Volkswagen : Annual Financial Statements of Volkswagen Aktiengesellschaft - 31.12.2023

Annual Financial Statements of Volkswagen AG

Balance Sheet

Annual Financial Statements of

Volkswagen AG

Balance Sheet of Volkswagen AG as of December 31, 2023

€ million		Note	Dec. 31, 2023		Dec. 31, 2022
Assets
Fixed assets
Intangible assets		1		1,516		1,167
Tangible assets		1		8,619		8,409
Long-term financial assets		1		145,517		138,940
				155,652		148,516
Current assets
Inventories		2		6,786		7,816
Receivables and other assets		3		28,208		59,700
Cash-in-hand and bank balances		4		6,980		9,122
				41,974		76,638
Prepaid expenses				128		73
Total assets				197,754		225,227
Equity and Liabilities
Equity
Subscribed capital		5		1,283		1,283
Ordinary shares				755		755
Preferred shares				528		528
Capital reserve		6		15,021		15,021
Revenue reserves		7		21,363		11,998
Net retained profits				4,526		12,021
				42,193		40,323
Special tax-allowable reserves		8		17		17
Provisions		9		44,194		46,323
Liabilities		10		110,039		137,276
Deferred income		11		1,312		1,288
Total equity and liabilities				197,754		225,227

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Annual Financial Statements of Volkswagen AG

Income Statement

Income Statement of Volkswagen AG for the

Period January 1 to December 31, 2023

€ million

Sales

Cost of sales

Gross profit on sales

Distribution expenses

General and administrative expenses

Other operating income

Other operating expenses

Financial result

Write-downs of long-term financial assets

Taxes on income

Earnings after taxes = Net income for the year

Note		2023	2022
12		92,413		79,491
		-86,748		-79,499
		5,665		-8
		-5,620		-5,391
		-1,832		-1,901
13		6,327		9,332
14		-6,263		-7,334
15		9,091		16,950
		-		-125
		-1,125		955
		6,243		12,477

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Notes to the

Annual Financial Statements of

Volkswagen AG

for the Period ended December 31, 2023

Financial statements in accordance with the German Commercial Code

Volkswagen AG is domiciled in Wolfsburg, Germany, and entered in the commercial register at the Braunschweig Local Court under no. HRB 100484. The annual financial statements of Volkswagen AG have been prepared in accordance with the provisions of the Handelsgesetzbuch (HGB - German Commercial Code) and comply with the provisions of the Aktiengesetz (AktG - German Stock Corporation Act).

The fiscal year corresponds to the calendar year.

To enhance the clarity of presentation, individual items of the balance sheet and the income statement have been combined. These items are disclosed separately in the notes. The income statement uses the cost of sales (function of expense) format. Information that can be disclosed optionally in the balance sheet or income statement, or in the notes to the annual financial statements, is disclosed in its entirety in the notes to the annual financial statements. All figures shown are rounded, so minor discrepancies may arise from addition of these amounts.

Volkswagen AG performs electricity generation and distribution/sales activities and metering point operation together with a subsidiary. As a result, Volkswagen AG and this subsidiary are classed as a vertically integrated energy company within the meaning of section 3 no. 38 of the Energiewirtschaftsgesetz (EnWG - German Energy Industry Act) and are therefore subject to the provisions of the EnWG. Separate accounts must normally be maintained for certain activities in the energy sector in accordance with section 6b(3) of the EnWG (unbundling requirement in accounting systems). Volkswagen AG itself only operates customer systems in accordance with section 3 no. 24 b. a) of the EnWG (medium-voltage and low-voltage grids). The subsidiary distributes the electricity via a general supply network (high-voltage grid in Wolfsburg, section 3 no. 17 of the EnWG) and operates the metering points.

The list of all shareholdings is a component of the notes and can also be downloaded from the

electronic companies register at www.unternehmensregister.de and from https://www.volkswagen-group.com/en/investors-15766.

The Board of Management completed preparation of the annual financial statements on February 20, 2024. On February 20, 2024, the period ended in which adjusting events after the reporting period are recognized.

Declaration on the German Corporate Governance Code in accordance with section 161 of the AktG/section 285 no. 16 of the HGB

The Board of Management and Supervisory Board of Volkswagen AG issued the declaration of conformity in accordance with section 161 of the AktG November 17, 2023.

The declaration of conformity has been made permanently available at https://www.volkswagen-group.com/en/declarations-15792.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Significant events in the fiscal year

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 (NOx) emissions had been discovered in emissions tests on certain vehicles of Volkswagen Group with type 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 type EA 189 diesel engines and that this engine type had been installed in roughly eleven million vehicles worldwide. 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. This software function was developed and implemented from 2006 on without knowledge at the level of the Board of Management. Members of the Board of Management did not learn of the development and implementation of this software function until the summer of 2015.

