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+++ In the first quarter of 2018, AUDI surpassed its revenue and operating profit of the prior-year period. The operating return on sales of 8.5 % was once again within the strategic target corridor. This year, the brand with the Four Rings will launch more new models than ever before in the company’s history, including the first fully electric Audi as a volume model. In addition to the management of model launches and phase-outs in the context of the Audi model initiative, which will be particularly intensive in the second half of the year, challenges arise from new industry-wide homologation requirements. From January through March, the company delivered 463,788 automobiles of the Audi brand (2017: 422,481), which is 9.8 % more than in the same period of last year. Unit sales increased significantly especially in North America (+10.2%) and China (+41.9%). Deliveries of Audi cars had decreased in China in the prior-year period in connection with the company’s discussions on its strategic alignment in that market. Assigned profits from the Chinese joint-venture business are included in the financial result of Audi and do not flow into operating profit. Despite slightly negative exchange-rate effects, the Audi Group’s revenue increased in the first 3 months of this year by 6.6 % to 15,320 million euro (2017: 14,378 million euro). Positive impacts originated from new models that have been successfully established in the market such as the second generations of the Q5 and A5. First-quarter operating profit amounts to 1,300 million euro (2017: 1,244 million euro), which is 4.5 % more than in the first quarter of last year. There was a negative impact of about 0.1 billion euro on operating profit from first-time adoption of new IFRS accounting standards involving changes to revenue recognition and the measurement of financial instruments. This does not affect profit before and after tax, however. The operating return on sales for the first quarter is 8.5 % (2017: 8.7%). If the business in China were included in the calculation, the operating margin would be approximately one percentage point higher. “With these results, we have prepared solid foundations for the exceptional year 2018”, says Alexander Seitz, Member of the Board of Management for Finance, IT and Integrity. “Our unparalleled model and technology initiative will challenge us even more in the coming months. In this context, it will help that we are systematically implementing our Action and Transformation Plan on a broad basis and are continuing to strengthen our efficiency. Since January, we have already taken the first measures amounting to a low three-digit million figure”. With this program of measures, the company is underpinning its profitability targets and self-financing strength for the far-reaching strategic change in line with the strategy ‘Audi. Vorsprung. 2025’. Key objectives of the Action and Transformation Plan are positive earnings effects totaling 10 billion euro by 2022, as well as the organizational realignment for future business models and the brand’s initiative in electric mobility. The Audi Group achieved profit before tax of 1,426 million euro in the first quarter, at the level of the prior-year period (2017: 1,427 million euro). Financial result was slightly lower than in the first quarter of last year, when it had been driven above all by a positive one-time effect of 183 million euro from the sale and remeasurement of shares held in the Here mapping service. Increased cost and investment discipline along with consistent prioritization of future projects, as called for by the Action and Transformation Plan, contributed to a significant increase in the net cash flow in the first quarter. Despite high upfront expenditures for new models, technologies and production equipment, it amounted to 1,919 million euro (2017: 1,487 million euro). This increase also reflects cash inflows from changes in equity interests. For full-year 2018, the Audi Group continues to expect an operating return on sales within the strategic target corridor of 8 to 10 %. The company anticipates deliveries of Audi automobiles at the prior-year level and a slight increase in the revenue of the Audi Group. As forecast in the current annual report, there may be considerable fluctuations in deliveries and financial key figures during the year. In addition to the intensive management of model launches and phase-outs in the context of the Audi model initiative, challenges arise from industry-wide homologation requirements relating to the changeover to the Worldwide Harmonized Light Vehicles Test Procedure (WLTP). +++

+++ In the United Kingdom, new sales of petrol and diesel cars, as well as conventional hybrids such as the Toyota Prius, will be BANNED from 2040. Dubbed Road to Zero, the forthcoming rules will prohibit the sale of new cars that are incapable of travelling for 80 kilometers or more on battery power alone. While current plug-in hybrids (PHEVs) such as the Audi A3 e-tron can only travel around 50 kilometers on a single charge, it is likely PHEV standards will have improved enough to meet the 80 kilometers target by 2040. Alternatively-fuelled vehicles (or AFVs; essentially hybrids, electric vehicles (EVs) and hydrogen cars) currently only make up 5.6 % of new car sales, but numbers are rising rapidly. Last month they increased in popularity by almost 50 %. The UK isn’t alone in announcing a ban on the sale of diesel and petrol vehicles from 2040. France’s newly elected president, Emmanuel Macron, announced a similar ban earlier this month in order to ensure the country is able to meet emissions targets agreed under the Paris climate accord. +++

