overview of the Company over two years while working in and at the second level of management it was 16.7 (16.4)%.

their own department and also take part in supplementary

In order to encourage women with great potential to

training measures. University graduates interested in advance within the Company, we have set targets relating to

working internationally can participate in the 18-month the development of the proportion of women in manage-

StartUp Cross program. The aim here is to get to know the ment for every Board of Management business area at

Company in all its diversity and to build up a broad network. Volkswagen AG. This approach is supported by many different

During their participation in the program, young profes- measures ranging from cross-brand mentoring programs to a

sionals become familiarized with several locations in quota system for the management selection procedure and

Germany and other countries by working in various depart- targets for the share of women among external hires.

ments. Both programs also include several weeks’ experience

In recent years, a large number of company regulations

working in production. In 2020, Volkswagen AG hired a total have also come into effect in the Group to make it easier for

of 151 graduate trainees as part of these programs, 32.5% of employees to balance the demands of work and home life

whom were women.

and allow staff to arrange their own individual working

Young people can also take part in graduate trainee model. These include flexible working hours, variable part-

programs at the other Group companies as well as at the time work and shift models, leave of absence programs

Group’s international locations, such as ŠKODA in the Czech enabling employees to care for family members, the possi-

Republic, SEAT in Spain or Scania in Sweden.

bility to convert salary components into paid leave, childcare

services that are associated with the company or are

company-owned, and remote working.

Increasing attractiveness as an employer and development programs

for specific target groups

At Volkswagen AG, which first entered into its works

A human resources policy that promotes a work-life balance agreement for remote working back in 2016, around 40

is a major component of Volkswagen’s attractiveness as an thousand employees were making use of a more flexible

employer; in particular, it contributes to greater gender working arrangement as of the end of the 2020 fiscal year.

Group Management Report

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161

A GE ST R U C T URE I N YE A R S O F VO L KSW A GE N GRO U P E MP L O YE E S

Employee participation

as of December 31, 2020; in percent

Codetermination and employee participation are important

pillars of our human resources strategy. Volkswagen aims to

promote high levels of expertise and a strong sense of team

spirit. This includes employees’ opinions, assessments and

criticism being heard.

We brief our employees extensively on upcoming

changes so as to involve them in strategic decision-making as

early as possible. When shaping labor relations to embody

cooperation and social peace, we are guided by universal

human rights and the standards of the International Labour

Organization (ILO). Building on these principles, we have

agreed various charters and declarations with the European

and the Global Works Councils which set out the principles of

labor policy in the Volkswagen Group as well as employee

rights.

<

20< 2 02 %

2

3

4

5

0– 22 90 – 21 98 %

0– 33 90 – 33 90 %

0– 44 90 – 42 95 %

0– 55 90 – 52 90 %

6

0 +60 +5 %

By means of the opinion survey, an employee poll con-

The Covid-19 pandemic brought fundamental changes to the ducted at 172 companies belonging to the Group, the Com-

way we work and collaborate with one another. As in other pany not only regularly gathers information regarding

companies, at Volkswagen the pandemic acted primarily as a employee satisfaction, but also inquires about the manifes-

catalyst for the breakthrough of digitalization in knowledge tation of our corporate culture and the manner in which, for

work: virtual communication and collaboration, and new example, compliance requirements are implemented. Based

formats of knowledge transfer and training, for example on the results, follow-up processes are implemented in which

through podcasts or online tutorials, were set up and measures are developed and executed. Over 540 thousand

expanded at short notice. In addition, digital tools enabled us employees in 38 countries were invited to take part in the

to remain operational throughout the measures introduced 2020 survey. The participation rate was 81%. The average

to contain the pandemic, such as business closures.

result from all of the answers provided for the questions in

the opinion survey – the sentiment rating – is an important

parameter of the survey; in 2020 it stood at 82.2 out of a

Preventive healthcare and occupational safety

Preventive healthcare and occupational safety are key ele- possible total of 100 index points. The score achieved in 2020

ments of human resources policy in the Volkswagen Group. was thus higher than the previous year’s figure, which

In fiscal year 2019, we underpinned this by drawing up a amounted to 80.0 points.

corresponding Group Policy. This defines basic requirements

In addition, we also encourage employee involvement by

and objectives relating to occupational health and safety, means of Idea Management. Employees have the opportunity

laying down rules for the organization thereof as well as the to put their creativity and knowledge to use in the form of

responsibilities of the Group, brands and companies.

ideas for improvements, thus contributing to streamlining

In addition to fulfilling statutory requirements, Volks- workflows, further enhancing ergonomics in the workplace,

wagen’s Health department places strong emphasis on pre- reducing costs and continuously increasing efficiency. The

ventive approaches with regard to health, fitness and perfor- system also provides monetary incentives by offering set

mance. Employees are given the opportunity to have regular rewards.

check-ups followed by a talk in which they receive offers that

Employee participation in the Company’s success through

draw on recent scientific findings for improving their indi- the issuance of treasury shares in the form of an employee

vidual health. In fiscal year 2020, our Health department share program is not currently offered.

faced unique challenges due to the spread of the Covid-19

pandemic and the measures that needed to be put in place.

I N F ORM AT IO N T ECH NO LOGY ( IT )

Our top priority was to safeguard production in the Group Volkswagen is working hard on strengthening its digital

without putting the protection and health of our employees competencies with a view to shaping and safeguarding the

in jeopardy. To this end, we developed and implemented a Company’s future viability. To this end we are continuously

variety of actions such as hygiene measures, setting up upgrading our IT systems so that they are sustainable in the

dedicated test centers at Volkswagen locations and providing long term and are progressively moving our systems and

input and guidance from the Health department on the Safe applications over to new cloud platforms. Our primary

Production Initiative, which supports safe and healthy concern is further increasing the efficiency of the IT systems

manufacturing under pandemic conditions.

used throughout the Company and standardizing these as far

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Group Management Report

as possible. We are also concentrating on building up our In addition, the IT labs are used to transfer knowledge

expertise and specialist IT knowledge, especially in key digital throughout the entire Company on topics such as data

technologies such as artificial intelligence and the use of new analytics (process for the systematic analysis of data in

IT technologies in products, services and business processes.

electronic form) and decentralized databases, that allow

To safeguard the development of core competencies in network participants to jointly process and store data (distri-

our Company in the fields of technology, digitalization and buted ledger technologies), and to make new technologies

autonomous driving, we are building up IT resources that will usable for the Company. For instance, numerous bot projects

help shape and push the Company’s digital transformation.

are being implemented to automate business processes

Due to the global spread of the Covid-19 pandemic, we (robotic process automation), and self-learning systems will

have taken measures to protect the workforce, such as an be used to intelligently analyze data to assist staff in

increased use of remote working. In this context, safe- recurring administrative work by preparing such activities

guarding access to the IT infrastructure in all brands and independently and passing them on to staff for decision-

companies was a major priority in fiscal year 2020. Usage making.

figures for VPN (virtual private network) access and digital

The further convergence of different business areas with

collaboration applications soared compared with the pre- IT is also opening up potential. In production, for example,

vious year. IT system availability improved once again year- big data processes help us to analyze faulty machinery and

on-year.

take action at an early stage. Big data refers to data volumes

The Group IT Steering Committee was formed in 2019 to that are too vast and too complex to be analyzed and evalu-

leverage synergies, to manage the Group’s IT project portfolio ated using manual or conventional methods. Production

and promote communication with departments on IT processes are also safeguarded by artificial intelligence and

projects. Planning and managing the IT project portfolio at camera systems (computer vision). The systems and

Group level make sure that budgets and resources are equipment in the factories are linked together in an

employed in a coordinated fashion in the development, integrated overall system, enabling efficiency to be increased

implementation and use of IT solutions. In fiscal year 2020, and digital pilot projects to be integrated into the existing

the Group IT Steering Committee prioritized the IT project architecture much more easily than before. In conjunction

portfolio with all brands so as to take account of the Group’s with the different departments, Group IT is also contributing

situation during the Covid-19 pandemic.

its expertise to the field of research and development. For

Volkswagen embraces digitalization in the Company; its instance, digitalized work tools such as the “virtual concept

in-house IT labs are just one example of this. The labs act as vehicle” make the product development process faster and

centers of innovation and expertise that conduct research, more efficient. Value creation in sales is being increased with

experiment with new technologies and make these available the help of advanced analytics (a process for systematic

for productive use in applications for the organization. Here, analysis of future events and behavior), for example in

Group IT, research institutes, technology partners and policy- optimizing the use of parking lots and vehicle collection

makers work closely together on future trends in information processes.

technology. At the same time, the labs function as liaison

The IT department engages in extensive activities to give

offices for start-ups. This allows the experience and strategic Volkswagen’s employees access to digital media and work

expertise of a large company like Volkswagen to be combined tools. The provision of state-of-the-art IT applications for

with the pragmatism and speed of young start-ups. Highly digital collaboration and the expansion of options for

specialized experts at the IT labs in Munich, and increasingly conducting business on mobile devices are designed to

also in Wolfsburg, are working, for example, on exploiting improve productivity in the long term. The Company’s

the potential of quantum computers for areas that have a internal network, Group Connect, promotes knowledge

commercial application. The focus here is on the optimi- transfer and networking among all employees. The platform

zation of traffic flows and the simulation of materials and puts experts in touch with one another across the brands and

alloys. Initial experimental projects are also investigating the world.

opportunities for combining the potential of quantum com-

In software development centers we develop cross-brand

puters with self-learning systems (quantum machine learning). software for digital ecosystems and for new business

Group Management Report

Sustainable Value Enhancement

163

processes in the Group. We thereby maintain in-house exper- solutions in conformity with national and international

tise in the rapid, demand-oriented development of software legislation, we are establishing integrated, cross-brand, cross-

and IT solutions. This capability will become increasingly regional security management systems for information and

important as the Company’s digital transformation evolves.

cybersecurity. One of the aims of this program, which is set to

Cutting-edge technologies for the industrial Internet of run until 2021, is to safeguard the complete life cycle of our

Things are being developed at the software development vehicles and the digital mobility services.

center in Dresden. In collaboration with a leading cloud pro-

Key central information security processes have been

vider, Amazon Web Services, we are working on a digital pro- audited within the international ISO 27001 framework and

duction platform that will enable Volkswagen to significantly were recertified in 2020. This is the most important standard

reduce its production costs in the future.

for information security and extends beyond IT to also cover

Safeguarding data and information throughout the issues such as human resource security, compliance, physical

Volkswagen Group worldwide is one of the main tasks of IT security and legal requirements.

and is being continued with the Group Information Security

In fiscal year 2020, we continued the activities of our

Program launched in fiscal year 2020. The objective of the Group program for systematic implementation of the

program is to create uniform processes and solutions across European General Data Protection Regulation (GDPR) and

the Group to further enhance information security in the developed Group-wide standards for GDPR compliance. This

areas of cloud security and secure software development. The gave rise to uniform processes, procedures and systemic

main focus is on topics that could one day pose information solutions, as well as a Group-wide GDPR dialogue. In addition,

security risks for the Group. The program’s content and knowledge relating to data protection was continuously built

orientation will be reviewed annually and updated if up through extensive training and qualification measures.

necessary.

Whenever new IT solutions are developed, requirements

CAR2X technology offers our customers protection by based on the Privacy by Design principle are taken into

warning them, for example, about traffic hazards. CAR2X account from the outset. The basic requirements of the GDPR,

technology enables direct wireless communication among transparency in processing and the minimization of personal

the vehicles themselves and with the transport infrastruc- data, remain essential goals in all existing and future

ture. This TÜV IT-certified technology, implemented in processes. To facilitate long-term compliance with the GDPR,

accordance with European standards, represents a technical the development of the data protection management organi-

milestone in our CAR2X program.

zation that began in 2019 was steadily continued and imple-

We are one of the first vehicle manufacturers to require mented in regular operations.

our suppliers to have passed TISAX (Trusted Information

Security Assessment Exchange) certification. This sends out a

ENVI RON M EN TA L STRATE GY

strong signal about cross-company information and data As one of the largest automobile manufacturers, Volkswagen

security. TISAX certification is an assessment method takes responsibility for the environmental impact of its

+

developed by the German Association of the Automotive activities. Based on the TOGETHER 2025 Group strategy, we

Industry and is based on the new international industry have set ourselves ambitious environmental targets. With the

standard and the requirements of the automotive world. The environmental mission statement goTOzero, we aspire to

aim is for sensitive data and information to be dealt with minimize environmental impact along the entire life cycle

securely by our suppliers.

– from raw material extraction until end-of-life – for all our

The tasks of automotive cybersecurity are to avert cyber products and mobility solutions in order to keep ecosystems

attacks on our vehicles throughout the entire product life intact and to exert a positive influence on society. Com-

cycle and in the supply chains and to protect our customers’ pliance with environmental regulations, standards and

personal data in our vehicles. The first Group policies in the voluntary commitments is a basic prerequisite of our actions.

Volkswagen Group based on the legal requirements of the Our focus is on four prioritized action areas:

UNECE regulation have been implemented. Cross-brand > Climate change. We are committed to the 2°C target of the

organizational guidelines are being specified and imple-

mented on this basis, taking the organizational circum-

stances into account.

Our “Protected Customer” program addresses the require-

ments of the UNECE regulation. To enable us to protect our

customers against cyber attacks, and to implement our

Paris Climate Agreement. By 2025, we plan to reduce the

greenhouse gas emissions of our passenger cars and light

commercial vehicles by 30% over the total life cycle

compared with 2015. We use the decarbonization index to

document our progress. We intend to become a net-carbon-

neutral company by 2050.

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Group Management Report

>

Resources. We intend to reduce production-related environ- We once again markedly enhanced and expanded our climate

mental impact, maximize our resource efficiency and pro- protection targets in the reporting year. The Volkswagen

mote circular economy approaches in the areas of materials, Group aims to reduce the CO emissions of its vehicles by

energy and water. 30% in the production and use phase between 2018 and 2030.

Air quality. We are driving e-mobility forward with the The independent Science Based Targets Initiative confirmed

intention of improving the local air quality. Our target is a to the Volkswagen Group that due to its climate targets, the

share of battery electric vehicles in our model portfolio of Company fulfills the conditions for limiting global warming

2

around 20% by 2025.

to “significantly below 2 degrees Celsius.”

Environmental compliance. Where integrity is concerned,

we aim to become a role model for a modern, transparent Organization of environmental protection

and successful enterprise by covering the environmental Volkswagen has created an environmental policy that sets out

impact of our mobility solutions over all life cycle stages. guidelines for environmental decision-making, for the man-

To this end, we use effective management systems, the agement of projects and for the Group’s environmental

effectiveness of which is monitored regularly.

With our future program TOGETHER 2025+, we have defined a working methods of management and staff in five areas:

strategic indicator: management behavior, compliance, environmental protec-

Decarbonization index (DKI). The DKI measures the emis- tion, collaboration with stakeholders and continuous improve-

sions of CO and CO equivalents (jointly referred to as ment.

CO e) by the major passenger car- and light commercial The Board of Management of Volkswagen AG is the

stewardship. Thus, parameters are set for the conduct and

>

2

vehicle-producing brands in the regions of Europe (EU27, highest internal decision-making body for environmental

United Kingdom, Norway and Iceland), China and the USA issues. Both it and the brands’ boards of management take

over the entire life cycle. In this index, the use phase is business, social and environmental criteria into account

calculated over 200,000 km and with reference to region- when making key company decisions. The Group-wide man-

specific fleet values without statutory flexibilities. The CO

2

e

agement of environmental protection is the responsibility of

intensity of the charging current of the electric vehicles is the Group Steering Committee for the Environment and

also calculated based on region-specific electricity mixes. Energy. Other bodies take responsibility for steering key indi-

Our vehicle life cycle assessments, which are used as the vidual aspects. They include the Group CO2 Steering Com-

data basis for calculating supply chain and recycling mittee, the Group Steering Committee for Fleet Compliance

emissions, have been verified externally and independently and Exhaust Gas, and the Group Sustainability Steering

in accordance with ISO 14040. In the DKI, we have a Committee.

meaningful measuring instrument that makes our

The Volkswagen Group coordinates the activities of the

progress and interim results public and verifiable. The DKI brands, which in turn steer the measures in the regions. The

calculation methodology is adapted according to internal brands and companies are responsible for their own

and external requirements such as new test cycles for fleet environmental organization. They base their own environ-

emissions. Published DKI values can therefore also be mental protection activities on the targets, guidelines and

adjusted to the new methodology and thus changed to principles that apply throughout the Group.

facilitate the presentation of a time series that is method-

ologically consistent. By 2025, the DKI is to be reduced by requirements. Furthermore, we are guided by company stan-

0% compared with the base year 2015. In the reporting dards and targets. The intention of our environmental com-

year, the DKI value averaged 43.0 t CO

e/vehicle. Compared pliance management systems is to ensure that environ-

with the value calculated for 2019, this represents an mental aspects and obligations are taken into account in our

Our declared aim is to comply with legal and regulatory

3

2

increase of 0.2 t CO

2

e/vehicle.

business operations. Disregard for the rules is treated as a

severe compliance violation, as are fraud and misconduct.

Compliance with our Environmental Policy Statement and

with other Group environmental requirements is evaluated

annually and reported to the Board of Management of

Volkswagen AG, the respective boards of management of the

brands or the managing directors of the companies.

Group Management Report

Sustainable Value Enhancement

165

SE PA RAT E N O N F I NA N C IA L G R O U P R E P O RT

R E P O RT O N P O ST - BA L A N C E S H E E T DAT E EV E N T S

The combined separate nonfinancial report of Volkswagen AG For more information on the agreement covering the key

and the Volkswagen Group in accordance with sections 289b points of a comprehensive realignment of MAN Truck &

and 315b Handelsgesetzbuch (HGB – German Commercial Bus SE, please refer to the details provided in “Events after the

Code) for fiscal year 2020 will be available on the website balance sheet date” of the notes to the consolidated financial

https://www.volkswagenag.com/presence/nachhaltigkeit/doc statements.

uments/sustainability-report/2020/Nichtfinanzieller_ Bericht_

2

020_d.pdf in German and at https://www.volkswagenag.com/

presence/nachhaltigkeit/documents/sustainability-report/

020/Nonfinancial_Report_2020_e.pdf in English by no later

than April 30, 2021.

2

qq

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Report on Expected Developments

Growth in the global economy is expected to recover overall in 2021. Global demand for passenger

cars will probably vary from region to region and increase noticeably year-on-year. With our brand

diversity, broad product range, technologies and services, we believe we are well prepared for the

future challenges in the mobility business.

In the following, we describe the expected development of expected to recover as well, albeit at a somewhat slower pace

the Volkswagen Group and the general framework for its given that only slight growth is anticipated for the Russian

business activities. Risks and opportunities that could repre- economy.

sent a departure from the forecast trends are presented in the

Report on Risks and Opportunities.

For Turkey, we expect an increasing economic growth rate

combined with high inflation and a weak domestic currency.

Our assumptions are based on current estimates by third- The South African economy will probably be dominated by

party institutions. These include economic research insti- political uncertainty and social tensions again in 2021

tutes, banks, multinational organizations and consulting resulting from high unemployment, among other factors.

firms.

Despite the sharp slump in the past fiscal year, we therefore

expect only moderate growth.

D EV E LOPM E N T S I N T H E G LO BA L E CO N O MY

Our planning is based on the assumption that global eco- Germany

nomic output will recover overall in 2021, provided lasting We expect gross domestic product (GDP) in Germany to grow

containment of the Covid-19 pandemic is achieved. This at a relatively robust pace in 2021 but to remain short of its

growth will most likely be sufficient for the economy to pre-pandemic level. The labor market situation is likely to

recover to approximately its pre-pandemic level. We continue deteriorate somewhat depending, among other things, on a

to believe that risks will arise from protectionist tendencies, delayed increase in corporate insolvencies following the

turbulence in the financial markets and structural deficits in suspension of the obligation to file for insolvency during the

individual countries. In addition, growth prospects will be pandemic.

negatively impacted by ongoing geopolitical tensions and

conflicts. We anticipate that both the advanced economies North America

and the emerging markets will experience positive momen- We anticipate a distinct improvement in the economic

tum.

situation in the USA in 2021, despite a declining but still

Furthermore, we anticipate that the global economy will relatively high unemployment rate. The US Federal Reserve

also continue to grow in the period from 2022 to 2025.

will probably leave key interest rates close to zero. Economic

growth is also likely to increase distinctly in neighboring

Canada and Mexico, although growth in Mexico is not

Europe/Other Markets

In Western Europe, we expect moderate economic growth in expected to match the pace of the relatively sharp decline in

021 after the downturn in the last fiscal year. The impact of the reporting year.

2

the Covid-19 pandemic and the uncertain consequences of

the United Kingdom’s withdrawal from the EU will funda- South America

mentally pose major challenges.

In all probability, the Brazilian economy will recover in 2021

We also anticipate moderate growth rates in Central and record a moderate rate of growth. After three years of

Europe in 2021. The economic situation in Eastern Europe is negative GDP growth rates, we anticipate only little improve-

Group Management Report

Report on Expected Developments

167

ment in the economic situation in Argentina. Inflation is the United Kingdom in 2021. In Italy, Spain and France, the

likely to remain very high and the local currency to depre- markets are likely to significantly exceed the level seen in the

ciate.

reporting year.

For light commercial vehicles, we anticipate demand in

Western Europe in 2021 to be noticeably up on the previous

Asia-Pacific

The Chinese economy will probably continue growing at a year’s level despite the possible consequences of the pan-

relatively high level in 2021 after being one of the few demic and the uncertain impact of the United Kingdom’s exit

economies not to experience a recession in 2020. After a from the EU. We predict a moderate to large increase in Italy,

sharp contraction in the reporting year, we also expect a France, Spain and the United Kingdom.

relatively high rate of expansion for the Indian economy in

021, outpacing the average growth seen in the years before exceed the prior-year figures in markets in Central and

the Covid-19 pandemic. In Japan, we anticipate a solid rise in Eastern Europe. In Russia, we anticipate a moderate year-on-

Sales of passenger cars in 2021 are expected to distinctly

2

GDP growth.

year increase in market volume. In the region’s other mar-

kets, a slight to strong rise in the number of new registrations

is expected.

TRE N D S I N TH E M A RKET S FO R PA S SEN GER CA RS A N D

LIG HT CO MME RC IAL VE H I CLE S

Registrations of light commercial vehicles in the Central

We predict that trends in the markets for passenger cars in and Eastern European markets in 2021 will probably be dis-

the individual regions will be mixed in 2021. Overall, the tinctly higher than in the previous year. We predict a moder-

volume of demand worldwide for new vehicles is expected to ate increase in market volume for Russia.

be noticeably up on the reporting year, but will not reach the

The volume of the passenger car market in Turkey in 2021

pre-pandemic level, provided successful containment of the is expected to remain at the previous year’s level. The volume

Covid-19 pandemic is achieved. We are forecasting growing of new registrations in South Africa in 2021 is likely to be

demand for passenger cars worldwide in the period from substantially higher year-on-year.

2022 to 2025.

Trends in the markets for light commercial vehicles in the Germany

individual regions will also be mixed in 2021; on the whole, In the German passenger car market, we expect a moderate

we anticipate a moderate rise in demand for 2021, assuming a year-on-year increase in demand in 2021.

successful containment of the Covid-19 pandemic. For the

We also anticipate that registrations of light commercial

years 2022 to 2025, we expect demand for light commercial vehicles will be noticeably up on the previous year.

vehicles to increase globally.

We believe we are well prepared overall for the future North America

challenges pertaining to automobility business activities and The volume of demand in the markets for passenger cars

for the mixed development of the regional automotive mar- and light commercial vehicles (up to 6.35 tonnes) in North

kets. Our brand diversity, our presence in all major world America as a whole and in the USA in 2021 is likely to be

markets, our broad and selectively expanded product range, distinctly higher than the previous year’s level. Demand will

and our technologies and services put us in a good com- probably remain highest for models in the SUV and pickup

petitive position worldwide. With electric drives, digital con- segments. In Canada, the number of new registrations is also

nectivity and autonomous driving, we want to make the projected to be significantly higher than the previous year’s

automobile cleaner, quieter, more intelligent and safer. With level. For Mexico, we expect demand to rise slightly compared

an appealing product portfolio of impressive vehicles and with the reporting year.

forward-looking, tailor-made mobility solutions we have set

ourselves the goal of continuing to excite our customers and South America

to meet their diverse needs.

Owing to their dependence on demand for raw materials

worldwide, the South American markets for passenger cars

and light commercial vehicles are heavily influenced by

Europe/Other Markets

For 2021, we anticipate that the volume of new passenger car developments in the global economy. We anticipate an overall

registrations in Western Europe will be significantly above large increase in new registrations in the South American

that recorded in the reporting year. At the same time, markets in 2021 compared with the previous year. In Brazil,

however, possible consequences of the pandemic and the the volume of demand is expected to increase substantially

uncertain impact of the United Kingdom’s exit from the EU compared with 2020. We anticipate that demand in Argentina

may result in ongoing uncertainty among consumers and will be significantly higher year-on-year.

dampen demand. Despite this, we expect a strong increase in

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Asia-Pacific

TRE N D S I N TH E M A RKET S FO R P OWE R EN GI N EER I NG

The passenger car markets in the Asia-Pacific region are In the Power Engineering segment, we expect the market

expected to be noticeably up on the prior-year level in 2021. environment to remain difficult in 2021. The further course

We predict demand in China to also be noticeably higher than of the Covid-19 pandemic and its consequences bring addi-

the comparative figure for 2020. Attractively priced entry- tional uncertainty.

level models in the SUV segment in particular should still see

In 2021, the market volume for two-stroke engines used

strong demand. As long as there is no resolution in sight, the in merchant shipping is likely to reach a higher level than in

trade dispute between China and the United States is likely to the reporting period. An expected higher volume of sea trade,

continue to weigh on business and consumer confidence. We combined with calls for high energy efficiency and low pol-

anticipate an appreciable increase in the Indian market com- lutant emissions, will continue to have a significant influence

pared with the previous year. Japan should see slight growth on drive systems in the future. The market for four-stroke

in market volume in 2021.

engines for cruise ships is likely to remain at a very low level

The market volume for light commercial vehicles in 2021 due to the continuing very difficult liquidity situation.

will probably be slightly higher than the previous year’s Demand in the passenger ferry segment – similarly affected

figure. We are expecting demand in the Chinese market to be by a loss of revenue – is also expected at a low level. We also

distinctly lower than in the previous year. For India, we are expect demand to remain stable for government vessels and

forecasting a substantially higher volume in 2021 than in the dredgers. In the offshore sector, new order volumes of special

reporting year. In the Japanese market, we expect demand to applications look set to be on the low side due to continued

be comparable with the previous year.

overcapacity. Overall, we expect the marine market to be at a

slightly higher level than that seen in the reporting year with

competitive pressure continuing unabated.

TRE N D S I N TH E M A RKET S FO R COMME RC IAL V EH ICLE S

For 2021, we expect a significantly positive development in

The Covid-19 pandemic has led to great uncertainty con-

new registrations for mid-sized and heavy trucks with a gross cerning likely energy demand in 2021. Initial signs point to a

weight of more than six tonnes compared with the previous further slight decline in market volume. The global spread of

year, with variations from region to region, in the markets the SARS-CoV-2 virus and the measures taken to contain it

that are relevant for the Volkswagen Group.

have reduced demand for energy and made it harder to raise

Significant market growth is expected for the 27 EU states capital for investment in energy generation plants. Despite

excluding Malta, but plus the United Kingdom, Norway and this impact on the markets, we expect the trend towards

Switzerland (EU27+3). Russia will probably witness a notice- decentralized power stations and gas-based applications to

able rebound in demand. We are forecasting a slight increase further intensify. In addition, demand for new and carbon-

in Turkey and a significant increase in demand in South neutral technologies should continue to increase in future.

Africa. We estimate that demand in Brazil will be considerably

higher than in the previous year.

Potential projects in turbomachinery suggest that

demand will stabilize in 2021 at the previous year’s level.

On average, we anticipate moderate growth rates in the However, the course of the Covid-19 pandemic brings sub-

relevant truck markets for the years 2022 to 2025.

stantial uncertainty to the decision-making process for

capital expenditure. Favorable conditions in the capital mar-

A moderate increase in overall demand with regional vari- kets and targeted state support facilitate such capital-

ations for 2021 is likely in the bus markets relevant for the intensive decisions. Lower capacity utilization of production

Volkswagen Group. We anticipate a slight year-on-year facilities by market participants is expected. With the pan-

decline in the market in the EU27+3 countries. In Mexico, we demic’s increasing duration, this may lead to more intense

expect to see very strong market growth. New registrations in competition. In energy generation, we expect increasing

Brazil will probably be distinctly higher than the prior-year growth in renewable energy sources, bolstered by state

figure.

support. Fluctuations in the amount of electricity generated

Overall, we expect a noticeable increase in the demand for by these will necessitate an increase in storage capacity. We

buses on the relevant markets for the period from 2022 to are therefore pushing the construction of pilot plants for

2025.

thermal storage. This could lead to an expansion of the

market for turbocompressors and turboexpanders.

Group Management Report

Report on Expected Developments

169

We anticipate a slight recovery in 2021 both in the marine markets, the euro appreciated considerably in some cases. In

and power plant after-sales business for diesel engines and in particular, the Argentinian peso, Brazilian real, South African

the after-sales market for turbomachinery. There may be a rand, Russian ruble and Mexican peso lost value against the

temporary catch-up effect in order intake following the post- European single currency. The currencies of Asian emerging

ponement of projects over the past year.

markets also weakened overall against the euro on an annual

For the period 2022 to 2025, we expect to see growing average. For 2021, we are forecasting that the euro will

demand in the power engineering markets. However, the strengthen against the US dollar, sterling and the Chinese

extent and timing of this growth will vary in the individual renminbi. The Argentinian peso, Brazilian real, Mexican peso,

business fields. It remains to be seen for how long the South African rand and Russian ruble will most likely con-

pandemic will continue to affect the market.

tinue to depreciate. For 2022 to 2025, we expect that the euro

will be stable against the key currencies, but that the com-

parative weakness of the currencies in the aforementioned

TRE N D S I N TH E M A RKET S FO R FI NANC IAL SERV IC ES

We anticipate that automotive financial services will prove emerging markets will probably continue. However, there is

highly important to global vehicle sales in 2021, particularly still a general event risk – defined as the risk arising from

in the context of the ongoing challenges posed by the Covid- unforeseen market developments.

19 pandemic. We expect demand to rise in emerging markets

where market penetration has so far been low. Regions with

I NT E RE ST RATE T RE N DS

already established automotive financial services markets The challenging macroeconomic conditions, including as a

will see a continuation of the trend towards enabling mobil- result of the Covid-19 pandemic, resulted in globally falling

ity at the lowest possible total cost. Integrated end-to-end interest rates in fiscal year 2020. National central banks both

solutions, which include mobility-related service modules in the major Western industrialized nations and in emerging

such as insurance and innovative packages of services, will markets cut key interest rates, in some cases on multiple

become increasingly important for this. Additionally, we occasions, and also introduced additional expansionary

expect that demand will increase for new forms of mobility, monetary policy measures to support their economies. In

such as rental services, and for integrated mobility services, March 2020, the US Federal Reserve cut the key interest rate

for example parking, refueling and charging, and that the to almost 0% in the space of just a few days, while the

shift in the European leasing business initiated with European Central Bank also left its key interest rate at zero.

individual customers from financing to lease contracts will We expect these policies to generally continue in 2021 and

continue. We estimate that this trend will continue in the therefore consider it currently unlikely that interest rates will

years 2022 to 2025.

rise in the USA or Europe. In the period from 2022 to 2025, we

In the mid-sized and heavy commercial vehicles category, expect no more than a slight increase in interest rates.

we anticipate rising demand for financial services products in

emerging markets. In these countries in particular, financing

COM M ODI TY P R I CE TR E N DS

solutions support vehicle sales and are thus an essential The global spread of the coronavirus (SARS-CoV-2) has also

component of the sales process. In the developed markets, we affected commodity markets. The associated restrictions and

expect to see increased demand for telematics services and the resulting downturn in demand and supply, reduced the

services aimed at reducing total cost of ownership in 2021. prices of many raw and input materials in the first half of

This trend is also expected to persist in the period 2022 to 2020. However, the prices recovered markedly in some cases

2

025.

over the course of the year. Compared with the previous year,

there was a fall in the average prices for raw materials such as

crude oil, coking coal, lead, aluminum and natural rubber,

EXC HA N G E RAT E T R E N D S

In 2020, the euro appreciated slightly against the US dollar on while prices for iron ore, rare earths and the precious metals

an annual average. It also rose against sterling. The euro/ rhodium and palladium rose and copper and platinum prices

sterling exchange rate in 2020 was affected by high were more or less unchanged. Prices for the raw materials

uncertainty about the outcome of the negotiations on the that are relevant for e-mobility also developed unevenly:

United Kingdom’s exit from the EU and the shape of future average prices over the year for lithium and cobalt fell, while

relationships. Against the currencies of some emerging nickel prices were more or less on the prior-year level. Based

1

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Report on Expected Developments

Group Management Report

on analyses of factors of influence and trends in the com- Ducati will introduce its new Monster, among other motor-

modity markets, we expect the prices of most commodities cycles, in 2021. The fourth generation of the Multistrada V4

to rise in 2021. For the years 2022 to 2025, we continue to will be available and the XDiavel and Scrambler families will

expect volatility in the commodity markets with prices be upgraded. The SuperSport 950, new Panigale V4 SP and

trending both upwards and downwards.

updated Panigale 4 sports bikes are also waiting in the wings.

N E W M O DEL S I N 20 2 1

FUTU RE ORGA N I ZATIO NAL ST RU CTU RE OF T H E GROU P

The Volkswagen Passenger Cars brand will expand the ID. In November 2020, TRATON SE and Navistar International Cor-

family in 2021 with the all-electric ID.5, a new crossover poration (Navistar), leading US truck manufacturer,

a

derivative based on the MEB. The Tiguan will be electrified as announced the signing of a binding merger agreement.

a plug-in hybrid. The brand will also launch a compact SUV Under this agreement, TRATON will acquire all outstanding

coupé and the updated Polo. New entry-level SUVs in the shares in Navistar not already owned by TRATON in return for

compact category will also be debuted in the respective cash payment at a price of USD 44.50 per share (total:

markets, with the Tarek being launched in Russia and the approximately USD 3.7 billion). As of December 31, 2020,

Taos in North and South America. In China, several all-electric TRATON already holds a 16.7% stake in Navistar. The aim of

vehicles will be introduced to the market, including the the transaction is to enhance the ability to meet challenges

ID.4 Crozz and ID.4 X. In India, the locally produced Taigun from new regulations and fast-developing technologies in

compact SUV will be available.

connectivity, propulsion and autonomous driving and to

Audi will also continue its electric car offensive in 2021, benefit from Navistar’s presence on the North American

expanding the e-tron family with the new e-tron GT. The all- market. The completion of the transaction, through which

electric Q4 e-tron will also be available. In the Q5 series, Audi TRATON will become Navistar’s sole owner, is intended for

will offer a dynamic Sportback model and a version with mid-2021 and is subject to the approval of Navistar’s share-

plug-in hybrid drive.

holders, to the usual closing conditions and regulatory

The ŠKODA brand will power ahead with the electrifi- approvals. The main shareholders Icahn Capital LP and MHR

cation of its portfolio by introducing the new Enyaq iV. The Fund Management LC have already agreed to vote their stake

new generation of the Fabia and the facelifted Kodiaq will in favor of the transaction.

also become available in the course of the year. In India, the

Kushaq, a new small SUV, tailored to local needs, will arrive structures. They do not include the conclusion of the merger

on the market. agreement. The effects of this transaction on the financial

Our plans are based on the Volkswagen Group’s current

SEAT will expand its range in 2021 with a plug-in hybrid performance, cash flows and financial position are not taken

Tarraco, among other models. The popular, compact Ibiza will into account in the forecast of the Volkswagen Group.

receive an update. CUPRA will bring its Formentor e-Hybrid

with powerful plug-in hybrid drive to the market. The el-Born

will mark the brand’s debut in the world of pure electric cars.

I NVE STME NT AN D FI NA NC IAL PL A N N I NG

To meet people’s needs for individual, sustainable, fully con-

Porsche will expand its Taycan model range in 2021 with nected mobility and thus increase the Volkswagen Group’s

an all-electric Cross Turismo version. Sporty all-round models future viability, we will continue to mobilize our pronounced

will be added to the 911 model range. The Macan will receive strengths in innovation and technology and push the Volks-

a product upgrade.

wagen Group’s transformation into a digital mobility group

The Bentley brand will offer a plug-in hybrid version of while leveraging our economies of scale and maximizing

the new Bentayga in 2021. The introduction of a further synergies.

model with plug-in hybrid drive is also planned.

Lamborghini will launch its Huracán STO high-perfor- (investments in property, plant and equipment, investment

mance super sports car. property and intangible assets, excluding capitalized develop-

A new derivative of the Chiron will be available from ment costs) will be spent on new products and the continued

In our current planning for 2021, most of the capex

Bugatti.

rollout and further development of the modular toolkit.

Volkswagen Commercial Vehicles will completely revamp Forthis, we will invest in the electrification and hybridization

the Multivan/Transporter in 2021, and in doing so pen a new of our model portfolio and continue to advance the devel-

chapter in this model’s success story.

opment of the Modular Electric Drive Toolkit (MEB) and the

Scania and MAN will present innovative new models in Premium Platform Electric (PPE), the all-electric platform for

021, including a truck and a bus with all-electric drives and our premium and sports brands. We will also focus on the

2

other solutions for urban transport.

growing digitalization of our vehicles and locations and

Group Management Report

Report on Expected Developments

171

increase our capital expenditure on these. We are also remaining funds needed will be met primarily through

investing in the modification of selected locations for the unsecured bonds on the money and capital markets, the

production of electric vehicles. The Automotive Division’s issuing of asset-backed securities, customer deposits from

ratio of capex to sales revenue is expected to fluctuate around the direct banking business, and through the use of inter-

a level of 6.0% to 6.5%.

national credit lines.

Besides capex, investing activities will also cover addi-

tions to capitalized development costs. Among other things,

TA RGE T S FO R VA LU E-BA SED M A N AGEM E NT

these reflect upfront expenditures in connection with the Based on long-term interest rates derived from the capital

electrification, digitalization and updating of our model range. market and the target capital structure (fair value of equity to

Also included are the services of the Car.Software Organi- debt = 2:1), the minimum required rate of return on invested

sation, which is developing a standardized operating system capital defined for the Automotive Division remains

for Group brand vehicles, along with other projects.

unchanged at 9%.

With the investments in our facilities and models, as well

Business at the Volkswagen Group was affected by the

as in the development of electric drives and modular toolkits consequences of the Covid-19 pandemic throughout the whole

and in digitalization, we are laying the foundations for of 2020. As a result, ROI decreased in the reporting period due

profitable, sustainable growth at Volkswagen. These invest- to earnings-related factors and, at 6.5% (11.2%), was below

ments also include commitments arising from decisions both the prior-year figure and our minimum required rate of

taken in previous fiscal years.

return (for further information, please see the headline

We aim to finance the investments in our Automotive “Return on investment (ROI) and value contribution in the

Division from our own capital resources and expect cash reporting period” in the chapter entitled “Results of Oper-

flows from operating activities to exceed the Automotive ations, Financial Position and Net Assets”). In the Automotive

Division’s investment requirements. For 2021, we estimate Division, we expect the return on investment (ROI) to be

cash outflows resulting from the diesel issue to remain more noticeably above our minimum required rate of return on

or less the same and effects from mergers & acquisitions to the invested capital.

be significantly higher. Consequently, we anticipate that the

net cash flow will be in line with the previous year.

Net liquidity in the Automotive Division will probably see Our planning is based on the assumption that global eco-

a moderate increase in 2021. nomic output will recover overall in 2021, provided lasting

SUM M A RY O F EX P E C T E D D EV E LOPM E N T S

These plans are based on the Volkswagen Group’s current containment of the Covid-19 pandemic is achieved. This

structures. They do not include the intended acquisition of all growth will most likely be sufficient for the economy to

outstanding ordinary shares of Navistar International Cor- recover to approximately its pre-pandemic level. We continue

poration and the related cash outflows.

to believe that risks will arise from protectionist tendencies,

Our joint ventures in China are accounted for using the turbulence in the financial markets and structural deficits in

equity method and are therefore not included in the figures individual countries. In addition, growth prospects will be

above. For 2021, the joint ventures plan to invest in e-mo- negatively impacted by ongoing geopolitical tensions and

bility, further enhancement of the model portfolio, the conflicts. We anticipate that both the advanced economies

development of new mobility solutions and smart city and the emerging markets will experience positive momen-

concepts. Their capex will probably exceed the 2020 level and tum.

be financed from the companies’ own funds.