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 to the persons responsible for preparing the 2014 annual and consolidated financial statements as the cause of the high NOx 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, 2015. 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.

No material special items in connection with the diesel issue were recognized in fiscal year 2023.

The contingent liabilities within the meaning of IAS 37 recognized in connection with the diesel issue totaled €3.9 billion (previous year: €4.1 billion), of which €3.6 billion (previous year: €3.6 billion) was attributable to investor lawsuits in Germany. Also included are certain elements of the class action lawsuits relating to the diesel issue as well as criminal proceedings/misdemeanor proceedings as far as these can be quantified.

Further information on the litigation in connection with the diesel issue can be found in the "Litigation" section of the management report.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

RUSSIA-UKRAINE CONFLICT

The start of the Russia-Ukraine conflict in February 2022 led not only to a humanitarian crisis but also brought market upheaval around the world. There have been substantial price rises, particularly on the energy and commodity markets, and significant increases in interest and inflation rates have been observed internationally. There were some signs of normalization in the markets during the course of fiscal year 2023.

Against the backdrop of the Russia-Ukraine conflict and the resulting consequences, Volkswagen had decided to suspend vehicle production in Russia for the time being. Vehicle exports to Russia have also been halted. In addition, the respective sanction requirements must also be complied with in relation to parts supplies and the provision of technical information.

There was again no easing of the Russia-Ukraine in fiscal year 2023. For this reason, the discontinuation of business activities in Russia continued to take concrete shape in the Volkswagen Group. In this context, further sales negotiations with a number of investors continued or were concluded.

On May 18, 2023, the Volkswagen Group completed the sale of its shares in OOO Volkswagen Group Rus (Volkswagen Group Rus), Kaluga/Russia, and that company's local subsidiaries (OOO Volkswagen Components and Services, Kaluga/Russia, OOO Scania Leasing, Moscow/Russia, OOO Scania Finance, Moscow/ Russia, OOO Scania Insurance, Moscow/Russia) to OOO ART-FINANCE, Moscow/Russia, which is supported by the Russian dealer AO Avilon Automotive Group, Moscow/Russia. On registration of the transaction on May 22, 2023, ownership of the shares in Volkswagen Group Rus was transferred from the seller to the buyer. The transaction comprises the production facilities in Kaluga, the importer structure of the Group brands Volkswagen Passenger Cars, Volkswagen Commercial Vehicles, Audi, Škoda, Bentley, Lamborghini and Ducati for potential after-sales business and the warehouse activities, as well as Scania's financial services activities, including all associated employees.

In this context, Volkswagen AG had already made impairments in fiscal year 2022 and recognized appropriate provisions. The selling price amounted to €0.1 billion. The sale of Volkswagen Group Rus resulted in a loss of €0.1 billion which was reported in the financial result.

Please also refer to the comments in the 2023 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.

MATERIAL TRANSACTIONS

IPO of Porsche AG

On September 28, 2022, as part of the IPO of Dr. Ing. h.c. F. Porsche AG, Stuttgart (Porsche AG), a total of 25% of the preferred shares of Porsche AG (including additional allocations) valued at €9.4 billion were successfully placed with investors. The non-voting preferred shares of Porsche AG have been traded on the Regulated Market of the Frankfurt Stock Exchange since September 29, 2022. Since the end of the stabilization period on October 11, 2022, the free float of the preferred shares has been 24.2% of the preferred share capital of Porsche AG.

In connection with the IPO, the Volkswagen Group additionally sold an interest of 25% of Porsche AG's ordinary shares plus one ordinary share to Porsche Automobil Holding SE, Stuttgart (Porsche SE) at a purchase price of around €10.1 billion. The purchase of the ordinary is be completed in two tranches.

The cash inflow for the preferred shares and the first tranche of the ordinary shares occurred at the beginning of the fourth quarter of 2022.

The resolution of the extraordinary General Meeting of Volkswagen AG gave rise to the obligation to pay a special dividend and led to a total obligation to the shareholders of Volkswagen AG amounting to €9.6 billion as of December 16, 2022. The cash outflow was slated for January 9, 2023 and occurred on that day.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Volkswagen AG and Porsche SE agreed to offset the obligation to pay a special dividend to Porsche SE against Volkswagen AG's claim to the payment of the purchase price still outstanding for the second tranche of ordinary shares. Upon payment of the special dividend on January 9, 2023, the netting process was completed.