+++ We’ve seen countless spy photos of the BMW 8-Series over the past few months but new details are starting to emerge about the model. BMW will offer an M8 variant which is expected to use an upgraded version of the M5’s engine. It develops 625 hp. +++

+++ BUGATTI recently gave a small group of hand-selected customers a preview of an upcoming Chiron off-shoot. While most key details remain under wraps, the yet-unnamed model promises to split public opinion. Some called the model “controversial” without providing further details. It won’t look anything like the standard Chiron so it’s not merely an appearance package. What could the brand have in store? Speculation leads us to the possibility of a retro-styled model, one inspired by the company’s illustrious past. The model will receive the Chiron’s stock engine, a quad-turbocharged 8.0-liter 16-cylinder that pumps out about 1.500 horsepower. It transfers its monstrous output to the 4 wheels and gives the Chiron a 2.5-second zero-to-hundred time. Bugatti hasn’t revealed anything about the model; I don’t know what it will be called or when it will break cover. If it’s already been shown to prospective customers, there’s a good chance it will make its public debut before the end of the year. The French brand could unveil it on the auto show circuit, so likely in Paris or in Los Angeles, or it could select a more exclusive event like the Pebble Beach Concours d’Elegance. Production will be “pretty limited” and it’s not unreasonable to assume most (if not all) of the production run has already been spoken for. +++

+++ The ousting of Johan de Nysschen as CADILLAC chief executive appears to mark a shift in strategy for General Motors. During his tenure at the head of the historic brand, de Nysschen pushed to distinguish Cadillac from General Motors and radically expanded its presence in Europe and China in a bid to rival BMW, Mercedes-Benz, and Audi. However, De Nysschen’s bold revamp of Cadillac may have been too radical for General Motors. “There’s no question Johan is a visionary automotive leader, but given General Motors’ conservative culture, he may have pushed things a step too far”, said executive director of industry analysis at Edmunds, Jessica Caldwell. “It feels like Johan spent too much time chasing the German brands instead of embracing Cadillac’s unique heritage”. Taking over from De Nysschen will be Steve Carlisle, the head of General Motors Canada. Like General Motors president Dan Ammann, Carlisle has championed mobility and technology as areas where General Motors can grow. The conglomerate appears to think that Ammann is the best man for the job moving into a future potentially dominated by mobility and autonomous technologies. “Looking forward, the world is changing rapidly, and, beginning with the launch of the new XT4, it is paramount that we capitalize immediately on the opportunities that arise from this rate of change”, Ammann said. With Carlisle in charge, General Motors appears to want to bring Cadillac back under a unified corporate vision, rather than having it chase its own targets and objectives. +++

+++ FORD has already said the upcoming Mustang Hybrid will be “all about delivering V8-like performance with more low-end torque” and now we’re starting to learn how much power the model could actually have. The Mustang Hybrid will likely be equipped with a 2.3-liter EcoBoost 4-cylinder engine. An electric motor will be sandwiched in between the engine and the car’s transmission. Speaking of the latter, the model could have a 10-speed automatic gearbox instead of a continuously variable transmission like the Fusion/Mondeo Hybrid. The model will be a conventional hybrid instead of a more advanced plug-in hybrid. If this is correct, the car would only be able to travel short distances at low speeds on electricity alone. As for performance specifications, the publication speculates the model could have around 405 hp and well over 550 Nm. They would enable the model to have the promised “V8-like performance” as the Mustang GT has 460 hp and 568 Nm of torque. If everything pans out, the Mustang Hybrid could accelerate from 0-100 km/h in less than 5 seconds. That’s pretty quick but the model won’t encroach on the Mustang GT which can accomplish the same task in under 4 seconds thanks in part to its Drag strip mode. Unfortunately, the focus on performance likely means the Mustang Hybrid won’t be much more efficient than the Mustang 2.3 EcoBoost. Regardless of final performance figures, we can expect some styling changes. Speculation suggests the modifications will be minor but include hybrid badging and a revised instrument cluster with hybrid-specific displays. +++