The trend in the automotive industry closely follows

In the Financial Services Division, we are planning higher global economic developments. We assume that competition

investments in 2021 than in the previous year. We expect the in the international automotive markets will intensify

development of lease assets and of receivables from leasing, further.

customer and dealer financing to lead to funds tied up in

We predict that trends in the markets for passenger cars

working capital, of which around half will be financed from in the individual regions will be mixed in 2021. Overall, the

the gross cash flow. As is common in the sector, the volume of demand worldwide for new vehicles is expected to

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Group Management Report

be noticeably up on the reporting year, provided successful cleaner, quieter, more intelligent and safer. We have set

containment of the Covid-19 pandemic is achieved; however, ourselves the goal of continuing to excite our customers in

it will not recover to its pre-pandemic level. For 2021, we the future and meeting their diverse needs with an appealing

anticipate that the volume of new passenger car registrations product portfolio of impressive vehicles and forward-looking,

in Western Europe will be significantly above that recorded in tailor-made mobility solutions.

the reporting year. In the German passenger car market, we

We anticipate that deliveries to Volkswagen Group cus-

expect a moderate year-on-year increase in demand in 2021. tomers will be significantly up on the previous year in 2021

Sales of passenger cars in 2021 are expected to distinctly – assuming successful containment of the Covid-19 pan-

exceed the prior-year figures in markets in Central and demic – amid continued challenging market conditions.

Eastern Europe. The volume of demand in the markets for

Challenges will arise particularly from the economic situ-

passenger cars and light commercial vehicles (up to 6.35 ation, the increasing intensity of competition, volatile com-

tonnes) in North America as a whole in 2021 is also likely to modity and foreign exchange markets, securing supply

be distinctly higher than the previous year’s level. We expect chains, and more stringent emissions-related requirements.

to see a large increase overall in new registrations in the

We expect the sales revenues of the Volkswagen Group

South American markets in 2021 compared with the previous and Passenger Cars Business Area in 2021 to be significantly

year. The passenger car markets in the Asia-Pacific region are higher than the prior-year figure. In terms of operating profit

expected to be noticeably up on the prior-year level in 2021.

for the Group and the Passenger Cars Business Area, we fore-

Trends in the markets for light commercial vehicles in the cast an operating return on sales in the range of 5.0% to 6.5%

individual regions will also be mixed in 2021; on the whole, in 2021. For the Commercial Vehicles Business Area, we antic-

we anticipate a moderate rise in demand for 2021, assuming ipate an operating return on sales of 4.0% to 5.5% before

that containment of the Covid-19 pandemic is successful.

restructuring measures amid a significant year-on-year

For 2021, we expect a significantly positive development increase in sales revenue. We expect the Power Engineering

in new registrations for mid-sized and heavy trucks with a Business Area to reach the break-even point amid a notice-

gross weight of more than six tonnes compared with the able decline in sales revenue compared with the previous year.

previous year in the markets that are relevant for the Volks- For the Financial Services Division, we forecast that sales reve-

wagen Group. A moderate increase in overall demand for nue will be noticeably higher than the prior-year figure and

2021 is likely in the bus markets relevant for the Volkswagen that the operating result will be in line with the previous year.

Group. In the Automotive Division, we expect the R&D ratio to

We anticipate that automotive financial services will be of come in at around 7% and the ratio of capex to sales revenue

great significance to global vehicle sales in 2021, particularly at around 6% in 2021. For 2021, we expect cash outflows

in the context of the ongoing challenges posed by the Covid- resulting from the diesel issue to remain more or less the

19 pandemic.

same and effects from mergers & acquisitions to be signifi-

We believe we are well prepared overall for the future cantly higher. Consequently, we anticipate that the net cash

challenges pertaining to automotive business activities and flow will be in line with the previous year. Net liquidity in the

for the mixed development of the regional automotive Automotive Division will probably see a moderate increase in

markets. Our brand diversity, our presence in all major world 2021. We expect the return on investment (ROI) to be

markets, our broad and selectively expanded product range, noticeably above our minimum required rate of return. Our

and our technologies and services put us in a good com- unchanged stated goal is to continue our solid liquidity

petitive position worldwide. As part of the transformation of policy.

our core business, we are positioning our Group brands with

To achieve sustainable success, we need skilled and

an even stronger focus on their individual characteristics, and dedicated employees. We aim to increase their satisfaction

are optimizing our vehicle and drive portfolio. The focus is and motivation by means of equal opportunities, an attrac-

primarily on our vehicle fleet’s carbon footprint and on the tive and modern working environment, and a forward-

most attractive and fastest-growing market segments. In looking approach to organizing work. Every day, we at the

addition, we are working to leverage the advantages of our Volkswagen Group assume and exercise responsibility in

multibrand Group even more effectively with the ongoing issues relating to the environment, safety and society. In

development of new technologies and the enhancement of terms of integrity, Volkswagen aspires to become a role model

our toolkits. With electric drives, digital connectivity and for a modern, transparent and successful enterprise. We also

autonomous driving, we want to make the automobile aim for operational excellence in all business processes.

Group Management Report

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173

Report on Risks and Opportunities

(

CO N TA I N S T H E R E P O RT I N ACCO R DA N C E W I T H S E C T I O N 2 8 9 ( 4 ) O F T H E H G B )

Promptly identifying the risks and opportunities arising from our operating activities and

taking a forward-looking approach to managing them is crucial to our Company’s long-term

success. A comprehensive risk management and an internal control system help the

Volkswagen Group deal with risks in a responsible manner.

In this section, we first explain the objective and structure of

the Volkswagen Group’s risk management system (RMS) and

internal control system (ICS) and describe these systems with

regard to the financial reporting process. We then outline the

main risks and opportunities arising in our business

activities.

OB J E CT IVE O F TH E RI SK M A NAG E MENT SY STEM A N D I NTE RNA L

CON TRO L SY STE M AT VOL KSWAG EN

Only by promptly identifying, accurately assessing and effec-

tively and efficiently managing the risks and opportunities

arising from our business activities can we ensure the Volks-

wagen Group’s long-term success. The aim of the RMS/ICS is

to identify potential risks at an early stage so that suitable

countermeasures can be taken to avert the threat of loss to

the Company, and any risks that might jeopardize its con-

tinued existence can be ruled out.

Assessing the likelihood of occurrence and extent of

future events and developments is, by its nature, subject to risk areas are covered in full. Uniform Group principles are

uncertainty. We are therefore aware that even the best RMS used as the basis for managing risks in a standardized man-

cannot foresee all potential risks and even the best ICS can ner. Opportunities are not recorded.

never completely prevent irregular acts.

Another key element of the RMS/ICS at Volkswagen is the

Three Lines Model, a basic element required by, among other

bodies, the European Confederation of Institutes of Internal

Auditing (ECIIA). In line with this model, the Volkswagen

STRU CTU R E OF T H E RI SK M A N AG E M E N T SY STE M A N D I NTE RNA L

CON TRO L SY STE M AT VOL KSWAG EN

The organizational design of the Volkswagen Group’s RMS/ Group’s RMS/ICS has three lines designed to protect the Com-

ICS is based on the internationally recognized COSO frame- pany from significant risks occurring.

work for enterprise risk management (COSO: Committee of

The minimum requirements for the RMS/ICS, including

Sponsoring Organizations of the Treadway Commission). the Three Lines Model, are set out in guidelines for the entire

Structuring the RMS/ICS in accordance with the COSO frame- Group.

work for enterprise risk management ensures that potential

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The RMS/ICS was further developed in the past fiscal year.

The IT risk management system called “Riskradar” was

introduced at all brands and significant Group companies in

2020. In this way, we have increased process and data security

and reduced our manual workload through automated

workflows and end-to-end system support for the analysis of

data. At the same time, risk awareness at the Company is

further intensified, risk transparency is improved and risks

can be analyzed with end-to-end system support. The ICS has

been standardized for high-risk business processes at

significant companies. We will continue to develop our RMS/

ICS in the future.

First line: Operational risk management

The first line comprises the operational risk management

and internal control systems at the individual Group com-

panies and business units. The RMS/ICS is an integral part of

the Volkswagen Group’s structure and workflows. Events that

may give rise to risk are identified and assessed locally in the

divisions and at the investees. Countermeasures are intro- recorded and assessed in our RICORS IT system. The risk

duced immediately, the remaining potential impact is assessment is made by multiplying the criterion of likelihood

assessed, and the information incorporated into the planning of occurrence (Prob) by the potential extent of the damage.

in a timely manner. Material risks are reported to the relevant The extent of the damage is calculated from the criteria of

committees on an ad hoc basis. The results of the operational financial loss (Mat) and reputational damage (Rep) and crimi-

risk management process are incorporated into budget nal relevance (Penal). A score between 0 and 10 is assigned to

planning and financial control on an ongoing basis. The each of these criteria. The measures taken to manage and

targets agreed in the budget planning rounds are continually control risk are taken into account in the risk assessment (net

reviewed in revolving planning updates. At the same time, perspective). The result is a risk score that expresses the risk.

the results of risk mitigation measures are promptly incor-

The score for a likelihood of occurrence of more than 50%

porated into the monthly forecasts regarding further busi- in the analysis period is classified as high; for a medium

ness development. This means that the Board of Manage- classification, the likelihood of occurrence is at least 25%. For

ment also has access to an overall picture of the current risk the criterion of financial loss, the score rises in line with the

situation via the documented reporting channels during the loss; the highest score of 10 is reached when the potential

year.

loss is upwards of €1 billion. The criterion of reputational

The operational risk management and internal control damage can have characteristics ranging from local erosion

system also includes compliance with the so called Golden of confidence and loss of trust at local level to loss of repu-

Rules in the areas of control unit software development, tation at regional or international level. Criminal relevance is

emission classification and escalation management. These classified based on the influence on the local company, the

rules are the minimum requirements in the organization, brand or the Group.

processes and tools & systems categories.

In addition to strategic, operational and reporting risks,

risks arising from potential compliance violations are also

integrated into this process. Moreover, the effectiveness of

key risk management and control measures is tested and any

Second line: Identifying and reporting systemic and acute risks

using Group-wide processes

In addition to the ongoing operational risk management, the weaknesses identified in the process are reported and recti-

Group Risk Management department sends standardized fied.

surveys regarding the risk situation and the effectiveness of

All Group companies and units selected from among the

the RMS/ICS to the significant Group companies and units entities in the consolidated Group on the basis of materiality

worldwide (regular Governance, Risk & Compliance (GRC) and risk criteria were subject to the regular GRC process in

process) each year.

fiscal year 2020.

As part of this process, each systemic risk inherent to the

Quarterly risk reports are produced in addition to the

process or inherent to the business that is reported is annual risk assessment. These depict the Volkswagen Group’s

Group Management Report

Report on Risks and Opportunities

175

ANNUAL STANDARD GOVERNANCE, RISK AND COMPLIANCE PROCESS

Third line: Review by Group Internal Audit

Group Internal Audit helps the Board of Management to

monitor the various divisions and corporate units within the

Group. It regularly checks the risk early warning system and

the structure and implementation of the RMS/ICS and the

compliance management system (CMS) as part of its inde-

pendent audit procedures.

Selection

of companies

and units

RI SK EA R LY WA R N I N G SY ST E M I N LI N E W IT H TH E KONTRAG

Follow-up activities

Data identiꢀed/

The Company’s risk situation is ascertained, assessed and

documented in accordance with the requirements of the

Gesetz zur Kontrolle und Transparenz im Unternehmens-

bereich (KonTraG – German Act on Control and Transparency

in Business). The requirements for a risk early warning

system are met by means of the RMS/ICS elements described

above (first and second line). Independently of this, the

external auditors check both the processes and procedures

implemented in this respect and the adequacy of the docu-

mentation on an annual basis. The plausibility and adequacy

targeting weaknesses

assessed in the units

Documentation

of eꢁectiveness

in the units

Reporting

acute – short to medium-term – risk situation. The assessment of the risk reports are examined via spot checks in detailed

of risks from this quarterly risk process (QRP) is conducted in interviews with the divisions and companies concerned

the “Riskradar” IT system similarly to that of the annual together with the external auditors. The auditor examines

regular GRC process. All Group brands as well as Porsche the risk early warning system integrated in the risk manage-

Holding Salzburg, Volkswagen Financial Services AG and ment system with respect to its fundamental suitability of

Volkswagen Bank GmbH are included in the QRP.

being able to identify risks that might jeopardize the con-

In addition, significant changes to the risk situation that tinued existence and assesses the functionality of the risk

can arise in the short term, for instance from unexpected early warning and monitoring systems in accordance with

external events, are reported to the Board of Management as section 317(4) of the HGB.

required. This is necessary if, among other things, the risk

may lead to potential financial loss of over €1 billion.

In addition, scheduled examinations as part of the audit

of the annual financial statements are conducted at com-

Based on the feedback from the annual regular GRC pro- panies in the Financial Services Division. As a credit insti-

cess and quarterly risk surveys, the overall picture of the tution, Volkswagen Bank GmbH, including its subsidiaries, is

potential risk situation is updated and the system’s effec- subject to supervision by the European Central Bank, while

tiveness assessed.

Volkswagen Leasing GmbH as a financial services institution

A separate Group Board of Management Committee for and Volkswagen Versicherung AG as an insurance company

Risk Management examines the key aspects of the RMS/ICS are subject to supervision by the relevant division of the

every quarter. Its tasks are as follows:

Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin – the

to further increase transparency in relation to significant German Federal Financial Supervisory Authority). As part of

risks to the Group and their management,

the scheduled supervisory process and unscheduled audits, the

to explain specific issues where these constitute a signifi- competent supervisory authority assesses whether the require-

cant risk to the Group,

ments, strategies, processes and mechanisms ensure solid risk

to make recommendations on the further development of management and solid risk cover. Furthermore, the Prüfungs-

the RMS/ICS,

verband deutscher Banken (Auditing Association of German

to support the open approach to dealing with risks and Banks) audits Volkswagen Bank GmbH from time to time.

promote an open risk culture.

Volkswagen Financial Services AG operates a risk early

>

Risk reporting to the committees of Volkswagen AG depends warning and management system. Its aim is to ensure that

on materiality thresholds. Systemic risks from a risk score of the locally applicable regulatory requirements are adhered to

20 and acute risks from a risk score of 40 or potential finan- and at the same time to enable appropriate and effective risk

cial loss of €1 billion or more are regularly presented to the management at Group level. Important components of it are

Board of Management and the Audit Committee of the regularly reviewed as part of the audit of the annual financial

Supervisory Board of Volkswagen AG.

statements.

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Monitoring the effectiveness of the risk management system and the

internal control system

Control activities at Group level include analyzing and, if

necessary, adjusting the data reported in the financial

To ensure the effectiveness of the RMS/ICS, we regularly opti- statements presented by the subsidiaries, taking into account

mize it as part of our continuous monitoring and improve- the reports submitted by the auditors and the outcome of the

ment processes. In the process, we give equal consideration meetings on the financial statements with representatives of

to both internal and external requirements. External experts the individual companies. These discussions address both the

assist in the continuous enhancement of our RMS/ICS on a plausibility of the single-entity financial statements and

case-by-case basis. The results culminate in both regular and specific significant issues at the subsidiaries. Alongside plau-

event-driven reporting to the Board of Management and sibility checks, other control mechanisms applied during the

Supervisory Board of Volkswagen AG.

preparation of the single-entity and consolidated financial

statements of Volkswagen AG include the clear delineation of

areas of responsibility and the application of the "four eyes"

principle.

TH E R I SK M A NAGEMEN T AN D I N TEGRAT ED I NTE R NAL CO NTROL

SY STEM I N T H E CONT EXT OF T H E FI NA NC IAL RE PO RT I NG PRO CE SS

The accounting-related part of the RMS/ICS that is relevant

The combined management report of the Volkswagen

for the financial statements of Volkswagen AG and the Group and Volkswagen AG is prepared – in accordance with

Volkswagen Group as well as its subsidiaries comprises mea- the applicable requirements and regulations – centrally but

sures intended to ensure that the information required for with the involvement of and in consultation with the Group

the preparation of the financial statements of Volkswagen AG, units and companies.

the consolidated financial statements and the combined

In addition, the accounting-related internal control system

management report of the Volkswagen Group and Volks- is independently reviewed by Group Internal Audit in Ger-

wagen AG is complete, accurate and transmitted in a timely many and abroad.

manner. These measures are designed to minimize the risk of

material misstatement in the accounts and in external Integrated consolidation and planning system

reporting.

The Volkswagen consolidation and corporate management

system (VoKUs) enables the Volkswagen Group to consolidate

and analyze both Financial Reporting’s backward-looking

data and Controlling’s budget data. VoKUs offers centralized

Main features of the risk management and integrated internal control

system in the context of the financial reporting process

The Volkswagen Group’s accounting is essentially organized master data management, uniform reporting, an authori-

along decentralized lines. For the most part, accounting zation concept and the required flexibility with regard to

duties are performed by the consolidated companies them- changes to the legal environment, providing a future-proof

selves or entrusted to the Group’s shared service centers. In technical platform that benefits Group Financial Reporting

principle, the audited financial statements of Volkswagen AG and Group Controlling in equal measure. To verify data

and its subsidiaries prepared in accordance with IFRSs and consistency, VoKUs has a multi-level validation system that

the Volkswagen IFRS Accounting Manual are transmitted to primarily checks content plausibility between the balance

the Group in encrypted form. A standard market product is sheet, the income statement and the notes.

used for encryption.

The Volkswagen IFRS Accounting Manual, which has been

RI SKS A N D OP P O RTU N ITI ES

prepared in line with external expert opinions in certain In this section, we outline the main risks and opportunities

cases, is intended to ensure the application and assessment arising in our business activities. In order to provide a better

of uniform accounting policies based on the requirements overview, we have grouped the risks and opportunities into

applicable to the parent. In particular, it includes more categories. At the beginning of each risk category, we state the

detailed guidance on the application of legal requirements most significant risks in order of their importance as

and industry-specific issues. Components of the reporting identified using the risk score from the regular GRC process

packages that are required to be prepared by the Group and the quarterly risk process (QRP). We then describe the

companies are also set out in detail there, and requirements individual risks in no particular order. Unless explicitly

have been established for the presentation and settlement of mentioned, there were no material changes to the specific

intragroup transactions and the balance reconciliation pro- risks and opportunities compared with the previous year

cess that is based on these.

even though the weighting of individual risks has changed.

Group Management Report

Report on Risks and Opportunities

177

The risks from the regular GRC process and the QRP reported Risks and opportunities from the macroeconomy, the sector, markets

to the Board of Management and the Audit Committee are and sales

incorporated into the assessment of the Volkswagen Group’s For this risk category, the likelihood of occurrence is classified

risk categories. The risk categories are plotted based on the as high (previous year: medium) and the potential extent of

average scores.

We use analyses of the competition and the competitive

damage is classified as medium (previous year: medium).

The most significant risks from the regular GRC process

environment in addition to market studies to identify not and the QRP lie in restrictions on trade and increasingly pro-

only risks but also opportunities that have a positive impact tectionist tendencies resulting in a negative trend in markets

on the design of our products, the efficiency with which they and unit sales.

are produced, their success in the market and our cost stru-

cture. Where they can be assessed, risks and opportunities

Macroeconomic risks and opportunities

that we expect to occur are already reflected in our medium- We believe that risks to positive growth in global economic

term planning and our forecast. The following therefore output will arise primarily if efforts to contain the Covid-19

reports on internal and external developments as risks and pandemic are not successful in the long term, as well as from

opportunities that, based on existing information, may result turbulence in the financial and commodity markets, increas-

in a negative or positive deviation from our forecast or ingly protectionist tendencies and structural deficits, which

targets.

pose a threat to the performance of individual advanced

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economies and emerging markets. In addition, there are either already have a strong presence in numerous existing

increasing environmental challenges that affect individual and developing markets or are working systematically

countries and regions to varying degrees. The possible world- towards this goal. Particularly in smaller markets with growth

wide transition from an expansionary monetary policy to a potential, we are increasing our presence with the help of

more restrictive one also presents risks for the macroeco- strategic partnerships in order to cater to local requirements.

nomic environment. High private- and public-sector debt in

The growth markets of Central and Eastern Europe, South

many places is clouding the outlook for growth and may America and Asia are particularly important to the Volks-

likewise cause markets to respond negatively. Declines in wagen Group. These markets harbor considerable potential;

growth in key countries and regions often have an immediate however, the underlying conditions in some countries in

impact on the state of the global economy and therefore pose these regions make it difficult to increase unit sales figures

a central risk. There are also risks from the uncertain con- there. Examples of these are customs regulations or mini-

sequences of the United Kingdom’s exit from the EU.

mum local content requirements for production. At the same

The economic development of some emerging economies time, wherever the economic and regulatory situation per-

is being hampered primarily by dependence on energy and mits, there are opportunities above and beyond current pro-

commodity prices and capital inflows, but also by socio- jections. These arise from faster growth in the emerging

political tensions. Corruption, inadequate government struc- markets where vehicle densities are currently still low.

tures and a lack of legal certainty can also pose risks.

Price pressure in established automotive markets for new

Geopolitical tensions and conflicts, along with signs of and used vehicles as a result of high market saturation is a

fragmentation in the global economy, are a further major risk further risk for the Volkswagen Group as a supplier of volume

factor to the performance of individual countries and regions. and premium models. Competitive pressures are likely to

In light of the existing, strong global interdependence, local remain high in the future. Individual manufacturers may

developments could also have adverse effects on the world respond by offering incentives in order to meet their sales

economy. Any escalation of the conflicts in Eastern Europe, targets, putting the entire sector under additional pressure.

the Middle East, or Africa, for example, could cause upheaval

There is a risk that excess capacity in global automotive

on the global energy and commodity markets and exacerbate production may lead to a rise in inventories and therefore an

migration trends. An aggravation of the situation in East Asia increase in tied-up capital. With a decline in demand for

could also put a strain on the global economy. The same vehicles and genuine parts, automotive manufacturers may

applies to violent conflicts, terrorist activities, cyber attacks adjust their capacities or intensify measures to promote

and the spread of infectious diseases, which may quickly sales. This would lead to additional costs and greater price

result in unexpected market reactions.

pressure.

The demand that built up in individual established mar-

Overall, we anticipate a recovery in the global economy in

2021. However, due to the risk factors mentioned, as well as kets in times of crisis could result in a marked recovery if the

cyclical and structural aspects, a further negative trend in the economic environment eases more quickly than expected.

global economy or a period of below-average growth rates is

possible.

In Europe, there is a risk that further municipalities and

cities will impose a driving ban on vehicles with combustion

The macroeconomic environment may also give rise to engines in order to comply with emission limits. China

opportunities for the Volkswagen Group if actual develop- imposed a so-called “new energy vehicle quota” in 2019,

ments differ from expected developments in a positive way.

which means that battery-electric vehicles, plug-in hybrids

and fuel cell vehicles will have to account for a certain pro-

portion of a manufacturer’s new passenger car fleet. To ensure

Sector-specific risks and market opportunities/potential

Western Europe, especially Germany, and China are our main compliance with emissions standards, we continuously tailor

sales markets. A drop in demand in these regions due to the our range of vehicle models and engines to the conditions in

economic climate would have a particularly strong impact on the relevant markets. These requirements may lead to higher

the Company’s earnings including financial services. We costs and consequently to price increases and declines in

counter this risk with a clear, customer-oriented and inno- volumes.

vative product and pricing policy.

Economic performance varied in individual regions in

Outside Western Europe and China, delivery volumes are fiscal year 2020. The resulting risks for our trading and sales

spread widely across the key regions: Central and Eastern companies, such as in relation to efficient inventory manage-

Europe, North America and South America. In addition, we ment and a profitable dealer network, are substantial and are

Group Management Report

Report on Risks and Opportunities

179

being responded to with appropriate measures on their part. > China

However, financing business activities through bank loans

remains difficult. Our financial services companies offer

dealers financing on attractive terms with the aim of

strengthening their business models and reducing oper-

ational risk. We have installed a comprehensive liquidity risk

management system so that we can promptly counteract any

liquidity bottlenecks at the dealership end that could hinder

smooth business operations.

Demand for vehicles is expected to increase in the coming

years due to the need for individual mobility. It is also

expected that demand will shift from the coastal metro-

polises to the country's interior. In order to leverage the

considerable opportunities offered by this market – also

with regard to e-mobility – and to defend our strong market

position in China over the long term, we are continuously

expanding our product range to include models that have

been specially developed for this market. We are further

extending our production capacity in this growing market.

We continue to approve loans for vehicle financing on the

basis of the same cautious principles applied in the past, for

example by taking into account the regulatory requirements > India

of section 25a(1) of the Kreditwesengesetz (KWG – German

Banking Act).

Volkswagen may be exposed to increased competition in

aftermarkets for regulatory reasons. This is due to the pro-

The Volkswagen Group has consolidated its activities

in this strategically important future market and has

launched a model initiative with the new ŠKODA Kushaq

tailored to the needs of customers.

visions of the block exemption regulations, which have > USA

applied to after-sales services since June 2010, and also to the

amendments included in EU Regulation 566/2011 dated

June 8, 2011 and EU Regulation 858/2018 applicable from

September 1, 2020, regarding independent market partici-

pants' access to technical information.

In the USA, Volkswagen Group of America is steadfast in its

pursuit to become a full-fledged volume supplier. The

expansion of local production capacity – including pro-

duction for electric vehicles in the future – will allow the

Group to better serve the market in the North America

region. We are also working intensively on offering addi-

tional products specifically tailored to the US market.

In Germany, legislation entered into force on December 2,

2020 to restrict or abolish design protection for repair parts

through the introduction of a repair clause. In addition, the > Brazil

European Commission is evaluating the market with regard

to existing design protection. A possible restriction or

abolition of design protection for visible replacement parts

could adversely affect the Volkswagen Group’s genuine parts

business.

The growing number of automobile manufacturers with

local production has resulted in a sharp increase in price

pressure and competition. The Brazilian market plays a key

role for the Volkswagen Group. To strengthen our com-

petitive position here, we offer vehicles tailored specially

for this market that are locally produced, such as the Gol

and the Nivus.

The automotive industry is facing a process of transfor-

mation with far-reaching changes. Electric drives, connected

vehicles and autonomous driving are associated with both > Russia

opportunities and risks for our sales. In particular, more

rapidly evolving customer requirements, swift implemen-

tation of legislative initiatives and the market entry of new

competitors from outside the industry will require changed

products at a faster pace of innovation and adjustments to

business models. There is uncertainty regarding the wide-

spread use of electric vehicles and the availability of the

necessary charging infrastructure.

The heavy reliance on oil and gas income, currency vola-

tility and the resulting volatility of vehicle prices, the politi-

cal crisis and the related sanctions imposed by the EU and

the USA continue to negatively impact the development of

demand. The market remains strategically important to the

Volkswagen Group, which is why we have a strong focus on

market cultivation there.

> Middle East

There is also a risk of freight deliveries worldwide being

shifted from trucks to other means of transport, and of

demand for the Group’s commercial vehicles falling as a

result.

Below, we outline the regions and markets with the

greatest growth potential for the Volkswagen Group.

Political and economic uncertainty in the region weigh on

the passenger car markets. In spite of this instability, the

Middle East region offers short-term and long-term growth

potential. We aim to leverage the potential for growth with

a range of vehicles that has been specifically tailored to this

market, without having our own production facilities there.

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Power Engineering

nel, working time accounts and short-time working (Kurz-

Global economic trends are likely to continue, such as digi- arbeit), and the necessary structural adjustments.

talization and the increasing interest in emissions-reducing

technologies associated with decarbonization. Growing

Sales risks

global energy needs call for innovation in the industry and a There is a risk that the Volkswagen Group could experience

growing willingness on the part of governments to invest in decreases in demand, possibly exacerbated by media reports

line with the global climate policy.

or insufficient communication, for example as a result of the

The situation for the marine market has deteriorated due diesel issue. Other potential consequences include lower

to the global pandemic. There is a risk that investments will margins in the new and used car businesses and a temporary

be postponed and there will be a distinct slowdown in project increase in funds tied up in working capital. The Volkswagen

business. Some market segments have been disproportion- Group has recognized provisions arising from the diesel

ately affected. These include the cruise industry, which has issue, in particular for the service measures, recalls and cus-

been hit by the collapse in demand for tourist travel, or the tomer-related measures. Further substantial financial liabili-

offshore market, which is suffering from the sustained reduc- ties may emerge due to existing estimation risks particularly

tion in oil prices.

from technical solutions, repurchase obligations, customer-

In turbomachinery, there is the risk that planned projects related measures and possible official or statutory require-

and orders will be scaled back or postponed due to negative ments for diesel vehicles.

developments in sales markets or individual applications.

The Volkswagen Group’s multibrand strategy may weaken

We address these risks by constantly monitoring the individual Group brands if there are overlaps in customer

markets, focusing on less strongly affected market segments, segments or the product portfolio. This effect may be rein-

working closely with all business partners such as customers forced by the Volkswagen Group’s common-parts strategy, as

and licensees, and introducing new and improved technol- this strategy means that, in some cases, the differences in

ogies.

product substance between the brands are small. As a result,

We are working systematically to leverage market oppor- there could be a risk of internal cannibalization between the

tunities at a global level, for example by positioning ourselves Group brands, higher marketing costs, or repositioning

as a solution provider for reduced-carbon drive and energy- expenses. By sharpening the brand identities as part of our

generation technologies as well as for storage technology. Best Brand Equity strategic module, we are working to

Moreover, significant potential can be leveraged in the minimize these risks.

medium term by enhancing our after-sales business through

The fleet customer business continues to be characterized

the introduction of new digital products and the expansion by increasing concentration and internationalization, accom-

of our service network. The requirements for occupational panied by the risk that the loss of individual fleet customers

safety, which will continue to increase in the future, the may result in relatively high volume losses. Viewed over an

availability of the plants that are already in operation, the extended period, the fleet customer business is more stable

increase in environmental compatibility, and efficient oper- than the business with retail customers. The Volkswagen

ation, together with the large number of engines and plants, Group is well positioned with its broad portfolio of products

will provide the basis for growth. Digital service solutions, for and drive systems, as well as its target-group-focused cus-

instance for remote surveillance of plants, offer growth tomer care, and counteracts a concentration of default risks

potential despite the pandemic.

at individual fleet customers or markets. The consistently

As part of the capital goods industry, the Power Engi- high market share in Europe shows that fleet customers still

neering business is affected by fluctuations in the investment have confidence in the Group.

climate. Even minor changes in growth rates or growth

Consumer demand is shaped not only by real factors such

forecasts, resulting from geopolitical uncertainties or volatile as disposable income, but also by psychological factors that

commodities and foreign exchange markets, for example, cannot be planned for. A current example is that of the

carry the risk of significant changes in demand or the cancel- Covid-19 pandemic. Households’ worries about the future

lation of already existing orders.

economic situation, for example, may lead to unexpected

The measures we use to counter the substantial economic buyer reluctance. This is particularly the case in saturated

and extraordinary risks include flexible production concepts automotive markets such as Western Europe, where demand

and cost flexibility by means of temporary external person- could drop as a result of owners holding on to their existing

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181

vehicles for longer. We are countering the risk of buyer Volkswagen Group are affected by the pandemic, especially

reluctance with our attractive range of models and our strict sales due to a fall in customer demand, production and

policy of customer orientation.

supply chains. There are risks arising in particular from a

A combination of buyer reluctance in some markets as a sustained fall in demand and an increasing intensity of

result of the crisis, and increases in some vehicle taxes based competition. These risks could be mitigated by government

on CO emissions – which have already been observed in economic programs. Furthermore, we envisage challenges,

2

many European countries – may shift demand towards especially in production with regard to stable supply chains

smaller segments and engines. We counter the risk that such and protecting the health of our staff. We have put in place

a shift will negatively impact the Volkswagen Group’s finan- increased hygiene and protective measures to ensure plants

cial situation by constantly developing new, fuel-efficient can operate.

vehicles and alternative drive technologies, based on our

drivetrain and fuel strategy.

Research and development risks

Automotive markets around the world are exposed to For this risk category, the likelihood of occurrence is classified

risks from government intervention such as tax increases, as high (previous year: high) and the potential extent of

which curb private consumption, and from restrictions on damage is classified as medium (previous year: medium).

trade and protectionist tendencies. Sales incentives may lead

to shifts in the timing of demand.

The most significant risks from the regular GRC process

and QRP result from the inability to develop products in line

Commercial vehicles are capital goods: even minor with demand and requirements, especially with regard to

changes in growth rates or growth forecasts may significantly e-mobility and digitalization.

affect transport requirements and thus demand. The

resulting risk of production fluctuations calls for a high Risks arising from research and development

degree of flexibility from the manufacturers. Although pro- The automotive industry is undergoing a fundamental trans-

duction volumes are significantly lower, the complexity of formation process. For multinational corporations like Volks-

the trucks and buses range does in fact significantly exceed wagen, this means risks in the areas of customer/market,

the already very high complexity of the passenger cars range. technological advances and legislation. One risk is posed by

Key factors for commercial vehicle customers are total cost of the implementation of increasingly stringent emission and

ownership, vehicle reliability and the service provided. Further- fuel consumption regulations, taking new test procedures

more, customers are increasingly interested in additional and test cycles (e.g. Worldwide Harmonized Light-Duty Vehi-

services such as freight optimization and fleet utilization, cles Test Procedure, WLTP) into account, as well as compliance

which we offer in the commercial vehicle segment through with approval processes (homologation), which are becoming

the digital brand RIO, for example.

increasingly more complex and time-consuming and may

Power Engineering’s two-stroke engines are produced vary by country.

exclusively by licensees, particularly in South Korea, China

On a national and international level, there are numerous

and Japan. On account of volatile demand in new ship con- legal requirements regarding the use, handling and storage of

struction, there is excess capacity in the market for marine substances and mixtures (including restrictions concerning

engines, which poses a risk of declining license revenues. Due chemicals, heavy metals, biocides, persistent organic pollut-

to changes in the competitive environment, especially in ants). There is therefore a risk of non-conformity in the manu-

China, there is also the risk of losing market share.

facture, procurement and introduction of products such as

automobiles or replacement parts.

Other factors

The economic success and competitiveness of the Volks-

In addition to the risks outlined in the individual risk wagen Group depend on how successful we are in promptly

categories, there are other factors that cannot be predicted tailoring our portfolio of products and services to changing

and whose repercussions are therefore difficult to control. conditions. Given the intensity of competition and speed of

Should these transpire, they could have an adverse effect on technological development, for example in the fields of

the further development of the Volkswagen Group. In partic- digitalization and automated driving, there is a risk of failing

ular, such occurrences include natural disasters, pandemics – to identify relevant trends early enough to respond accor-

such as the current spread of the SARS-CoV-2 virus –, violent dingly.

conflicts and terrorist attacks.

The latest from the world of physics and other scientific

There is a risk that the Covid-19 pandemic could intensify, findings are used to plot our course. In addition, we conduct

due to reasons such as changes in the virus. All areas of the trend analyses and customer surveys and examine the

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relevance of the results for our customers. We counter the Operational risks and opportunities

risk that it may not be possible to develop modules, vehicles, For this risk category, the likelihood of occurrence is classified

or services – especially in relation to e-mobility and digitali- as high (previous year: high) and the potential extent of

zation – within the specified time frame, to the required damage is classified as medium (previous year: medium).

quality standards, or in line with cost specifications, by con-

tinuously and systematically monitoring the progress of all and QRP lie particularly in cyber security and new regulatory

projects; at present also amidst the Covid-19 pandemic. requirements for IT, in quality problems, and in volatile pro-

The most significant risks from the regular GRC process

To reduce the risk of patent infringements, we intensively curement markets.

analyze third-party industrial property rights, increasingly in

relation to communication technologies.

Risks from particular events in the Volkswagen Group’s procurement

We regularly compare the results of all the analyses with

and production network

the respective project’s targets; in the event of variances, we Particular events beyond our control such as natural disas-

introduce appropriate countermeasures in good time. Our ters, pandemics – currently the spread of the SARS-CoV-2

end-to-end project organization supports cooperation among virus – or other events such as fires, explosions, or the

all departments involved in the process, ensuring that speci- leakage of substances hazardous to health and/or the environ-

fic requirements are incorporated into the development ment, may result in supply risks in procurement and signifi-

process as early as possible and that their implementation is cantly impair production. As a consequence, bottlenecks or

planned in good time.

even outages in production may occur, thus preventing the

planned volume of production from being achieved.

Supply risks are identified in Procurement through early

Risks and opportunities from the modular toolkit strategy

We are continuously expanding our modular toolkits, warning systems and mitigated by applying corresponding

focusing on future customer requirements, legal require- measures to safeguard supply and avert future assembly line

ments and infrastructural requirements.

stoppages caused by suspensions of deliveries. Further

As volumes rise, however, so does the risk that disruption methods of counteracting such risks include hygiene con-

in the supply chain – for example, as a consequence of the cepts, fire protection measures and hazardous goods man-

pandemic – or quality problems will affect an increasing agement, and, where financially viable, ensuring that they are

number of vehicles.

covered by insurance policies.

The Modular Transverse Toolkit (MQB) is an extremely

Due to the uncertainty arising from the further develop-

flexible vehicle architecture that was created to allow con- ment of the Covid-19 pandemic, there is a risk that looming

ceptual dimensions – such as the wheelbase, track width, supply breakdowns may not be recognized early enough and

wheel size and seat position – to be harmonized throughout that countermeasures may not be initiated in time to main-

the Group and utilized flexibly. Other dimensions, for tain production. Countermeasures to stabilize global produc-

example the distance between the pedals and the middle of tion include, for example, observing the spread of infection

the front wheels, are always the same, ensuring a uniform and the measures taken to contain the pandemic, analyzing

system in the front of the car. Thanks to the resulting synergy the impact on suppliers and supply and transport chains,

effects, we are able to cut both development costs and the finding alternatives where suppliers are unavailable and

necessary one-time expenses as well as manufacturing times. organizing special processes. Vehicle programs and produc-

The toolkits also allow us to produce different models from tion processes can be adjusted dynamically. As part of the

different brands in varying quantities, using the same equip- Safe Production Initiative, we have defined hygiene measures

ment in a single plant. This means that our capacities can be to prevent possible chains of infection at essential points of

used with greater flexibility throughout the entire Group, contact between the people working in the network. These

enabling us to achieve efficiency gains.

measures will be adjusted if necessary and include physical

We have also transferred this principle of standardization distancing, wearing of protective masks, cleaning and dis-

with maximum flexibility to the Modular Electric Drive infecting, and reorganizing shift models and staggering break

Toolkit (MEB) and Premium Platform Electric (PPE), concepts times.

developed for all-electric drives. The synergy effects and

efficiency gains offered by the modular toolkit strategy will

Risks and opportunities from Procurement and Components

give us the opportunity to bring e-mobility into mass pro- Concentrating on only a few financially strong suppliers gives

duction worldwide with the introduction of the first MEB- rise to the risk of insufficient competition. Current trends in

and PPE-based vehicles.

the automotive industry such as e-mobility and automated

Group Management Report

Report on Risks and Opportunities

183

driving are resulting in an increased need for financing passed on to the supplier or can only be passed on to a

among suppliers, presenting them with considerable chal- limited extent. Assuring quality is of fundamental impor-

lenges. The Volkswagen Group’s procurement risk manage- tance especially in the US, Brazilian, Russian, Indian and

ment system assesses suppliers before they are commis- Chinese markets, for which we develop vehicles specific to the

sioned to carry out projects and takes risk management into countries and where local manufacturers and suppliers have

account when awarding contracts.

been established, particularly as it may be very difficult to

There is a risk of bottlenecks or disruption in supply, as is predict the impact of regulations or official measures. We

currently being seen in the case of semiconductor com- continuously analyze the conditions specific to each market

ponents. Here, the rapid recovery in demand starting in the and adapt quality requirements to their individual needs. We

fourth quarter of 2020, following the pandemic-induced drop counter the local risks we identify by continuously devel-

in production and sales volumes in the first half of 2020, and oping measures and implementing them locally, thereby

the insufficient market capacity of the semiconductor indus- preventing quality defects in the supply chain from arising.

try combined with high demand from the consumer, IT and

It is not possible at present to rule out the possibility of a

telecommunications industries have led to bottlenecks in further increase in recalls of various models produced by a

supply. We intend to safeguard supplies for our production variety of manufacturers in which certain airbags manufac-

plants by implementing short-term measures and intensi- tured by Takata were installed. This could also affect Volks-

fying relationship management and monitoring across the wagen Group models.

entire supply chain.

Specialists in Procurement systematically investigate

A global economic slowdown exacerbated by trade risks resulting from antitrust violations by suppliers and file

disputes and especially the consequences of the Covid-19 claims for any losses that may arise.

pandemic is impacting the financial situation of many sup-

pliers. This is also giving rise to risks of bottlenecks or dis-

ruption in supply.

Production risks

Volatile developments in the global automotive markets,

Government support measures have stabilized the posi- accidents at suppliers and disruptions in the supply chain

tion of suppliers experiencing financial difficulties as a result may cause fluctuations in production volumes affecting both

of the pandemic. In Germany, for example, new rules on vehicle models and plants. In specific markets we are seeing a

short-time working (Kurzarbeit) and loan support schemes, trend away from orders for conventional vehicles with

but also the suspension of the obligation to file for insol- combustion engines and towards increased orders for electric

vency, have prevented companies from becoming insolvent. vehicles. We use established tools, such as flexible working

Despite the government support measures, the number of time models, to address possible risks in terms of fluctu-

suppliers around the world experiencing crises and insol- ations in the mix of vehicle types. The international pro-

vencies rose significantly in 2020. Specialists in Procurement duction network enables us to respond flexibly at the sites.

for restructuring and supply reliability monitor the financial “Turntable concepts” adjust capacity utilization between

situation of our suppliers continuously and globally, taking production facilities. At multibrand sites, volatility can also

targeted measures to counter the risk of possible supply be balanced across brands.

disruptions.

Quick changes in customer demand for specific equip-

Risks in battery cell production arise particularly from the ment features in our products, and the decreasing predict-

rising demand for battery cells and the resulting reliance on ability of demand, may lead to supply bottlenecks. We mini-

suppliers, from technological change and from the service life mize this risk, for example, by continuously comparing our

of battery cells. To counter these risks, the Group maintains available resources against future demand scenarios. If

multiple strategic supplier relationships in order to ensure its bottlenecks in the supply of materials are indicated, we can

supply of batteries in every region.

introduce countermeasures far enough in advance.

Demand for resources, possible speculations on the

Production capacity is planned several years in advance

market and current trends in the automotive industry, such based on long-term sales planning for all vehicle projects.

as the growing share of electrified vehicles, may affect the This involves a degree of risk as it is subject to market momen-

availability and prices of certain raw materials. Trends in raw tum and changes in demand. If forecasts are too optimistic,

materials and demand are continuously analyzed and there is a risk that capacity will not be fully utilized. However,

assessed on an interdisciplinary basis to enable steps to be forecasts that are too pessimistic pose a risk of undercapacity,

taken at an early stage in the event of potential bottlenecks.

as a result of which, it may not be possible to meet customer

Quality problems may necessitate technical intervention demand. In the event of short-notice fluctuations in demand

involving a substantial financial outlay where costs cannot be beyond the technical capacity that has been installed, Volks-

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wagen or its suppliers may be unable to meet demand that We endeavor to identify these risks at an early stage and to

goes beyond the available technical flexibility. We counter take appropriate measures to eliminate or minimize them by

such risks by matching demand and capacity at rapid constantly optimizing the project control process across all

intervals and issuing program scheduling guidelines where project phases and by using a lessons-learned process and

necessary.

regular project reviews. We can thus reduce risk, particularly

The diversity of our models is growing, particularly with during the bidding and planning phase, for large upcoming

the current electrification campaign. The growing model projects.

diversity and reduction in product life cycles are leading to an

increasing number of new vehicle start-ups at our sites

Quality risks

worldwide. These involve the use of complex processes and Right from the product development stage, we aim to identify

technical systems, meaning there is a risk that a vehicle start- and rectify quality problems at the earliest point, so as to

up may be delayed. We address this risk by drawing on avoid delays to the start of production. As we are using an

experience of past start-ups and identifying weaknesses at an increasing number of modular components as part of our

early stage so as to ensure – to the highest degree possible – modular toolkit strategy, it is particularly important when

that production volumes and quality standards are met malfunctions do occur to identify the cause quickly and

during our new vehicle start-ups throughout the Group.

eliminate the faults. Nonconformity of internally or exter-

In order to generally prevent risks such as disruption to nally sourced parts or components may necessitate time-

plant operation, downtime, lost output, rejects and reworking, consuming and cost-intensive measures and lead to recalls

we use the TPM (Total Productive Maintenance) method at and therefore to damage to the Volkswagen Group’s image. In

our production facilities. TPM is a continuous process that addition, the resulting financial impacts may exceed pro-

involves the entire workforce. Round-the-clock maintenance visions. To meet our customers’ expectations and minimize

of the technical facilities means that they are always warranty and ex gratia repair costs, we continuously opti-

operational and guaranteed to function reliably.

mize the processes at our brands with which we can prevent

Legal changes, for instance in the context of the change- these defects. If quality management is ineffective, there is a

over to the WLTP test procedure, may impact production. For risk of losing ISO 9001 and KBA certification. This would lead

one thing, a temporary reduction in the range causes directly to a loss of type approval from one or more authori-

demand to focus on the available variants. Moreover, gaps in ties. We counter this risk by continuously training the

production can occur if model variants have not been Group’s system auditors and subjecting our quality manage-

approved. These fluctuations necessitate measures to stabi- ment system and process quality to internal audits.

lize production, such as the temporary storage of vehicles

until official approval.

We also check the conformity of series products (con-

formity of production – CoP) in vehicle production plants as

part of system audits with a CoP component. Further risks are

associated with discrepancies identified in conformity of

Risks arising from long-term production

In the case of large projects within the Power Engineering production (CoP) measurements and in-service-conformity

Business Area, risks may arise that are often only identified (ISC) measurements. We have established an effective system

over the course of the project. They may result in particular for monitoring the conformity of CoP and ISC measurements

from contract drafting errors, inaccurate or incomplete infor- for manufactured vehicles. To ensure that the results of the

mation used in costing, post-contract changes in economic CoP and ISC measurements are analyzed systematically, we

and technical conditions, weaknesses in project manage- have defined an IT system throughout the Group as the basis

ment, quality defects and unnoticed product malfunctions in for reporting and implemented it across the organization.

product creation, or poor performance by subcontractors. This is used for status reporting and documenting the results

Most notably, omissions at the start of a project, overshooting of the series of measurements.

of the development budget or timeframe, and legislative

changes are usually difficult to correct or compensate for and monitored by national and, in some cases, international

often entail substantial additional expenses. authorities. Furthermore, several countries have special – and

Vehicle registration and operation criteria are defined and

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185

in some cases new – rules aimed at protecting customers in standards we set for the quality of our products also apply to

their dealings with vehicle manufacturers. We have estab- the way in which we handle our customers’ and employees’

lished quality processes so that the Volkswagen Group brands data. Legal regulations including the UNECE (United Nations

and their products fulfill all respective applicable require- Economic Commission for Europe) cyber security regulation

ments and local authorities receive timely notification of all (R155) are creating requirements for our vehicle and software

issues requiring reporting. By doing so, we reduce the risk of development. These also have a large impact on our IT sys-

customer complaints or other negative consequences.

tems. We therefore work on an interdisciplinary basis to

With increasing technical complexity and the use of the protect our connected vehicles and mobility services. Our

toolkit system in the Group, the demand for high-grade, guiding principles are data security, transparency and infor-

impeccable-quality supplier components and software is mational self-determination.

growing. This is lending increasing importance to cyber

We address the risk of unauthorized access to, modifi-

security. To better monitor and manage the risk of cyber cation of, or extraction of corporate and customer data with

attacks on our vehicles in the future, we are establishing an the use of IT security technologies such as firewall and

Automotive Cyber Security Management System in all Group intrusion prevention systems and a multiple-authentication

brands and integrating it into the existing quality manage- procedure. Additionally, we increase protection by restricting

ment system. This will allow us to fulfill the legal require- the allocation of access rights to systems and information

ments of the UNECE regulation that apply from 2021.

and by keeping backup copies of critical data resources.

The Ausschuss für Produktsicherheit (APS – Product Redundant IT infrastructures allow us to mitigate risks that

Safety Committee) has been established to mitigate product occur in the event of a systems failure or of a disaster.

safety risks. In the event of safety defects, doubts about

We use commercially available technologies to protect

compliance with legal requirements, or issues relating to the our IT landscape, adhering to standards applicable through-

brand or corporate image, the APS examines the matter out the Company. We future-proof our IT through continual

concerned and decides on how to respond. In this context, standardization and updates. Continuously increasing auto-

the APS is also responsible for managing related inquiries mation enhances process reliability and the quality of proces-

from authorities. The cross-divisional Car Security Board sing.

(

CSB) provides support in relation to cyber security issues. We

The further development and Group-wide use of IT gover-

also created central units responsible for recording and nance processes, particularly the further standardization of

managing incoming information on APS- and CSB-related the IT risk management process, also help to identify

topics. These now have an established position within the weaknesses at an early stage and to reduce or avoid risks

organization. All incoming reports on APS-related issues are effectively.

also transferred from the APS mailbox to a central database.

Another focus is the continuous enhancement of Group-

Risks may arise in this context from a lack of timely, complete wide security measures with modern technologies and tools,

and correct preliminary analysis, reporting and follow-up or such as the further expansion of the IT security command

from a lack of timely, complete and correct decisions and center for the early detection of and defense against cyber

measures by the APS or CSB.

attacks.

Volkswagen complements these technical measures by

systematically raising awareness and providing training for

IT risks

At Volkswagen, a global company geared towards further employees.

growth, the information technology (IT) used in all divisions

Group-wide is assuming an increasingly important role. IT

Risks from media impact

risks exist in relation to the three protection goals of The image of the Volkswagen Group and its brands is one of

confidentiality, integrity and availability, and comprise in the most important assets and forms the basis for long-term

particular unauthorized access to, modification of and business success. Our policy and strategic orientation on

extraction of sensitive electronic corporate or customer data issues such as integrity, ethics and sustainability are in the

as well as limited systems availability as a consequence of public focus. One of the basic principles of running our

downtime and disasters. Handling data with integrity is a key business is therefore to pay particular attention to com-

factor for the correctness and soundness of data , and for the pliance with legal requirements and ethical principles.

functionality of error-free systems.

However, we are aware that misconduct or criminal acts by

There is a risk of cyber attacks, particularly on our digital individuals and the resulting reputational damage can never

technology used for our mobility services. The high be fully prevented. In addition, media reactions can have a

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negative effect on the image of the Volkswagen Group and its areas that are crucial for the future, such as electrical

brands. This impact could be amplified through insufficient engineering, chemistry or information technology. With

communication at times of crisis.

tools such as these, we want to ensure that our demand for

qualified new staff is covered, even amid a shortage of skilled

labor.

Environmental and social risks

For this risk category, the likelihood of occurrence is classified

We counter the risks associated with employee fluctu-

as medium (previous year: medium) and the potential extent ation and loss of knowledge as a result of retirement with

of damage is classified as medium (previous year: medium). intensive, department-specific succession planning and

The most significant risks from the regular GRC process training. We have also established a base of senior experts in

and QRP arise from non-fulfillment of CO

ments.

2

-related require- the Group. With this instrument, we use the valuable know-

ledge of our experienced specialists who have retired from

Volkswagen.

Personnel risks

The advancing digitalization of our human resources

We counter economic risks as well as changes in the market processes entails risks arising from the processing of per-

and the competitive situation with a range of instruments sonal data. Volkswagen is aware of its responsibility in the

that help the Volkswagen Group to remain flexible in terms of processing of this data. We address these risks as part of our

staff deployment when faced with a fluctuating order data protection management system by implementing a wide

situation – whether orders are in decline, or there is an range of measures.

increase in demand for our products. These instruments

A challenge lies in the conflict between requests for infor-

include time accounts to which hours are added when mation in the context of various US agreements entered into

overtime is necessary and from which hours are deducted in in connection with the diesel issue on the one hand and both

quiet periods, enabling our factories to adjust their capacity German and international data protection requirements on

to production volume with measures such as extra shifts, the other. This is true particularly in view of the fact that

closure days and flexible shift models. The use of temporary these data protection requirements are open to a certain

workers also allows us to be more flexible in our planning. All degree of interpretation and assessment. In the interest of

of these measures help the Volkswagen Group to generally precluding infringements of the law as far as possible, despite

maintain a stable permanent workforce, even when orders a partially unclear legal situation, Volkswagen is advised by

fluctuate.

The technical expertise and individual commitment of

external law firms on these issues.

The spread of the SARS-CoV-2 virus had a negative impact

employees are indispensable prerequisites for the success of on business development in fiscal year 2020. Any infectious

the Volkswagen Group. We counter the risk of not being able diseases occurring in the future may also pose a risk of high

to develop sufficient expertise in the Company’s different infection rates among the workforce, resulting in process

vocational groups with our strategically oriented and holistic disruptions in production and non-production areas, for

human resource development, which gives all employees example production stoppages. In the event of the future

attractive training and development opportunities. By spread of such diseases, emergency plans to tackle this risk

boosting our training programs, particularly at our inter- for the purpose of business continuity management will be

national locations, we are able to adequately address the developed for critical processes, based on the experience of

challenges of technological change.

2020, and incorporated into the risk management systems.

To counter the potential risk of a shortage of skilled

specialists – especially in the areas of digitalization and IT –

Environmental protection regulations

we continuously expand our recruitment tools. Our system- The specific emission targets for all new passenger car and

atic talent relationship management, for example, enables us light commercial vehicle fleets for brands and groups in the

to make contact with talented candidates from strategically EU for 2020 and subsequent years are set out in Regulation

relevant target groups at an early stage and to build a long- (EU) No 2019/631. This regulation is a material component of

term relationship between them and the Group. In addition the European climate protection policy and therefore forms

to the standard dual vocational training, programs such as the key regulatory framework for product design and mar-

our StIP integrated degree and traineeship scheme and our keting by all vehicle manufacturers selling in the European

Faculty 73 ensure a pipeline of highly qualified and moti- market.

vated employees. By systematically increasing our attractive-

Adopted by the EU on April 17, 2019 and published on

ness as an employer, we are able to gain talented people in April 25, 2019, the regulation states that, from 2021 onward,

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187

the average emissions of European passenger car fleets must are more ambitious than the national standards. The form

be no higher than 95 g CO /km; in 2020, this emissions limit the fleet targets will take under the new administration is not

already applied to 95% of the fleet. Up to and including 2020, known.

European fleet legislation was complied with on the basis of The increased regulation of fleet-based CO

2

emissions and

the New European Driving Cycle (NEDC). From 2021, the fuel consumption makes it necessary to use the latest mobil-

NEDC target value will be replaced by a WLTP target value ity technologies in all key markets worldwide. At the same

through a process defined by lawmakers; this change will not time, electrified and also purely electric drives will become

lead to additional tightening of the target value. A similar increasingly common. The Volkswagen Group closely coordi-

approach will apply to light commercial vehicles, where a nates technology and product planning with its brands so as

target of 147 g CO

2

/km applied to the entire fleet in 2020.

to avoid breaches of fleet values, since these would entail

The targets will be tightened as from 2025: for new severe payment obligations. Whether the Group meets its

European passenger car fleets, a reduction of 15% will there- fleet targets depends crucially on its technological and finan-

fore be required from 2025 and a reduction of 37.5% from cial capabilities, which are reflected in, for example, our drive-

2030. For new light commercial vehicle fleets, the required train and fuel strategy. Volkswagen continues to regard diesel

reductions will be 15% from 2025 and 31% from 2030. In each technology as an important element in the fulfillment of CO

case, the starting point is the fleet value in 2021. These emissions targets.

2

targets can only be achieved through a high proportion of

electric vehicles within the fleet.

Alongside technical and portfolio electrification measures,

it is also possible to use local statutory mechanisms such as

Non-fulfillment of the respective fleet-wide target will the creation of emission pools in Europe or the trading of

result in an excess emissions premium, amounting to €95 emission credits in the United States and China. Legislation

per excess gram of CO

2

per newly registered vehicle.

provides further flexibility to aid target achievement,

At the same time, regulations governing fleet fuel con- depending on the region, for example:

sumption are also being developed or introduced outside the > Relief opportunities may be provided for additional inno-

EU27 (plus Norway, Iceland), for example in Brazil, Canada,

China, India, Japan, Mexico, Saudi Arabia, South Korea,

vative technologies in the vehicle that apply outside the

test cycle (eco-innovations and off-cycle credits),

Switzerland, Taiwan, the United Kingdom and the USA. Brazil > Particularly efficient vehicles qualify for super-credits,

has introduced a fleet efficiency target as part of a voluntary > Special rules are in place for small-series producers and

program which grants tax advantages. To receive a 30% tax

niche manufacturers.

advantage, manufacturers must, among other things, achieve In the EU, a more time-consuming test procedure has applied

a specified fleet efficiency. The fuel consumption regulations to all new vehicles with WLTP since September 2018. Other

in China, which set an average fleet target of 5.0 liters/100 km challenges arise in connection with stricter processes and

(

NEDC) for the period 2016 to 2020, were continued into the requirements regarding WLTP, such as from test criteria and

period 2021 to 2025 with a target of 4.6 liters/100 km (WLTP). homologation (achievement of vehicle type approvals).

In addition to this legislation on fleet fuel consumption, a The Real Driving Emissions (RDE) Regulation for passen-

new energy vehicle quota applies in China. This requires ger cars and light commercial vehicles is another of the main

every manufacturer to increase the share of electric vehicles – European regulations. New, uniform limits for nitrogen oxide

which are included with different weightings – in its total and particulate emissions in real road traffic have applied to

sales. The quota for 2020 was 12%, to be fulfilled through new vehicle types across the EU since September 2017. This

battery-electric vehicles, plug-in hybrids, or fuel cell vehicles. makes the RDE test procedure fundamentally different from

The minimum quota will increase by two percentage points the Euro 6 standard still in force, which stipulates that the

annually until 2023. Targets for the period after 2023 have limits on the chassis dynamometer are authoritative. The

not yet been defined. In the USA, greenhouse gas legislation RDE regulation is intended primarily to improve air quality in

2

has defined the annual CO fleet targets since 2012. A urban areas and areas close to traffic, leading to stricter

decision was reached in fiscal year 2020 to relax fleet targets requirements for exhaust gas aftertreatment in passenger

significantly starting in 2022. The Volkswagen Group decided cars and light commercial vehicles. Stricter RDE processes

to participate in the framework of the California Air and requirements have resulted in certain challenges, for

Resources Board (CARB). This involves a voluntary com- example relating to test criteria and homologation.

mitment to the alternative fleet targets set by the CARB which

1

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Group Management Report

The other main EU regulations affecting the automotive subject of legal proceedings. Individual cities throughout

industry include:

Germany have already imposed zonal traffic bans for older

vehicles such as Euro 4/IV diesel. It is argued that only driving

>

The Car Labeling Directive 1999/94/EC,

>

The Fuel Quality Directive (FQD) 2009/30/EC updating the bans for diesel vehicles can bring about the necessary short-

fuel quality specifications and introducing energy effi- term reduction in NO immissions. The discussion may result

ciency specifications for fuel production, in sales volumes of diesel vehicles declining further and

2

>

The Renewable Energy Directive (RED) (2009/28/EC) intro- financial liabilities arising from customer-related measures

ducing sustainability criteria; the follow-up regulation and potential official or statutory requirements.

(

RED2) contains higher quotas for advanced biofuels,

Local traffic bans are already also in place in a number of

The revised Energy Taxation Directive 2003/96/EC other countries, though these mainly affect older vehicles.

updating the minimum tax rates for all energy products Regulations in Belgium that successively ban older vehicles

and power.

from larger cities are one example. In addition to major cities

Commercial vehicles are increasingly subject to ever stricter such as Paris and London, countries like the United Kingdom

environmental regulations all around the world, particularly are now discussing future bans on vehicles with internal

to regulations relating to climate change and vehicle emis- combustion engines.

sions. With Regulation (EU) 2019/1242 of June 20, 2019,

In the Power Engineering segment, the International

which specifies CO emission standards for new heavy trucks Maritime Organization (IMO) has introduced the Interna-

2

with a permitted gross weight of over 16 tonnes, the EU has tional Convention for the Prevention of Pollution from Ships

set heavy commercial vehicle manufacturers very ambitious (MARine POLlution – MARPOL), with which limits on emis-

targets for reducing CO

The CO emissions from such vehicles must be reduced by reduction of the sulfur content in marine fuel was imple-

5% by 2025 and 30% by 2030 compared to a reference value mented globally with effect from January 1, 2020. In addition,

2

emissions within the next decade. sions from marine engines will be lowered in phases. A

2

1

for a monitoring period from July 2019 to June 2020. If they the IMO has decided on a number of emission control areas

fail to meet these targets, vehicle manufacturers will be liable in Europe and the USA/Canada that will be subject to partic-

to substantial excess emissions premiums, amounting to ularly stringent environmental regulations. Expansion to

€4,250 per excess gram of CO2/tonne-kilometer (tkm) per further regions such as the Mediterranean or Japan is already

vehicle for the period from 2025 to 2029 and €6,800 per being planned; other regions such as the Black Sea, Alaska,

excess gram of CO

onward.

2

/tkm per vehicle for the period from 2030 Australia or South Korea are also in discussion. Moreover,

emission limits are in force under Regulation (EU) 2016/1628

Compliance with regulations relating to climate change and in accordance with the regulations of the US Environ-

and vehicle emissions requires substantial investment in new mental Protection Agency (EPA), for example. We are pushing

technologies, including alternative drive systems and vehicles for a maritime energy transition in specialist bodies and also

powered by alternative fuels. Increasing connectivity within promote this to the general public. In a first step, we are

transport networks can help to reduce inefficiencies such as supporting the switch to liquefied natural gas (LNG) as a fuel

unused transport capacity, empty runs and inefficient routes for maritime applications, and offer dual fuel and gas-

in existing transport networks. In conjunction with con- powered engines for new and retrofitted vessels. For the long-

nected traffic management systems, this can result in term and climate-neutral operation of seagoing vessels, we

optimized goods transport and therefore a reduction in CO

emissions.

2

advocate power-to-X technology, in which excess sustainably

generated electricity is converted into carbon-neutral gas or

As part of the European Green Deal, the European Com- liquid fuel.

mission has presented its 2030 Climate Target Plan, which As regards stationary equipment, there are a number of

sets out to reduce CO emissions in the EU by at least 55% national rules in place worldwide that limit permitted

previously 40%) compared to 1990 levels by 2030. This may emissions. On December 18, 2008, the World Bank Group set

2

(

lead to even more stringent requirements for CO

for the automotive industry.

2

emissions limits for gas and diesel engines in its Environmental, Health,

and Safety Guidelines for Thermal Power Plants, which are

There is particular momentum in the debate on driving required to be applied in countries that have adopted no

bans for diesel vehicles in Germany. This was triggered by the national requirements of their own, or requirements that are

failure of some municipalities and cities to comply with the less strict than those of the World Bank Group. These guide-

2

air pollutant limits for nitrogen dioxide (NO ) immissions. In lines are currently being revised. In addition, the United

some cases, these issues have been, and continue to be, the Nations adopted the Convention on Long-range Trans-

Group Management Report

Report on Risks and Opportunities

189

boundary Air Pollution back in 1979, setting limits on total The most significant risks from the regular GRC process and

emissions as well as nitrogen oxide for the signatory states QRP are associated with the diesel issue.

(including all EU states, other countries in Eastern Europe, the

USA and Canada). Enhancements to the product portfolio in Litigation

the Power Engineering segment focus on improving the Volkswagen AG and the companies in which it is directly or

efficiency of equipment and systems.

indirectly invested are involved in a substantial number of

The allocation method for emissions certificates changed legal disputes and governmental proceedings in Germany

fundamentally when the third emissions trading period and abroad. Such legal disputes and other proceedings occur,

(

2013 to 2020) began. As a general rule, all emission allow- among other things, in connection with products and ser-

ances for power generators have been sold at auction since vices or in relation to employees, public authorities, dealers,

013. For the manufacturing industry and certain power investors, customers, suppliers, or other contracting parties.

2

generation installations (e.g. combined heat and power For the companies in question, these disputes and proceed-

installations), a portion of the certificates is allocated free of ings may result in payments such as fines or in other obliga-

charge on the basis of benchmarks applicable throughout the tions or consequences. In particular, substantial compen-

EU. This portion of free certificates will gradually decrease as satory or punitive damages may have to be paid and cost-

the trading period progresses; the remaining quantities intensive measures may have to be implemented. In this

required will have to be bought at auction. In certain context, specific estimation of the objectively likely conse-

(

sub)sectors of industry, there was a risk that production will quences is often possible only to a very limited extent, if at

be transferred to countries outside Europe due to the all.

amended provisions governing emissions trading, a phe-

Various legal proceedings are pending worldwide, partic-

nomenon referred to as carbon leakage. A consistent quantity ularly in the USA, in which customers are asserting purported

of certificates was allocated to these sectors free of charge for product-related claims, either individually or in class actions.

the period from 2013 to 2020 on the basis of the pan-EU These claims are as a rule based on alleged vehicle defects,

benchmarks. The automotive industry was included in the including defects alleged in vehicle parts supplied to the

carbon leakage list that came into effect in 2015. As a result, Volkswagen Group. Compliance with legal or regulatory

individual facilities at Volkswagen Group locations in Europe requirements (such as the GDPR) is another area in which

received additional certificates free of charge up to the end of risks may arise. This is particularly true in gray areas where

the third trading period. Back in 2013, the European Volkswagen and the relevant public authorities may interpret

Commission decided to initially withhold a portion of the the law differently.

certificates to be auctioned. The certificates were directed

In connection with their business activities, Volkswagen

into a market stability reserve that was established in 2018. Group companies engage in constant dialogue with regu-

This reserve will serve to offset any imbalance between the latory agencies including the Kraftfahrt-Bundesamt (KBA –

supply of and demand for certificates in emissions trading in German Federal Motor Transport Authority). It is not possible

the fourth trading period (from 2021). Moreover, there are to predict with assurance how government regulators will

further modifications in emissions trading as from the assess certain issues of fact and law in a particular situation.

beginning of the fourth trading period, which may lead in For this reason, the possibility that certain vehicle charac-

total to a tightening of the system and thus to price increases teristics and/or type approval aspects may in particular

for the certificates.

ultimately be deemed deficient or impermissible cannot be

In addition to the EU member states, other countries in ruled out. This is fundamentally a question of the regulatory

which the Volkswagen Group has production sites are also agency's specific evaluation in a concrete situation.

considering introducing an emissions trading system. In

Risks may also result from actions for infringement of

China, for example, eight corresponding pilot projects are intellectual property, including infringement of patents,

underway. These do not yet affect the Volkswagen Group. The trademarks, or other third-party rights, particularly in Ger-

Chinese government officially implemented

a national many and the USA. If Volkswagen is alleged or determined to

emissions trading system at the end of 2017. Initially, this have violated third-party intellectual property rights, it may

affects only the power generation sector; a gradual expansion have to pay damages, modify manufacturing processes, or

is being planned.

redesign products, and may be barred from selling certain

products; this may result in delivery and production restric-

tions or interruptions.

LEGA L R I SKS

For this risk category, the likelihood of occurrence is classified

as medium (previous year: medium) and the potential extent

of damage is classified as medium (previous year: high).

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Criminal acts by individuals, which even the best compliance consolidated financial statements were being prepared, the

management system can never completely prevent, are persons responsible for preparing these financial statements

another potential source of legal risks.

remained under the impression that the issue could be

Appropriate insurance has been taken out to cover these resolved with comparatively little expense.

risks where they were sufficiently definite and such coverage

In the course of the summer of 2015, however, it became

was economically sensible. Where necessary based on the progressively apparent to individual members of Volks-

information currently available, identified and correspon- wagen AG’s Board of Management that the cause of the

dingly measurable risks have been reflected by recognizing discrepancies in the USA was a modification of parts of the

provisions in amounts considered appropriate or disclosing software of the engine control unit that was later identified as

contingent liabilities, as the case may be. As some risks an unlawful “defeat device” as defined by US law. This

cannot be assessed or can only be assessed to a limited culminated in Volkswagen's disclosure of a “defeat device” to

extent, the possibility of material loss or damage not covered the EPA and the California Air Resources Board, a department

by the insured amounts or by provisions cannot be ruled out. of the Environmental Protection Agency of the State of

This is, for instance, the case with regard to the legal risks California, on September 3, 2015. According to the assess-

assessed in connection with the diesel issue.

ment at the time by the responsible persons dealing with the

matter, the magnitude of the costs expected to result for the

Volkswagen Group (recall costs, retrofitting costs, and finan-

Diesel issue

On September 18, 2015, the US Environmental Protection cial penalties) was not fundamentally dissimilar to that in

Agency (EPA) publicly announced in a “Notice of Violation” previous cases involving other vehicle manufacturers. It

that irregularities in relation to nitrogen oxide (NO ) emis- therefore appeared to be manageable overall considering the

x

sions had been discovered in emissions tests on certain business activities of the Volkswagen Group. This assessment

Volkswagen Group vehicles with 2.0 l diesel engines in the by Volkswagen AG was based, among other things, on the

USA. In this context, Volkswagen AG announced that notice- advice of a law firm engaged in the USA for regulatory

able discrepancies between the figures recorded in testing approval issues, according to which similar cases had in the

and those measured in actual road use had been identified in past been amicably resolved with the US authorities. The

around eleven million vehicles worldwide with type EA 189 EPA's publication of the “Notice of Violation” on Septem-

diesel engines. On November 2, 2015, the EPA issued a “Notice ber 18, 2015, which the Board of Management had not

of Violation” alleging that irregularities had also been expected, especially at that time, then presented the situation

discovered in the software installed in US vehicles with type in an entirely different light.

V6 3.0 l diesel engines.

The AUDI AG Board of Management members in office at

The so-called diesel issue is rooted in a modification of the time in question have likewise stated that they had no

parts of the software of the relevant engine control units – knowledge of the use of “defeat device” software that was

which, according to Volkswagen AG’s legal position, is only prohibited by US law in the type V6 3.0 l TDI engines until the

unlawful under US law – for the type EA 189 diesel engines EPA issued its November 2015 “Notice of Violation”.

that Volkswagen AG was developing at that time. The decision

to develop and install this software function was taken in late opment responsibility for the four-cylinder diesel engines

006 below Board of Management level. No member of the such as the type EA 189, and AUDI AG has development

Within the Volkswagen Group, Volkswagen AG has devel-

2

Board of Management had, at that time and for many years to responsibility for the six- and eight-cylinder diesel engines

follow, knowledge of the development and implementation such as the type V6 3.0 l and V8 4.2 l diesel engines.

of this software function.

As a consequence of the diesel issue, numerous judicial

There are furthermore no findings that, following the and regulatory proceedings were initiated in various coun-

publication in May 2014 of the study by the International tries. Volkswagen has in the interim succeeded in making

Council on Clean Transportation, an unlawful “defeat device” substantial progress and ending many of these proceedings.

under US law was disclosed either to the Ausschuss für In the USA, Volkswagen AG and certain affiliates reached

Produktsicherheit (Product Safety Committee) or to the per- settlement agreements with various government authorities

sons responsible for preparing the 2014 annual and and private plaintiffs, the latter represented by a Plaintiffs'

consolidated financial statements as the cause of the high Steering Committee in a multidistrict litigation in the US

x

NO emissions in certain US vehicles with 2.0 l type EA 189 state of California. The agreements in question include

diesel engines. Rather, at the time the 2014 annual and various partial consent decrees as well as a plea agreement

Group Management Report

Report on Risks and Opportunities

191

that resolved certain civil claims as well as criminal charges manipulation relating to capital market disclosure obli-

under US federal law and the laws of certain US states in gations in connection with the diesel issue were definitively

connection with the diesel issue. Although Volkswagen is terminated by the Braunschweig Regional Court against

firmly committed to fulfilling the obligations arising from payment in each case of a court-imposed sum of €4.5 million,

these agreements, a breach of these obligations cannot be thereby also terminating to the same extent the proceedings

completely ruled out. In the event of a violation, significant against Volkswagen AG as collateral participant. After permit-

penalties could be imposed as stipulated in the agreements, ting the charges against a former Chairman of the Board of

in addition to the possibility of further monetary fines, Management of Volkswagen AG and the related action

criminal sanctions and injunctive relief. The last remaining against Volkswagen AG to go forward in September 2020, the

vehicle class settlement program for customers in the United Braunschweig Regional Court in January 2021 terminated

States, which pertained to second Generation 3.0 l TDI these proceedings – provisionally as regards the indictment

vehicles, ended in May 2020.

which is for the time being still pending against the former

In agreement with the respective responsible authorities, Chairman of the Board of Management, but definitively as

the Volkswagen Group is making technical measures avail- regards Volkswagen AG.

able worldwide for virtually all diesel vehicles with type

EA 189 engines. For all clusters (groups of vehicles) within its accepted the indictment of the same former Chairman of the

jurisdiction, the Kraftfahrt-Bundesamt (KBA German Board of Management of Volkswagen AG and others on

In September 2020, the Braunschweig Regional Court

–

Federal Motor Transport Authority) determined that imple- charges that include fraud in connection with the diesel issue

mentation of the technical measures would not result in any involving type EA 189 engines and opened the main trial

adverse changes in fuel consumption, CO

output, maximum torque, and noise emissions.

2

emissions, engine proceedings.

In June 2020, the Munich II Regional Court accepted the

Following the studies carried out by AUDI AG to check all substantially unchanged indictment of the Munich II Office

relevant diesel concepts for possible irregularities and retrofit of the Public Prosecutor, which also names the former Chair-

potential, measures proposed by AUDI AG have been adopted man of the Board of Management of AUDI AG, and opened

and mandated by the KBA in various recall orders pertaining the main trial proceedings on charges of, among other things,

to vehicle models with V6 and V8 TDI engines. AUDI AG cur- fraud in connection with the diesel issue involving 3.0 l TDI

rently anticipates that the total cost, including recall engines. Trial proceedings commenced in September 2020.

expenses, of the ongoing largely software-based retrofit

In August 2020, the Munich II Office of the Public Pros-

program that began in July 2017 will be manageable and has ecutor issued a further indictment charging three former

recognized corresponding balance-sheet risk provisions. members of the Board of Management of AUDI AG and

AUDI AG has in the meantime developed software updates for others with, among other things, fraud in connection with

many of the affected powertrains and, after approval by the the diesel issue involving 3.0 l and 4.2 l TDI engines.

KBA, already installed these in the vehicles of a large number

In connection with the diesel issue, the Stuttgart Office of

of affected customers. The software updates still being the Public Prosecutor is conducting a criminal investigation

developed are expected to be submitted to the KBA in 2021 on suspicion of fraud and illegal advertising; this investi-

for approval.

gation also involves a member of the Board of Management

In connection with the diesel issue, potential conse- of Dr. Ing. h.c. F. Porsche AG.

quences for Volkswagen’s results of operations, financial

The respective Group companies have appointed renowned

position and net assets could emerge primarily in the law firms to clarify the matters underlying the public pros-

following legal areas:

ecutor’s accusations. The Board of Management and Super-

visory Board receive regular updates on the current status.

As the type approval authority of proper jurisdiction, the

KBA is moreover continuously testing Audi, Volkswagen, and

1.

Criminal and administrative proceedings worldwide

(excluding the USA/Canada)

Criminal investigations, regulatory offense proceedings, Porsche brand vehicles for problematic functions. If certain

and/or administrative proceedings have been commenced in functions are deemed impermissible by the KBA, the affected

some countries. Criminal investigations into the core factual vehicles are recalled pursuant to a recall order or they are

issues are being conducted by the Offices of the Public brought back into compliance by means of a voluntary ser-

Prosecutor in Braunschweig and Munich.

vice measure.

Moreover, additional administrative proceedings relating

In May 2020, the criminal proceedings against the current

Chairman of the Board of Management of Volkswagen AG to the diesel issue are ongoing in other jurisdictions.

and a former member of its Board of Management (currently The companies of the Volkswagen Group are cooperating

Chairman of the Supervisory Board) regarding alleged market with the government authorities.

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Risks may furthermore result from possible decisions by the mechanism has been held to apply. Given the opt-out rule,

European Court of Justice construing EU type approval pro- the class action potentially covers all vehicles with type

visions.

EA 189 engines purchased by consumers on the Belgian

Whether the criminal and administrative proceedings will market after September 1, 2014, unless the right to opt out is

ultimately result in fines or other consequences for the actively exercised. The asserted claims are based on pur-

Company, and if so what amounts these may entail, is cur- ported violations of unfair competition and consumer pro-

rently subject to estimation risks. According to Volkswagen’s tection law as well as on alleged breach of contract.

estimates, the likelihood that a sanction will be imposed is

In Brazil, two consumer protection class actions are

50% or less in the majority of these proceedings. Contingent pending. The first of these class actions pertains to some

liabilities have therefore been disclosed where the amount of 17 thousand Amarok vehicles and the second to roughly

such liabilities could be measured and the likelihood of a 67 thousand later generation Amaroks. In the first class

sanction being imposed was assessed at not less than 10%. action, an appeals judgment was rendered in May 2019 that

Provisions were recognized to a small extent.

only partially upheld the lower court's decision. This judg-

ment initially reduced the damage liability of Volkswagen do

2

. Product-related lawsuits worldwide (excluding the USA/ Brasil considerably to around BRL 172 million plus interest.

Canada)

This amount can increase as a result of the adjudicated

A general possibility exists that customers in the affected inflation rate and the assertion of individual claims alleging

markets will file civil lawsuits or that importers and dealers declines in the value of affected Amarok vehicles. The appeals

will assert recourse claims against Volkswagen AG and other judgment remains non-final since Volkswagen do Brasil has

Volkswagen Group companies. Besides individual lawsuits, appealed it to a higher court. So far no judgment has been

various forms of collective actions (i.e. assertion of individual rendered in the second class action proceeding.

claims by plaintiffs acting jointly or as representatives of a

In Germany, Volkswagen AG and Verbraucherzentrale

class) are available in various jurisdictions. Furthermore, in a Bundesverband e.V. (Federation of Consumer Organizations)

number of markets it is possible for consumer and/or environ- entered into an out of court settlement on February 28, 2020

mental organizations to bring suit to enforce alleged rights to terminating the consumer action for model declaratory judg-

injunctive relief, declaratory judgment, or damages.

ment. The terms of the settlement require Volkswagen AG to

Customer class action lawsuits and actions brought by offer individual settlements to consumers who registered

consumer and/or environmental organizations are pending claims under the action for model declaratory judgment and

against Volkswagen AG and other Volkswagen Group com- meet the settlement criteria. As a result, Volkswagen AG

panies in a number of countries including Australia, Belgium, entered into individual settlements in the reporting year with

Brazil, England and Wales, France, Germany, Italy, the Nether- some 245 thousand customers in an aggregate amount of

lands, Portugal, and South Africa. Alleged rights to damages roughly €770 million. The process of settling the consumer

and other relief are asserted in these actions. The pending action for model declaratory judgment is thus almost com-

actions include in particular the following: In Australia, plete. Verbraucherzentrale Bundesverband e .V . withdrew the

various class action lawsuits had been pending against action for model declaratory judgment on April 30, 2020.

Volkswagen AG and other Volkswagen Group companies,

In addition, various actions have been brought against

including the Australian subsidiaries. In December 2019, companies of the Volkswagen Group in several German

Volkswagen AG reached tentative agreements with the regional courts by financialright GmbH, which is asserting

Australian class action plaintiffs terminating the litigation; rights assigned to it by a total of approximately 45 thousand

the court approved these agreements in April 2020. Volks- customers in Germany, Slovenia, and Switzerland.

wagen AG anticipates that the total cost of settling these

In England and Wales, suits filed in court by various law

actions will be approximately AUD 180 million. Two civil firms have been joined in a single collective action (group

suits filed against Volkswagen AG and other Group com- litigation). Because of the opt-in mechanism, not all vehicles

panies by the Australian Competition and Consumer Com- with type EA 189 engines are automatically covered by the

mission (ACCC) were settled in the second half of 2019. The group litigation; potential claimants must instead take action

settlement is not yet legally final, however, as an appellate in order to join. To date, some 90 thousand plaintiffs have

court has yet to rule on the amount of the fine. Depending on registered claims under the group litigation, for which the

the appellate court decision, Volkswagen AG continues to opt-in period has expired. In these proceedings, the High

anticipate payment of a fine of up to AUD 125 million.

Court in England and Wales ruled in April 2020 that the

In Belgium, the Belgian consumer organization Test switch logic in the EA 189 engine constituted an unlawful

Aankoop VZW has filed a class action to which an opt-out defeat device; the court believed that it was also bound by the

Group Management Report

Report on Risks and Opportunities

193

findings of the KBA (German Federal Motor Transport In Germany, over 55 thousand individual lawsuits are

Authority) in this respect. In August 2020, the Court of Appeal currently pending. In May 2020, the Bundesgerichtshof (BGH

rejected Volkswagen's appeal against the High Court's ruling – Federal Court of Justice) handed down its first decision ever

on these preliminary questions; this decision is final. The in an individual product-related lawsuit in connection with

question of liability on the part of Volkswagen was not a the diesel issue. The BGH held that the buyer, who had

matter addressed by the High Court's ruling and will be dealt purchased a vehicle with a type EA 189 engine prior to public

with at a later stage of the proceedings. The main trial pro- disclosure of the diesel issue, had a claim for damages against

ceedings are to begin in January 2023.