+++ It’s only been 3 months since INFINITI unveiled the Q Inspiration concept at the North American International Auto Show but the company has just confirmed plans to build a version of the car’s electrified platform. Set to arrive within the next 5 years, the platform will be used on an electrified vehicle that will be built in China. The company was tight-lipped on specifics but the model will be 1 of 5 new vehicles that will be made in the country over the course of the next 5 years. Speaking at an Auto China event in Beijing, Infiniti Global President Roland Krüger said: “Infiniti is developing a new platform for electrified vehicles inspired by the Q Inspiration concept car, which shows the new design language for the age of autonomy and electrification”. He went on to say: “We very much had China in mind when designing the Q Inspiration, which shows a very sporty, performance-oriented electric concept, with a much bigger interior space”. The car won’t be a production version of the Q Inspiration as the concept was created to showcase Infiniti’s new design philosophy and future technologies. The model featured a VC-Turbo 4-cylinder engine which sent power to the ground via a front-biased all-wheel-drive system. While little is known about the production model, Infiniti said today’s announcement reaffirms their “commitment to electrification”. The automaker says this will pave the way for vehicles with “increased performance and fuel economy” as well as lower emissions. Infiniti has previously announced plans to launch its first electric vehicle in 2021. It will be sold alongside a handful of electrified models which use the company’s e-Power system. Vehicles with this technology will have a small gasoline engine that charges a high-output battery. The battery then powers an electric motor. +++