Volkswagen AG. While the buyer can require reimbursement

In France, the French consumer organization Confédér- of the vehicle's purchase price, he must accept a deduction for

ation de la Consommation, du Logement et du Cadre de Vie the benefit derived from using the vehicle and must return it

(

CLCV) filed a class action in September 2020 against Volks- to Volkswagen AG. The judgment clarified the BGH's stance

wagen Group Automotive Retail France and Volkswagen AG on the fundamental issues underlying a large number of the

for up to 950 thousand French owners and lessees of vehicles individual diesel lawsuits then still pending in Germany. On

with type EA 189 engines. This is an opt-in class action in this basis, it has since been possible to conclude settlements

which the affected consumers are not required to opt into the and thus significantly reduce the number of individual law-

class action until a legally final judgment is rendered.

suits pending. In a series of fundamental judgments rendered

In Italy, a class action lawsuit filed by the consumer in July 2020, the BGH decided further legal issues of major

association Altroconsumo on behalf of Italian customers is importance for the litigation still pending with regard to

pending before the Venice Regional Court. This litigation vehicles with type EA 189 engines. The BGH held that plain-

involves damage claims based on alleged breaches of contract tiffs who purchased their vehicle after the ad hoc announce-

as well as claims based on purported violations of Italian ment of September 22, 2015 have no claim for damages. The

consumer protection law. Some 82 thousand customers have court furthermore ruled that purchasers of affected vehicles

registered for the class action, whereby the validity of the are not entitled to tort interest under section 849 of the

majority of the registrations is still unclear.

German Civil Code. The court also made it clear that a

In the Netherlands, Stichting Volkswagen Car Claim has plaintiff's potential damage claim may be completely offset

brought an opt-out class action seeking declaratory rulings. by the benefit derived from using the vehicle.

Any individual claims would then have to be established

Volkswagen estimates the likelihood that the plaintiffs

afterwards in separate proceedings. In November 2019 the will prevail to be 50% or less in the great majority of cases:

Regional Court in Amsterdam held the requests for relief to customer class actions, complaints filed by consumer and/or

be inadmissible in part. Proceedings in the matter are environmental organizations, and individual lawsuits. Con-

presently suspended. Furthermore, in April 2020 an opt-out tingent liabilities are disclosed for these proceedings where

class action lawsuit seeking monetary damages on behalf of the amount of such liabilities can be measured and the chance

Dutch consumers was served on Volkswagen by the Diesel that the plaintiff will prevail was assessed as not remote.

Emissions Justice Foundation. It is currently unclear whether Since most of these actions are still in an early procedural

other consumers in addition to those in the Netherlands may stage, it is in many cases not yet possible to quantify the

join this class action. The class action relates to vehicles with realistic risk exposure. Furthermore, provisions were recog-

type EA 189 engines, among others.

nized to the extent necessary based on the current assess-

In Portugal, a Portuguese consumer organization has ment.

filed an opt-out class action. Potentially, up to approximately

At this time, it cannot be estimated how many customers

139 thousand vehicles with type EA 189 engines are affected will choose to file lawsuits in the future in addition to those

in the Portuguese market. The complaint seeks vehicle return already pending and what prospect of success such lawsuits

and alleges damages as well.

might have.

In South Africa, an opt-out class action seeking damages

is pending that pertains to some 8 thousand vehicles with V6 3. Lawsuits filed by investors worldwide (excluding the USA/

and V8 TDI engines in addition to approximately 72 thou- Canada)

sand vehicles with type EA 189 engines.

Investors from Germany and abroad have filed claims for

Furthermore, individual lawsuits and similar proceedings damages against Volkswagen AG – in some cases along with

are pending against Volkswagen AG and other Volkswagen Porsche Automobil Holding SE (Porsche SE) as joint and

Group companies in various countries; most of these law- several debtors – based on purported losses due to alleged

suits are seeking damages or rescission of the purchase con- misconduct in capital market communications in connection

tract.

with the diesel issue.

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Report on Risks and Opportunities

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The vast majority of these investor lawsuits are currently against Volkswagen AG and other Volkswagen Group com-

pending before the Braunschweig Regional Court. In August panies, in particular by customers, investors, salespersons,

2

016, the Braunschweig Regional Court issued an order and various government agencies in Canada and the United

referring common questions of law and fact relevant to the States, including the attorneys general of several US states.

investor lawsuits pending before it to the Higher Regional The attorneys general of five US states (Illinois, Montana,

Court in Braunschweig for binding declaratory rulings pursu- New Hampshire, Ohio, and Texas) and some municipalities

ant to the Kapitalanleger-Musterverfahrensgesetz (KapMuG have suits pending in state and federal courts against Volks-

–

German Capital Investor Model Declaratory Judgment Act). In wagen AG, Volkswagen Group of America, Inc., and certain

this proceeding, common questions of law and fact relevant affiliates, alleging violations of environmental laws. The

to these actions are to be adjudicated by the Braunschweig claims asserted by Illinois have been dismissed in full, but

Higher Regional Court in a single consolidated proceeding Illinois has appealed the dismissal of a subset of its claims.

(model case proceedings). The lawsuits filed with the Braun- Certain claims asserted by Montana, Ohio, Texas, two Texas

schweig Regional Court are stayed pending resolution of the counties, Hillsborough County (Florida), and Salt Lake County

common issues, unless the cases can be dismissed for (Utah) have also been dismissed, but these suits are currently

reasons independent of the common issues that are to be proceeding as to other claims. Volkswagen has asked the US

adjudicated in the model case proceedings. The resolution in Supreme Court to review a decision by the US Court of

the model case proceedings of the common questions of law Appeals for the Ninth Circuit that declined to dismiss certain

and fact will be binding for the pending cases that have been claims brought by Hillsborough and Salt Lake Counties. A

stayed as described. The model case plaintiff is Deka Invest- Texas appellate court dismissed claims asserted by Texas

ment GmbH. Oral argument in the model case proceedings against Volkswagen AG and AUDI AG for lack of personal

before the Braunschweig Higher Regional Court began in Sep- jurisdiction. Texas has indicated that it will seek discretionary

tember 2018 and will be continued at subsequent hearings.

Further investor lawsuits have been filed with the Stutt-

review by the Texas Supreme Court of that decision.

In March 2019, the US Securities and Exchange Commis-

gart Regional Court against Volkswagen AG, in some cases sion (SEC) filed a lawsuit against, among others, Volks-

along with Porsche SE as joint and several debtor. A further wagen AG, Volkswagen Group of America Finance, LLC, and

investor action for model declaratory judgment is pending VW Credit, Inc., asserting claims under US federal securities

before the Stuttgart Higher Regional Court against Porsche SE; law based, among other things, on alleged misstatements and

Volkswagen AG is involved in this action as a third party omissions in connection with the offer and sale of certain

intervening in support of a party to the dispute. The Wolver- bonds and asset-backed securities. In August 2020, the US

hampton City Council, Administrating Authority for the West District Court for the Northern District of California granted

Midlands Metropolitan Authorities Pension Fund, has been in part and denied in part Volkswagen’s motion to dismiss.

appointed model case plaintiff. The first hearing for oral The claims dismissed by the court included all claims against

argument in these proceedings has yet to take place. VW Credit, Inc. related to asset-backed securities. In Septem-

Additional investor lawsuits have been filed with various ber 2020, the SEC filed an amended complaint that, among

courts in Germany and the Netherlands.

other things, removed the dismissed claims.

Excluding the United States and Canada, claims in

Furthermore, in December 2019, the Canadian federal

connection with the diesel issue totaling roughly €9.7 billion environmental regulator filed charges against Volkswagen AG

are currently pending worldwide against Volkswagen AG in in respect of 2.0 l and 3.0 l Volkswagen and Audi diesel

the form of investor lawsuits, judicial applications for vehicles at the conclusion of its criminal enforcement-related

dunning and conciliation procedures, and claims under the investigation into the diesel emissions issue. Volkswagen AG

KapMuG. Volkswagen AG remains of the opinion that it duly cooperated with the investigation and agreed to a plea

complied with its capital market obligations. Therefore, no resolution addressing all of the charges. In January 2020,

provisions have been recognized for these investor lawsuits. Volkswagen AG pleaded guilty to the charges and agreed to

Contingent liabilities have been disclosed where the chance pay a penalty of CAD 196.5 million, which was approved by

of success was estimated to be not less than 10%.

the court. Following this approval, the Ontario provincial

environmental regulator withdrew its action against Volks-

wagen AG charging a quasi-criminal enforcement-related

4. Proceedings in the USA/Canada

In the USA and Canada, the matters described in the EPA’s offense with respect to certain Volkswagen and Audi 2.0 l

Notices of Violation” are the subject of various types of diesel vehicles. As to private civil law matters, in an environ-

lawsuits and requests for information that have been filed mental class action lawsuit seeking punitive damages on

“

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195

behalf of the residents of the Province of Quebec, after decision by the Federal Constitutional Court in the initial

authorizing the case to proceed as a class, a Quebec court special auditor litigation.

ruled in October 2020 that issues raised as to the viability of

plaintiffs’ damages theory should be deferred until trial. On 6. Risk assessment regarding the diesel issue

that basis, the court denied a motion to dismiss by Volks- An amount of around €1.9 (2.9) billion has been included in

wagen. The case remains in the early stages.

the provisions for litigation and legal risks as of December 31,

In line with IAS 37.92, no statements have been made 2020 to account for the currently known legal risks related to

concerning estimates of financial impact or regarding the diesel issue based on the presently available information

uncertainty as to the amount or maturity of provisions and and the current assessments. Where adequately measurable

contingent liabilities in relation to proceedings in the USA/ at this stage, contingent liabilities relating to the diesel issue

Canada. This is so as to not compromise the results of the have been disclosed in the notes in an aggregate amount of

proceedings or the interests of the Company.

€4.2 (3.7) billion, whereby roughly €3.5 (3.4) billion of this

amount results from lawsuits filed by investors in Germany.

The provisions recognized, the contingent liabilities dis-

5. Special audit

In a November 2017 ruling, the Higher Regional Court of closed, and the other latent legal risks in the context of the

Celle ordered, upon the request of three US funds, the diesel issue are in part subject to substantial estimation risks

appointment of a special auditor for Volkswagen AG. The given the complexity of the individual relevant factors, the

special auditor is to examine whether the members of the ongoing coordination with the authorities, and the fact that

Board of Management and Supervisory Board of Volks- the fact-finding efforts have not yet been concluded. Should

wagen AG breached their duties in connection with the diesel these legal or estimation risks materialize, this could result in

issue from June 22, 2006 onwards and, if so, whether this further substantial financial charges. In particular, adjust-

resulted in damages for Volkswagen AG. The ruling by the ment of the provisions recognized in light of knowledge

Higher Regional Court of Celle is formally unappealable. acquired or events occurring in the future cannot be ruled out.

However, Volkswagen AG has filed a constitutional complaint

In line with IAS 37.92, no further statements have been

with the German Federal Constitutional Court alleging made concerning estimates of financial impact or regarding

infringement of its constitutional rights. Following the uncertainty as to the amount or maturity of provisions and

formally unappealable ruling from the Higher Regional Court contingent liabilities in relation to the diesel issue. This is so

of Celle, the special auditor appointed by the court indicated as to not compromise the results of the proceedings or the

that he was not available to conduct the special audit on interests of the Company.

grounds of age. In April 2020, the Celle Higher Regional Court

issued a ruling appointing a different special auditor. Volks-

Additional important legal cases

wagen AG has filed a constitutional complaint with the In 2011, ARFB Anlegerschutz UG (haftungsbeschränkt) filed a

Federal Constitutional Court contesting this formally unap- claim for damages against Volkswagen AG and Porsche SE for

pealable decision as well on grounds of infringement of its allegedly violating disclosure requirements under capital

constitutional rights and has suggested joinder of this matter market law in connection with the acquisition of ordinary

with its initial constitutional complaint against the decision shares in Volkswagen AG by Porsche SE in 2008. The damages

to appoint the special auditor. It is currently unclear when the being sought based on allegedly assigned rights currently

Federal Constitutional Court will rule on the two consti- amount to approximately €2.26 billion plus interest. In April

tutional complaints. The constitutional complaints have no 2016, the Hanover Regional Court formulated numerous

suspensory effect.

objects of declaratory judgment that the antitrust panel of

In addition, a second motion seeking appointment of a the Higher Regional Court in Celle will decide on in model

special auditor for Volkswagen AG to examine matters case proceedings under the KapMuG. At the first hearing in

relating to the diesel issue has been filed with the Regional October 2017, the court already indicated that it currently

Court of Hanover. This proceeding has been stayed pending a sees no justification for claims against Volkswagen AG, both

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because the pleadings are not sufficiently specific and for that awards damages against MAN or Scania currently

substantive legal reasons. Volkswagen AG sees the court's appears remote.

statements as confirmation that the claims against the

In April 2019, the European Commission issued a state-

Company are absolutely baseless. The Higher Regional Court ment of objections to Volkswagen AG, AUDI AG, and Dr. Ing.

has yet to render a decision as many hearings have been h.c. F. Porsche AG in connection with the Commission's

canceled, among other things due to motions for recusal filed antitrust investigation of the automobile industry. These

by the plaintiff side (so far in all cases without success) and, objections state the European Commission's preliminary

more recently, as a result of the Covid-19 pandemic.

evaluation of the matter and afford the opportunity to

comment. The subject matter of the proceedings is limited to

In Brazil, the Brazilian tax authorities commenced tax pro- the cooperation of German automobile manufacturers on

ceedings against MAN Latin America; at issue in these pro- technical questions in connection with the development and

ceedings are the tax consequences of the acquisition struc- introduction of SCR systems and gasoline particulate filters

ture chosen for MAN Latin America in 2009. In December for passenger cars that were sold in the European Economic

2017, an adverse administrative appeal ruling was rendered Area. The manufacturers are not charged with any other

against MAN Latin America. MAN Latin America challenged misconduct such as price fixing or allocating markets and

this ruling before the regular court in 2018. Estimation of the customers. After receiving access to the investigation files

risk in the event the tax authorities prevail on all points is starting in July 2019, Volkswagen in December 2019 filed its

subject to uncertainty because of differences in the amount reply to the European Commission's statement of objections.

of penalties and interest that might then apply under The Chinese, South Korean, and Turkish competition author-

Brazilian law. However, a positive outcome for MAN Latin ities have also instituted proceedings in this matter.

America remains the expectation. Should this not occur, a

In October 2020, the US District Court for the Northern

risk of about BRL 3.1 billion could result for the contested District of California dismissed two antitrust class action

period from 2009 onwards; this amount has been included in complaints. The plaintiffs in these actions alleged that several

contingent liabilities in the notes.

automobile manufacturers including Volkswagen AG and

other Group companies had conspired to unlawfully increase

In 2011, the European Commission conducted searches at vehicle prices in violation of US antitrust and consumer

European truck manufacturers for suspected unlawful protection law. The court held that the plaintiffs have not

exchange of information during the period from 1997 to stated a claim for relief because the allegations in the com-

2011; in November 2014, the Commission issued a statement plaints do not plausibly support that the alleged agreements

of objections to MAN, Scania, and the other truck manufac- unreasonably restrained competition in violation of US law.

turers concerned. In its settlement decision of July 2016, the Plaintiffs have appealed this ruling. Plaintiffs in Canada filed

European Commission assessed fines against five European claims with similar allegations on behalf of putative classes

truck manufacturers. MAN’s fine was waived in full as the of purchasers against several automobile manufacturers,

company had informed the European Commission about the including Volkswagen Group Canada Inc., Audi Canada Inc.,

irregularities as a key witness.

and other Volkswagen Group companies. Neither provisions

In September 2017, the European Commission fined nor contingent liabilities are stated because the early stage of

Scania €0.88 billion. Scania has appealed to the European the proceedings makes an assessment of the realistic risk

Court of Justice in Luxembourg and will use all means at its exposure currently impossible.

disposal to defend itself. Scania had already recognized a

provision of € 0.4 billion in 2016.

In addition, a few national and international authorities

have initiated antitrust investigations. Volkswagen is cooper-

Furthermore, antitrust lawsuits seeking damages have ating closely with the responsible authorities in these

been received from customers. As is the case in any antitrust investigations. An assessment of the underlying situation is

proceedings, this may result in further lawsuits for damages. not possible at this early stage.

No provisions have been recognized or contingent liabilities

disclosed for these cases as most of them are still in an early A settlement between Volkswagen and the Plaintiffs’ Steering

stage and currently cannot be assessed for this reason. In Committee resolving civil claims relating to approximately

other cases, the chance of a decision by a court of last resort 98 thousand gasoline-powered Volkswagen, Audi, Porsche,

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197

and Bentley vehicles with automatic transmissions received tainty as to the amount or maturity of provisions and contin-

final approval from the US District Court for the Northern gent liabilities in relation to additional important legal cases.

District of California in February 2020.

This is so as to not compromise the results of the proceedings

or the interests of the Company.

Porsche AG has discovered potential regulatory issues

relating to vehicles for various markets worldwide. There are Tax risks

questions as to the permissibility of specific hardware and Volkswagen AG and its subsidiaries have operations world-

software components used in type approval measurements. wide and are audited by local tax authorities on an ongoing

Differences compared with production versions may also basis. Amendments to tax laws and changes in legal prece-

have occurred in certain cases. Based on the information dent and their interpretation by the tax authorities in the

presently available, current production is not affected, how- respective countries may lead to tax payments that differ

ever. The issues are unrelated to the defeat devices that were from the estimates made in the financial statements.

at the root of the diesel issue. Porsche AG is cooperating with

Risks arise particularly from tax assessment of the cross-

the relevant authorities including the Stuttgart Office of the border supply of intragroup goods and services. Through

Public Prosecutor, which is investigating the matter in Ger- organizational measures, such as the implementation of an

many. Based on the available information, no formal criminal advance pricing agreement, as well as the monitoring of

investigation has been opened against the company, however. transfer prices, Volkswagen constantly monitors the develop-

Porsche's own internal investigations are still in progress.

ment of tax risks, as well as the impact thereof on the con-

Five complaints related to these matters were filed with solidated financial statements.

the US District Court for the Northern District of California.

Tax provisions were recognized for potential future tax

The complaints alleged that the affected vehicles used certain payments for former years, while other provisions were

software and/or hardware that resulted in increased emis- recognized for ancillary tax payments arising in this connec-

sions and/or overstated fuel economy estimates as compared tion.

to the results of certification testing. The suits named Volks-

wagen AG, Dr. Ing. h.c. F. Porsche AG, AUDI AG, and Porsche Financial risks

Cars North America, Inc. as defendants; however, each For this risk category, the likelihood of occurrence is classified

defendant was not named in all the complaints. A consoli- as high (previous year: high) and the potential extent of

dated complaint merging the five putative class actions into a damage is classified as medium (previous year: medium).

single lawsuit was filed in January 2021. AUDI AG is no longer

named as a defendant in the consolidated complaint.

The most significant risks from the regular GRC process

and QRP result from volatile foreign exchange markets.

Provisions were recognized by Volkswagen Bank GmbH and

Strategies for hedging financial risks

Volkswagen Leasing GmbH for possible claims in connection In the course of our business activities, financial risks may

with financial services provided to consumers. These relate to arise from changes in interest rates, exchange rates, raw

actions involving certain features of customer loan and material prices, or share and fund prices – but also from

leasing agreements that may toll the running of the statutory unforeseeable events such as the Covid-19 pandemic. Man-

cancellation time periods.

agement of these financial risks and of liquidity risks is the

central responsibility of the Group Treasury department,

In February 2020, Volkswagen AG and another defendant were which reduces these risks using nonderivative and derivative

served with a lawsuit filed by GT Gettaxi Ltd. The lawsuit in financial instruments. The Board of Management is informed

particular alleges large damage claims. Volkswagen is asses- of the current risk situation at regular intervals.

sing the alleged claims and defending itself against them.

Interest rate risk refers to potential losses that could arise

as a result of changes in market interest rates. It occurs

In line with IAS 37.92, no further statements have been made because of interest rate mismatches between asset and

concerning estimates of financial impact or regarding uncer- liability items in a portfolio or on the balance sheet. We

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hedge interest rate risk – where appropriate in combination Special funds in which we invest surplus liquidity may entail

with currency risk – and risks arising from fluctuations in the equity price risks and fund price risks. We reduce these risks

value of financial instruments by means of interest rate through the diversified investment of funds and through

swaps, cross-currency interest rate swaps and other interest minimum values set out in the respective investment guide-

rate contracts with generally matching amounts and matu- lines. In addition, exchange rates are hedged when market

rities. The principle of matching amounts and maturities conditions are appropriate.

applies to financing arrangements within the Volkswagen

In the notes to the consolidated financial statements we

Group in the Automotive Division. In the Financial Services explain our hedging policy, the hedging rules and the default

Division, the risk of changes in the interest rate is managed and liquidity risks, and quantify the hedging transactions

on the basis of limits using interest rate derivatives as part of mentioned. We also disclose information on market risk

the defined risk strategy.

within the meaning of IFRS 7 in the same section.

Foreign currency risk is reduced in particular through

natural hedging, i.e. by flexibly adapting our production Risks arising from financial instruments

capacity at our locations around the world, establishing new Channeling excess liquidity into investments and entering

production facilities in the most important currency regions into derivatives contracts gives rise to counterparty risk.

and also procuring a large percentage of components locally. Partial or complete failure by a counterparty to perform its

We hedge the residual foreign currency risk using hedging obligation to pay interest and repay principal, for example,

instruments. These mainly comprise currency forwards and would have a negative impact on the Volkswagen Group’s

currency options. We use these transactions to limit the earnings and liquidity. We counter this risk through our

currency risk associated with forecasted cash flows from counterparty risk management, which we describe in more

operating activities, intragroup financing and liquidity detail in the chapter entitled “Principles and Goals of Finan-

positions in currencies other than the respective functional cial Management” in the “Results of Operations, Financial

currency, for example as a result of restrictions on capital Position and Net Assets” chapter. The financial instruments

movements. The currency forwards and currency options can held for hedging purposes give rise to both counterparty risks

have a term of up to ten years. We use these to hedge our and balance sheet risks, which we limit using hedge account-

principal foreign currency risks, mostly against the euro and ing.

primarily in Australian dollars, Brazilian real, British pound

By diversifying when selecting business partners, we

sterling, Canadian dollars, Chinese renminbi, Czech koruna, ensure that the impact of a default is limited and the Volks-

Hong Kong dollars, Hungarian forints, Indian rupees, wagen Group remains solvent at all times, even in the event

Japanese yen, Mexican pesos, Norwegian kroner, Polish zloty, of a default by individual counterparties.

Russian rubles, Singapore dollars, South African rand, South

Risks arising from trade receivables and from financial

Korean won, Swedish kronor, Swiss francs, Taiwan dollars and services are explained in more detail in the notes to the

US dollars.

The hedging of commodity prices entails risks relating to

the availability of raw materials and price trends. We con-

consolidated financial statements.

Liquidity risk

tinuously analyze potential risks arising from changes in Volkswagen is reliant on its ability to adequately cover its

commodity and energy prices in the market so that immedi- financing needs. A liquidity risk consists of potentially being

ate action can be taken whenever these arise. We limit these unable to cover existing capital requirements by raising

risks particularly by entering into forward transactions and funds or being unable to finance the Group on reasonable

swaps. We have used appropriate contracts to hedge some of terms, which in turn can have a substantially negative impact

our requirements for commodities such as aluminum, lead, on Volkswagen’s business position, assets, financial position

coal and copper over a period of up to six years, in the case of and earnings.

nickel for up to nine years. The precious metals platinum,

In principle, the Automotive Division and Financial Ser-

palladium and rhodium have shorter hedging periods, vices Division refinance themselves independently of one

generally amounting to a maximum of up to three years. For another. However, they are subject to very similar refinancing

selected commodities, this may also involve increases in risks. In the Automotive Division, the Company’s solvency is

physical inventories. We have also entered into transactions ensured at all times mostly through retained, non-distributed

in order to supplement and improve allocations of CO

sion certificates as part of the European Union Emissions financial instruments on the money and capital markets. The

Trading System (EU ETS).

capital requirements of the financial services business are

2

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199

covered mainly by raising funds in the national and inter- take possible gains on residual market values into account

national financial markets, as well as through customer when recognizing risk provisions.

deposits from the direct banking business.

Based on the resulting potential residual value risk, a

One of the ways in which Volkswagen finances its projects variety of measures are initiated in order to limit this risk.

is with loans provided by national development banks such With respect to new business, current market circumstances

as Kreditanstalt für Wiederaufbau (KfW) or Banco Nacional de and future influencing factors must be considered in the

Desenvolvimento Econômico e Social (BNDES), or by supra- residual value recommendation.

national development banks.

Credit checks on borrowers are the primary basis for

In addition to confirmed credit lines, unconfirmed lines lending decisions. Rating and scoring systems are used to

of credit from commercial banks supplement our broadly provide an objective decision-making basis for granting loans

diversified refinancing structure.

and leases and for recognizing risk provisions.

Financing opportunities can be hindered by worsening

Credit risk describes the risk of losses due to defaults in

financial and general market conditions – including as a customer transactions, specifically by the borrower or lessee.

result of the Covid-19 pandemic – a worsening credit profile Default occurs when the borrower or lessee is unable or

and outlook or a downgrade or withdrawal of the credit rating. unwilling to make the payments due. This includes late or

In such cases, there is a risk of a fall in demand from market partial payment of interest and principal on the part of the

participants for securities issued by Volkswagen, which may contracting party.

additionally have a detrimental effect on the interest rates

payable and restrict access to the capital market.

An opportunity may arise if the losses from the lending

and leasing business are less than the expected losses

previously calculated and the risk provision recognized on

this basis. In some countries in particular, where we take a

Risks and opportunities in the financial services business

While carrying out our financial services activities, we are conservative approach to risk due to the uncertain economic

primarily exposed to residual value risks and credit risks.

situation, a stabilization of the economy, accompanied by an

A residual value risk arises when the expected fair value improvement in borrowers’ credit rating, provides an oppor-

for the disposal of the lease or finance asset may be lower tunity for realized losses to be less than expected losses.

than the residual value set at contract conclusion. However,

there is also a possibility that disposal of the asset will of corresponding processes relating to economic circum-

generate more income than calculated for the residual value.

stances and collateral, adherence to limits, contractual obli-

Risks are managed and monitored within the framework

Referring to the bearer of residual value risk, a distinction gations, and conditions stipulated both by outside parties

is made between direct and indirect residual value risks. A and the company itself. As such, commitments are managed

direct residual value risk means that our financial services according to the degree of risk involved (standard, intensified

companies directly bear this risk (as outlined in the contract). and problem loan management).

An indirect residual value risk occurs when, based on a

More information on risks in the financial services busi-

residual value guarantee, the residual value risk has passed to ness can be found in the 2020 annual reports of Volkswagen

a third party, such as a dealer. In such cases, there is an initial Financial Services AG and Volkswagen Bank GmbH.

counterparty default risk associated with this third party (the

residual value guarantor). If the guarantor defaults, the resid- Opportunities and risks from mergers & acquisitions and/or other

ual value risk passes to our financial services companies.

strategic partnerships/investments

Management of the residual value risk is based on a For this risk category, the likelihood of occurrence is classified

defined control cycle, which ensures that risks are fully as medium (previous year: high) and the potential extent of

assessed, monitored, responded to and communicated. This damage is classified as high (previous year: high).

process structure enables us to manage residual risks pro-

The most significant risks from the regular GRC process

fessionally and also to systematically improve and enhance and QRP are linked to cooperation with other partners.

the way we handle residual value risks.

As part of our risk management efforts, the appropri- Opportunities and risks from partnerships

ateness of the risk provision is assessed regularly, as is the As part of our future program TOGETHER 2025 , we are

+

residual value risk potential. In the process, we compare the stepping up our efforts to forge partnerships, both for the

contractually agreed residual values with the obtainable fair transformation of our core business and for the establish-

values. These are determined utilizing data from external ment of the new mobility solutions business.

service providers and our own marketing data. We do not

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In the field of battery cells, possible risks could arise from Volkswagen owns a large number of patents and other

potential disagreement with our partners, possible delays in industrial property rights and copyrights. Partnerships can

battery cell development or delayed battery cell production.

lead to patent and licensing infringements and thus to the

Strong interaction with partners in the field of e-mobility, unauthorized disclosure of company-specific expertise.

such as the development of a comprehensive charging infra- Volkswagen monitors the sales markets and also protects its

structure, in the form of partnerships and joint ventures, sup- expertise with legal action.

ports technological change. This cooperation involves risks

such as an increased coordination workload, more complex Risks arising from the recoverability of goodwill or brand names

decision-making processes and the loss of expertise. At the For the goodwill recognized in the consolidated financial

same time, opportunities are presented by the pooling of statements and for brand names, there is a risk that the

specialist knowledge, by horizontal and vertical integration carrying amount of goodwill may be higher than the

and by better use of resources. Volkswagen has therefore recoverable amount and that an extraordinary impairment

created various teams in Group Components to closely sup- loss must therefore be recognized. Volkswagen tests at least

port all such partnerships.

once a year on the basis of underlying cash-generating units,

With the marketing of the Modular Electric Drive Toolkit whether the value of the goodwill or the brand names could

to third parties, as is conceivable as part of the strategic have been impaired. If there are objective indications that the

alliance with Ford, for example, damage claims could arise in recoverable amount of the asset concerned is lower than the

the event of problems with procurement, production and carrying amount, then Volkswagen recognizes this as a non-

quality.

cash impairment. An impairment can be caused by an

By entering into partnerships at a local level, we aim to increase in interest rates or deteriorating business prospects.

identify regional customer needs more precisely, establish

competitive cost structures and thus develop and offer Risks from the disposal of equity investments

market-driven products. We are concentrating to a greater An unexpected need for funding, for example in connection

extent on partnerships, acquisitions and venture capital invest- with the diesel issue, may lead to a situation in which assets

ments. This will enable us to generate maximum value for the have to be sold for a lower amount not equivalent to their

Group and its brands and to expand our expertise, particu- value.

larly in new areas of business. Our innovative presence in the

markets supports this process. At the same time, there is a

risk that the interests of business partners differ from our

own.

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OV E RA L L A S SE S S M E N T O F T H E R I SK A N D O P P O RTU N I T Y P O SI T I O N

zation. Non-fulfillment of CO

2

-related requirements also con-

The Volkswagen Group’s overall risk and opportunity stitutes a risk. The Volkswagen Group continues to be

position results from the specific risks and opportunities exposed to risks from the diesel issue. Negative effects, for

shown above. We have put in place a comprehensive risk example resulting from supply bottlenecks, may arise for

management system to ensure that these risks are controlled. 2021 if efforts to contain the Covid-19 pandemic are not

The most significant risks to the Volkswagen Group across all successful in the long term. Taking into account all the

risk categories arise from a negative trend in markets and information known to us at present, no risks exist which

unit sales, with regard to quality and cyber security, and from could pose a threat to the continued existence of significant

an inability to develop products in line with demand and Group companies or the Volkswagen Group.

requirements, especially in view of e-mobility and digitali-

This annual report contains forward-looking statements on the business development of

the Volkswagen Group. These statements are based on assumptions relating to the

development of the economic, political and legal environment in individual countries,

economic regions and markets, and in particular for the automotive industry, which we

have made on the basis of the information available to us and which we consider to be

realistic at the time of going to press. The estimates given entail a degree of risk, and

actual developments may differ from those forecast. Any changes in significant

parameters relating to our key sales markets, or any significant shifts in exchange rates or

commodities relevant to the Volkswagen Group or deviations in the actual effects of the

Covid-19 pandemic from the scenario presented in this report will have a corresponding

effect on the development of our business. In addition, there may be departures from our

expected business development if the assessments of the factors influencing sustainable

value enhancement and of risks and opportunities presented in this annual report develop

in a way other than we are currently expecting, or if additional risks and opportunities or

other factors emerge that affect the development of our business.

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Group Management Report

Prospects for 2021

Our planning is based on the assumption that global eco- We anticipate that automotive financial services will be of great

nomic output will recover overall in 2021, provided lasting significance to global vehicle sales in 2021, particularly in

containment of the Covid-19 pandemic is achieved. This the context of the ongoing challenges posed by the Covid-19

growth will most likely be sufficient for the economy to pandemic.

recover to approximately its pre-pandemic level. We continue

We believe we are well prepared overall for the future

to believe that risks will arise from protectionist tendencies, challenges pertaining to automotive business activities and

turbulence in the financial markets and structural deficits in for the mixed development of the regional automotive mar-

individual countries. In addition, growth prospects will be kets. Our brand diversity, our presence in all major world

negatively impacted by ongoing geopolitical tensions and markets, our broad and selectively expanded product range,

conflicts. We anticipate that both the advanced economies and and our technologies and services put us in a good com-

the emerging markets will experience positive momentum.

petitive position worldwide. As part of the transformation of

We predict that trends in the markets for passenger cars our core business, we are positioning our Group brands with

in the individual regions will be mixed in 2021. Overall, the an even stronger focus on their individual characteristics, and

volume of demand worldwide for new vehicles is expected to are optimizing our vehicle and drive portfolio. The focus is

be noticeably up on the reporting year, provided successful primarily on our vehicle fleet’s carbon footprint and on the

containment of the Covid-19 pandemic is achieved; however, most attractive and fastest-growing market segments. In

it will not recover to its pre-pandemic level. For 2021, we addition, we are working to leverage the advantages of our

anticipate that the volume of new passenger car registrations multibrand Group even more effectively with the ongoing

in Western Europe will be significantly above that recorded in development of new technologies and the enhancement of

the reporting year. In the German passenger car market, we our toolkits.

expect a moderate year-on-year increase in demand in 2021.

We anticipate that deliveries to Volkswagen Group cus-

Sales of passenger cars in 2021 are expected to distinctly tomers will be significantly up on the previous year in 2021

exceed the prior-year figures in markets in Central and – assuming successful containment of the Covid-19 pan-

Eastern Europe. The volume of demand in the markets for demic – amid continued challenging market conditions.

passenger cars and light commercial vehicles (up to 6.35

Challenges will arise particularly from the economic

tonnes) in North America as a whole in 2021 is also likely to situation, the increasing intensity of competition, volatile

be distinctly higher than the previous year’s level. We expect commodity and foreign exchange markets, securing supply

to see a large increase overall in new registrations in the chains and more stringent emissions-related requirements.

South American markets in 2021 compared with the previous

year. The passenger car markets in the Asia-Pacific region are and Passenger Cars Business Area in 2021 to be significantly

expected to be noticeably up on the prior-year level in 2021.

higher than the prior-year figure. In terms of operating profit

We expect the sales revenues of the Volkswagen Group

Trends in the markets for light commercial vehicles in the for the Group and the Passenger Cars Business Area, we fore-

individual regions will also be mixed in 2021; on the whole, cast an operating return on sales in the range of 5.0% to 6.5%

we anticipate a moderate rise in demand for 2021, assuming in 2021. For the Commercial Vehicles Business Area, we antic-

that containment of the Covid-19 pandemic is successful .

For 2021, we expect a significantly positive development restructuring measures amid

ipate an operating return on sales of 4.0% to 5.5% before

a

significant year-on-year

in new registrations for mid-sized and heavy trucks with a increase in sales revenue. We expect the Power Engineering

gross weight of more than six tonnes compared with the Business Area to reach the break-even point amid a notice-

previous year in the markets that are relevant for the Volks- able decline in sales revenue compared with the previous year.

wagen Group. A moderate increase in overall demand for For the Financial Services Division, we forecast that sales reve-

2021 is likely in the bus markets relevant for the Volkswagen nue will be noticeably higher than the prior-year figure and

Group.

that the operating result will be in line with the previous year.

Wolfsburg, February 16, 2021

The Board of Management

Consolidated Financial Statements

Income Statement

207

Income Statement

of the Volkswagen Group for the period January 1 to December 31, 2020

€

million

Note

2020

2019

Sales revenue

1

222,884

–183,937

38,947

–18,407

–9,399

12,438

–13,904

9,675

252,632

–203,490

49,142

–20,978

–9,767

11,453

–12,890

16,960

3,349

Cost of sales

2

Gross result

Distribution expenses

Administrative expenses

Other operating income

Other operating expenses

Operating result

3

4

5

6

Share of the result of equity-accounted investments

Interest income

7

8

9

2,756

793

910

Interest expenses

–2,291

733

–2,524

–339

Other financial result

Financial result

1,991

1,396

Earnings before tax

Income tax income/expense

Current

11,667

–2,843

–3,150

307

18,356

–4,326

–4,147

–180

10

Deferred

Earnings after tax

8,824

14,029

of which attributable to

Noncontrolling interests

Volkswagen AG hybrid capital investors

Volkswagen AG shareholders

–43

533

143

540

8,334

13,346

Basic/diluted earnings per ordinary share in €

Basic/diluted earnings per preferred share in €

11

16.60

16.66

26.60

26.66

2

08

Statement of Comprehensive Income

Consolidated Financial Statements

Statement of Comprehensive Income

Changes in comprehensive income for the period January 1 to December 31, 2019

Equity

attributable to

Equity

attributable to

noncontrolling

interests

attributable to Volkswagen AG

Volkswagen AG

shareholders

hybrid capital

investors

€

million

Total

14,029

–8,011

Earnings after tax

13,346

540

143

Pension plan remeasurements recognized in other comprehensive income

Pension plan remeasurements recognized in other comprehensive income, before tax

–7,993

–

–18

Deferred taxes relating to pension plan remeasurements recognized in other

comprehensive income

2,429

–5,582

2,423

–5,570

–

6

–11

Pension plan remeasurements recognized in other comprehensive income, net of tax

Fair Value valuation of equity instruments that will not be reclassified to profit or loss,

net of tax

–27

–26

–

–1

Share of other comprehensive income of equity-accounted investments

that will not be reclassified to profit or loss, net of tax

–3

–1

–

–2

Items that will not be reclassified to profit or loss

–5,612

–5,597

–

–15

Exchange differences on translating foreign operations

Gains/losses on currency translation recognized in other comprehensive income

Transferred to profit or loss

Exchange differences on translating foreign operations, before tax

Deferred taxes relating to exchange differences on translating foreign operations

Exchange differences on translating foreign operations, net of tax

Hedging

572

2

574

12

565

2

567

12

–

7

0

7

–

7

586

579

Fair value changes recognized in other comprehensive income (OCI I)

Transferred to profit or loss (OCI I)

Cash flow hedges (OCI I), before tax

Deferred taxes relating to cash flow hedges (OCI I)

Cash flow hedges (OCI I), net of tax

Fair value changes recognized in other comprehensive income (OCI II)

Transferred to profit or loss (OCI II)

Cash flow hedges (OCI II), before tax

Deferred taxes relating to cash flow hedges (OCI II)

Cash flow hedges (OCI II), net of tax

–1,622

–782

–2,404

708

–1,697

–1,490

997

–493

146

–347

–1,618

–784

–2,402

707

–1,695

–1,490

996

–494

146

–348

–

–4

2

–2

1

–1

0

1

0

1

Fair value valuation of debt instruments that may be reclassified to profit or loss

Fair value changes recognized in other comprehensive income

Transferred to profit or loss

23

1

24

23

1

24

–

Fair value valuation of debt instruments that may be reclassified to profit or loss, before tax

Deferred taxes relating to fair value valuation of debt instruments recognized in other

comprehensive income

–7

17

–7

17

–

Fair value valuation of debt instruments that may be reclassified to profit or loss, net of tax

Share of other comprehensive income of equity-accounted investments that

may be reclassified to profit or loss, net of tax

78

–1,363

–10,263

3,288

–6,974

7,055

77

–1,370

–10,248

3,282

–6,967

6,379

–

1

7

–14

7

–8

136

Items that may be reclassified to profit or loss

Other comprehensive income, before tax

Deferred taxes relating to other comprehensive income

Other comprehensive income, net of tax

Total comprehensive income

540

Consolidated Financial Statements

Statement of Comprehensive Income

209

Changes in comprehensive income for the period January 1 to December 31, 2020

Equity

attributable to

Equity

attributable to

noncontrolling

interests

attributable to Volkswagen AG

Volkswagen AG

shareholders

hybrid capital

investors

€

million

Total

8,824

Earnings after tax

8,334

533

–43

Pension plan remeasurements recognized in other comprehensive income

Pension plan remeasurements recognized in other comprehensive income, before tax

–2,871

–2,861

–

–9

Deferred taxes relating to pension plan remeasurements recognized in other

comprehensive income

930

–1,940

928

–1,933

–

2

–7

Pension plan remeasurements recognized in other comprehensive income, net of tax

Fair Value valuation of equity instruments that will not be reclassified to profit or loss,

net of tax

–6

–

1

Share of other comprehensive income of equity-accounted investments

that will not be reclassified to profit or loss, net of tax

61

55

–

6

Items that will not be reclassified to profit or loss

Exchange differences on translating foreign operations

Gains/losses on currency translation recognized in other comprehensive income

Transferred to profit or loss

Exchange differences on translating foreign operations, before tax

Deferred taxes relating to exchange differences on translating foreign operations

Exchange differences on translating foreign operations, net of tax

Hedging

–1,885

–

0

–2,883

16

–2,868

–6

–2,846

16

–2,830

–6

–

–37

0

–37

–

–2,874

–2,836

–37

Fair value changes recognized in other comprehensive income (OCI I)

Transferred to profit or loss (OCI I)

Cash flow hedges (OCI I), before tax

Deferred taxes relating to cash flow hedges (OCI I)

Cash flow hedges (OCI I), net of tax

Fair value changes recognized in other comprehensive income (OCI II)

Transferred to profit or loss (OCI II)

Cash flow hedges (OCI II), before tax

Deferred taxes relating to cash flow hedges (OCI II)

Cash flow hedges (OCI II), net of tax

2,866

–1,122

1,744

–553

1,191

–799

1,178

378

2,872

–1,126

1,746

–553

1,192

–799

1,178

379

–

–6

4

–2

1

–1

0

–110

268

–110

269

Fair value valuation of debt instruments that may be reclassified to profit or loss

Fair value changes recognized in other comprehensive income

Transferred to profit or loss

38

1

39

38

1

39

–

Fair value valuation of debt instruments that may be reclassified to profit or loss, before tax

Deferred taxes relating to fair value valuation of debt instruments recognized in other

comprehensive income

–12

27

–12

27

–

Fair value valuation of debt instruments that may be reclassified to profit or loss, net of tax

Share of other comprehensive income of equity-accounted investments that

may be reclassified to profit or loss, net of tax

–304

–1,690

–3,825

250

–3,575

5,249

–297

–1,645

–3,777

247

–3,530

4,804

–

–6

–45

–48

3

–45

–88

Items that may be reclassified to profit or loss

Other comprehensive income, before tax

Deferred taxes relating to other comprehensive income

Other comprehensive income, net of tax

Total comprehensive income

533

2

10

Balance Sheet

Consolidated Financial Statements

Balance Sheet

of the Volkswagen Group as of December 31, 2020

€

million

Note

Dec. 31, 2020

Dec. 31, 2019

Assets

Noncurrent assets

Intangible assets

12

13, 33

14, 33

14

67,968

63,884

50,686

558

66,214

66,152

48,938

538

Property, plant and equipment

Lease assets

Investment property

Equity-accounted investments

Other equity investments

Financial services receivables

Other financial assets

Other receivables

15

10,080

1,865

82,565

7,834

2,867

376

8,169

1,902

86,973

5,553

2,722

341

15

16

17

18

Tax receivables

19

Deferred tax assets

19

13,486

13,106

300,608

3

02,170

Current assets

Inventories

20

21

16

17

18

19

22

23

43,823

16,243

58,006

13,234

7,381

1,186

21,162

33,909

–

46,742

17,941

58,615

12,216

7,272

Trade receivables

Financial services receivables

Other financial assets

Other receivables

Tax receivables

1,190

Marketable securities

Cash, cash equivalents and time deposits

Assets held for sale

16,769

25,923

795

1

94,944

187,463

488,071

Total assets

497,114

Consolidated Financial Statements

Balance Sheet

211

€

million

Note

24

Dec. 31, 2020

Dec. 31, 2019

Equity and liabilities

Equity

Subscribed capital

1,283

14,551

100,772

–5,270

15,713

127,049

1,734

1,283

14,551

96,929

–3,646

12,663

121,781

1,870

Capital reserve

Retained earnings

Other reserves

Equity attributable to Volkswagen AG hybrid capital investors

Equity attributable to Volkswagen AG shareholders and hybrid capital investors

Noncontrolling interests

128,783

123,651

Noncurrent liabilities

Financial liabilities

Other financial liabilities

Other liabilities

25

26

27

28

29

28

30

114,809

4,257

113,556

4,499

7,905

7,271

Deferred tax liabilities

Provisions for pensions

Provisions for taxes

Other provisions

4,890

5,007

45,081

3,292

41,389

2,991

22,688

21,783

196,497

202,921

Current liabilities

Financial liabilities

25

31

28

26

27

28

30

88,648

22,677

340

87,912

22,745

408

Trade payables

Tax payables

Other financial liabilities

Other liabilities

10,590

17,979

2,213

22,964

–

10,858

19,320

1,876

Provisions for taxes

Other provisions

24,434

370

Liabilities associated with assets held for sale

1

65,410

167,924

488,071

Total equity and liabilities

497,114

2

12

Statement of Changes in Equity

Consolidated Financial Statements

Statement of Changes in Equity

of the Volkswagen Group for the period January 1 to December 31, 2020

OTHER RESERVES

Currency

translation

reserve

Subscribed

capital

Retained

earnings

€

million

Capital reserve

Balance at Jan. 1, 2019

1,283

14,551

91,105

13,346

–5,570

7,776

–4

–3,576

Earnings after tax

–

Other comprehensive income, net of tax

Total comprehensive income

Disposal of equity instruments

Capital increases/Capital decreases

Dividends payment

–

579

–

579

–

–2,419

390

Capital transactions involving a change in ownership interest

Other changes

–

173

–

81

Balance at Dec. 31, 2019

1,283

14,551

96,929

–2,824

Balance at Jan. 1, 2020

1,283

14,551

96,929

8,334

–1,933

6,400

5

–2,824

Earnings after tax

–

Other comprehensive income, net of tax

Total comprehensive income

Disposal of equity instruments

Capital increases/Capital decreases¹

Dividends payment

–

–2,836

–

–2,836

–

–2,419

–166

22

–

Capital transactions involving a change in ownership interest²

Other changes

–

1

–

Balance at Dec. 31, 2020

1,283

14,551

100,772

–5,659

1

2

Issuance of new hybrid notes in June 2020.

For the change in capital transactions involving a change in ownership interest see the “Key events” section.

Explanatory notes on equity are presented in the note relating to equity.

Consolidated Financial Statements

Statement of Changes in Equity

213

HEDGING

Equity

attributable to

Volkswagen AG

shareholders and

hybrid capital

investors

Equity

attributable to

Volkswagen AG

hybrid capital

investors

Cash flow

hedges

Deferred

costs of hedging

(OCI II)

Equity-

accounted

investments

Equity and debt

instruments

Noncontrolling

(

OCI I)

interests

Total equity

1

,790

–629

–230

–

228

–

12,596

117,117

13,886

–6,967

6,920

–

225

143

–8

117,342

14,029

–6,974

7,055

–

–348

–

540

–1,695

–9

4

76

–

–1,695

540

136

–

1

–

–472

–

–2,891

553

–9

–2,899

2,071

81

0

–1

–

–10

1

1,519

–1

–

82

95

–977

–235

295

12,663

121,781

1,870

123,651

9

5

–977

–

–235

–

295

–

12,663

533

–

121,781

8,867

–3,530

5,337

–

1,870

–43

–45

–88

–

123,651

8,824

–3,575

5,249

–

1

,192

269

–

21

–5

–

–242

–

1

,192

533

–

2,989

–472

–

2,989

–2,891

–166

–

2,989

–2,952

–238

–

–61

–72

85

–

–23

30

–

–1

84

1

,287

–708

–219

15,713

127,049

1,734

128,783

2

14

Cash flow statement

Consolidated Financial Statements

Cash flow statement

of the Volkswagen Group for the period January 1 to December 31, 2020

€

million

2020

2019

Cash and cash equivalents at beginning of period

Earnings before tax

Income taxes paid

24,329

11,667

–2,646

28,113

18,356

–2,914

Depreciation and amortization of, and impairment losses on, intangible assets, property, plant and equipment,

and investment property¹

12,765

4,637

454

9,214

–889

536

–1,572

1,334

712

12,046

3,665

300

8,428

–4

Amortization of and impairment losses on capitalized development costs¹

Impairment losses on equity investments¹

Depreciation of and impairment losses on lease assets¹

Gain/loss on disposal of noncurrent assets and equity investments

Share of the result of equity-accounted investments

Other noncash expense/income

460

–730

–674

–893

2,297

1,646

–13,204

–10,796

17,983

–14,230

–5,171

–673

–420

3

Change in inventories

Change in receivables (excluding financial services)

Change in liabilities (excluding financial liabilities)

Change in provisions

Change in lease assets

Change in financial services receivables

540

803

–12,914

260

24,901

–11,273

–6,473

26

Cash flows from operating activities

Investments in intangible assets (excluding development costs), property, plant and equipment, and investment property

Additions to capitalized development costs

Acquisition of subsidiaries

Acquisition of other equity investments

Disposal of subsidiaries

–1,660

402

Disposal of other equity investments

195

177

Proceeds from disposal of intangible assets, property, plant and equipment, and investment property

Change in investments in securities

Change in loans and time deposits

Cash flows from investing activities

Capital contributions/capital redemptions

Dividends paid

Capital transactions with noncontrolling interest shareholders

Proceeds from issuance of bonds

Repayments of bonds

Changes in other financial liabilities

Repayments of lease liabilities

411

–4,462

143

237

387

–1,456

–21,146

–

–2,899

1,368

25,916

–19,784

–4,509

–957

–865

243

–22,690

2,984

–2,952

–238

25,181

–19,815

3,577

–1,100

7,637

–745

0

Cash flows from financing activities

Effect of exchange rate changes on cash and cash equivalents

Change of loss allowance within cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents at end of period

1

9,103

33,432

–3,784

24,329

Cash and cash equivalents at end of period

Securities, loans and time deposits

Gross liquidity

33,432

32,645

66,078

24,329

29,099

53,428

Total third-party borrowings

Net liquidity

–203,457

–137,380

–201,468

–148,040

1

Net of impairment reversals.

Explanatory notes on the cash flow statement are presented in the section relating to the cash flow statement.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

215

Notes to the Consolidated

Financial Statements

of the Volkswagen Group as of December 31, 2020

Basis of presentation

Volkswagen AG is domiciled in Wolfsburg, Germany, and entered in the commercial register at the Braunschweig

Local Court under No. HRB 100484. The fiscal year corresponds to the calendar year.

In accordance with Regulation No. 1606/2002 of the European Parliament and of the Council,

Volkswagen AG prepared its consolidated financial statements for 2020 in compliance with the International

Financial Reporting Standards (IFRSs), as adopted by the European Union. All the IFRSs adopted by the EU and

required to be applied have been complied with.

The accounting policies applied in the previous year were generally retained. The only changes required

resulted from new or amended standards.

Moreover, all the provisions of German commercial law that Volkswagen is additionally required to apply,

as well as the German Corporate Governance Code, have been complied with in the preparation of the consolidated

financial statements. For information on notices and disclosures of changes regarding the ownership of voting

rights in Volkswagen AG in accordance with the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act),

please refer to the annual financial statements of Volkswagen AG.

The consolidated financial statements were prepared in euros. Unless otherwise stated, all amounts are given

in millions of euros (€ million).

All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.

The income statement was prepared using the internationally accepted cost of sales method.

Preparation of the consolidated financial statements in accordance with the aforementioned standards requires

management to make estimates that affect the reported amounts of certain items in the consolidated balance

sheet and in the consolidated income statement, as well as the related disclosure of contingent assets and

liabilities. The consolidated financial statements present fairly the net assets, financial position and results of

operations as well as the cash flows of the Volkswagen Group.

The Board of Management completed preparation of the consolidated financial statements on February 16,

2021. On that date, the period ended in which adjusting events after the reporting period are recognized.

Effects of new and amended IFRSs

Volkswagen AG has applied all accounting pronouncements adopted by the EU and effective for periods beginning

in fiscal year 2020.

On January 1, 2020, an amended definition of a business in IFRS 3 (Business Combinations) entered into force.

According to the new definition, a set of activities and assets is a business only if it includes, as a minimum, an input

and a substantive process that together significantly contribute to the ability to create outputs. At the same time,

the definition of an output has been narrowed by focusing on goods and services provided to customers and on

generating investment income. The reference to an ability to reduce costs as a single criterion has been removed. In

addition, an optional concentration test has been introduced that permits an assessment of whether an acquired set

of activities and assets is not a business.

2

16

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Furthermore, amendments to IFRS 16 entered into force on June 1, 2020. These amendments exempt lessees

from having to consider whether a rent concession in connection with the Covid-19 pandemic in relation to lease

payments that, according to the original agreement, would have been due on or before June 30, 2021 is a lease

modification and allows lessees to account for such rent concessions as if they were not lease modifications. The

Volkswagen Group is electing not to apply this option.

In addition, as from January 1, 2020, the application of amendments to IFRS 9, IAS 39 and IFRS 7 (Benchmark

Interest Rate Reform – Phase 1) became mandatory. In the previous year, the Volkswagen Group had voluntarily

opted for early application of these amendments. This affects hedges that existed at the beginning of the

reporting period or have subsequently been designated as such. In application of the associated practical

expedient, the Volkswagen Group regards the effectiveness of designated hedges as given and not negatively

impacted by the IBOR reform so that it will consequently not be necessary to terminate any hedges.

Also as of January 1, 2020, amendments to IAS 1 and IAS 8 entered into force, which clarify and standardize

the definition of “material”.

The amendments referred to above do not materially affect the Volkswagen Group’s net assets, financial

position and results of operations.

New and amended IFRSs not applied

In its 2020 consolidated financial statements, Volkswagen AG did not apply the following accounting pronounce-

ments that have been adopted by the IASB until December 31, 2020, but were not yet required to be applied

for the fiscal year.

Published by the Application

IASB

mandatory¹

Adopted by

the EU

Standard/Interpretation

Expected impact

Updating a Reference to the

IFRS 3

IFRS 4

Conceptual Framework

May 14, 2020 Jan. 1, 2022

June 25, 2020 Jan. 1, 2021

No

No material impact

None

Extension of the Temporary

Exemption from Applying IFRS 9

Yes

IFRS 4;

IFRS 7;

IFRS 9;

IFRS 16

Interest Rate Benchmark Reform

and IAS 39 (Phase 2)

Aug. 27, 2020 Jan. 1, 2021

May 18, 2017 Jan. 1, 2023²

Yes

No

No material impact

IFRS 17

IAS 1

Insurance Contracts

Insurance Contracts – several

amendments

June 25, 2020 Jan. 1, 2023

No

No material impact

Classification of liabilities as current

or non-current

Jan. 23, 2020

Jan. 1, 2023

Property, Plant and Equipment:

Proceeds before intended use

IAS 16

IAS 37

May 14, 2020 Jan. 1, 2022

Onerous contracts – cost of fulfilling

a contract

No

No material impact

Annual Improvements 2018 – 2020³May 14, 2020 Jan. 1, 2022

1

2

3

Effective date from Volkswagen AG’s perspective.

On June 25, 2020, the IASB published amendments to IFRS 17, that led, among other things, to the effective date being deferred to January 1, 2023.

Minor amendments to a number of IFRSs (IFRS 1, IFRS 9 and IAS 41).

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

217

Key events

Diesel issue

On September 18, 2015, the US Environmental Protection Agency (EPA) publicly announced in a “Notice of

Violation” that irregularities in relation to nitrogen oxide (NO ) emissions had been discovered in emissions

x

tests on certain Volkswagen Group vehicles with 2.0 l diesel engines in the USA. In this context, Volkswagen AG

announced that noticeable discrepancies between the figures recorded in testing and those measured in actual

road use had been identified in around eleven million vehicles worldwide with type EA 189 diesel engines. On

November 2, 2015, the EPA issued a “Notice of Violation” alleging that irregularities had also been discovered in

the software installed in US vehicles with type V6 3.0 l diesel engines.

The so-called diesel issue is rooted in a modification of parts of the software of the relevant engine control

units – which, according to Volkswagen AG’s legal position, is only unlawful under US law – for the type EA 189

diesel engines that Volkswagen AG was developing at that time. The decision to develop and install this software

function was taken in late 2006 below Board of Management level. No member of the Board of Management

had, at that time and for many years to follow, knowledge of the development and implementation of this

software function.

There are furthermore no findings that, following the publication in May 2014 of the study by the International

Council on Clean Transportation, an unlawful “defeat device” under US law was disclosed either to the

Ausschuss für Produktsicherheit (Product Safety Committee) or to the persons responsible for preparing the

x

2014 annual and consolidated financial statements as the cause of the high NO emissions in certain US vehicles

with 2.0 l type EA 189 diesel engines. Rather, at the time the 2014 annual and consolidated financial statements

were being prepared, the persons responsible for preparing these financial statements remained under the

impression that the issue could be resolved with comparatively little expense.

In the course of the summer of 2015, however, it became progressively apparent to individual members of

Volkswagen AG’s Board of Management that the cause of the discrepancies in the USA was a modification of

parts of the software of the engine control unit that was later identified as an unlawful “defeat device” as defined

by US law. This culminated in Volkswagen's disclosure of a “defeat device” to the EPA and the California Air

Resources Board, a department of the Environmental Protection Agency of the State of California, on September 3,

2

015. According to the assessment at the time by the responsible persons dealing with the matter, the

magnitude of the costs expected to result for the Volkswagen Group (recall costs, retrofitting costs, and financial

penalties) was not fundamentally dissimilar to that in previous cases involving other vehicle manufacturers. It

therefore appeared to be manageable overall considering the business activities of the Volkswagen Group. This

assessment by Volkswagen AG was based, among other things, on the advice of a law firm engaged in the USA

for regulatory approval issues, according to which similar cases had in the past been amicably resolved with the

US authorities. The EPA's publication of the “Notice of Violation” on September 18, 2015, which the Board of

Management had not expected, especially at that time, then presented the situation in an entirely different

light.

In fiscal year 2020, additional expenses of €0.9 billion had to be recognized in this context, primarily related

to legal risks.

Further information on the litigation in connection with the diesel issue can be found in the “Litigation”

section.

2

18

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Effects of the Covid-19 Pandemic

By causing a global decline in demand – driven among other factors by measures taken by governments in the form

of restrictions on trade in motor vehicles – as well as temporary production stoppages, the Covid-19 pandemic had a

negative impact on the Volkswagen Group’s net assets, financial position and results of operations in fiscal year

2020. Since the Covid-19 pandemic still persists at the beginning of 2021, effects on the net assets, financial position

and results of operations are again expected for 2021. Please also refer to our comments in the 2020 group

management report, specifically in the chapters entitled Business Development, Results of Operations, Financial

Position and Net Assets, Report on Expected Developments and Report on Risks and Opportunities.

During the preparation of the consolidated financial statements as of December 31, 2020, the effects of the

Covid-19 pandemic had to be analyzed, in particular in the following areas:



The impairment testing of nonfinancial assets, especially goodwill, acquired brand names, as well as some

capitalized development costs and property, plant and equipment, took the planning influenced by the

Covid-19 pandemic into consideration. No need to recognize significant impairment losses was identified.



The impairment tests on lease assets identified no material impact of the Covid-19 pandemic on forecast

residual values for the vehicles for the entire Group.

Impairment tests conducted on financial assets, taking adjusted default expectations into account, did

not identify any need for material additional impairment losses.

The review of the impact of changes in the timings and amounts of hedged items caused by the Covid-19

pandemic on the effectiveness and accounting treatment of hedges did not identify any material factors

with an impact on profits.



The turbulence in the commodity and capital markets had an impact particularly on the treatment of

derivatives to which hedge accounting is not applied and the measurement of receivables and liabilities

denominated in foreign currencies, sometimes with offsetting consequences.

For more information on these areas, please also refer to our additional comments in the “Accounting policies”

section and in the notes to the relevant income statement items.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

219

Material Transactions

On July 12, 2019, Volkswagen announced that, together with Ford Motor Company (Ford), it would be investing

in Argo AI, a company that is working on the development of a system for autonomous driving. The investment

involves the provision of financial resources totaling USD 1.0 billion, spread over several years, and the

contribution by Volkswagen of its consolidated subsidiary Autonomous Intelligent Driving (AID). Furthermore,

Volkswagen acquired existing Argo AI shares from Ford for a purchase price of USD 500 million, payable in

three equal annual installments. The transaction, including the contribution of AID, was executed as of

June 1, 2020. After proportional profit elimination, the contribution of AID to Argo AI at fair value resulted

in a non-cash gain of €0.8 billion, which was recognized in the other operating result. Argo AI is accounted

for as a joint venture and included in the consolidated financial statements using the equity method.

As part of the planned squeeze-out at AUDI AG under the German Stock Corporation Act, Volkswagen AG announced

on June 16, 2020 that the cash compensation for the transfer of the shares held by minority shareholders had

been set at €1,551.53 per share. On July 31, 2020, the Annual General Meeting of AUDI AG approved the squeeze-

out under stock corporation law at AUDI AG and thus the transfer of all outstanding Audi shares to

Volkswagen AG. Following the resolution, the present value of the put options granted, amounting to approxi-

mately €0.2 billion, had to be recognized as a current liability not affecting net income. The noncontrolling interests

in the Volkswagen Group’s equity and the retained earnings attributable to the shareholders of Volkswagen AG

declined accordingly. This resolution took effect upon its entry in the commercial register on November 16, 2020.

In December 2020, a former shareholder of AUDI AG initiated award proceedings against Volkswagen AG at the

Munich I Regional Court, asking the court to review the amount of the cash settlement offered by

Volkswagen AG.

On October 6, 2020, the Volkswagen Group completed the sale of its 76% interest in Renk AG following the

required regulatory approvals. The sale price was €0.5 billion. The transaction generated an operating profit of

€

0.1 billion, which is reported in other operating result. It also resulted in an increase in net liquidity of

0.4 billion.

In fiscal year 2020, the Volkswagen Group took part in a capital increase at QuantumScape Corporation, a US-

based company that develops solid-state batteries, entering into forward purchase agreements for new shares.

The capital contribution comprises two tranches of USD 100 million each. The first tranche was already executed

in December 2020. Execution of the second tranche is subject to a technical milestone being reached. Since

there has meanwhile been a merger with a special purpose acquisition company (SPAC), which resulted in a

listing on the New York Stock Exchange, the forward purchases are measured with reference to the share price

of QuantumScape Corporation until the contribution has been made and the new shares have been issued. The

measurement and realization resulted in a non-cash gain of €1.4 billion in fiscal year 2020, which is reported

in the other financial result under gains and losses from changes in the fair value of hedges/derivatives to

which hedge accounting is not applied.

2

20

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Basis of consolidation

In addition to Volkswagen AG, the consolidated financial statements comprise all significant German and non-

German subsidiaries, including structured entities that are controlled directly or indirectly by Volkswagen AG.

This is the case if Volkswagen AG obtains power over the potential subsidiaries directly or indirectly from voting

rights or similar rights, is exposed or has rights to positive or negative variable returns from its involvement with

the subsidiaries, and is able to influence those returns. In the case of the structured entities consolidated in the

Volkswagen Group, Volkswagen is able to direct the material relevant activities remaining after the change in the

structure even if it is not invested in the structured entity concerned and is thus able to influence the variable

returns from its involvement. The structured entities are used primarily to enter into asset-backed securities

transactions to refinance the financial services business and to invest surplus liquidity in special securities

funds. Consolidation of subsidiaries begins at the first date on which control exists, and ends when such control

no longer exists.

Subsidiaries whose business is dormant or insignificant, both individually and in the aggregate, for the fair

presentation of the net assets, financial position and results of operations as well as the cash flows of the

Volkswagen Group are not consolidated. They were carried in the consolidated financial statements at cost net

of any impairment losses and reversals of impairment losses required to be recognized.

Significant companies where Volkswagen AG is able, directly or indirectly, to significantly influence financial

and operating policy decisions (associates), or that are directly or indirectly jointly controlled (joint ventures), are

accounted for using the equity method. Joint ventures also include companies in which the Volkswagen Group

holds the majority of voting rights, but whose articles of association or partnership agreements stipulate that

important decisions may only be resolved unanimously. Insignificant associates and joint ventures are carried at

cost net of any impairment losses and reversals of impairment losses required to be recognized.

The composition of the Volkswagen Group is shown in the following table:

2020

2019

Volkswagen AG and consolidated subsidiaries

Germany

145

736

151

714

Abroad

Subsidiaries carried at cost

Germany

78

Abroad

284

290

Associates, joint ventures and other equity investments

Germany

Abroad

80

119

76

107

1,442

1,416

The list of all shareholdings that forms part of the annual financial statements of Volkswagen AG can be

downloaded from the electronic companies register at www.unternehmensregister.de and from

www.volkswagenag.com/ir.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

221

The following consolidated German subsidiaries with the legal form of a corporation or partnership meet the

criteria set out in section 264(3) or section 264b of the Handelsgesetzbuch (HGB – German Commercial Code)

and have as far as possible exercised the option not to publish annual financial statements:

>

AUDI AG, Ingolstadt

Audi Berlin GmbH, Berlin

Audi Frankfurt GmbH, Frankfurt am Main

Audi Hamburg GmbH, Hamburg

Audi Hannover GmbH, Hanover

AUDI Immobilien GmbH & Co. KG, Ingolstadt

Audi Leipzig GmbH, Leipzig

Audi München GmbH, Munich

Audi Sport GmbH, Neckarsulm

Audi Stuttgart GmbH, Stuttgart

Auto & Service PIA GmbH, Munich

Autostadt GmbH, Wolfsburg

Bugatti Engineering GmbH, Wolfsburg

Dr. Ing. h.c. F. Porsche AG, Stuttgart

GETAS Verwaltung GmbH & Co. Objekt Augsburg KG, Pullach i. Isartal

GETAS Verwaltung GmbH & Co. Objekt Heinrich-von-Buz-Straße KG, Pullach i. Isartal

HABAMO Verwaltung GmbH & Co. Objekt Sterkrade KG, Pullach i. Isartal

Haberl Beteiligungs-GmbH, Munich

MAHAG Automobilhandel und Service GmbH & Co. oHG, Munich

MAHAG GmbH, Munich

MAHAG Sportwagen Zentrum Albrechtstraße GmbH, Munich

MAN Energy Solutions SE, Augsburg

MOIA GmbH, Berlin

MOIA Operations Germany GmbH, Hanover

Porsche Consulting GmbH, Bietigheim-Bissingen

Porsche Deutschland GmbH, Bietigheim-Bissingen

Porsche Dienstleistungs GmbH, Stuttgart

Porsche Digital GmbH, Stuttgart

Porsche Engineering Group GmbH, Weissach

Porsche Engineering Services GmbH, Bietigheim-Bissingen

Porsche Erste Beteiligungsgesellschaft mbH, Stuttgart

Porsche Financial Services GmbH & Co. KG, Bietigheim-Bissingen

Porsche Financial Services GmbH, Bietigheim-Bissingen

Porsche Holding Stuttgart GmbH, Stuttgart

Porsche Immobilien GmbH & Co. KG, Stuttgart

Porsche Investments GmbH, Stuttgart

Porsche Leipzig GmbH, Leipzig

Porsche Lizenz- und Handelsgesellschaft mbH & Co. KG, Ludwigsburg

Porsche Logistik GmbH, Stuttgart

Porsche Niederlassung Berlin GmbH, Berlin

Porsche Niederlassung Berlin-Potsdam GmbH, Kleinmachnow

Porsche Niederlassung Hamburg GmbH, Hamburg

Porsche Niederlassung Leipzig GmbH, Leipzig

Porsche Niederlassung Stuttgart GmbH, Stuttgart

Porsche Nordamerika Holding GmbH, Ludwigsburg

Porsche Siebte Vermögensverwaltung GmbH, Wolfsburg

Porsche Smart Mobility GmbH, Stuttgart

Porsche Zentrum Hoppegarten GmbH, Stuttgart

Schwaba GmbH, Augsburg

SEAT Deutschland Niederlassung GmbH, Frankfurt am Main

SKODA AUTO Deutschland GmbH, Weiterstadt

2

22

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

>

SZM Sportwagen Zentrum München GmbH, Munich

VfL Wolfsburg-Fußball GmbH, Wolfsburg

VGRD GmbH, Wolfsburg

VGRHH GmbH, Hamburg

Volkswagen AirService GmbH, Braunschweig

Volkswagen Automobile Berlin GmbH, Berlin

Volkswagen Automobile Chemnitz GmbH, Chemnitz

Volkswagen Automobile Frankfurt GmbH, Frankfurt am Main

Volkswagen Automobile Hamburg GmbH, Hamburg

Volkswagen Automobile Hannover GmbH, Hanover

VOLKSWAGEN Automobile Leipzig GmbH, Leipzig

Volkswagen Automobile Region Hannover GmbH, Hanover

Volkswagen Automobile Rhein-Neckar GmbH, Mannheim

Volkswagen Automobile Stuttgart GmbH, Stuttgart

Volkswagen Beteiligungsverwaltung GmbH, Wolfsburg

Volkswagen car.SW Org Wolfsburg AG, Wolfsburg

Volkswagen Dritte Leasingobjekt GmbH, Braunschweig

Volkswagen Erste Leasingobjekt GmbH, Braunschweig

Volkswagen Fünfte Leasingobjekt GmbH, Braunschweig

Volkswagen Gebrauchtfahrzeughandels und Service GmbH, Langenhagen

Volkswagen Group IT Services GmbH, Wolfsburg

Volkswagen Group Real Estate GmbH & Co. KG, Wolfsburg

Volkswagen Group Services GmbH, Wolfsburg

Volkswagen Immobilien GmbH, Wolfsburg

Volkswagen Konzernlogistik GmbH & Co. OHG, Wolfsburg

Volkswagen Original Teile Logistik GmbH & Co. KG, Baunatal

Volkswagen Osnabrück GmbH, Osnabrück

Volkswagen Sachsen GmbH, Zwickau

Volkswagen Sechste Leasingobjekt GmbH, Braunschweig

Volkswagen Siebte Leasingobjekt GmbH, Braunschweig

Volkswagen Software Asset Management GmbH, Wolfsburg

Volkswagen Vermögensverwaltungs-GmbH, Wolfsburg

Volkswagen Vertriebsbetreuungsgesellschaft mbH, Chemnitz

Volkswagen Vierte Leasingobjekt GmbH, Braunschweig

Volkswagen Zubehör GmbH, Dreieich

Volkswagen Zweite Leasingobjekt GmbH, Braunschweig

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

223

CON SO LI DATE D S U B SI D IA R I E S

The fiscal year’s changes in the consolidated Group are shown in the following table:

Number

Germany

Abroad

Initially consolidated

Subsidiaries previously carried at cost

Newly acquired subsidiaries

Newly formed subsidiaries

4

0

4

27

3

13

43

Deconsolidated

Mergers

3

4

3

2

Liquidations

Sales/other

16

21

10

The initial consolidation or deconsolidation of these subsidiaries, either individually or collectively, did not

have a significant effect on the presentation of the net assets, financial position and results of operations. The

unconsolidated structured entities are immaterial from a Group perspective. In particular, they do not give rise

to any significant risks to the Group.

I NV E STM E NT S I N A SS OC IAT ES

From a Group perspective, the associates Sinotruk (Hong Kong) Ltd., Hongkong, China (Sinotruk), Bertrandt AG,

Ehningen, Germany (Bertrandt), There Holding B.V., Rijswijk, the Netherlands (There Holding), and Navistar

International Corporation, Lisle, Illinois/USA (Navistar), were material at the reporting date.

Sinotruk

Sinotruk is one of the largest truck manufacturers in the Chinese market. There is an agreement in place

between Group companies and Sinotruk regarding a long-term strategic partnership, under which the Group

participates in the local market. In addition to the partnership with Sinotruk in the volume segment, exports of

MAN vehicles to China are also helping to expand access to the small, but fast-growing premium truck market.

Sinotruk’s principal place of business is in Hongkong, China.

As of December 31, 2020, the quoted market price of the shares in Sinotruk amounted to €1,436 million

(

previous year: €1,312 million).

Bertrandt

Bertrandt is an engineering partner to companies in the automotive and aviation industry. Its portfolio of

services ranges from developing individual components through complex modules to end-to-end solutions.

Bertrandt’s principal place of business is in Ehningen, Germany.

As of December 31, 2020, the quoted market price of the shares in Bertrandt amounted to €116 million

(previous year: €165 million).

2

24

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

There Holding

Together with the BMW Group, Daimler AG and other companies, Volkswagen holds an equity investment

in There Holding B.V., Rijswijk (the Netherlands), an investment company. In turn, There Holding B.V. held

around 60% of the shares of HERE International B.V., Eindhoven (the Netherlands), as of the end of fiscal

year 2020. HERE International B.V. is one of the world’s largest producers of digital road maps for navigation

systems. Since the interest held does not grant control in accordance with IFRS 10, HERE International B.V. is

included in the financial statements of There Holding B.V. as an associate using the equity method.

Capital increases were implemented at There Holding B .V . in January 2020, in which Volkswagen participated.

As a result, the shares in There Holding B .V ., which are accounted for using the equity method, increased by

€19 million.

As early as in December 2019, it was announced that additional investors would acquire shares in

HERE International B.V. Following the signing in December 2019 and after all antitrust approvals had been

obtained, Mitsubishi Corporation (MC), Tokyo (Japan), and Nippon Telegraph and Telephone Corporation of

Japan (NTT), Tokyo (Japan), jointly acquired 30% of the shares of HERE International B.V. as of May 29, 2020. As a

result, the interest held by There Holding B.V. in HERE International B .V . declined from around 85% to around

60%. In June 2020 and September 2020, capital reductions were implemented at the level of There Holding B.V.

in connection with the sale of shares. In this process, an amount of €197 million was attributable to the interest

held by Volkswagen.

Volkswagen’s ownership interest in There Holding B.V. continues to amount to 29.7%.

Navistar

Navistar International Corporation (Navistar) is a US manufacturer of commercial vehicles; it is based in Lisle,

Illinois/USA. Navistar and TRATON GROUP companies have entered into master agreements for strategic technology

and supply cooperation, as well as a procurement joint venture.

Since, on the basis of contractual arrangements with Navistar, TRATON SE is entitled to two out of ten seats on

the Board of Directors and in view of existing cooperation agreements, the investment in Navistar is reported

under equity-accounted investments in the consolidated financial statements.

On November 7, 2020, TRATON SE and Navistar announced that they had entered into a binding merger

agreement under which TRATON SE would acquire all outstanding ordinary shares of Navistar not already

owned by TRATON SE at a cash price of USD 44.50 per ordinary share. At the time of the agreement, TRATON SE

held 16.7% of Navistar’s outstanding shares. Expected to be completed in mid-2021, the transaction is subject to

approval by Navistar shareholders, customary closing conditions and regulatory approvals.

As of December 31, 2020, the quoted market price of the shares in Navistar amounted to €596 million

(

previous year: €429 million).

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

225

SUMM A RIZ ED F I NA NC IA L I N F OR M ATION ON M AT ERIA L A S SO CIATE S ON A 10 0 % BA SI S

€

million

Sinotruk¹

Bertrandt²

There Holding

Navistar³

2020

Equity interest in %

25

29

30

17

Noncurrent assets

Current assets

2,578

8,755

185

666

481

408

197

541

1,190

24

1,765

3,921

6,072

2,888

–3,274

Noncurrent liabilities

Current liabilities

Net assets

–

7,180

3,969

0

1,214

Sales revenue

9,072

538

–

915

–19

–

206

–

6,664

–292

–

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

Total comprehensive income

Dividends received4

–1

–20

5

10

216

–

212

–80

–

537

30

2019

Equity interest in %

25

29

30

17

Noncurrent assets

Current assets

2,351

6,127

50

575

468

313

153

578

1,131

467

–

1,762

4,441

6,336

3,206

–3,339

Noncurrent liabilities

Current liabilities

Net assets

4,669

3,758

0

1,597

Sales revenue

8,047

627

–

1,058

16

–

–390

–

10,004

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

Total comprehensive income

Dividends received4

216

–

0

–1

15

6

1

7

627

47

–389

–

223

–

1

2

3

4

Balance sheet amounts refer to the June 30 reporting date and income statement amounts refer to the period from July 1 to June 30.

Balance sheet amounts refer to the September 30 reporting date and income statement amounts refer to the period from October 1 to September 30.

Balance sheet amounts refer to the October 31 reporting date and income statement amounts refer to the period from November 1 to October 31.

Proportionate dividends are shown net of withholding tax.

2

26

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

RECONCILIATION OF THE FINANCIAL INFORMATION TO THE CARRYING AMOUNT OF THE EQUITY-ACCOUNTED INVESTMENTS

€

million

Sinotruk

Bertrandt

There Holding

Navistar

2020

Net assets at January 1

3,758

538

578

–19

–1

1,597

206

10

–3,339

–292

212

Profit or loss

Other comprehensive income

Changes in reserves

–1

–124

–56

–

–599

–

7

Foreign exchange differences

Dividends¹

–

153

–146

3,969

992

–16

541

157

–36

120

–

–15

Net assets at December 31

Proportionate equity

1,214

361

–

–3,274

–547

923

Consolidation/Goodwill/Others

Carrying amount of equity-accounted investments

–384

608

361

376

2019

Net assets at January 1

3,395

627

0

583

16

1,764

–390

1

–3,461

216

Profit or loss

Other comprehensive income

Changes in reserves

–1

7

1

–

222

–

–21

Foreign exchange differences

Dividends¹

–46

–218

3,758

940

–388

552

–

–60

–20

578

167

80

–

–20

Net assets at December 31

Proportionate equity

1,597

475

–

–3,339

–560

1,007

447

Consolidation/Goodwill/Others

Carrying amount of equity-accounted investments

247

475

1

Dividends are shown before withholding tax.

SUMM A RIZ ED F I NA NC IA L I N F OR M ATION ON I N D I VI DUA LLY IMM AT ERIA L A S SO CIATE S ON TH E BA SI S OF TH E

VOLKSWAGE N GROU P’S PROP ORTI ONATE I N TER E ST

€

million

2020

2019

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

–25

–

27

–

0

12

39

597

Total comprehensive income

–26

1,663

Carrying amount of equity-accounted investments

There were unrecognized losses of €7 million (previous year: €54 million) relating to investments in associates.

Furthermore, there were no contingent liabilities or financial guarantees relating to associates.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

227

I NT E RE ST S I N JOI NT V E N TU RE S

From a Group perspective, the joint ventures FAW-Volkswagen Automotive Company Ltd., Changchun, China,

SAIC-Volkswagen Automotive Company Ltd., Shanghai, China, and SAIC-Volkswagen Sales Company Ltd.,

Shanghai, China, were material at the reporting date due to their size.

FAW-Volkswagen Automotive Company

FAW-Volkswagen Automotive Company develops, produces and sells passenger cars. There is an agreement in

place between Group companies and the joint venture partner China FAW Corporation Limited regarding a

long-term strategic partnership. The principal place of business is in Changchun, China.

SAIC-Volkswagen Automotive Company

SAIC-Volkswagen Automotive Company develops and produces passenger cars. There is an agreement in place

between Group companies and the joint venture partner Shanghai Automotive Industry Corporation regarding

a long-term strategic partnership. The principal place of business is in Shanghai, China.

SAIC-Volkswagen Sales Company

SAIC-Volkswagen Sales Company sells passenger cars for SAIC-Volkswagen Automotive Company. There is an

agreement in place between Group companies and the joint venture partner Shanghai Automotive Industry

Corporation regarding a long-term strategic partnership. The principal place of business is in Shanghai, China.

2

28

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

SUMM A RIZ ED F I NANC IAL I N F OR M ATION ON T H E M ATERIA L JO I N T VENTU R ES ON A 10 0 % BA SI S

FAW-Volkswagen

Automotive

Company

SAIC-Volkswagen

Automotive

Company¹

SAIC-Volkswagen

Sales Company

€

million

2020

Equity interest in %

40

50

30

Noncurrent assets

11,504

9,844

3,525

1,062

–

8,871

6,509

2,711

843

932

3,889

123

130

–

Current assets

of which cash and cash equivalents

Noncurrent liabilities

of which financial liabilities²

Current liabilities

–

12,759

–

10,601

–

4,291

–

of which financial liabilities²

Net assets

7,528

3,936

399

Sales revenue

46,282

1,785

126

20,350

1,776

62

23,446

25

Depreciation and amortization

Interest income

5

Interest expenses

6

38

–

Earnings before tax from continuing operations

Income tax expense

4,937

1,272

3,665

–

2,187

444

465

118

347

–

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

Total comprehensive income

Dividends received³

1,743

–

24

–9

–

3,689

1,308

1,734

1,230

347

149

2019

Equity interest in %

40

50

30

Noncurrent assets

12,069

11,876

5,423

1,221

–

9,355

8,251

6,513

1,130

–

896

4,477

210

160

–

Current assets

of which cash and cash equivalents

Noncurrent liabilities

of which financial liabilities²

Current liabilities

15,321

29

11,674

1

4,665

–

of which financial liabilities²

Net assets

7,403

4,802

548

Sales revenue

44,181

1,825

125

26,922

2,190

53

32,115

21

Depreciation and amortization

Interest income

5

Interest expenses

4

2

–

Earnings before tax from continuing operations

Income tax expense

4,775

1,251

3,524

–

3,594

845

2,749

–

659

166

493

–

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

Total comprehensive income

Dividends received³

–49

3

–

3,475

1,332

2,752

1,732

493

153

1

SAIC-Volkswagen Sales Company sells passenger cars for SAIC-Volkswagen Automotive Company. Therefore, the sales revenue reported for SAIC-Volkswagen

Automotive Company was mostly generated from its business with SAIC-Volkswagen Sales Company.

Excluding trade liabilities.