+++ It was just over a year ago that PSA Group CEO Carlos Tavares shook up the automotive world by agreeing to purchase OPEL and Vauxhall, General Motors’ stubbornly unprofitable European brands, for 2.2 billion dollar. The executive’s rationale was relatively simple: If PSA was to grow, it needed to be more than just a French company. The Opel deal would create a “European champion”, fueled by synergies from combined engineering and R&D, and Tavares’s own obsession with eliminating waste from the production process. Operating profits, Tavares promised, would start appearing in 2020, starting at 2 % and reaching 6 % in 2026. And he already had a template: PSA’s own turnaround plan, which he followed to haul the company back from near-death in 2013 to a 7 % automotive operating margin last year. So far, Tavares says, things are on the right track, and he has “no regrets” about buying Opel/Vauxhall. He has cut costs by negotiating concessions with European unions and sharing purchasing and other expenditures. There have neither been large-scale layoffs nor factory closings, as many had feared, and PSA has even announced an investment at the imperiled Vauxhall van plant in Luton, England. “We know we can turn around this company, and we are now seeing the first concrete results”, Tavares said at PSA’s 2017 financial results meeting at the company’s new headquarters outside Paris. Analysts say that Tavares has to start with cost cuts before tackling the more-difficult revenue side of the equation. “He’s in his research phase at the moment”, said Justin Cox, an analyst at LMC Automotive in London. “He’s attacking costs, pooling purchasing power and leveraging engineering. Those are the kinds of things you can put into action right away, and you will see dividends quite speedily”. Other initiatives are a work in progress. A high percentage of Opels are sold through unprofitable channels such as short-term rentals. Sales have fallen sharply in key markets including the UK, though analysts say that is partly a result of reducing incentives and sales in less-profitable channels. “It takes longer to make changes on the revenue side because product development takes time”, said Jürgen Pieper, senior automotive adviser at Metzler Capital Markets in Frankfurt. Crucially, the red ink hasn’t disappeared: Opel lost 179 million euros in just the last 5 months of 2017. However, that’s an improvement from the $460 million that Opel reportedly lost in the first half of the year. Tavares’s first public step was to install his own management team at Opel, though former GM employees still fill key posts. Michael Lohscheller, Opel’s chief financial officer, was picked to replace CEO Karl-Thomas Neumann, who resigned in June. Two PSA executives, Remi Girardon and Philippe de Rovira, moved over to head manufacturing and finance, respectively. Xavier Duchemin, formerly vice president of PSA retail, now heads Opel’s sales and marketing for Europe. “I feel very much at home here in a European company”, Lohscheller said at the financial results meeting. “In the past, I was compared with every other region in the world. Now I do benchmarking within Europe. Believe you me, my team appreciates this a lot”. Tavares’s cost-saving measures have included setting up a joint purchasing operation that has reduced fixed costs by 17 %, he says. Media deals have been renegotiated, saving 20 million euros for the same content. Information technology expenses are down 39 %. Overall, 30 % of savings are expected to come from procurement, with the goal of reducing costs by 700 euros per car. PSA has been negotiating tougher contracts with unions at Opel’s plants, which Tavares said trail PSA’s factories in terms of efficiency and are struggling with low utilization rates. Tavares said he could not guarantee a future for the Corsa, Opel’s best-selling model, at the plant in Zaragoza, Spain, if unions there did not agree to givebacks that reportedly included a wage freeze. “You never negotiate without alternatives”, Tavares said at the Geneva auto show. “Yes, the negotiation was difficult, but this is what it takes when a company is complacent for several decades and allows a cost gap to creep against the competition”. Opel reached a deal in February to make the new-generation 5-door Corsa exclusively at the Zaragoza plant starting in 2020. Some workers in Germany, where about half of Opel’s 38,000 are based, have agreed to accept shorter hours and voluntary buyouts. However, at press time negotiations with the powerful IG Metall union at the Eisenach factory, which produces the Adam and 3-door Corsa, had turned contentious over a proposed wage freeze. “You can’t give guarantees for 5 or 10 years to the German plants”, he said. “This is simply impossible if you have had 17 years of operating losses”. One sticking point has been the fate of the Vauxhall factory in Ellesmere Port, England. More than 600 jobs have already been cut at this site, which makes the Astra, but which is also produced at a lower cost in Poland. The head-count issue is still not settled. Opel’s ratio of labor costs to revenue is 15 %, while it is a little more than 10 % at other PSA brands, a figure that Tavares says must come down. One decision that Tavares has put off for now is what to do with thousands of engineers at Opel’s technical center in Rüsselsheim, Germany. They will be part of a “center for engineering excellence” for self-driving cars and electrification, he said, as well as for a planned re-entry into North America. “I think he’s still got a big job to be done in further rationalization”, LMC’s Cox said. “Utilization in some of these plants is still around or below 50 %. This has got to be addressed before you begin to make money”. Experts say that a utilization rate of 80 to 85 % is necessary for an automaker to run a plant profitably. In December, PSA was reported to be preparing a lawsuit against General Motors for 620 million dollar on the grounds that GM had not fully disclosed how far Opel was from meeting strict European Union emissions targets that start to take effect in 2020. Failure to hit the CO2 target of 95 grams per kilometer could result in hundreds of millions of euros in fines. Opel already has the highest average emissions of the top mass-market brands in Europe, according to JATO Dynamics (123.4 g/km), while Peugeot and Citroen are already much closer to the new goal. General Motors has said it is not aware of such a suit. For his part, Tavares said: “Our relationship with GM and my personal relationship with CEO Mary Barra is very smooth. We have excellent communication, and when there is a problem we fix it”. To meet those emissions targets, PSA has accelerated its timeline to integrate its more emissions-friendly technology, including clean diesels, small turbocharged gasoline engines and soon-to-come electric and plug-in hybrid powertrains. Tavares has ruled out future sales of the Opel Ampera-e, its version of the Chevrolet Bolt, as a way to meet fleet emissions. “The teams from PSA and Opel were able to rebuild the product planning strategy completely, in order to put Opel back on track to meet the European regulations by 2020”, Tavares said last November. In one example, the next-generation compact Corsa, including an electric version, will be developed solely by PSA rather than as part of a joint development agreement with GM signed in 2012. All models will be on PSA platforms by 2024, with “one major launch per year” starting in 2018. Another upside is that any Opels built on PSA platforms will be able to be sold outside of Europe, as they will have no distribution restriction due to the use of General Motors technology. Overseas expansion is a key part of Opel’s future strategy. PSA has taken some tentative steps to expand Opel beyond Europe. At the end of January, PSA announced plans to export Opels to Morocco and Tunisia, and in March it signed an agreement to start assembling the Opel Grandland X in Namibia, southern Africa, this year. Opel has introduced 3 new models developed with PSA under a 2012 agreement: the Crossland X, the Grandland X and the Combo. Lohscheller announced in November that a larger crossover (the Monza X) would be built in Rüsselsheim starting in 2019. “If you look at the product side, there is no real sign of recovery yet”, Metzler’s Pieper said. “The products have certainly improved but the competition has too”. He noted that the Peugeot brand has been successful in moving upmarket. “In the German market, where people expect a lot and demand a lot, Peugeot has had a good performance in recent quarters. Opel can go the same way in a few years”. Cox of LMC said the new models allowed Opel to share in the profits from Europe’s crossover boom. “Back in 2016, only 10 % of their product was considered an SUV, and that doubled in 2017”, he said. “This is good news because this is the heart of growth in the European market”. By 2021, Opel says 40 % of sales will be crossovers and SUVs. One future source of revenue is pricing. According to Lohscheller, Opel prices are 6 percentage points below their benchmarks in the biggest European markets. Much of that gap is due to sales in unprofitable channels. Last year, just 37 % of Opels were sold to private buyers in Europe, compared with an industry average of 46 % (and 48 % at Peugeot), according to Dataforce, which says that 18 % of Opel’s sales became rental cars, and 21 % were self-registered by dealers or the company itself. The question of what Opel’s sales volume should be is a delicate one. Sales were down about 5 % in Europe in 2017, even as the market grew by 3.3 %. Thomas Besson, a French analyst at Kepler Cheuvreux, argued that Opel’s sales have not fallen enough. “Naturally, they should let sales fall 20 to 25 % to get to a better level of channel mix”, Besson said. Cox said PSA let Opel sales “drift a bit” and noted that production was down by 8.5 % in 2017. “They could have chased volumes and sales, with incentives and low-volume channels. They shied away from that and it probably helped their profits”, he said. Improving Opel’s pricing will take time, said Maxime Picat, PSA director of operations in Europe. “It’s very easy to say, ‘I am taking 1,000 cars from short-term rentals, so I did my job’ “, Picat said. “You have to go to the real customers and the real fleets and convince your dealers why your products are excellent and why they deserve better pricing”. Metzler’s Pieper said he expected that Opel’s losses would continue in 2018, and indeed Tavares has said PSA will issue no new guidance before early 2019. “Opel’s situation is still very difficult”, Pieper said. “I think the operating losses in 2018 will be around 500 million euros, and certainly on top of that there will be restructuring costs. Before things can change for the better, 2018 will be a very tough year”, he added, noting that General Motors had tried to restructure Opel numerous times without success. “But it has to be done”, Pieper said. “There is no other alternative”. +++