2

3

Proportionate dividends are shown net of withholding tax.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

229

RECONCILIATION OF THE FINANCIAL INFORMATION TO THE CARRYING AMOUNT OF THE EQUITY-ACCOUNTED INVESTMENTS

FAW-Volkswagen

Automotive

Company

SAIC-Volkswagen

Automotive

Company

SAIC-Volkswagen

Sales Company

€

million

2020

Net assets at January 1

7,403

3,665

24

4,802

1,743

–9

548

347

–

Profit or loss

Other comprehensive income

Changes in share capital

Changes in reserves

–

Foreign exchange differences

Dividends¹

–149

–3,416

7,528

3,011

–792

2,219

–33

0

–2,567

3,936

1,968

–803

1,165

–497

399

120

–

Net assets at December 31

Proportionate equity

Consolidation/Goodwill/Others

Carrying amount of equity-accounted investments

120

2019

Net assets at January 1

7,358

3,524

–49

5,538

2,749

3

549

493

–

Profit or loss

Other comprehensive income

Changes in share capital

Changes in reserves

–

Foreign exchange differences

Dividends¹

54

37

16

–3,483

7,403

2,961

–760

2,201

–3,524

4,802

2,401

–803

1,599

–509

548

164

–

Net assets at December 31

Proportionate equity

Consolidation/Goodwill/Others

Carrying amount of equity-accounted investments

164

1

Dividends are shown before withholding tax.

SUM M A RIZ E D F I NA NC IA L I N F OR M ATION ON I N D I V I DUA LLY IM M AT E RIA L JOI NT V E N TU RE S ON T H E B A SI S OF TH E

VOLKSWAGE N GROU P’S PROP ORTI ONATE I N TER E ST

€

million

2020

2019

Earnings after tax from continuing operations

Earnings after tax from discontinued operations

Other comprehensive income

166

–

434

–

–186

–20

3

Total comprehensive income

436

1,887

Carrying amount of equity-accounted investments

3,447

There were unrecognized losses of €26 million (previous year: €29 million) relating to investments in joint

ventures. Contingent liabilities to joint ventures amounted to €248 million (previous year: €224 million), while

financial guarantees stood at €70 million (previous year: €134 million). Cash funds of joint ventures amounting

to €197 million (previous year:€276 million) are deposited as collateral for asset-backed securities transactions

and are therefore not freely available.

2

30

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

I FR S 5 – N ON -CU RRE NT A SS E T S H E LD F OR SA LE

As of December 31, 2019, the RENK AG subgroup and the consolidated subsidiary Autonomous Intelligent

Driving (AID) were classified as disposal groups held for sale in accordance with IFRS 5 and measured at their

carrying amounts. Assets of €795 million and liabilities of €370 million attributable to the disposal groups were

reported in a separate balance sheet item as of December 31, 2019.

The sale of RENK was completed on October 6, 2020 following the required regulatory approvals. The sale

price was €0.5 billion.

The contribution of AID was effected as of June 1, 2020. After proportional profit elimination, the contribution

of AID to Argo AI at fair value resulted in a non-cash gain of €0.8 billion, which was recognized in the other

operating result.

Consolidation methods

The assets and liabilities of the German and foreign companies included in the consolidated financial statements

are recognized in accordance with the uniform accounting policies used within the Volkswagen Group. In the

case of companies accounted for using the equity method, the same accounting policies are always applied to

determine the proportionate equity, based on the most recent audited annual financial statements of each

company.

In the case of subsidiaries consolidated for the first time, assets and liabilities are generally measured at their

fair value at the date of acquisition. Their carrying amounts are adjusted in subsequent years. Goodwill arises

when the purchase price of the investment exceeds the fair value of identifiable net assets. Goodwill is tested for

impairment at least once a year to determine whether its carrying amount is recoverable. If the carrying amount

of goodwill is higher than the recoverable amount, an impairment loss is recognized. If this is not the case, there

is no change in the carrying amount of goodwill compared with the previous year. If the purchase price of the

investment is less than the identifiable net assets, the difference is recognized in the income statement in the

year of acquisition. Goodwill is accounted for at the subsidiaries in the functional currency of those subsidiaries.

Any difference that arises from the acquisition of additional shares of an already consolidated subsidiary is taken

directly to equity. Unless otherwise stated, the proportionate equity directly attributable to noncontrolling

interests is determined at the acquisition date as the share of the fair value of the assets (excluding goodwill)

and liabilities attributable to them. Contingent consideration is measured at fair value at the acquisition date.

Subsequent changes in the fair value of contingent consideration do not generally result in the adjustment of

the acquisition-date measurement. Acquisition-related costs that are not equity transaction costs are not added

to the purchase price; they are recognized as expenses in the period in which they are incurred.

The consolidation process involves adjusting the items in the separate financial statements of the parent

and its subsidiaries and presenting them as if they were those of a single economic entity. Intragroup assets,

liabilities, equity, income, expenses and cash flows are eliminated in full. Intercompany profits or losses are

eliminated in Group inventories and noncurrent assets. Deferred taxes are recognized for consolidation

adjustments, and deferred tax assets and liabilities are offset where taxes are levied by the same tax authority

and have the same maturity.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

231

Currency translation

Transactions in foreign currencies are translated in the single-entity financial statements of Volkswagen AG

and its consolidated subsidiaries at the rates prevailing at the transaction date. Foreign currency monetary

items are recorded in the balance sheet using the middle rate at the closing date. Foreign exchange gains and

losses are recognized in the income statement. This does not apply to foreign exchange differences from loans

receivable that represent part of a net investment in a foreign operation. The financial statements of foreign

companies are translated into euros using the functional currency concept, under which asset and liability

items are translated at the closing rate. With the exception of income and expenses recognized directly in equity,

equity is translated at historical rates. The resulting foreign exchange differences are recognized in other

comprehensive income until disposal of the subsidiary concerned, and are presented as a separate item in

equity.

Income statement items are translated into euros at weighted average rates.

The rates applied are presented in the following table:

BALANCE SHEET MIDDLE RATE

ON DECEMBER 31

INCOME STATEMENT

AVERAGE RATE

€

1 =

2020

2019

2020

2019

Argentina

Australia

ARS

AUD

BRL

103.28799

1.58605

67.23626

1.60080

100.39080

1.61589

53.78083

1.61071

Brazil

6.37555

4.51350

6.27218

4.41485

Canada

CAD

CZK

INR

1.56275

1.46205

1.55979

1.48595

Czech Republic

India

26.23900

89.69000

126.51000

24.41145

8.02895

25.40650

80.15450

121.89500

21.24340

7.81470

26.30420

89.57211

126.26457

24.29728

7.95821

25.66983

78.86396

122.08649

21.56326

7.73444

Japan

JPY

Mexico

MXN

CNY

PLN

KRW

RUB

ZAR

SEK

People’s Republic of China

Poland

4.55615

4.25970

4.47717

4.29784

Republic of Korea

Russia

1,336.21000

91.77540

18.01515

10.02470

0.89925

1,296.35000

69.84685

15.76470

10.44505

0.84995

1,332.54652

90.25599

18.11555

10.17259

0.90553

1,304.89265

72.46709

16.17716

10.58593

0.87744

South Africa

Sweden

United Kingdom

USA

GBP

USD

1.22760

1.12275

1.21663

1.11974

2

32

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Accounting policies

MEASU R EME NT PRI N CI PLE S

With certain exceptions, such as financial instruments measured at fair value and provisions for pensions and

other post-employment benefits, items in the Volkswagen Group are accounted for under the historical cost

convention. The methods used to measure the individual items are explained in more detail below.

I NTA NG I B LE A SS E TS

Purchased intangible assets are recognized at cost and – if they have finite useful lives – amortized over their

useful lives using the straight-line method. This relates in particular to software, which is normally amortized

over three years.

In accordance with IAS 38, research costs are recognized as expenses when incurred.

Since the fourth quarter of 2019, development costs for future series products and other internally generated

intangible assets have been capitalized at cost, provided the cash-generating unit to which the respective

intangible asset is attributable is not impaired and the other criteria for recognition as assets are met. If at

least one of the criteria for recognition as assets is not met, the expenses are recognized in the income statement

in the year in which they are incurred.

Capitalized development costs include all direct and indirect costs that are directly attributable to the

development process. The costs are amortized using the straight-line method from the start of production over

the expected life cycle of the models, powertrains or software developed – generally between three and nine

years.

Amortization charges on intangible assets are allocated to the relevant functional areas in the income

statement.

Brand names from business combinations usually have an indefinite useful life and are therefore not

amortized. An indefinite useful life is usually the result of a brand’s further use and maintenance.

Goodwill, intangible assets with indefinite useful lives and intangible assets that are not yet available

for use are tested for impairment at least once a year. Assets in use and other intangible assets with finite

useful lives are tested for impairment only if there are specific indications that they may be impaired. The

Volkswagen Group generally applies the higher of value in use and fair value less costs to sell of the relevant

cash-generating unit to determine the recoverable amount of goodwill and intangible assets with indefinite

and finite useful lives. Normally, the respective brand is the cash-generating unit that is used as the testing

level. Jointly used (corporate) assets are allocated to the cash-generating units using allocation formulas.

Measurement of value in use is based on management’s current medium-term planning (referred to as

budget planning round). The planning period generally covers five years. This planning is based on expectations

regarding future global economic trends and on assumptions derived from those trends about the markets

for passenger cars and commercial vehicles, expected trends in the Volkswagen Group’s market shares, the

volume and timing of the development of vehicle models and investments in production facilities, as well

as changes in price and cost structures, taking particular account of the transformation to e-mobility and

an increase in regulatory requirements. The planning for the Financial Services segment is likewise prepared

on the basis of these expectations, and also reflects the relevant market penetration rates of expected vehicle

sales with finance or lease agreements and other services, as well as regulatory requirements. The planning

for the Power Engineering segment reflects expectations about trends in the various individual markets.

The planning includes reasonable assumptions about macroeconomic trends (exchange rate, interest rate

and commodity price trends) and historical developments. The planning is based on the assumption that

global economic output and, consequently, trends in the automotive market will recover overall in 2021,

provided successful, lasting containment of the Covid-19 pandemic is achieved. However, this growth will

most likely be sufficient for the economy to recover to approximately its pre-pandemic level. We continue

to believe that risks will arise from protectionist tendencies, turbulence in the financial markets and structural

deficits in individual countries. In addition, growth prospects will be negatively impacted by ongoing geo-

political tensions and conflicts. We anticipate that both the advanced economies and the emerging markets

will experience positive momentum. Furthermore, we anticipate that the global economy will also continue

to grow in the period from 2022 to 2025. The Volkswagen Group’s automotive market and volume planning

reflects the above regional differentiation and takes account of the impact of the Covid-19 pandemic on the

initial years of the planning period. The negative impact on earnings expected to arise from 2021 onward

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

233

from more stringent emission and fuel consumption legislation and the sustained effects of the Covid-19

pandemic is to be offset by corresponding programs to increase efficiency. The change in the operating

return on sales assumed for fiscal year 2021 for the purpose of the impairment test is within the range

forecast by Volkswagen.

The estimation of cash flows is generally based on the expected growth trends for the markets concerned.

The estimates for the cash flows following the end of the planning period are generally based on a growth rate

of up to 1% p.a. (previous year: up to 1% p.a.) in the Passenger Cars segment, and on a growth rate of up to 1% p.a.

(

previous year: up to 1% p.a.) in the Power Engineering and Commercial Vehicles segments.

Value in use is determined for the purpose of impairment testing of goodwill, indefinite-lived intangible assets

and finite-lived intangible assets – mainly capitalized development costs – using the following pretax weighted

average cost of capital (WACC) rates, which are adjusted if necessary for country-specific discount factors:

WACC

2020

2019

Passenger Cars segment

6.8%

8.7%

9.3%

5.7%

7.7%

7.9%

Commercial Vehicles segment

Power Engineering segment

The WACC rates are calculated based on the risk-free rate of interest, a market risk premium and the cost of debt.

Additionally, specific peer group information on beta factors and leverage is taken into account. The composition

of the peer groups used to determine beta factors and leverage is continuously reviewed and adjusted if necessary.

For information on the assumptions applied to the detailed planning period, please refer to the Report on

Expected Developments, which is part of the Management Report. For subsequent years, plausible assumptions

are made regarding future trends. The planning assumptions are adapted to reflect the current state of

knowledge.

P ROP E RTY, P L A N T A N D E QU I PM E NT

Property, plant and equipment is carried at cost less depreciation and – where necessary – write-downs for

impairment. Investment grants are generally deducted from cost. Cost is determined on the basis of the direct

and indirect costs that are directly attributable. Special operational equipment is reported under other equipment,

operating and office equipment. Property, plant and equipment is depreciated using the straight-line method

over its estimated useful life. The useful lives of items of property, plant and equipment are reviewed on a

regular basis and adjusted if required.

2

34

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Depreciation is based mainly on the following useful lives:

Useful life

Buildings

20 to 50 years

10 to 20 years

6 to 12 years

3 to 15 years

Site improvements

Technical equipment and machinery

Other equipment, operating and office equipment, including special tools

Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the

recoverable amount of the asset concerned has fallen below the carrying amount. The recoverable amount is

the higher of value in use and fair value less costs to sell. Value in use is determined using the principles

described for intangible assets. The discount rates for product-specific tools and other investments are the same

as the discount rates for capitalized development costs given above for each segment. If the reasons for impair-

ments recognized in previous years no longer apply, the impairment losses are reversed up to a maximum of

the amount that would have been determined if no impairment loss had been recognized.

In accordance with the principle of substance over form, assets that have been formally transferred to third

parties under a sale and leaseback transaction including a repurchase option also continue to be accounted for

as separate assets.

LEA SE S

The Volkswagen Group accounts for leases in accordance with IFRS 16, which defines a lease as a contract or part

of a contract in which a lessor transfers to a lessee the right to use an asset for an agreed period of time in

exchange for consideration.

If the Volkswagen Group is the lessee, it generally recognizes in its balance sheet a right-of-use asset and a lease

liability for each lease. In the Volkswagen Group the lease liability is measured on the basis of the present value of

outstanding lease payments, while the right-of-use asset is generally measured at the amount of the lease liability

plus any direct costs.

During the lease term, the right-of-use asset is always depreciated on a straight-line basis over the term of

the lease. The lease liability is adjusted using the effective interest method and taking the lease payments

into account.

The right-of-use assets are reported in the balance sheet under those items in which the assets underlying the

lease would have been recognized if the Volkswagen Group had been their beneficial owner. For this reason, the

right-of-use assets are presented under noncurrent assets, mostly in property, plant and equipment, as of the

balance sheet date and included in impairment tests of property, plant and equipment conducted in accordance

with IAS 36.

Practical expedients are allowed for short-term and low-value leases; the Volkswagen Group makes use of

this option and therefore does not recognize right-of-use assets or liabilities for these types of leases. In this

respect, the lease payments will continue to be recognized in the income statement. Leases are accounted for

being as of low value if the value of the leased asset when new is no higher than €5,000. Furthermore, the

accounting rules of IFRS 16 are not applied to leases of intangible assets.

A large number of leases contain extension and termination options. The determination of the lease terms

considers all relevant facts and circumstances that create an economic incentive to exercise or not to exercise the

option. Optional periods are taken into account in determining the lease term, if it is reasonably certain that the

option will or will not be exercised.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

235

LEA SE AS SE TS

The accounting treatment of lease assets is based on the classification into operating leases and finance leases.

The classification is made on the basis of the distribution of risks and rewards incidental to ownership of the

lease asset.

If the lease is an operating lease, the Volkswagen Group is exposed to the material risks and rewards. The

lease asset is recognized at amortized cost in the Volkswagen Group’s noncurrent assets and the lease installments

collected in the period are recognized as income in the income statement.

Vehicles leased out under operating leases are recognized at cost and depreciated to their estimated residual

value using the straight-line method over the term of the lease. Impairment losses identified as a result of an

impairment test in accordance with IAS 36 are recognized. The forecast residual values are adjusted to include

constantly updated internal and external information on residual values, depending on specific local factors and

the experiences gained in the marketing of used cars. This requires management to make assumptions in particular

about vehicle supply and demand in the future, as well as about vehicle price trends. Such assumptions are based

either on qualified estimates or on data published by external experts. Qualified estimates are based on external

data – if available – that reflects additional information that is available from within the company, such as historical

experience and current sales data.

Under a finance lease, the material risks and rewards are transferred to the lessee. The lease asset is derecognized

from the Volkswagen Group’s noncurrent assets, and instead a receivable is recognized in the amount of the net

investment in the lease.

I NV E STM E NT P ROP ERTY

Real estate and buildings held in order to obtain rental income (investment property) are carried at amortized

cost; the useful lives applied to depreciation generally correspond to those of the property, plant and equipment

used by the Company itself. The fair value of investment property is disclosed in the notes if it is carried at

amortized cost. Fair value is generally estimated using an investment method based on internal calculations.

This involves determining the income value for a specific building on the basis of gross income, taking into

account additional factors such as land value, remaining useful life and a multiplier specific to property.

CA PITA L IZAT ION OF BOR ROWI NG CO ST S

Borrowing costs of qualifying assets are capitalized as part of the cost of these assets. A qualifying asset is an

asset that necessarily takes at least a year to get ready for its intended use or sale.

E Q U IT Y - ACCO U N TE D I NV E STM E N TS

The cost of equity-accounted investments is adjusted to reflect the share attributable to the Volkswagen Group

of increases or reductions in equity at the associates and joint ventures after their acquisition, as well as any

effects from purchase price allocation. Additionally, the investment is tested for impairment if there are indications

of impairment and written down to the lower recoverable amount if necessary. The recoverable amount is

determined using the principles described for indefinite-lived intangible assets. If the reason for impairment

ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been

determined had no impairment loss been recognized.

2

36

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

FI NA NC IAL I N ST R UMEN T S

Financial instruments are contracts that give rise to a financial asset of one company and a financial liability or

an equity instrument of another. Regular way purchases or sales of financial instruments are accounted for at

the settlement date – that is, at the date on which the asset is delivered.

Financial assets are classified and measured on the basis of the entity’s business model and the characteristics

of the financial asset’s cash flows.

IFRS 9 classifies financial assets into the following categories:

>

financial assets at fair value through profit or loss;

financial assets at fair value through other comprehensive income (debt instruments);

financial assets at fair value through other comprehensive income (equity instruments); and

financial assets at amortized cost.

Financial liabilities are classified into the following categories:

>

financial liabilities at fair value through profit or loss; and

financial liabilities measured at amortized cost.

>

In the Volkswagen Group, the categories presented above are allocated to the “at amortized cost” and “at fair

value” classes.

F I N A N C IA L A S SE T S A N D L IA B I L IT I E S AT A M O RT IZ E D CO ST

Financial assets measured at amortized cost are held under a business model that is aimed at collecting contractual

cash flows (“hold” business model). The cash flows of these assets relate solely to payments of principal and

interest on the principal amount outstanding. The amortized cost of a financial asset or liability is the amount:

>

at which a financial asset or liability is measured at initial recognition;

minus any principal repayments;

taking account of any loss allowances, write-downs for impairment and uncollectibility relating to financial

assets; and

>

plus or minus the cumulative amortization of any difference between the original amount and the amount

repayable at maturity (premium, discount), amortized using the effective interest method over the term of

the financial asset or liability.

Financial liabilities measured at amortized cost using the effective interest method relate to liabilities to banks,

bonds, commercial paper and notes, loans and other liabilities. Gains or losses resulting from changes in amortized

cost, including the effects of changes in exchange rates, are recognized through profit or loss. For reasons of

materiality, discounting or unwinding of discounting is not applied to current liabilities (due within one year).

To encourage lending to private households and companies affected by the Covid-19 pandemic, the ECB

provided additional liquidity on favorable terms under the TLTRO III program. The Volkswagen Group is of the

view that this support constitutes a government grant. The income from these government grants within the

meaning of IAS 20 is recognized in the interest result.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

237

Financial assets and liabilities measured at amortized cost are

>

receivables from financing business;

trade receivables and payables;

other receivables and financial assets and liabilities;

financial liabilities; and

cash, cash equivalents and time deposits.

FI NA NC IAL AS SE TS AN D LIAB I L IT I ES AT FA I R VA LU E

Changes in the carrying amount of financial assets measured at fair value are recognized either through OCI or

through profit or loss.

The fair value through OCI (debt instruments) category comprises exclusively debt instruments. Changes in

fair value are always recognized directly in equity, net of deferred taxes. Certain changes in the fair value of

these debt instruments (impairment losses, foreign exchange gains and losses, interest calculated using the

effective interest method) are recognized immediately in profit or loss.

Financial assets measured at fair value through other comprehensive income (debt instruments) are held

under a business model aimed at both collecting contractual cash flows and selling financial assets (“hold and

sell” business model).

Financial assets that are equity instruments are also measured at fair value. Here, Volkswagen exercises the

option to recognize changes in fair value always through other comprehensive income, i.e. gains and losses

from the measurement of equity investments are never recycled to the income statement but instead reclassified

to revenue reserves on disposal (no reclassification).

Any financial assets not measured at either amortized cost or through other comprehensive income are

allocated to the fair value through profit or loss category. Financial assets at fair value through profit or loss are

aimed in particular at generating cash flows by selling financial instruments (“sell” business model).

At Volkswagen, this category primarily comprises

>

hedging relationships to which hedge accounting is not applied and

investment fund units.

>

All financial liabilities at fair value through profit or loss relate to derivatives to which hedge accounting is

not applied.

Fair value generally corresponds to the market or quoted market price. If no active market exists, fair value

is determined using other observable inputs as far as possible. If no observable inputs are available, fair value is

determined using valuation techniques, such as by discounting the future cash flows at the market interest

rate, or by using recognized option pricing models, and, as far as possible, verified by confirmations from the

banks that handle the transactions.

In the case of current financial receivables and liabilities, amortized cost generally corresponds to the principal

or repayment amount.

The fair value option for financial assets and financial liabilities is not used in the Volkswagen Group.

Financial assets and financial liabilities are generally presented at their gross amounts and only offset if the

Volkswagen Group currently has a legally enforceable right to set off the amounts and intends to settle on a net

basis.

Subsidiaries, associates and joint ventures that are not consolidated for reasons of materiality do not fall

within the scope of IFRS 9 and IFRS 7.

2

38

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

DER IVAT IVE S AN D H ED GE ACCOU NTI NG

Volkswagen Group companies use derivatives to hedge balance sheet items and future cash flows (hedged

items). Appropriate derivatives such as swaps, forward transactions and options are used as hedging instruments.

The criteria for the application of hedge accounting are that the hedging relationship between the hedged item

and the hedging instrument is clearly documented and that the hedge is highly effective.

The accounting treatment of changes in the fair value of hedging instruments depends on the nature of the

hedging relationship. In the case of hedges against the risk of change in the fair value of balance sheet items

(

fair value hedges), both the hedging instrument and the hedged risk portion of the hedged item are measured

at fair value. Several risk portions of hedged items are grouped into a portfolio if appropriate. In the case of a

fair value portfolio hedge, the changes in fair value are accounted for in the same way as for a fair value hedge

of an individual underlying. Gains or losses from the measurement of hedging instruments and hedged items

are recognized in profit or loss. In the Volkswagen Group, IAS 39 is applied alongside IFRS 9 to account for

portfolio hedges of interest rate risk in the Financial Services Division.

In the case of hedges of future cash flows (cash flow hedges), the hedging instruments are also measured at

fair value. The designated effective portion of the hedging instrument is accounted for through OCI I and the

non-designated portion through OCI II. They are only recognized in the income statement when the hedged

item is recognized in profit or loss. The ineffective portion of cash flow hedges is recognized through profit or

loss immediately.

Derivatives used by the Volkswagen Group for financial management purposes to hedge against interest

rate, foreign currency, commodity price, equity price, or fund price risks, but that do not meet the strict hedge

accounting criteria of IFRS 9, are classified as financial assets or liabilities at fair value through profit or loss

(

referred to below as derivatives to which hedge accounting is not applied). This also applies to options on

shares. External hedging instruments of intragroup hedged items that are subsequently eliminated in the

consolidated financial statements are also assigned to this category as a general rule. Assets and liabilities

measured at fair value through profit or loss consist of derivatives or components of derivatives that are not

included in hedge accounting. These relate for example to the non-designated currency forwards used to hedge

sales revenue, interest rate hedges, commodity futures and currency forwards relating to commodity futures.

RECE IVAB LE S FROM FI NAN CE LEA SE S

Where a Group company is the lessor – generally of vehicles – a receivable in the amount of the net investment

in the lease is recognized in the case of finance leases, in other words where substantially all the risks and rewards

are transferred to the lessee.

IMPA I RME NT LO S SE S ON F I NA NC IAL I N ST RUME NT S

Financial assets are exposed to default risk, which is taken into account by recognizing loss allowances or, if

losses have already been incurred, by recognizing impairment losses. Default risk on loans and receivables in

the financial services segment is accounted for by recognizing specific loss allowances and portfolio-based loss

allowances.

In particular, a loss allowance is recognized on these financial assets in the amount of the expected loss in

accordance with Group-wide standards. The actual specific loss allowances for the losses incurred are then

charged to this loss allowance. A potential impairment is assumed not only for a number of situations such as

delayed payment over a period of more than 90 days, the institution of enforcement measures, the threat of

insolvency or overindebtedness, application for or the opening of bankruptcy proceedings, or the failure of

reorganization measures, but also for receivables that are not past due.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

239

Portfolio-based loss allowances are recognized by grouping together insignificant receivables and significant

individual receivables for which there is no indication of impairment into homogeneous portfolios on the basis

of comparable credit risk features and allocating them by risk class. Average historical default probabilities are

used in combination with forward-looking parameters for the portfolio concerned to calculate the amount of

the impairment loss.

Credit risks must be considered for all financial assets measured at amortized cost or fair value through

other comprehensive income (debt instruments), as well as for contract assets in accordance with IFRS 15 and

lease receivables within the scope of IFRS 16. The rules on impairment also apply to risks from irrevocable credit

commitments not recognized in the balance sheet and to the measurement of financial guarantees.

As a matter of principle, a simplified process, which takes historical default rates and forward-looking

information into account, and specific loss allowances are used to account for impairment losses on receivables

outside the Financial Services segment.

DEFE RRE D TA XE S

Deferred tax assets are generally recognized for tax-deductible temporary differences between the tax base of

assets and liabilities and their carrying amounts in the consolidated balance sheet, as well as on tax loss

carryforwards and tax credits provided it is probable that they can be used in future periods. Deferred tax liabilities

are generally recognized for all taxable temporary differences between the tax base of assets and liabilities and

their carrying amounts in the consolidated balance sheet.

Deferred tax liabilities and assets are recognized in the amount of the expected tax liability or tax benefit,

as appropriate, in subsequent fiscal years, based on the expected enacted tax rate at the time of realization. The

tax consequences of dividend payments are generally not taken into account until the resolution on appropriation

of earnings available for distribution has been adopted.

Deferred tax assets that are unlikely to be realized within a clearly predictable period are reduced by loss

allowances.

Deferred tax assets for tax loss carryforwards are usually measured on the basis of future taxable income

over a planning period of five fiscal years.

Deferred tax assets and deferred tax liabilities are offset where taxes are levied by the same taxation authority

and relate to the same tax period.

I NV E NTORI ES

Raw materials, consumables and supplies, merchandise, work in progress and self-produced finished goods

reported in inventories are carried at the lower of cost or net realizable value. Cost is determined on the basis of

the direct and indirect costs that are directly attributable. Borrowing costs are not capitalized. The measurement

of same or similar inventories is generally based on the weighted average cost method.

NON CU RR ENT A S SET S H ELD FOR SALE AN D D I SCO N TI N U ED OPERAT I ON S

Under IFRS 5, noncurrent assets or groups of assets and liabilities (disposal groups) are classified as held for sale

if their carrying amounts will be recovered principally through a sale transaction rather than through continuing

use. Such assets are carried at the lower of their carrying amount and fair value less costs to sell, and are presented

separately in current assets and liabilities in the balance sheet.

Discontinued operations are components of an entity that have either been disposed of or are classified as

held for sale. The assets and liabilities of operations that are held for sale represent disposal groups that must

be measured and reported using the same principles as noncurrent assets held for sale. The income and

expenses from discontinued operations are presented in the income statement as profit or loss from discontinued

operations below the profit or loss from continuing operations. Corresponding disposal gains or losses are

contained in the profit or loss from discontinued operations. The prior-year figures in the income statement

are adjusted accordingly.

2

40

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

PEN SIO N PROV I S ION S

The actuarial valuation of pension provisions is based on the projected unit credit method stipulated by IAS 19

for defined benefit plans. The valuation is not only based on pension payments and vested entitlements known

at the balance sheet date, but also reflects future salary and pension trends, as well as experience-based staff

turnover rates. Remeasurements are recognized in retained earnings in other comprehensive income, net of

deferred taxes.

P ROV I SI ON S F OR I NCO M E TA X E S

Tax provisions contain obligations resulting from current income taxes. Deferred taxes are presented in separate

items of the balance sheet and income statement. Provisions are recognized for potential tax risks on the basis

of the best estimate of the liability.

SHA RE-BA SED PAYM ENT

Share-based payment comprises phantom shares and performance shares. The obligations arising from the

share-based payment are accounted for as cash-settled plans in accordance with IFRS 2. These cash-settled

share-based payments are measured at fair value, which is determined using a recognized option pricing model,

until maturity. The total compensation cost to be recognized corresponds to the actual payment and is allocated

over the vesting period.

OTH ER P ROV I SI O NS

In accordance with IAS 37, provisions are recognized where a present obligation exists to third parties as a result

of a past event, where a future outflow of resources with economic benefits is probable and where a reliable

estimate of that outflow can be made.

Provisions not resulting in an outflow of resources in the year immediately following are recognized at

their settlement value discounted to the balance sheet date. Discounting is based on market interest rates.

An average discount rate of –0.23% (previous year: –0.10%) was used in the Eurozone. The settlement value also

reflects cost increases expected at the balance sheet date. Provisions are not offset against claims for reim-

bursement.

Insurance contracts that form part of the insurance business are recognized in accordance with IFRS 4.

Reinsurance acceptances are accounted for without any time delay in the year in which they arise. Provisions

are generally recognized based on the cedant’s contractual duties. Estimation techniques based on assump-

tions about future changes in claims are used to calculate the claims provision. Other technical provisions

relate to the provision for cancellations.

The share of the provisions attributable to reinsurers is calculated in accordance with the contractual

agreements with the retrocessionaries and reported under other assets.

CON TI NG E NT L IA B I LI TI E S

If the criteria for recognizing a provision are not met, but the outflow of resources with economic benefits is

not remote, such obligations are disclosed in the notes to the consolidated financial statements (see the

“

Contingent liabilities” section). Contingent liabilities are only recognized if the obligations are more certain,

i.e. the outflow of resources with economic benefits has become probable and their amount can be reliably

estimated.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

241

LIAB I LIT I E S

Noncurrent liabilities are recorded at amortized cost in the balance sheet. Differences between historical cost

and the repayment amount are amortized using the effective interest method.

Liabilities to members of partnerships from puttable shares are recognized in the income statement at the

present value of the redemption amount at the balance sheet date.

Lease liabilities are carried at the present value of the lease payments.

Current liabilities are recognized at their repayment or settlement value.

REVEN U E A N D EXPENSE RECOG N ITI ON

Sales revenue, interest and commission income from financial services and other operating income are recognized

only when the relevant services have been rendered or the goods have been delivered, i.e. when the customer

has obtained control of the goods or services. Where new and used vehicles and original parts are sold, the

Company’s performance invariably occurs upon delivery, because that is the point when control is transferred,

and the inventory risk and, for deliveries to a dealer, invariably also the pricing decision pass to the customer.

Revenue is reported net of sales allowances (discounts, rebates, or customer bonuses). The Volkswagen Group

measures sales allowances and other variable consideration on the basis of experience and by taking account of

current circumstances. Vehicles are normally sold on payment terms. A trade receivable is recognized for the

period between vehicle delivery and receipt of payment. Any financing component included in the transaction

is only recognized if the period between the transfer of the goods and the payment of consideration is longer

than one year and the amount to be accrued is significant.

Sales revenue from financing and finance lease agreements is recognized using the effective interest method.

If non-interest-bearing or low-interest vehicle financing arrangements are agreed, sales revenue is reduced by

the interest benefits granted. Sales revenue from operate leases is recognized over the term of the contract on a

straight line basis.

In contracts under which the goods or services are transferred over a period of time, revenue is recognized,

depending on the type of goods or services provided, either according to the stage of completion or, to simplify,

on a straight-line basis; the latter is only allowed if revenue recognition on a straight-line basis does not differ

materially from recognition according to the stage of completion. As a rule, the stage of completion is deter-

mined as the proportion that contract costs incurred by the end of the reporting period bear to the estimated

total contract costs (cost-to-cost method). Contract costs incurred invariably represent the best way to measure

the stage of completion for the performance obligation. If the outcome of a performance obligation satisfied

over time is not sufficiently certain, but the Company expects, as a minimum, to recover its costs, revenue is

only recognized in the amount of contract costs incurred (zero profit margin method). If the expected costs

exceed the expected revenue, the expected losses are recognized immediately in full as expenses by recognizing

impairment losses on the associated contract assets recognized, and additionally by recognizing provisions for

any amounts in excess of the impairment losses. Since long-term construction contracts invariably give rise to

contingent receivables from customers for the period to completion or payment by the customer, contract

assets are recognized for the corresponding amounts. A trade receivable is recognized as soon as the Company

has transferred the goods or services in full.

If a contract comprises several separately identifiable components (multiple-element arrangements), these

components are recognized separately in accordance with the principles outlined above.

2

42

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

If services are sold to the customer at the same time as the vehicle, and the customer pays for them in advance,

the Group recognizes a corresponding contract liability until the services have been transferred. Examples of

services that customers pay for in advance are servicing, maintenance and certain warranty contracts as well as

mobile online services. For extended warranties granted to customers for a particular model, a provision is

normally recognized in the same way as for statutory warranties. If the warranty is optional for the customer or

includes an additional service component, the related sales revenue is deferred and recognized over the term of

the warranty.

Income from the sale of assets for which a Group company has a buyback obligation is recognized only

when the assets have definitively left the Group. If a fixed repurchase price was agreed when the contract was

entered into, the difference between the selling price and the present value of the repurchase price is recognized

ratably as income over the term of the contract. Prior to that time, the assets are carried as inventories in the

case of short contract terms and as lease assets in the case of long contract terms.

Sales revenue is always determined on the basis of the price stated in the contract. If variable consideration

(

e.g. volume-based bonus payments) has been agreed in a contract, the large number of contracts involved

means that revenue has to be estimated using the expected value method. In exceptional cases, the most probable

amount method may also be used. Once the expected sales revenue has been estimated, an additional check is

carried out to determine whether there is any uncertainty that necessitates the reversal of the revenue initially

recognized so that it can be virtually ruled out that sales revenue subsequently has to be adjusted downward.

Provisions for reimbursements arise mainly from dealer bonuses.

In multiple element arrangements, the transaction price is allocated to the different performance obligations

of the contract on the basis of relative standalone selling prices. In the Automotive Division, non-vehicle-

related services are invariably measured at their standalone selling prices for reasons of materiality.

Cost of sales includes the costs incurred to generate the sales revenue and the cost of goods purchased for

resale. This item also includes the costs of additions to warranty provisions. Research and development costs

not eligible for capitalization in the period and amortization of development costs are likewise carried under

cost of sales. Reflecting the presentation of interest and commission income in sales revenue, the interest and

commission expenses attributable to the financial services business are presented in cost of sales.

Dividend income is recognized on the date when the dividend is legally approved.

GOVE RNME NT G RANT S

Government grants related to assets are deducted when arriving at the carrying amount of the asset and are

recognized in profit or loss over the life of the depreciable asset as a reduced depreciation expense. If the Group

becomes entitled to a grant subsequently, the amount of the grant attributable to prior periods is recognized as

profit or loss.

Government grants related to income, i.e. that compensate the Group for expenses incurred, are recognized

in profit or loss for the period in those items in which the expenses to be compensated by the grants are also

recognized. Grants in the form of nonmonetary assets (e.g. the use of land free of charge or the transfer of resources

free of charge) are disclosed as a memo item.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

243

ESTIM AT ES A N D A S SUM P TIO N S BY M A NAGEM E NT

Preparation of the consolidated financial statements requires management to make certain estimates and

assumptions that affect the reported amounts of assets and liabilities, and income and expenses, as well as the

related disclosure of contingent assets and liabilities of the reporting period. The estimates and assumptions

relate largely to the following matters:

The impairment testing of nonfinancial assets (especially goodwill, brand names, capitalized development

costs and special operational equipment) and equity-accounted investments, or investments accounted at cost,

and the measurement of options on shares in companies that are not traded in an active market require

assumptions about the future cash flows during the planning period, and possibly beyond it, as well as about

the discount rate to be applied. The estimates made in order to separate cash flows mainly relate to future market

shares, the trend in the respective markets and the profitability of the Volkswagen Group’s products. In addition,

the recoverability of the Group’s lease assets depends in particular on the residual value of the leased vehicles

after expiration of the lease term, because this represents a significant portion of the expected cash flows. More

detailed information on impairment tests and the measurement parameters used for those tests can be found

in the explanations on the accounting policies for intangible assets.

If there are no observable market inputs, the fair values of assets acquired and liabilities assumed in a business

combination are measured using recognized valuation techniques, such as the relief-from-royalty method or

the residual method.

Impairment testing of financial assets requires estimates about the extent and probability of occurrence of

future events. As far as possible, estimates are derived from experience taking into account current market data

as well as rating categories and scoring information. The sections entitled “IFRS 7 (Financial Instruments)” and

“

Financial risk management and financial instruments” contain further details on how to determine loss

allowances.

Accounting for provisions is also based on estimates of the extent and probability of occurrence of future

events, as well as estimates of the discount rate. As far as possible, these are also based on experience or external

opinions. The assumptions applied in the measurement of pension provisions are described in the “Provisions

for pensions and other post-employment benefits” section. Actuarial gains or losses arising from changes in

measurement inputs are recognized in other comprehensive income and do not affect profit or loss reported in

the income statement. Any change in the estimates of the amount of other provisions is always recognized in

profit or loss. The provisions are regularly adjusted to reflect new information obtained. The use of expected

values invariably means that unused provisions are reversed or additional amounts have to be recognized for

provisions. Similarly to expenses for the recognition of provisions, income from the reversal of provisions is

allocated to the respective functions. Warranty claims from sales transactions are calculated on the basis of

losses to date, estimated future losses and the policy on ex gratia arrangements. In addition, assumptions must

be made about the nature and extent of future warranty and ex gratia claims.

For the provisions recognized in connection with the diesel issue, assumptions were made in particular

about working hours, material costs and hourly wage rates, depending on the series, model year and country

concerned. In addition, assumptions are made about future resale prices of repurchased vehicles. These

assumptions are based on qualified estimates, which are based in turn on external data, and also reflect additional

information available internally, such as values derived from experience. Further information on the legal

proceedings and on the legal risks associated with the diesel issue can be found in the “Litigation” section.

Tax provisions were recognized for potential future retrospective tax payments, while other provisions were

recognized for ancillary tax payments arising in this connection.

Volkswagen AG and its subsidiaries have operations worldwide and are audited by local tax authorities on

an ongoing basis. Amendments to tax laws and changes in legal precedent and their interpretation by the tax

authorities in the respective countries may lead to tax payments that differ from the estimates made in the

financial statements.

2

44

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

The measurement of the tax provision is based on the most likely exposure resulting from this risk materializing.

Volkswagen decides whether to account for multiple tax uncertainties separately or in groups on the merits of

each individual case considered, depending on which type of presentation is better suited to predicting the

extent to which the tax risk will materialize. The pricing of individual products and services is complex, especially

in relation to contracts for the cross-border supply of intragroup goods and services, because it is in many cases

not possible to observe market prices for internally generated products, or the use of market prices for similar

products is subject to uncertainty because they are not comparable. In these cases, prices – including for tax

purposes – are determined on the basis of standardized, generally accepted valuation techniques.

If actual developments differ from the assumptions made for recognizing the provisions, the figures actually

recorded may differ compared to the estimates expected originally.

An overview of other provisions can be found in the “Noncurrent and current other provisions” section.

Government grants are recognized based on an assessment as to whether there is reasonable assurance that

the Group companies will fulfill the conditions for awarding the grants and that the grants will in fact be

awarded. This assessment is based on the nature of the legal entitlement and past experience.

Estimates of the useful life of finite-lived assets are based on experience and are reviewed regularly. Where

estimates are modified the residual useful life is adjusted and an impairment loss is recognized, if necessary.

Estimates of lease terms under IFRS 16 are based on the non-cancelable period of a lease and an assessment

of whether existing extension and termination options will be exercised. The determination of the lease term

and the discount rates used impacts on the amounts to be recognized for right-of-use assets and lease liabilities.

Measuring deferred tax assets requires assumptions regarding future taxable income and the timing of the

realization of deferred tax assets.

The estimates and assumptions are based on underlying assumptions that reflect the current state of available

knowledge. Specifically, the expected future development of business was based on the circumstances known at

the date of preparation of these consolidated financial statements and a realistic assessment of the future

development of the global and sector-specific environment. Estimates and assumptions remain subject to a

high degree of uncertainty because future business developments are subject to uncertainties that in part cannot

be influenced by the Group. This applies in particular to short- and medium-term cash flow forecasts and to the

discount rates used.

Developments in this environment that differ from the assumptions and that cannot be influenced by

management could result in amounts that differ from the original estimates. If actual developments differ from

the expected developments, the underlying assumptions and, if necessary, the carrying amounts of the assets

and liabilities affected are adjusted.

The global spread of the SARS-COV-2 virus, the associated restrictions, and the resulting downturn in demand

and supply meant that negative growth of 4.0% was recorded for the world economy in 2020 (previous year:

positive growth of 2.6%).

The Volkswagen Group’s planning is based on the assumption that global economic output will recover

overall in 2021, provided successful, lasting containment of the Covid-19 pandemic is achieved.

Estimates and assumptions by management were based in particular on assumptions relating to the develop-

ment of the general economic environment, the automotive markets and the legal environment. These and

further assumptions are explained in detail in the Report on Expected Developments, which is part of the

group management report.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

245

Segment reporting

Segments are identified on the basis of the Volkswagen Group’s internal management and reporting. In line

with the Group’s multibrand strategy, each of its brands (operating segments) is managed by its own Board of

Management. The Group targets and requirements laid down by the Board of Management of Volkswagen AG

must be complied with. Segment reporting comprises four reportable segments: Passenger Cars and Light

Commercial Vehicles, Commercial Vehicles, Power Engineering and Financial Services.

The activities of the Passenger Cars and Light Commercial Vehicles segment cover the development of vehicles,

engines and vehicle software, the production and sale of passenger cars and light commercial vehicles, and the

corresponding genuine parts business. In the Passenger Cars and Light Commercial Vehicles reporting segment,

the individual brands are being combined into a single reportable segment, in particular as a response to the

high degree of technological and economic interlinking in the production network. Furthermore, there is

collaboration within key areas such as procurement, research and development or treasury.

The Commercial Vehicles segment primarily comprises the development, production and sale of trucks and

buses, the corresponding genuine parts business and related services. As in the case of the passenger car

brands, there is collaboration within the areas procurement, development and sales. The aim is to create closer

cooperation within the business areas.

The Power Engineering segment combines the large-bore diesel engines, turbomachinery, special gear units,

and propulsion components businesses. Until October 2020, it also included the Renk business; for further

information see the “Key events” section.

The activities of the Financial Services segment comprise dealership and customer financing, leasing, banking

and insurance activities, fleet management and mobility services. In this segment, activities are combined for

reporting purposes taking into particular account the comparability of the type of services and of the regulatory

environment.

Purchase price allocation for companies acquired is allocated directly to the corresponding segments.

At Volkswagen, segment profit or loss is measured on the basis of the operating result.

In segment reporting, the share of the result of joint ventures is contained in the result of equity-

accounted investments in the corresponding segments.

The reconciliation contains activities and other operations that by definition do not constitute segments.

It also includes the unallocated Group financing activities. Consolidation adjustments between the segments

are also contained in the reconciliation.

Investments in intangible assets, property, plant and equipment, and investment property are reported

net of investments in right-of-use assets from leases.

As a matter of principle, business relationships between the companies within the segments of the

Volkswagen Group are transacted at arm’s length prices.

2

46

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

RE P O RT I NG SE G M E NT S 20 1 9

Passenger Cars

and Light

Commercial

Vehicles

Commercial

Vehicles

Power

Engineering

Financial

Services

Total

Volkswagen

Group

€

million

segments Reconciliation

Sales revenue from

external customers

186,511

15,762

202,273

14,622

201

25,401

1,043

26,444

2,280

1

3,995

2

36,446

3,714

40,160

8,080

538

252,353

20,522

272,875

25,402

740

280

252,632

–

Intersegment sales revenue

Total sales revenue

–20,522

–20,242

–996

3,997

420

–

252,632

24,406

949

Depreciation and amortization

Impairment losses

209

Reversal of impairment losses

Segment result (operating result)

886

71

2

181

1,140

–15

1,124

16,960

15,610

1,653

–93

3,212

20,381

–3,422

Share of the result of

equity-accounted investments

3,053

225

–1

71

3,349

–

3,349

Interest result and

other financial result

–1,582

6,232

–70

1

–64

784

–1,715

8,169

–238

–

–1,953

8,169

Equity-accounted investments

1,118

34

Investments in intangible assets,

property, plant and equipment,

and investment property

17,098

1,460

197

223

18,977

423

19,401

RE P O RT I NG SE G M E NT S 20 2 0

Passenger Cars

and Light

Commercial

Vehicles

Commercial

Vehicles

Power

Engineering

Financial

Services

Total

Volkswagen

Group

€

million

segments Reconciliation

Sales revenue from

external customers

160,674

15,310

175,984

15,428

370

21,114

1,042

22,156

2,309

179

3,638

2

37,223

3,555

40,778

8,647

742

222,649

19,908

242,557

26,763

1,355

235

–19,908

–19,673

–1,014

–49

222,884

–

Intersegment sales revenue

Total sales revenue

3,640

379

64

222,884

25,749

1,306

229

Depreciation and amortization

Impairment losses

Reversal of impairment losses

Segment result (operating result)

32

1

–

204

237

–8

8,381

–79

–482

3,012

10,832

–1,157

9,675

Share of the result of

equity-accounted investments

2,615

85

–3

60

2,756

–

2,756

Interest result and

other financial result

–3

–170

–2

29

–296

786

–471

–294

–

–765

Equity-accounted investments

8,129

1,135

10,080

Investments in intangible assets,

property, plant and equipment,

and investment property

15,677

1,309

147

208

17,340

405

17,745

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

247

RECO NC I L IATI ON

€

million

2020

2019

Segment sales revenue

Unallocated activities

242,557

997

272,875

969

Group financing

27

28

Consolidation/Holding company function

Group sales revenue

–20,698

222,884

–21,239

252,632

Segment result (operating result)

Unallocated activities

10,832

–28

20,381

–72

Group financing

–8

–38

Consolidation/Holding company function

Operating result

–1,121

9,675

1,991

11,667

–3,312

16,960

1,396

18,356

Financial result

Consolidated result before tax

BY REG IO N 2 0 1 9

Europe/Other

markets¹

North

America

South

America

Asia-

Pacific

Hedges sales

revenue

€

million

Germany

48,991

Total

252,632

181,842

Sales revenue from

external customers

105,009

47,353

43,351

26,771

11,297

3,064

43,974

3,562

11

–

Intangible assets, property, plant

and equipment, lease assets and

investment property

101,092

1

Excluding Germany.

BY REG IO N 2 0 2 0

Europe/Other

markets¹

North

America

South

America

Asia-

Pacific

Hedges sales

revenue

€

million

Germany

42,847

Total

222,884

183,096

Sales revenue from

external customers

90,652

47,680

36,810

23,852

8,632

2,323

44,288

3,611

–345

–

Intangible assets, property, plant

and equipment, lease assets and

investment property

105,630

1

Excluding Germany.

Allocation of sales revenue to the regions follows the destination principle.

The allocation of interregional intragroup transactions regarding the segment assets has been presented

uniformly according to the economic ownership.

2

48

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Income statement disclosures

1

. Sales revenue

STRU CTU R E OF G ROU P SA LE S R EV EN U E 2 01 9

Passenger Cars

and Light

Commercial

Vehicles

Commercial

Vehicles

Power

Engineering

Financial

Services

Volkswagen

Group

€

million

Total Segments

Reconciliation

Vehicles

154,377

13,329

17,387

3,464

–

171,764

16,793

–14,552

–117

157,212

16,676

Genuine parts

Used vehicles and

third-party products

12,583

1,415

–

13,997

–549

13,449

Engines, powertrains

and parts deliveries

11,496

–

641

–

3,997

–

12,137

3,997

603

–21

–2

12,116

3,994

603

Power Engineering

Motorcycles

–

603

986

–

0

Leasing business

1,735

0

30,795

33,517

–4,370

29,147

Interest and similar

income

235

–143

8,808

5

–18

–

8,031

0

8,271

–161

–205

171

8,066

11

Hedges sales revenue

Other sales revenue

1,814

26,444

–

1,334

40,160

11,956

272,875

–597

11,359

252,632

2

02,273

3,997

–20,242

STRU CTU R E OF G ROU P SA LE S R EV EN U E 2 02 0

Passenger Cars

and Light

Commercial

Vehicles

Commercial

Vehicles

Power

Engineering

Financial

Services

Volkswagen

Group

€

million

Total Segments

Reconciliation

Vehicles

129,913

11,755

13,385

3,249

–

143,298

15,004

–13,703

–118

129,595

14,886

Genuine parts

Used vehicles and

third-party products

11,716

1,455

–

13,171

–637

12,535

Engines, powertrains

and parts deliveries

12,625

–

669

–

3,640

–

13,294

3,640

567

–41

–2

13,253

3,638

567

Power Engineering

Motorcycles

–

567

767

–

Leasing business

1,698

0

31,608

34,073

–4,334

29,739

Interest and similar

income

192

–357

8,806

8

–18

–

7,707

0

7,907

–375

–261

30

7,646

–345

Hedges sales revenue

Other sales revenue

1,709

22,156

–

1,463

40,778

11,978

242,557

–608

11,370

222,884

1

75,984

3,640

–19,673

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

249

For segment reporting purposes, the sales revenue of the Group is presented by segment and market.

Other sales revenue comprises revenue from workshop services and license revenue, among other things.

Of the sales revenue recognized in the period under review, an amount of €6,815 million (previous year:

6,333 million) was included in contract liabilities as of January 1, 2020.

€

345 million (previous year: €359 million) of the sales revenue recognized in the period under review is

attributable to performance obligations satisfied in a prior period.

In addition to existing performance obligations of €3,676 million (previous year: €3,967 million) in the

Power Engineering segment, most of which are expected to be satisfied or for which sales revenue is expected to

be recognized by December 31, 2021, the vast majority of the Volkswagen Group’s performance obligations that

were unsatisfied as of the reporting date relate to vehicle deliveries. Most of these deliveries had already been

made at the time this report was prepared, or will be made in the first quarter of 2021. The calculation of the

amounts for the Power Engineering Business Area took account of both contracts with a term of up to one year

and service contracts under which the Volkswagen Group realizes sales revenue in exactly the same amount as

the customer benefits from the services rendered by the Company. In the case of variable consideration, sales

revenue is only recognized to the extent that there is reasonable assurance that this sales revenue will not

subsequently have to be reversed or adjusted downward.

2

. Cost of sales

Cost of sales includes interest expenses of €2,303 million (previous year: €2,705 million) attributable to the

financial services business.

This item also includes impairment losses on intangible assets (primarily development costs), property,

plant and equipment (primarily other equipment, operating and office equipment), and lease assets in the

amount of €1,180 million (previous year: €830 million). The impairment losses totaling €356 million (previous

year: €295 million) recognized during the reporting period on intangible assets and items of property, plant

and equipment result primarily from lower values in use of various products in the Passenger Cars segment,

due to market and exchange rate risks, and in particular from expected declines in volumes. The impairment

losses on lease assets in the amount of €824 million (previous year: €535 million) are predominantly attri-

butable to the Financial Services segment. They are based on constantly updated internal and external infor-

mation that is factored into the forecast residual values of the vehicles. €60 million (previous year: €25 million)

of this figure is reported in current lease assets.

Government grants related to income amounted to €1,001 million in the fiscal year (previous year:

€

657 million) and were generally allocated to the functional areas.

3

. Distribution expenses

Distribution expenses amounting to €18.4 billion (previous year: €21.0 billion) include nonstaff overheads and

personnel costs, and depreciation and amortization applicable to the distribution function, as well as the costs

of shipping, advertising and sales promotions.

4

. Administrative expenses

Administrative expenses of €9.4 billion (previous year: €9.8 billion) mainly include nonstaff overheads and

personnel costs, as well as depreciation and amortization charges applicable to the administrative function.

2

50

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

5

. Other operating income

€

million

2020

2019

Income from reversal of loss allowances on receivables and other assets

Income from reversal of provisions and accruals

Income from foreign currency hedging derivatives within hedge accounting

Income from other hedges

1,334

1,086

1,185

1,709

2,588

312

1,482

969

686

1,177

2,346

498

Income from foreign exchange gains

Income from sale of promotional material

Income from cost allocations

1,039

10

985

Income from investment property

12

Gains on asset disposals and the reversal of impairment losses on noncurrent assets

Miscellaneous other operating income

299

1,182

2,116

11,453

2,876

2,438

1

Foreign exchange gains mainly comprise gains from changes in exchange rates between the dates of recognition

and payment of receivables and liabilities denominated in foreign currencies, as well as exchange rate gains

resulting from measurement at the closing rate. Foreign exchange losses from these items are included in other

operating expenses.

Income from other hedges includes primarily foreign exchange gains from the fair value measurement of

financial instruments used to hedge exchange rates and commodity prices and that are not designated in a

hedging relationship. Foreign exchange losses are included in other operating expenses.

6

. Other operating expenses

€

million

2020

2019

Loss allowances on trade receivables including construction contracts

Loss allowances on other receivables and other assets

Losses from foreign currency hedging derivatives within hedge accounting

Expenses from other hedges

316

2,302

1,034

1,806

3,123

743

317

1,783

997

1,332

2,013

563

Foreign exchange losses

Expenses from cost allocations

Expenses for termination agreements

391

54

Losses on disposal of noncurrent assets

212

119

Miscellaneous other operating expenses

3,979

3,904

5,712

12,890

1

Allowances on other receivables and other assets include allowances on receivables from long-term construction

contracts amounting to €1.2 million (previous year: €0.3 million).

Expenses from other hedges include primarily foreign exchange gains from the fair value measurement of

financial instruments used to hedge exchange rates and commodity prices and that are not designated in a hedging

relationship.

Miscellaneous other operating expenses consist, among other items, of expenses in connection with the

diesel issue (see the “Key Events” section for more information).

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

251

7

. Share of the result of equity-accounted investments

€

million

2020

2019

Share of profits of equity-accounted investments

of which from joint ventures

3,159

2,916

243

3,501

3,257

244

of which from associates

Share of losses of equity-accounted investments

of which from joint ventures

403

152

269

10

of which from associates

134

142

2,756

3,349

8

. Interest result

€

million

2020

2019

Interest income

793

788

5

910

904

Other interest and similar income

Income from valuation of interest derivatives

Interest expenses

6

–2,291

–1,499

–23

–2,524

–1,401

–6

Other interest and similar expenses

Expenses from valuation of interest derivatives

Interest expenses included in lease payments

Interest result on other liabilities

Net interest on the net defined benefit liability

Interest result

–206

–217

–238

–662

–1,614

–104

–459

–1,498

2

52

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

9

. Other financial result

€

million

2020

2019

Income from profit and loss transfer agreements

Cost of loss absorption

23

–103

91

19

–72

178

–374

27

Other income from equity investments

Other expenses from equity investments

–433

–230

1,097

–1,620

–61

Income from marketable securities and loans

Realized income of loan receivables and payables in foreign currency

Realized expenses of loan receivables and payables in foreign currency

Gains and losses from remeasurement and impairment of financial instruments

877

–980

228

Gains and losses from fair value changes of hedging instruments/derivatives

not included in hedge accounting

1,950

–240

Gains and losses from fair value changes of hedging instruments/derivatives

included in hedge accounting

20

0

Other financial result

733

–339

Gains and losses from changes in the fair value of hedges/derivatives to which hedge accounting is not applied

relate primarily to gains on the measurement and realization of forward purchase agreements for new shares in

QuantumScape Corporation in an amount of €1.4 billion. See the “Key Events” section for more information.

1

0. Income tax income/expense

COM P O N E NT S O F TA X I N COM E A N D EX P E N SE

€

million

2020

2019

Current tax expense, Germany

940

2,210

3,150

299

1,473

2,673

4,147

32

Current tax expense, abroad

Current income tax expense

of which prior-period income (–)/expense (+)

Deferred tax income (–)/expense (+), Germany

Deferred tax income (–)/expense (+), abroad

Deferred tax income (–)/expense (+)

Income tax income/expense

–1,026

719

115

65

–307

2,843

180

4,326

The statutory corporation tax rate in Germany for the 2020 assessment period was 15%.

Including trade tax and the solidarity surcharge, this resulted in an aggregate tax rate of 30.0% (previous year:

2

9.8%).

A tax rate of 30.0% (previous year: 29.8%) was used to measure deferred taxes in the German consolidated

tax group.

The local income tax rates applied to companies outside Germany vary, as in the previous year, between 0%

and 45%. In the case of split tax rates, the tax rate applicable to undistributed profits is applied.

The realization of tax benefits from tax loss carryforwards from previous years resulted in a reduction in

current income taxes in 2020 of €392 million (previous year: €692 million).

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

253

The tax loss carryforwards and the expiry of loss carryforwards that could not be used changed as follows:

PREVIOUSLY UNUSED TAX LOSS

CARRYFORWARDS

€

million

Dec. 31, 2020

Dec. 31, 2019

Indefinitely to be carried forward

Carried forward within 10 years

Carried forward from 10 to 20 years

Total

15,024

3,215

14,498

568

4,849

5,579

20,645

23,088

EXPIRY OF UNUSABLE TAX LOSS

CARRYFORWARDS

€

million

Dec. 31, 2020

Dec. 31, 2019

Non-expiring tax loss carryforwards

Expiry within 10 years

Expiry from 10 to 20 years

Expiry over 20 years

Total

4,584

2,180

2,164

11

5,919

473

1,743

62

8,939

8,197

The benefit arising from previously unrecognized tax losses or tax credits of a prior period that is used to reduce

current tax expense in the current fiscal year amounts to €55 million (previous year: €36 million). Deferred tax

expense was reduced by €134 million (previous year: €66 million) because of a benefit arising from previously

unrecognized tax losses and tax credits of a prior period. Deferred tax expense resulting from the write-down of

a deferred tax asset amounts to €470 million (previous year: €58 million). Deferred tax income resulting from

the reversal of a write-down of deferred tax assets amounts to €36 million (previous year: €35 million).

Tax credits granted by various countries amounted to €376 million (previous year: €378 million).

No deferred tax assets were recognized for deductible temporary differences of €899 million (previous year:

€

897 million) and for tax credits of €105 million (previous year: €138 million) that would expire in the next 20

years.

In accordance with IAS 12.39, deferred tax liabilities of €166 million (previous year: €231 million) for temporary

differences and undistributed profits of Volkswagen AG subsidiaries were not recognized because control exists.

Deferred tax expense resulting from changes in tax rates amounted to €54 million at Group level (previous

year: €116 million).

Deferred tax assets of €12,591 million (previous year: €1,006 million) were recognized without being offset

by deferred tax liabilities in the same amount. In fiscal year 2020, the deferred tax assets of companies within the

German tax group recognized due to positive results in the past were included in this analysis. The companies

concerned are expecting positive tax income in the future, following losses in the reporting period or the

previous year.

2

54

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

€

7,997 million (previous year: €7,820 million) of the deferred taxes recognized in the balance sheet was

credited to equity and relates to other comprehensive income. €53 million (previous year: €53 million) of this

figure is attributable to noncontrolling interests. In fiscal year 2020, deferred tax income of €73 million from the

remeasurement of pension plans directly through equity was reclassified within equity. The classification of

changes in deferred taxes is presented in the statement of comprehensive income.

In fiscal year 2020, tax effects of €5 million resulting from equity transaction costs were recognized in equity.

D E F E R R E D TA X E S C L A S S I F I E D BY BA L A N C E S H E E T I TE M

The following recognized deferred tax assets and liabilities were attributable to recognition and measurement

differences in the individual balance sheet items and to tax loss carryforwards:

DEFERRED TAX ASSETS

DEFERRED TAX LIABILITIES

€

million

Dec. 31, 2020

Dec. 31, 2019

Dec. 31, 2020

Dec. 31, 2019

Intangible assets

655

5,599

17

267

5,576

18

10,811

8,150

97

10,555

8,493

43

Property, plant and equipment, and lease assets

Noncurrent financial assets

Inventories

2,317

2,348

893

821

Receivables and other assets

(including Financial Services Division)

1,858

4,480

2,270

3,768

10,236

242

9,670

7

Other current assets

Pension provisions

10,285

13,284

9,013

27

52

Liabilities and other provisions

13,358

5,156

4,167

Loss allowances on deferred tax assets from

temporary differences

–499

37,997

3,465

–141

36,478

3,068

–

35,611

–

33,809

–

Temporary differences, net of loss allowances

Tax loss carryforwards, net of loss allowances

Tax credits, net of loss allowances

Value before consolidation and offset

of which attributable to noncurrent assets and liabilities

Offset

271

239

–

41,733

27,924

31,172

2,925

39,786

26,307

29,627

2,947

35,611

28,085

31,172

451

33,809

26,736

29,627

826

Consolidation

Amount recognized

13,486

13,106

4,890

5,007

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

255

In accordance with IAS 12, deferred tax assets and liabilities are offset if, and only if, they relate to income taxes

levied by the same taxation authority and relate to the same tax period.

The tax expense reported for 2020 of €2,843 million (previous year: €4,326 million) was €657 million lower

(previous year: €1,144 million) than the expected tax expense of €3,500 million that would have resulted from

application of a tax rate for the Group of 30.0% (previous year: 29.8%) to the earnings before tax of the Group.

RECO NC I L IATI ON OF EX PE CT ED TO EFFE CTIVE I NCOME TA X

€

million

2020

11,667

3,500

2019

18,356

5,470

Profit before tax

Expected income tax income (–)/expense (+)

(tax rate 30.0%; previous year: 29.8%)

Reconciliation:

Effect of different tax rates outside Germany

Proportion of taxation relating to:

tax-exempt income

–364

–843

–1,501

540

–1,124

509

expenses not deductible for tax purposes

effects of loss carryforwards

permanent differences

520

163

65

51

Tax credits

–117

–211

54

–54

Prior-period tax expense

Effect of tax rate changes

Nondeductible withholding tax

Other taxation changes

–151

116

419

359

–62

–170

4,326

23.6

Effective income tax expense

Effective tax rate in %

2,843

24.4

2

56

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

1

1. Earnings per share

Basic earnings per share are calculated by dividing earnings attributable to Volkswagen AG shareholders by the

weighted average number of ordinary and preferred shares outstanding during the reporting period. Since

there were no transactions in 2020 and 2019 that had a dilutive effect on the number of shares, diluted earnings

per share are equivalent to basic earnings per share.

In accordance with Article 27(2) No. 3 of the Articles of Association of Volkswagen AG, preferred shares are

entitled to a €0.06 higher dividend than ordinary shares.

2020

2019

Weighted average number of:

Ordinary shares – basic/diluted

Preferred shares – basic/diluted

Shares

295,089,818

206,205,445

295,089,818

206,205,445

Earnings after tax

€ million

8,824

–43

533

8,334

4,898

3,435

14,029

143

540

13,346

7,849

5,497

Earnings attributable to noncontrolling interests

Earnings attributable to Volkswagen AG hybrid capital investors

Earnings attributable to Volkswagen AG shareholders

of which basic/diluted earnings attributable to ordinary shares

of which basic/diluted earnings attributable to preferred shares

Earnings per ordinary share – basic/diluted

Earnings per preferred share – basic/diluted

€

16.60

16.66

26.60

26.66

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

257

Balance sheet disclosures

1

2. Intangible assets

CHA N G E S I N I NTA NG I B LE A S SE TS I N T H E P E R IO D J A N UA RY 1 TO DE CEM B E R 3 1, 20 1 9

Capitalized

development costs

for products under

development

Capitalized

development

costs for products

currently in use

Other

intangible assets

€

million

Brand names

Goodwill

Total

Cost

Balance at Jan. 1, 2019

16,952

23,318

7,215

32,020

8,992

88,496

Foreign exchange differences

–18

–57

33

77

12

46

Changes in

consolidated Group

5

17

–

3,251

–4,301

–

1,920

4,299

–

234

770

54

256

5,940

52

Additions

–

Transfers

–

61

Classified as held for sale

Disposals

15

47

122

–

16

8

1,421

36,895

126

9,889

1,571

93,098

Balance at Dec. 31, 2019

16,878

23,247

6,188

Amortization and impairment

Balance at Jan. 1, 2019

84

1

42

16,768

6,989

23,883

Foreign exchange differences

0

–

0

45

6

51

Changes in

consolidated Group

–

3

–

147

680

147

Additions to cumulative

amortization

4,049

4,731

Additions to cumulative

impairment losses

–

15

–

7

–1

–

8

1

4

2

34

2

Transfers

Classified as held for sale

Disposals

0

–

12

–

16

–

1,422

396

114

3

1,551

402

Reversal of impairment losses

Balance at Dec. 31, 2019

–

3

86

–

45

19,053

7,700

26,884

Carrying amount at

Dec. 31, 2019

16,793

23,247

6,143

17,842

2,189

66,214

2

58

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

CHA N G E S I N I NTA NGI B LE A S SE TS I N T H E P E R IO D J A N UA RY 1 TO DE CEM B E R 3 1, 20 2 0

Capitalized

development costs

for products under

development

Capitalized

development

costs for products

currently in use

Other

intangible assets

€

million

Brand names

Goodwill

Total

Cost

Balance at Jan. 1, 2020

16,878

23,247

6,188

36,895

9,889

93,098

Foreign exchange differences

33

77

–77

–299

–281

–548

Changes in

consolidated Group

–

31

8

4,576

–4,150

107

15

1,897

4,150

1,341

41,316

56

1,038

–58

111

7,511

–58

Additions

–

Transfers

–

Disposals

37

310

1,795

98,317

Balance at Dec. 31, 2020

16,911

23,318

6,438

10,334

Amortization and impairment

Balance at Jan. 1, 2020

86

–

45

19,053

7,700

26,884

Foreign exchange differences

–5

–

0

–172

–232

–409

Changes in

consolidated Group

–

3

–

9

Additions to cumulative

amortization

4,514

733

5,249

Additions to cumulative

impairment losses

–

37

–

55

–6

–

75

7

62

0

229

1

Transfers

Disposals

–

37

–

1,344

–

226

0

1,606

7

Reversal of impairment losses

Balance at Dec. 31, 2020

–

7

83

–

87

22,133

8,046

30,349

Carrying amount at

Dec. 31, 2020

16,828

23,318

6,351

19,183

2,288

67,968

Other intangible assets comprise in particular concessions, purchased customer lists and dealer relationships,

industrial and similar rights, and licenses in such rights and assets.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

259

The allocation of the brand names and goodwill to the operating segments is shown in the following table:

€

million

2020

2019

Brand names by operating segment

Porsche

13,823

971

13,823

932

Scania Vehicles and Services

MAN Truck & Bus

MAN Energy Solutions

Ducati

1,127

415

1,127

415

404

Other

89

93

16,828

16,793

Goodwill by operating segment

Porsche

18,825

2,808

587

18,825

2,699

587

Scania Vehicles and Services

MAN Truck & Bus

MAN Energy Solutions

Ducati

263

265

290

ŠKODA

155

160

Porsche Holding Salzburg

Other

130

151

260

271

23,318

23,247

The impairment test for recognized goodwill and brand names is based on value in use, which has been

determined at the level of the respective brand. In this process, the WACC rates, based on the risk-free rate of

interest, a market risk premium and the cost of debt, are applied. For more information on the general

approach and key assumptions, please refer to the details provided on intangible assets in the “Accounting

policies” section.

Moreover, the following aspects were of significance for the brands with material recognized brand names and

goodwill:

The planning of the Porsche cash-generating unit is based on a significant increase in the proportion of electric

vehicles over the planning period and the implementation of further optimization measures.

Planning at Scania Vehicles and Services is based on the growing share of electric vehicles in the fleet, against a

backdrop of market demand for electric models, which tend to be more expensive.

For MAN Truck & Bus, the planning assumes a continuous improvement in the operating result in the course of

the detailed planning period.

For all cash-generating units, recoverability is not affected by a variation in the growth forecast with respect to

the perpetual annuity or in the discount rate of +/–0.5 percentage points.

2

60

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Research and development costs developed as follows:

€

million

2020

2019

%

Total research and development costs

13,885

6,473

46.6

14,306

5,171

36.1

–2.9

25.2

of which: capitalized development costs

Capitalization ratio in %

Amortization of capitalized development costs

Research and development costs recognized in profit or loss

4,644

12,056

4,064

13,199

14.3

–8.7

1

3. Property, plant and equipment

CHAN GE S I N PRO P ERTY, PL A NT AN D EQU I PM ENT I N TH E P E R IO D JA N UA RY 1 TO D E CE M B E R 3 1, 2 01 9

Land, land rights

and buildings,

including

buildings on

third-party land

Other

equipment,

operating and

office equipment

Payments on

account and

assets under

construction

Technical

equipment and

machinery

€

million

Total

Cost

Balance at Jan. 1, 2019¹

39,976

198

46,684

181

74,702

303

8,536

36

169,898

718

Foreign exchange differences

Changes in consolidated Group

Additions

56

16

28

8

108

1,862

1,867

124

1,716

2,776

206

5,403

2,946

54

6,104

–7,109

21

15,084

481

Transfers

Classified as held for sale

Disposals

406

303

1,077

50,090

1,331

81,997

29

2,740

183,143

Balance at Dec. 31, 2019

43,531

7,526

Depreciation and impairment

Balance at Jan. 1, 2019¹

15,418

48

34,052

131

3

57,821

218

263

6

107,554

402

Foreign exchange differences

Changes in consolidated Group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

0

15

0

18

1,927

53

3,407

2

6,237

63

–

11,572

260

142

–59

–

151

26

20

38

149

Classified as held for sale

Disposals

88

30

145

149

32

1,014

14

1,169

331

–

2,332

487

Reversal of impairment losses

Balance at Dec. 31, 2019

109

242

7,284

17,389

26,142

36,498

13,592

62,862

19,135

116,991

66,152

Carrying amount at Dec. 31, 2019

1

Due to the initial application of IFRS 16, the values in the opening balance were adjusted.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

261

CHAN GE S I N PRO P ERTY, PL A NT AN D EQU I PM ENT I N TH E P E R IO D JA N UA RY 1 TO D E CE M B E R 3 1, 2 02 0

Land, land rights

and buildings,

including

buildings on

third-party land

Other

equipment,

operating and

office equipment

Payments on

account and

assets under

construction

Technical

equipment and

machinery

€

million

Total

Cost

Balance at Jan. 1, 2020

43,531

–907

153

50,090

–1,343

0

81,997

–1,765

47

7,526

–200

–32

183,143

–4,214

168

Foreign exchange differences

Changes in consolidated Group

Additions

1,914

852

1,281

1,040

1,246

49,822

3,935

2,096

1,920

84,389

4,410

–3,883

56

11,540

105

Transfers

Disposals

392

3,613

Balance at Dec. 31, 2020

45,151

7,766

187,129

Depreciation and impairment

Balance at Jan. 1, 2020

17,389

–326

34

36,498

–973

9

62,862

–1,393

28

242

–9

116,991

–2,701

71

Foreign exchange differences

Changes in consolidated Group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

–

2,050

58

3,226

46

6,561

18

–

11,838

127

6

115

–19

98

–193

13

2

Disposals

177

1,116

6

1,760

7

3,066

16

Reversal of impairment losses

Balance at Dec. 31, 2020

0

3

19,142

26,009

37,665

12,158

66,408

17,981

30

123,245

63,884

Carrying amount at Dec. 31, 2020

7,736

Government grants of €156 million (previous year: €146 million) were deducted from the cost of property,

plant and equipment.

In connection with land and buildings, real property liens of €1,063 million (previous year: €1,221 million)

are pledged as collateral for partial retirement obligations, financial liabilities and other liabilities.

2

62

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

1

4. Lease assets and investment property

CHA N G E S I N LEA SE A SS E T S A N D I NV E STM E N T P RO P E RTY I N T H E P E RIO D JA N UA RY 1 TO DE CE M B E R 3 1, 2 0 1 9

€

million

Lease assets

Investment property

Total

Cost

Balance at Jan. 1, 2019¹

57,998

1,075

–46

803

5

58,802

1,080

–48

Foreign exchange differences

Changes in consolidated Group

Additions

–1

43

0

24,906

–533

24,949

–533

Transfers

Disposals

19,015

64,384

6

19,021

65,229

Balance at Dec. 31, 2019

845

Depreciation and impairment

Balance at Jan. 1, 2019¹

14,076

333

291

1

14,367

334

Foreign exchange differences

Changes in consolidated Group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

73

–

73

8,087

510

17

–

8,103

510

–151

7,314

169

0

–151

7,315

169

Disposals

1

Reversal of impairment losses

Balance at Dec. 31, 2019

0

15,446

48,938

307

538

15,753

49,476

Carrying amount at Dec. 31, 2019

1

Due to the initial application of IFRS 16, the values in the opening balance were adjusted.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

263

CHA N G E S I N LEA SE A SS E T S A N D I NV E STM E N T P RO P E RTY I N T H E P E RIO D JA N UA RY 1 TO DE CEM B E R 3 1, 2 0 2 0

€

million

Lease assets

Investment property

Total

Cost

Balance at Jan. 1, 2020

64,384

–2,972

15

845

–23

–

65,229

–2,995

15

Foreign exchange differences

Changes in consolidated Group

Additions

24,772

67

27

24,799

106

Transfers

39

Disposals

19,139

67,127

19

19,159

67,996

Balance at Dec. 31, 2020

869

Depreciation and impairment

Balance at Jan. 1, 2020

15,446

–975

3

307

–4

–

15,753

–979

3

Foreign exchange differences

Changes in consolidated Group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

8,645

764

17

1

8,662

765

35

1

36

Disposals

7,282

195

11

0

7,293

195

Reversal of impairment losses

Balance at Dec. 31, 2020

16,441

50,686

311

558

16,752

51,244

Carrying amount at Dec. 31, 2020

Lease assets include assets leased out under the terms of operating leases and assets covered by long-term

buyback agreements.

Investment property includes apartments rented out and leased dealerships with a fair value of €1,199 million

(

previous year: €1,206 million). Fair value is estimated using an investment method based on internal calculations

Level 3 of the fair value hierarchy). Operating expenses of €55 million (previous year: €56 million) were incurred

for the maintenance of investment property in use. Expenses of €0.4 million (previous year: €0.1 million) were

incurred for unused investment property.

Rental income from investment property amounted to €58 million in the fiscal year (previous year:

€61 million).

2

64

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

1

5. Equity-accounted investments and other equity investments

CHA N G E S I N E Q U ITY -ACCOU NT E D I NV E STM E NT S A N D OTH E R E QU ITY I NV E STM E N T S

I N T H E P E R IO D J A N UA RY 1 TO DE CEM B E R 3 1, 20 1 9

Equity-accounted

€

million

investments

Other equity investments

Total

Gross carrying amount

Balance at Jan. 1, 2019

8,826

22

2,142

6

10,968

28

Foreign exchange differences

Changes in consolidated Group

Additions

16

–252

856

0

–236

1,093

0

236

–

Transfers

Classified as held for sale

Disposals

–

15

76

88

164

Changes recognized in profit or loss

Dividends¹

3,326

–3,786

75

–

3,326

–3,786

41

–

Other changes recognized in other comprehensive income

Balance at Dec. 31, 2019

–34

2,616

8,639

11,255

Impairment losses

Balance at Jan. 1, 2019

392

1

668

0

1,060

1

Foreign exchange differences

Changes in consolidated Group

Additions

–

–131

226

–

–131

369

–

143

–

Transfers

Classified as held for sale

Disposals

–

0

–

31

Reversal of impairment losses

Balance at Dec. 31, 2019

Carrying amount at Dec. 31, 2019

67

470

8,169

18

85

714

1,902

1,183

10,071

1

Dividends are shown before withholding tax.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

265

CHA N G E S I N E Q U ITY -ACCOU NT E D I NV E STM E NT S A N D OTH E R E QU ITY I NV E STM E N T S

I N T H E P E R IO D J A N UA RY 1 TO DE CEM B E R 3 1, 20 2 0

Equity-accounted

investments

€

million

Other equity investments

Total

Gross carrying amount

Balance at Jan. 1, 2020

8,639

–49

2,616

–24

–186

488

0

11,255

–73

Foreign exchange differences

Changes in consolidated Group

Additions

–756

3,756

–

–943

4,244

0

Transfers

Disposals

196

50

246

Changes recognized in profit or loss

Dividends¹

2,693

–3,195

–280

10,610

–3

2,690

–3,195

–288

13,443

–

Other changes recognized in other comprehensive income

Balance at Dec. 31, 2020

–8

2,833

Impairment losses

Balance at Jan. 1, 2020

470

–5

714

–5

1,183

–10

–52

429

–

Foreign exchange differences

Changes in consolidated Group

Additions

–108

185

–

57

245

–

Transfers

Disposals

–

41

Reversal of impairment losses

Balance at Dec. 31, 2020

Carrying amount at Dec. 31, 2020

11

1

12

531

10,080

968

1,865

1,499

11,945

1

Dividends are shown before withholding tax.

Equity-accounted investments include joint ventures in the amount of €6,951 million (previous year:

€5,851 million) and associates in the amount of €3,129 million (previous year: €2,318 million).

In the fiscal year, under additions to equity-accounted investments, an amount of €1.7 billion is attributable

to the acquisition of shares in Argo AI, a total of €1.0 billion to the acquisition of additional shares in Volkswagen

Anhui) Automotive Company (formerly: JAC Volkswagen Automotive Company) and shares in Anhui Jianghuai

(

Automobile Group Holdings; an amount of €0.5 billion relates to the capital increase at QuantumScape

Corporation and the realization of a forward purchase transaction in this context. Further information on

Argo AI and QuantumScape Corporation can be found in the “Key Events” section.

The main changes in the consolidated Group affecting equity-accounted investments in an amount of

€

–0.8 billion relate to the reclassification of shares in Volkswagen (Anhui) Automotive Company following its first-

time consolidation.

Of the other changes recognized in other comprehensive income, €–239 million (previous year:

€

53 million) is attributable to joint ventures and €–41 million (previous year: €22 million) to associates. They

are mainly the result of foreign exchange differences in the amount of €–319 million (previous year:

94 million), pension plan remeasurements in the amount of €103 million (previous year: €1 million) and fair

value measurement of cash flow hedges in the amount of €16 million (previous year: €–27 million).

€

2

66

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

1

6. Noncurrent and current financial services receivables

FAIR

CARRYING AMOUNT

VALUE

CARRYING AMOUNT

VALUE

€

million

Current

Noncurrent Dec. 31, 2020 Dec. 31, 2020

Current Noncurrent Dec. 31, 2019 Dec. 31, 2019

Receivables from

financing business

Customer financing

Dealer financing

Direct banking

26,758

12,435

307

46,157

1,994

7

72,916

14,428

314

75,296

14,400

315

22,873

16,781

305

49,175

2,512

5

72,048

19,293

310

73,248

19,270

310

39,500

48,157

87,658

90,010

39,958

51,692

91,650

92,827

Receivables from

operating leases

379

–

379

285

–

285

Receivables from

finance leases

18,127

8,006

34,408

52,534

54,604

18,371

35,281

53,652

54,742

5

82,565

140,571

144,994

58,615

86,973

145,588

147,855

The receivables from customer financing and finance leases contained in financial services receivables of

140.6 billion (previous year: €145.6 billion) increased by€21 million (previous year: increased by €2 million)

€

as a result of a fair value adjustment from portfolio hedging.

The receivables from customer and dealer financing are secured by vehicles or real property liens. Of the

receivables, €33 million (previous year: €181 million) was furnished as collateral for financial liabilities and

contingent liabilities.

The receivables from dealer financing include €35 million (previous year: €22 million) receivable from

unconsolidated affiliated companies.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

267

1

7. Noncurrent and current other financial assets

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Positive fair values

of derivative financial

instruments

2,616

3,435

6,051

1,622

1,628

3,250

Receivables from loans,

bonds, profit

participation rights

(

excluding interest)

6,421

4,197

3,234

3,568

832

9,988

5,029

6,639

3,955

3,278

646

9,917

4,601

Miscellaneous financial assets

1

7,834

21,068

12,216

5,553

17,769

Other financial assets include receivables from related parties of €9.7 billion (previous year: €9.7 billion). Other

financial assets amounting to €124 million (previous year: €244 million) were furnished as collateral for financial

liabilities and contingent liabilities. There is no original right of disposal or pledge for the furnished collateral on

the part of the collateral taker.

In addition, miscellaneous financial assets include receivables from restricted deposits that serve as collateral

(mainly under asset-backed securities transactions).

The positive fair values of derivatives relate to the following items:

€

million

Dec. 31, 2020

Dec. 31, 2019

Transactions for hedging

foreign currency risk from assets using fair value hedges

foreign currency risk from liabilities using fair value hedges

interest rate risk using fair value hedges

interest rate risk using cash flow hedges

foreign currency and price risk from future cash flows (cash flow hedges)

Hedging transactions Total

44

14

39

36

819

662

11

13

2,247

3,134

2,917

6,051

785

1,535

1,715

3,250

Assets related to derivatives not included in hedging relationships

Total

Positive fair values of €0 million (previous year: €6 million) were recognized from transactions for hedging

interest rate risk (fair value hedges) used in portfolio hedges.

Further details on derivative financial instruments as a whole are given in the section entitled “Financial

risk management and financial instruments".