+++ TESLA chairman Elon Musk pledged to “burn” investors shorting stocks and criticized both analysts and himself for the bizarre earnings call that dragged on shares of the electric-car maker. Musk tweeted that analysts at Sanford C. Bernstein & Co. and RBC Capital Markets were representing “a short seller thesis, not investors” when posing questions he cut off during the call. The chief executive officer reiterated that an inquiry about capital expenditures by Bernstein’s Toni Sacconaghi was “boneheaded” and said RBC’s Joseph Spak posed an “absurd” query about Model 3 reservations. “Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time”, Musk wrote, referencing devices he sold earlier this year to raise money for his tunnel-digging company Boring Co. The tweets are the latest episode to suggest that the billionaire CEO fixates on investors’ bets against Tesla, a company that hasn’t earned an annual profit in its 15-year history. A Rolling Stone cover story in November described a scene in which Musk shared information about short-sellers’ Tesla positions to his sons. He trolled bears in April 2017, tweeting “Stormy weather in Shortville”, after Tesla surpassed Ford in market value. +++

+++ In the UNITED KINGDOM , car sales increased by 10.4 % in April compared to the same month in 2017 thanks a big boost in demand for petrol vehicles. 167,911 new cars were registered in April, with the increase almost entirely due to a 38.5 % year-on-year uplift in deliveries for petrol cars. A total of 107,169 petrol-powered cars were registered in April alone. Diesel cars, however, continued to be rejected by new car buyers, with a 24.9 % year-on-year decline in sales leaving its total for April at 51,377 units. Diesel’s share of the new car market has fallen to 32.9 % for the year to date; in the same period of 2017 it held a 44.1 % share. The diesel downturn contrasted with sales for Alternatively Fuelled Vehicles (AFV; mainly hybrids and electric vehicles), which were up by 49.3 % in April compared with the same month last year. With 9.365 new AFVs on the roads, the market share is still a relatively small 5.6 %, but that’s up from 4.1 % in April 2017. Even with the 10.4 % boost of April, the UK’s overall new car market performance for 2018 so far is still down 8.8 % compared with 2017, with 886,400 units registered in the year-to-date. Analists expects the rate of decline to slow over the course of the year, but said that “political and economic uncertainty will continue to affect the market”, likely preventing it from achieving any growth in the short term. Britain’s 10 best-selling cars of 2018 so far are: 1. Ford Fiesta – 40,619 registrations, 2. Volkswagen Golf – 26,685 registrations, 3. Nissan Qashqai – 21,171 registrations, 4. Ford Focus – 19,344 registrations, 5. Vauxhall Corsa – 17,995 registrations, 6. Ford Kuga – 15,865 registrations, 7. Mercedes-Benz A-Class – 14,849 registrations, 8. Mini Hatch – 14,297 registrations, 9. Vauxhall Mokka X – 13,579 registrations and 10. Mercedes-Benz C-Class – 13,459 registrations. +++

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