2

68

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

1

8. Noncurrent and current other receivables

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Other recoverable income

taxes

4,063

3,318

1,058

1,810

2,867

5,121

5,128

4,244

3,028

7,272

806

1,916

2,722

5,050

4,945

9,995

Miscellaneous receivables

7,381

10,248

Miscellaneous receivables include assets to fund post-employment benefits in the amount of €41 million

previous year: €65 million). This item also includes the share of the technical provisions attributable to

(

reinsurers amounting to €46 million (previous year: €58 million).

Current other receivables are predominantly non-interest-bearing.

Other receivables include contingent receivables from long-term construction contracts recognized in accordance

with project progress. They correspond to the contract assets recognized under contracts with customers and

changed as follows:

€

million

2020

2019

Contingent construction contract receivables Balance at Jan. 1

Additions and disposals

314

64

–

352

–36

–

Changes in consolidated Group

Change in valuation allowances

10

–

1

Classified as held for sale

4

Changes in estimates and assumptions as well as contract modifications

Foreign exchange differences

–

0

2

Contingent construction contract receivables at Dec. 31

389

314

Costs to fulfill contracts were not capitalized in the Volkswagen Group. The Volkswagen Group capitalizes costs to

obtain a contract and amortizes them on a straight-line basis over the life of the contract only if they are material,

the underlying contract has a term of at least one year, and these costs would not have been incurred, if the

corresponding contract had not been entered into. On December 31, 2020, costs to obtain contracts amounting

to €63 million (previous year: €65 million) were recognized as assets. In 2020, amortization charges on capitalized

costs to obtain contracts amounted to €23 million (previous year: €13 million). No impairment losses were

recognized on capitalized costs to obtain contracts in 2020 and 2019.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

269

1

9. Tax assets

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Deferred tax assets

Tax receivables

−

13,486

376

13,486

1,563

−

1,190

13,106

341

13,106

1,531

1,186

1

,186

13,862

15,049

13,447

14,637

Deferred tax assets include an amount of €7,405 million (previous year: €7,490 million) arising from recognition

and measurement differences between IFRS carrying amounts and the tax base, which will reverse within one

year.

2

0. Inventories

€

million

Dec. 31, 2020

Dec. 31, 2019

Raw materials, consumables and supplies

Work in progress

6,966

4,022

27,204

5,337

288

6,099

4,110

30,617

5,699

222

Finished goods and purchased merchandise

Current lease assets

Prepayments

Hedges on inventories

6

–6

43,823

46,742

At the same time as the relevant revenue was recognized, inventories in the amount of €170 billion (previous

year: €192 billion) were included in cost of sales. Loss allowances (excluding lease assets) recognized as expenses

in the reporting period amounted to €697 million (previous year: €672 million). Vehicles with a value amounting

to €320 million (previous year: €340 million) were assigned as collateral for partial retirement obligations.

2

70

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

2

1. Trade receivables

€

million

Dec. 31, 2020

Dec. 31, 2019

Trade receivables from

third parties

12,706

181

3,305

50

13,445

180

unconsolidated subsidiaries

joint ventures

4,283

32

associates

other investees and investors

2

1

16,243

17,941

The fair values of the trade receivables correspond to the carrying amounts.

2

2. Marketable securities

The marketable securities serve to safeguard liquidity. They are mainly short-term fixed-income securities and

shares. Most securities are measured at fair value. Current securities amounting to €661 million (previous year:

€

639 million) were furnished as collateral for financial liabilities and contingent liabilities. There is no original

right of disposal or pledge for the furnished collateral on the part of the collateral taker.

2

3. Cash, cash equivalents and time deposits

€

million

Dec. 31, 2020

Dec. 31, 2019

Bank balances

33,403

507

25,264

659

Checks, cash-in-hand, bills and call deposits

33,909

25,923

Bank balances are held at various banks in different currencies and include time deposits, for example.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

271

2

4. Equity

The subscribed capital of Volkswagen AG is composed of no-par value bearer shares with a notional value of

2.56. As well as ordinary shares, there are preferred shares that entitle the bearer to a €0.06 higher dividend

€

than ordinary shares, but do not carry voting rights.

The Annual General Meeting on May 14, 2019 resolved to create authorized capital of up to €179 million,

expiring on May 13, 2024, to issue new preferred bearer shares.

C H A N G E I N O R D I N A RY A N D P R E FE R R E D S H A R E S A N D SU B S C R I B E D C A P ITA L

SHARES

020

€

2

2019

2020

2019

Balance at January 1

Capital increase

501,295,263

–

501,295,263

–

1,283,315,873

–

1,283,315,873

–

Balance at December 31

501,295,263

1,283,315,873

The capital reserves comprise the share premium totaling €14,225 million (previous year: €14,225 million)

from capital increases, the share premium of €219 million from the issuance of bonds with warrants and an

amount of €107 million appropriated on the basis of the capital reduction implemented in 2006. No amounts

were withdrawn from the capital reserves.

DIV I DE N D PROP OSA L

In accordance with section 58(2) of the Aktiengesetz (AktG – German Stock Corporation Act), the dividend

payment by Volkswagen AG is based on the net retained profits reported in the annual financial statements of

Volkswagen AG prepared in accordance with the German Commercial Code. Based on these annual financial

statements of Volkswagen AG, net retained profits of €4,028 million are eligible for distribution following the

transfer of €3,165 million to the revenue reserves. The Board of Management and Supervisory Board will propose

to the Annual General Meeting that a total dividend of €2,419 million, i.e. €4.80 per ordinary share and

€4.86 per preferred share, be paid from the net retained profits. Shareholders are not entitled to a dividend

payment until it has been resolved by the Annual General Meeting.

A dividend of €4.80 per ordinary share and €4.86 per preferred share was distributed in fiscal year 2020.

2

72

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

HYB RI D CA P ITA L

In June 2020, Volkswagen AG placed two unsecured subordinated hybrid notes with an aggregate principal

amount of €3.0 billion via a subsidiary, Volkswagen International Finance N.V., Amsterdam, the Netherlands

(

VIF). The hybrid notes are perpetual, but may be called unilaterally by VIF. The first possible call date for the first

note (€1.5 billion and a coupon of 3.500%) is after five years, and the first possible call date for the second note

€1.5 billion and a coupon of 3.875%) is after nine years. This resulted in an inflow of cash funds amounting to

2,984 million, less transaction costs of €16 million. Additionally, there were noncash effects from the deferral of

(

€

taxes amounting to €5 million.

Interest may be accumulated depending on whether a dividend is paid to Volkswagen AG shareholders.

Under IAS 32, these hybrid notes must be classified in their entirety as equity. The capital raised was recognized

in equity, less a discount and transaction costs and net of deferred taxes. The interest payments payable to the

noteholders will be recognized directly in equity. IAS 32 only allows these hybrid notes to be classified as debt

once the respective hybrid note is called.

NON CO NTROLL I N G I NT E RE ST S

As of December 31, 2020, noncontrolling interests amounted to €1,734 million (previous year: €1,870 million).

Most of the noncontrolling interests in equity arose as a result of the IPO of the TRATON GROUP in fiscal year 2019.

On February 28, 2020, Volkswagen AG announced that it was planning to increase its interest in AUDI AG

from approximately 99.64% to 100%. On July 31, 2020, the Annual General Meeting of AUDI AG resolved to

implement a squeeze-out under stock corporation law (see “Key events” section).

The table below shows summarized financial information of the TRATON GROUP, including amortized

goodwill and fair value adjustments, which were determined at the acquisition date:

€

million

2020

2019

Equity interest in %¹

Equity interest

10.28

1,495

10.28

1,640

Noncurrent assets

Current assets

29,599

14,401

14,582

15,459

29,623

16,728

14,938

16,664

Noncurrent liabilities

Current liabilities

Sales revenue

22,580

–161

–288

1

26,901

1,517

–316

116

Earnings after tax

Other comprehensive income, net of tax

Dividend paid to noncontrolling interest shareholders

Gross cash flow

1,970

17

3,433

–2,346

1,087

634

Change in working capital

Cash flows from operating activities

Cash flows from investing activities

Net cash flow

1,987

–1,293

694

1,721

1

The percentage only includes direct noncontrolling interests.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

273

2

5. Noncurrent and current financial liabilities

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Bonds

25,909

16,146

18,060

26,735

66,717

21,380

17,273

2,411

92,626

37,526

35,333

29,145

19,789

18,103

17,337

30,252

68,839

20,147

15,337

2,395

88,629

38,250

32,674

32,647

Commercial paper and notes

Liabilities to banks

Deposits business

Loans and miscellaneous

liabilities

794

1,909

5,119

2,702

6,124

1,429

1,002

1,629

5,208

3,058

6,210

Lease liabilities

1,005

88,648

114,809

203,457

87,912

113,556

201,468

2

6. Noncurrent and current other financial liabilities

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Negative fair values of

derivative financial

instruments

1,474

604

1,935

97

3,409

702

2,245

691

1,950

116

4,195

807

Interest payable

Miscellaneous financial

liabilities

8,512

2,224

10,737

7,922

2,434

10,356

10,590

4,257

14,847

10,858

4,499

15,358

2

74

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

The negative fair values of derivatives relate to the following items:

€

million

Dec. 31, 2020

Dec. 31, 2019

Transactions for hedging

foreign currency risk from assets using fair value hedges

foreign currency risk from liabilities using fair value hedges

interest rate risk using fair value hedges

interest rate risk using cash flow hedges

foreign currency and price risk from future cash flows (cash flow hedges)

Hedging transactions Total

39

107

5

116

97

100

53

1,284

1,578

1,831

3,409

2,172

2,435

1,760

4,195

Liabilities related to derivatives not included in hedging relationships

Total

Negative fair values of €101 million (previous year: €63 million) were recognized from transactions for hedging

interest rate risk (fair value hedges) used in portfolio hedges.

Further details on derivative financial instruments as a whole are given in the section entitled “Financial

risk management and financial instruments".

2

7. Noncurrent and current other liabilities

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Payments received on account

of orders

7,484

5,541

13,024

7,474

5,202

12,676

Liabilities relating to

other taxes

3,294

616

110

112

3,404

727

2,812

610

133

162

2,946

772

social security

wages and salaries

Miscellaneous liabilities

4,501

2,085

960

5,462

3,267

25,884

5,848

2,576

19,320

1,008

766

6,856

3,342

26,591

1,183

7,905

1

7,979

7,271

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

275

The liabilities from payments on account received under contracts with customers correspond to contract

liabilities under contracts with customers. They changed as follows:

€

million

2020

2019

Liabilities from advance payments received under contracts with customers at Jan. 1

Additions and disposals

10,907

847

13

9,669

1,245

12

Changes in consolidated Group

Classified as held for sale

–

167

Changes in estimates and assumptions as well as contract modifications

Foreign exchange differences

–

–369

11,398

148

Liabilities from advance payments received under contracts with customers at Dec. 31

10,907

2

8. Tax liabilities

CARRYING AMOUNT

€

million

Current

Noncurrent

Dec. 31, 2020

Current

Noncurrent

Dec. 31, 2019

Deferred tax liabilities

Provisions for taxes

Tax payables

−

2,213

340

4,890

3,292

–

4,890

5,505

340

−

1,876

408

5,007

2,991

–

5,007

4,867

408

2,552

8,181

10,734

2,283

7,998

10,282

Deferred tax liabilities include an amount of €502 million (previous year: €387 million) arising from recognition

and measurement differences between IFRS carrying amounts and the tax base, which will reverse within

one year.

2

76

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

2

9. Provisions for pensions and other post-employment benefits

Provisions for pensions are recognized for commitments in the form of retirement, invalidity and dependents’

benefits payable under pension plans. The benefits provided by the Group vary according to the legal, tax

and economic circumstances of the country concerned, and usually depend on the length of service and

remuneration of the employees.

Volkswagen Group companies provide occupational pensions under both defined contribution and defined

benefit plans. In the case of defined contribution plans, the Company makes contributions to state or private

pension schemes based on legal or contractual requirements, or on a voluntary basis. Once the contributions

have been paid, there are no further obligations for the Volkswagen Group. Current contributions are recognized

as pension expenses of the period concerned. In 2020, they amounted to a total of €2,622 million (previous year:

€2,565 million) in the Volkswagen Group. Of this figure, contributions to the compulsory state pension system

in Germany amounted to €1,826 million (previous year: €1,796 million).

In the case of defined benefit plans, a distinction is made between pensions funded by provisions and

externally funded plans.

The pension provisions for defined benefits are measured by independent actuaries using the internationally

accepted projected unit credit method in accordance with IAS 19, under which the future obligations are

measured on the basis of the ratable benefit entitlements earned as of the balance sheet date. Measurement

reflects actuarial assumptions as to discount rates, salary and pension trends, employee turnover rates, longevity

and increases in healthcare costs, which were determined for each Group company depending on the economic

environment. Remeasurements arise from differences between what has actually occurred and the prior-year

assumptions, from changes in assumptions, as well as from gains or losses on plan assets, excluding amounts

included in net interest income or expenses. They are recognized in other comprehensive income, net of

deferred taxes, in the period in which they arise.

Multi-employer pension plans exist in the Volkswagen Group in the United Kingdom, Switzerland, Sweden

and the Netherlands. These plans are defined benefit plans. A small proportion of them are accounted for as

defined contribution plans, as the Volkswagen Group is not authorized to receive the information required in

order to account for them as defined benefit plans. Under the terms of the multi-employer plans, the

Volkswagen Group is not liable for the obligations of the other employers. In the event of its withdrawal from

the plans or their winding-up, the proportionate share of the surplus of assets attributable to the Volkswagen

Group will be credited or the proportionate share of the deficit attributable to the Volkswagen Group will have

to be funded. In the case of the defined benefit plans accounted for as defined contribution plans, the

Volkswagen Group’s share of the obligations represents a small proportion of the total obligations. No probable

significant risks arising from multi-employer defined benefit pension plans that are accounted for as defined

contribution plans have been identified. The expected contributions to those plans will amount to €25 million

for fiscal year 2021.

Owing to their benefit character, the obligations of the US Group companies in respect of post-employment

medical care in particular are also carried under provisions for pensions and other post-employment benefits.

These post-employment benefit provisions take into account the expected long-term rise in the cost of

healthcare. In fiscal year 2020, €15 million (previous year: €18 million) was recognized as an expense for

healthcare costs. The related carrying amount as of December 31, 2020 was €228 million (previous year:

€266 million).

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

277

The following amounts were recognized in the balance sheet for defined benefit plans:

€

million

Dec. 31, 2020

Dec. 31, 2019

Present value of funded obligations

Fair value of plan assets

24,101

13,264

10,838

34,200

2

21,090

12,478

8,613

32,710

2

Funded status (net)

Present value of unfunded obligations

Amount not recognized as an asset because of the ceiling in IAS 19

Net liability recognized in the balance sheet

of which provisions for pensions

of which other assets

45,040

45,081

41

41,324

41,389

65

SIG N I FICA NT P E NS IO N A RRA N G E M E NT S I N T H E VOLKSWAG E N G ROU P

For the period after their active working life, the Volkswagen Group offers its employees benefits under attractive,

modern occupational pension arrangements. Most of the arrangements in the Volkswagen Group are pension

plans for employees in Germany classified as defined benefit plans under IAS 19. The majority of these

obligations are funded solely by recognized provisions. These plans are now largely closed to new members. To

reduce the risks associated with defined benefit plans, in particular longevity, salary increases and inflation, the

Volkswagen Group has introduced new defined benefit plans in recent years whose benefits are funded by

appropriate external plan assets. The aforementioned risks have been largely reduced in these pension plans.

The proportion of the total defined benefit obligation attributable to pension obligations funded by plan assets

will continue to rise in the future. The significant pension plans are described in the following.

German pension plans funded solely by recognized provisions

The pension plans funded solely by recognized provisions comprise both contribution-based plans with

guarantees and final salary plans. For contribution-based plans, an annual pension expense dependent on

income and status is converted into a lifelong pension entitlement using annuity factors (guaranteed modular

pension entitlements). The annuity factors include a guaranteed rate of interest. At retirement, the modular

pension entitlements earned annually are added together. For final salary plans, the underlying salary is

multiplied at retirement by a percentage that depends on the years of service up until the retirement date.

The present value of the guaranteed obligation rises as interest rates fall and is therefore exposed to interest

rate risk.

The pension system provides for lifelong pension payments. The companies bear the longevity risk in this

respect. This is accounted for by calculating the annuity factors and the present value of the guaranteed

obligation using the latest generational mortality tables – the “Heubeck 2018 G” mortality tables – which

already reflect future increases in life expectancy.

To reduce the inflation risk from adjusting the regular pension payments by the rate of inflation, a pension

adjustment that is not indexed to inflation was introduced for pension plans where this is permitted by law.

2

78

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

German pension plans funded by external plan assets

The pension plans funded by external plan assets are contribution-based plans with guarantees. In this case,

an annual pension expense dependent on income and status is either converted into a lifelong pension

entitlement using annuity factors (guaranteed modular pension entitlement) or paid out in a single lump sum

or in installments. In some cases, employees also have the opportunity to provide for their own retirement

through deferred compensation. The annuity factors include a guaranteed rate of interest. At retirement, the

modular pension entitlements earned annually are added together. The pension expense is contributed on an

ongoing basis to a separate pool of assets that is administered independently of the Company in trust and

invested in the capital markets. If the plan assets exceed the present value of the obligations calculated using

the guaranteed rate of interest, surpluses are allocated (modular pension bonuses).

Since the assets administered in trust meet the IAS 19 criteria for classification as plan assets, they are deducted

from the obligations.

The amount of the pension assets is exposed to general market risk. The investment strategy and its

implementation are therefore continuously monitored by the trusts’ governing bodies, on which the companies

are also represented. For example, investment policies are stipulated in investment guidelines with the aim of

limiting market risk and its impact on plan assets. In addition, asset-liability management studies are conducted if

required so as to ensure that investments are in line with the obligations that need to be covered. The pension

assets are currently invested primarily in fixed-income or equity funds. The main risks are therefore interest

rate and equity price risk. To mitigate market risk, the pension system also provides for cash funds to be set

aside in an equalization reserve before any surplus is allocated.

The present value of the obligation is the present value of the guaranteed obligation after deducting the

plan assets. If the plan assets fall below the present value of the guaranteed obligation, a provision must be

recognized in that amount. The present value of the guaranteed obligation rises as interest rates fall and is

therefore exposed to interest rate risk.

In the case of lifelong pension payments, the Volkswagen Group bears the longevity risk. This is accounted for

by calculating the annuity factors and the present value of the guaranteed obligation using the latest generational

mortality tables – the “Heubeck 2018 G” mortality tables – which already reflect future increases in life

expectancy. In addition, the independent actuaries carry out annual risk monitoring as part of the review

of the assets administered by the trusts.

To reduce the inflation risk from adjusting the regular pension payments by the rate of inflation, a pension

adjustment that is not indexed to inflation was introduced for pension plans where this is permitted by law.

Calculation of the pension provisions was based on the following actuarial assumptions:

GERMANY

2020

ABROAD

2020

%

2019

Discount rate at December 31

Payroll trend

0.70

3.31

1.49

1.16

–

1.09

3.59

1.50

1.24

–

1.70

2.74

2.50

4.36

5.30

2.30

2.88¹

2.68

3.75

5.56

Pension trend

Employee turnover rate

Annual increase in healthcare costs

1

Prior-year figures adjusted.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

279

These assumptions are averages that were weighted using the present value of the defined benefit obligation.

With regard to life expectancy, consideration is given to the latest mortality tables in each country. The dis-

count rates are generally defined to reflect the yields on prime-rated corporate bonds with matching maturities

and currencies. The iBoxx AA Corporate Bond index was taken as the basis for the obligations of German Group

companies. Similar indices were used for foreign pension obligations.

Some steps in the calculation of the EUR discount rate were adjusted in the course of the fiscal year in order to

better reflect the persistently low interest rates in the valuation technique. The adjustment resulted in an increase

in the discount rate by 0.1 percentage points and, consequently, a €1.4 billion decrease in actuarial losses.

The payroll trends cover expected wage and salary trends, which also include increases attributable to

career development.

The pension trends either reflect the contractually guaranteed pension adjustments or are based on the

rules on pension adjustments in force in each country.

The employee turnover rates are based on past experience and future expectations.

The following table shows changes in the net defined benefit liability recognized in the balance sheet:

€

million

2020

2019

Net liability recognized in the balance sheet at January 1

Current service cost

41,324

2,215

459

–420

4,393

–394

677

0

33,022

1,555

660

–67

8,689

27

Net interest expense

Actuarial gains (–)/losses (+) arising from changes in demographic assumptions

Actuarial gains (–)/losses (+) arising from changes in financial assumptions

Actuarial gains (–)/losses (+) arising from experience adjustments

Income/expenses from plan assets not included in interest income

Change in amount not recognized as an asset because of the ceiling in IAS 19

Employer contributions to plan assets

654

21

929

–8

969

–9

Employee contributions to plan assets

Pension payments from company assets

885

–99

7

873

–25

2

Past service cost (including plan curtailments)

Gains (–) or losses (+) arising from plan settlements

Changes in consolidated Group

11

–3

Classified as held for sale

–

14

Other changes

25

–8

Foreign exchange differences from foreign plans

Net liability recognized in the balance sheet at December 31

–1

–4

45,040

41,324

The change in the amount not recognized as an asset because of the ceiling in IAS 19 contains an interest

component, part of which was recognized in the financial result in profit or loss, and part of which was recognized

outside profit or loss directly in equity.

2

80

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

The change in the present value of the defined benefit obligation is attributable to the following factors:

€

million

2020

2019

Present value of obligations at January 1

Current service cost

53,800

2,215

631

43,918

1,555

921

–67

8,689

27

Interest cost

Actuarial gains(–)/losses (+) arising from changes in demographic assumptions

Actuarial gains(–)/losses (+) arising from changes in financial assumptions

Actuarial gains(–)/losses (+) arising from experience adjustments

Employee contributions to plan assets

Pension payments from company assets

Pension payments from plan assets

–420

4,393

–394

17

19

885

873

300

–25

–8

292

Past service cost (including plan curtailments)

Gains (–) or losses (+) arising from plan settlements

Changes in consolidated Group

–99

7

16

–7

Classified as held for sale

–

182

–2

Other changes

–471

–219

58,301

Foreign exchange differences from foreign plans

Present value of obligations at December 31

135

53,800

In fiscal year 2020, a pension plan in the USA funded by external plan assets was settled. The resulting decrease

in the present value of the defined benefit obligation in the amount of €520 million is shown under other

changes. The plan settlement led to a loss of €7 million.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

281

Changes in the relevant actuarial assumptions would have had the following effects on the defined benefit

obligation:

DEC. 31, 2020

DEC. 31, 2019

Present value of defined benefit obligation if

Discount rate

€ million Change in percent

is 0.5

percentage

points higher

52,604

64,981

61,360

55,552

58,808

–9.77

11.46

5.25

48,598

59,888

56,633

51,258

54,331

–9.67

11.32

5.27

is 0.5

percentage

points lower

is 0.5

percentage

points higher

Pension trend

is 0.5

percentage

points lower

–4.71

0.87

–4.73

0.99

is 0.5

percentage

points higher

Payroll trend

Longevity

is 0.5

percentage

points lower

57,843

60,385

–0.79

3.57

53,319

55,719

–0.89

3.57

increases by

one year

The sensitivity analysis shown above considers the change in one assumption at a time, leaving the other

assumptions unchanged versus the original calculation, i.e. any correlation effects between the individual

assumptions are ignored.

To examine the sensitivity of the defined benefit obligation to a change in assumed longevity, the estimates

of mortality were reduced as part of a comparative calculation to the extent that doing so increases life

expectancy by approximately one year.

The average duration of the defined benefit obligation weighted by the present value of the defined benefit

obligation (Macaulay duration) is 21 years (previous year: 22 years).

2

82

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

The present value of the defined benefit obligation is attributable as follows to the members of the plan:

€

million

2020

2019

Active members with pension entitlements

Members with vested entitlements who have left the Company

Pensioners

36,124

3,642

33,027

3,136

18,535

17,637

53,800

58,301

The maturity profile of payments attributable to the defined benefit obligation is presented in the following

table, which classifies the present value of the obligation by the maturity of the underlying payments:

€

million

2020

2019

Payments due within the next fiscal year

Payments due between two and five years

Payments due in more than five years

1,162

5,334

1,161

5,121

51,806

47,518

53,800

5

8,301

Changes in plan assets are shown in the following table:

€

million

2020

2019

Fair value of plan assets at January 1

12,478

172

677

929

9

10,920

261

654

969

9

Interest income on plan assets determined using the discount rate

Income/expenses from plan assets not included in interest income

Employer contributions to plan assets

Employee contributions to plan assets

Pension payments from plan assets

291

–

299

10

Gains (+) or losses (–) arising from plan settlements

Changes in consolidated Group

5

–5

Classified as held for sale

–

167

7

Other changes

–496

–219

13,264

Foreign exchange differences from foreign plans

Fair value of plan assets at December 31

139

12,478

Other changes in fiscal year 2020 resulted primarily from the derecognition of plan assets in the context of the

settlement of a pension plan in the USA funded by external plan assets.

The investment of the plan assets to cover future pension obligations resulted in income of €849 million

(previous year: income of €915 million).

Employer contributions to plan assets are expected to amount to €851 million (previous year: €927 million)

in the next fiscal year.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

283

Plan assets are invested in the following asset classes:

DEC. 31, 2020

DEC. 31, 2019

Quoted prices

in active markets

No quoted prices

in active markets

Quoted prices

in active markets

No quoted prices

in active markets

€

million

Total

Cash and cash equivalents

Equity instruments

Debt instruments

628

264

496

–

628

264

496

501

401

850

–

5

501

401

855

Direct investments in real

estate

–

20

121

–6

121

14

–

15

110

–28

20

110

–13

Derivatives

Equity funds

Bond funds

3,640

6,011

190

15

3,655

6,144

190

2,653

5,729

170

2,673

5,857

170

133

–

128

–

Real estate funds

Other funds

1,315

48

28

1,344

408

1,225

83

22

1,247

676

Other instruments

360

594

Plan assets include €12 million (previous year: €14 million) invested in Volkswagen Group assets and

5 million (previous year: €14 million) in Volkswagen Group debt instruments.

€

The following amounts were recognized in the income statement:

€

million

2020

2019

Current service cost

2,215

459

–99

7

1,555

662

–25

2

Net interest on the net defined benefit liability

Past service cost (including plan curtailments)

Gains (–) or losses (+) arising from plan settlements

Net income (–) and expenses (+) recognized in profit or loss

2,583

2,194

The above amounts are generally included in the personnel costs of the functional areas in the income

statement. Net interest on the net defined benefit liability is reported in interest expenses.

2

84

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

3

0. Noncurrent and current other provisions

Obligations

arising from

Employee

expenses

Litigation and

legal risks

Miscellaneous

provisions

€

million

sales

Total

Balance at Jan. 1, 2019¹

Foreign exchange differences

Changes in consolidated Group

Classified as held for sale

Utilization

27,035

199

5,155

15

4,913

–14

–1

7,639

41

44,742

241

–1

3

0

2

33

10

–

12

55

9,442

11,618

1,899

2,633

1,913

2,835

2,404

3,486

15,658

20,572

Additions/New provisions

Unwinding of discount/effect of change in

discount rate

3

2,391

26,988

13,468

13,520

26,988

–653

225

128

–29

531

20

795

220

3,845

Reversals

Balance at Dec. 31, 2019

of which current

5,993

2,466

3,527

5,993

–56

5,260

3,112

2,147

5,260

–170

0

7,976

5,388

2,588

7,976

–222

522

46,217

24,434

21,783

46,217

–1,101

556

of which noncurrent

Balance at Jan. 1, 2020

Foreign exchange differences

Changes in consolidated Group

Utilization

18

16

9,625

10,890

2,275

2,707

2,347

1,781

2,086

4,393

16,333

19,771

Additions/New provisions

Unwinding of discount/effect of change in

discount rate

17

1,637

108

223

–20

586

0

1,117

9,465

6,359

3,107

105

3,564

Reversals

Balance at Dec. 31, 2020

of which current

of which noncurrent

25,998

12,394

13,604

6,270

2,174

4,096

3,918

2,037

1,881

45,652

22,964

22,688

1

Due to the initial application of IFRS 16, the values in the opening balance were adjusted.

The obligations arising from sales contain provisions covering all risks relating to the sale of vehicles, components

and genuine parts through to the disposal of end-of-life vehicles. They primarily comprise warranty obligations,

calculated on the basis of losses to date and estimated future losses. They also include provisions for discounts,

bonuses and similar allowances which are incurred after the balance sheet date, but for which there is a legal or

constructive obligation attributable to sales revenue before the balance sheet date.

Provisions for employee expenses are recognized for long-service awards, time credits, partial retirement

arrangements, severance payments and similar obligations, among other things.

In addition to residual provisions relating to the diesel issue, the provisions for litigation and legal risks

contain amounts related to a large number of legal disputes and official proceedings in which Volkswagen

Group companies become involved in Germany and internationally in the course of their operating activities.

In particular, such legal disputes and other proceedings may occur in relation to suppliers, dealers, customers,

employees, or investors. Please refer to the “Litigation” section for a discussion of the legal risks.

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

285

Miscellaneous provisions relate to a wide range of identifiable specific risks, price risks and uncertain obligations,

which are measured in the amount of the expected settlement value. Depending the jurisdiction concerned,

they also include risk provisions for any non-compliance with legal emissions limits. Their measurement takes

into account, among other things, the respective sales volume and the legally defined fee or the cost of

acquiring emission rights from other manufacturers. Advantage has been taken of synergies between individual

brands of the Volkswagen Group by establishing emission pools where possible.

Miscellaneous provisions additionally include provisions amounting to €1,265 million (previous year:

€568 million) relating to the insurance business. The increase is mainly due to the expansion of the consolidated

Group following an initial consolidation.

3

1. Trade payables

€

million

Dec. 31, 2020

Dec. 31, 2019

Trade payables to

third parties

22,163

186

156

167

3

21,948

222

unconsolidated subsidiaries

joint ventures

375

associates

195

other investees and investors

5

22,677

22,745

2

86

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

Other disclosures

3

2. IAS 23 (Borrowing Costs)

Capitalized borrowing costs amounted to €65 million (previous year: €68 million) and related mainly to capitalized

development costs. An average cost of debt of 1.5% (previous year: 1.6%) was used as a basis for capitalization in

the Volkswagen Group.

3

3. IFRS 16 (Leases)

1

. LE SSEE ACCOU NTI NG

The Volkswagen Group is a lessee, mainly as a result of leasing office equipment, real estate and other means of

production. The leases are negotiated individually and include a large number of contract terms and conditions.

The following amounts for right-of-use assets resulting from leases are included in the balance sheet items:

PRE SEN TATI ON O F AN D C HAN GE S I N R IGH T- OF-U S E AS SET S FROM LEA SE S FO R TH E PERI OD

FROM JA N UA RY 1 TO D E CE M B E R 31 , 2 0 19

Right of use on

land, land rights

and buildings incl.

buildings on third

party land

Right of use on

technical

equipment and

machinery

Right of use on

other equipment,

operational and

office equipment

€

million

Total

Cost

Balance at Jan. 1, 2019

5,139

82

77

0

294

1

5,510

83

Foreign exchange differences

Changes in consolidated group

Additions

13

–

0

13

1,201

–8

5

459

–5

1

1,666

–52

10

Transfers

–39

–

Classified as held for sale

Disposals

9

166

6,253

0

11

738

177

7,034

Balance at Dec. 31, 2019

44

Depreciation and impairment

Balance at Jan. 1, 2019

63

3

17

0

4

0

84

4

Foreign exchange differences

Changes in consolidated group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

1

–

1

810

–

6

126

–

942

–

–8

1

–

0

–8

1

Classified as held for sale

Disposals

–

0

19

–

0

4

23

0

Reversal of impairment losses

Balance at Dec. 31, 2019

–

0

848

5,404

23

21

126

611

998

6,036

Carrying amount at Dec. 31, 2019

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

287

PRE SEN TATI ON O F AN D C HAN GE S I N R IGH T- OF-U S E AS SET S FROM LEA SE S FO R TH E PERI OD

FROM JA N UA RY 1 TO D E CE M B E R 31 , 2 0 20

Right of use on

land, land rights

and buildings incl.

buildings on third

party land

Right of use on

technical

equipment and

machinery

Right of use on

other equipment,

operational and

office equipment

€

million

Total

Cost

Balance at Jan. 1, 2020

6,253

–210

47

44

–3

–

738

–8

7

7,034

–221

54

Foreign exchange differences

Changes in consolidated group

Additions

1,240

–24

16

–1

1

102

2

1,358

–23

Transfers

Disposals

297

97

744

394

Balance at Dec. 31, 2020

7,009

56

7,809

Depreciation and impairment

Balance at Jan. 1, 2020

848

–37

5

23

–2

–

126

–3

1

998

–43

6

Foreign exchange differences

Changes in consolidated group

Additions to cumulative depreciation

Additions to cumulative impairment losses

Transfers

896

27

8

158

1

1,062

27

–

0

–1

78

0

–1

Disposals

130

0

209

0

Reversal of impairment losses

Balance at Dec. 31, 2020

0

1,608

5,401

28

27

204

540

1,840

5,969

Carrying amount at Dec. 31, 2020

Subleases of right-of-use assets generated income of €16 million (previous year: €20 million) in the fiscal year.

The measurement of right-of-use assets from leases and the associated lease liabilities is based on a best

estimate regarding the exercise of extension and termination options. If there are material changes in

circumstances or in the contract, this estimate is updated.

2

88

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

The tables below show how the lease liabilities are assigned in the balance sheet and give an overview of their

contractual maturities:

A S SIG NM E N T O F L EA SE L I A B I L I T I E S TO T H E R E SP E CT I V E BA L A N CE S H E E T I T E M S

€

million

Dec. 31, 2020

Dec. 31, 2019

Financial liabilities – Noncurrent

Financial liabilities – Current

Lease liabilities – Total

5,119

1,005

6,124

5,208

1,002

6,210

M ATU RITY A NA LY SI S OF LEA SE L I A B I LI TI E S

REMAINING

CONTRACTUAL MATURITIES

within one

€

million

under one year

to five years

over five years

Total

Lease liabilities at Dec. 31, 2020

Lease liabilities at Dec. 31, 2019

1,005

1,002

2,591

2,613

2,528

2,595

6,124

6,210

Interest expenses of €216 million (previous year: €230 million) were incurred for lease liabilities in the fiscal

year.

No right-of-use assets are recognized for low-value or short-term leases. Expenses for leasing low-value assets

totaled €285 million (previous year: €270 million) in the fiscal year. This figure does not include any expenses for

short-term leases, which totaled €268 million (previous year: €333 million) in the fiscal year. Variable lease

expenses not included in the measurement of lease liabilities accounted for €1 million (previous year:

€

1 million) in the fiscal year.

Leases gave rise to cash outflows totaling €1,865 million (previous year: €1,797 million) in the fiscal year.

The table below shows a summary of potential future cash outflows, that have not been included in the

measurement of the lease liabilities:

€

million

2020

2019

Future cash outflows to which the lessee is potentially exposed

Variable lease payments

0

1

0

Residual value guarantees

Extension options

3,350

8

3,575

3

Termination options

Obligations under leases not yet commenced

270

359

3,938

3

,628

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

289

2

. LE S SO R ACCO U NTI N G

The Volkswagen Group is a lessor in both the finance lease business and the operating lease business. The subject

of these transactions is primarily motor vehicles and, to a small extent, land and buildings and items of

equipment for dealerships.

The Volkswagen Group fully accounts for the default risk on lease receivables by recognizing loss allowances,

which are recognized in accordance with the requirements of IFRS 9. As lessor, the Volkswagen Group covers

risks arising from the assets underlying the leases by, among other measures, taking account of residual value

guarantees received for parts of the lease portfolio and by taking account of forward-looking residual values

forecast on the basis of internal and external information as part of residual value management. The forecast

residual values are regularly reviewed.

2

. 1 OP ERATI N G L EA SE S

Assets leased under long-term operating leases amounted to €51,244 million at the end of the fiscal year (previous

year: €49,476 million). While €558 million (previous year: €538 million) is attributable to investment property,

assets separately reported as lease assets in the balance sheet amount to €50,686 million (previous year:

€

48,938 million). They relate primarily to vehicles in an amount of €50,605 million (previous year:

48,853 million) as well as land, land rights and buildings, including buildings on third-party land, in an

amount of €79 million (previous year: €78 million). The remaining assets relate to technical equipment and

machinery as well as other equipment, operating and office equipment. More information on changes in value of

investment property and lease assets can be found in the section entitled “Lease assets and investment property”.

The following cash inflows from expected outstanding, non-discounted operating lease payments are expected

over the coming years:

DI SC LO SU RE A S OF DE CE M B E R 3 1, 2 0 1 9

€

million

2020

2021

2022

2023

2024

From 2025

Total

Lease payments¹

8,138

5,526

3,139

829

338

344

18,315

1

Prior-year figures adjusted.

DI SC LO SU RE A S OF DE CE M B E R 3 1, 2 0 2 0

€

million

2021

2022

2023

2024

2025

From 2026

Total

Lease payments

7,893

5,636

3,178

1,220

452

362

18,741

B REA K D OWN O F I NCOM E F R O M O P E RATI NG L EA S E S

€

million

2020

2019

Lease income

12,429

7

12,014

13

Income from variable lease payments

Total

12,436

12,027

2

90

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

2

. 2 FI NA N CE LEA SE S

Interest income from the net investment in the leases amounted to €2.4 billion (previous year: €2.4 billion) in

the fiscal year. Furthermore, a selling profit from the finance leases in the amount of €0.8 billion (previous year:

€

1.2 billion) was recognized.

The following table shows the reconciliation of outstanding lease payments under finance leases to the net

investment:

€

million

Dec. 31, 2020

Dec. 31, 2019

Non-discounted lease payments

Non-guaranteed residual value

Unearned interest income

Loss allowance on lease receivables

Net investment

53,162

4,255

54,302

4,112

–3,468

–1,414

52,534

–3,789

–971

53,652

The following cash inflows from expected outstanding, non-discounted finance lease payments are expected

over the coming years:

DI SC LO SU RE A S OF DE CE M B E R 3 1, 2 0 1 9

€

million

2020

2021

2022

2023

2024

From 2025

Total

Lease payments

19,428

14,590

12,179

6,883

847

373

54,302

DI SC LO SU RE A S OF DE CE M B E R 3 1, 2 0 2 0

€

million

2021

2022

2023

2024

2025

From 2026

Total

Lease payments

19,059

15,299

12,051

5,684

612

456

53,162

Consolidated Financial Statements

Notes to the Consolidated Financial Statements

291

3

4. IFRS 7 (Financial Instruments)

The table below shows the carrying amounts of financial instruments by measurement category:

CA RRYI N G AMOU NT OF FI NA NC IA L I N STR UMEN T S BY I FR S 9 M EASU REME NT CAT EGO RY

€

million

Dec. 31, 2020

Dec. 31, 2019

Financial assets at fair value through profit or loss

Financial assets at fair value through other comprehensive income (debt instruments)

Financial assets at fair value through other comprehensive income (equity instruments)

of which classified as held for sale

21,898

3,545

152

16,331

3,139

68

–

3

Financial assets measured at amortized cost

151,497

–

149,203

158

of which classified as held for sale

Financial liabilities at fair value through profit or loss

Financial liabilities measured at amortized cost

2,403

230,904

–

1,760

229,229

44

of which classified as held for sale

CL A SS ES O F FI NA NCIA L I N STR UME NT S

Financial instruments are divided into the following classes at the Volkswagen Group:

>

financial instruments measured at fair value;

financial instruments measured at amortized cost;

derivative financial instruments within hedge accounting;

not allocated to any measurement category; and

credit commitments and financial guarantees (off-balance sheet).

RECO NC I L IATI ON OF BA L A NCE S H EET IT EM S TO C L AS SE S OF F I NA N CIAL I N STRUMEN TS

The following table shows the reconciliation of the balance sheet items to the relevant classes of financial

instruments, broken down by the carrying amount and fair value of the financial instruments.

The fair value of financial instruments measured at amortized cost, such as receivables and liabilities, is

calculated by discounting using a market rate of interest for a similar risk and matching maturity. For reasons

of materiality, the fair value of current balance sheet items is generally deemed to be their carrying amount.

For reconciliation to the carrying amounts, the “Not allocated to a measurement category” column in the table

also includes items other than financial instruments.

The risk variables governing the fair value of the receivables are risk-adjusted interest rates.

“

Financial instruments measured at fair value” also include shares in partnerships and corporations.

2

92

Notes to the Consolidated Financial Statements

Consolidated Financial Statements

RE CO NC I L IATI ON OF BA L A NCE S H E E T IT E M S TO C L A S SE S OF F I NA N CIA L I N STRU M E N TS A S OF D E CE M B E R 3 1, 20 1 9

DERIVATIVE

FINANCIAL

INSTRUMENTS

NOT

ALLOCATED

TO A

MEASURED

AT FAIR

VALUE

BALANCE

MEASURED AT

AMORTIZED COST

WITHIN HEDGE MEASUREMENT SHEET ITEM AT

ACCOUNTING