Porsche Holding Stuttgart GmbH, Stuttgart, made a gain of €13.2 billion on the sale of the shares, which was included in Volkswagen AG's financial result in the previous year because of the profit transfer.

The employees of Volkswagen AG participated in the economic success of the placement of the preferred shares and the sale of ordinary shares in Porsche AG by way of a one-off payment.

The total bonus for employees of Volkswagen AG, which was recognized through profit or loss in fiscal year 2022, amounted to €0.3 billion.

For more detailed information, please refer to the disclosures provided in the annual financial statements as of December 31, 2022.

Material capital transactions

To finance the restructuring under company law of the Volkswagen financial services companies, Volkswagen AG made a contribution of €3.8 billion to the capital reserves of Volkswagen Financial Services AG, Braunschweig, in the reporting period.

To finance the capital requirements of CARIAD SE, Wolfsburg, Volkswagen AG made contributions totaling €1.5 billion to the capital reserves of Porsche Siebte Vermögensverwaltung GmbH, Wolfsburg (Porsche Siebte). Moreover, to finance the creation of battery cell production by PowerCo SE, Salzgitter, contributions totaling €0.6 billion were made to the capital reserves of Porsche Siebte.

To finance the acquisition of an equity investment in the electric vehicle company XPeng Inc., Cayman Islands, Volkswagen AG made a contribution of €0.7 billion to the capital reserves of Volkswagen Finance Luxemburg S.A., Strassen (Volkswagen Finance Luxemburg), in the reporting period. Also in the reporting period, Volkswagen AG made further contributions totaling €0.5 billion to the capital reserves of Volkswagen Finance Luxemburg to finance the start-up of business operations of Scout Motors Inc., Arlington, Virginia.

The meeting of shareholders of Volkswagen Vermögensverwaltungs-GmbH, Wolfsburg, resolved on June 7, 2023 to reduce the company's capital reserves by €0.7 billion and paid this amount to Volkswagen AG in the reporting period.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Accounting policies

The accounting policies applied in the previous year were retained. Investment income, income from other investments and long-term loans, as well as net interest income, are combined in the income statement and presented as the financial result. This item is addressed in greater detail in note (15) Financial result.

Purchased intangible assets are recognized at cost and amortized over three to five years using the straight- line method. Internally generated intangible assets are not recognized. Grants paid for third-party assets are capitalized as purchased rights to use and amortized over seven years. Software and grants paid are derecognized once they have been fully amortized.

Tangible assets are carried at cost and reduced by depreciation. Investment grants are deducted from cost. Depreciation is based primarily on the following useful lives:

Buildings

Leasehold improvements

Technical equipment and machinery

Other equipment, operating and office equipment including special tools

Useful life

14 - 50 years

10 - 35 years

5 - 20 years

3 - 30 years

For additions up until December 31, 2009, to the extent allowed by tax law, depreciation of movable items of tangible assets is generally charged initially using the declining balance method, and subsequently using the straight-line method, and also reflects the use of assets in multishift operation. The option to retain and adjust lower carrying amounts of tangible asset balances at December 31, 2009 in accordance with section 67(4) of the Einführungsgesetz zum Handelsgesetzbuch (EGHGB - Introductory Act to the German Commercial Code) has been exercised. Movable items of tangible assets purchased or manufactured as from January 1, 2010 are depreciated using the straight-line method, reflecting their use in multishift operations.

Prepayments made for tangible and intangible assets are measured at their nominal value.

As a general rule, additions of assets are depreciated or amortized ratably in the year of acquisition. Low-value assets are written off and derecognized in full in the year they are acquired. In addition, certain items

of operating and office equipment with individual purchase costs of up to €1,500 are treated as disposals when their standard useful life has expired.

Write-downs are recognized if the impairment is expected to be permanent; write-downs are reversed up to the amount of historical cost, net of depreciation or impairment, as soon as the reasons for impairment no longer apply.

Shares in affiliated companies and other equity investments are measured at the lower of cost and fair value. Fair values are by preference calculated using the discounted cash flow method on the basis of corporate plans, if available, or derived from observable market prices if not.

The basis for calculating fair value using the discounted cash flow method is management's current planning, which is based on expectations regarding future economic trends. The planning period generally covers five years. The discount rate used for the expected cash flows is the weighted average cost of capital (WACC).

As a general principle, all loans are measured at their nominal amount. Non- or low-interest-bearing loans are carried at their present value.

Long-term investments are carried at the lower of cost or fair value in the case of permanent impairment.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Securities held as plan assets for post-employment benefit obligations are measured at fair value and offset against the corresponding provisions. These securities are assets that are exempt from attachment by all creditors and that exclusively serve to settle liabilities from post-employment benefit obligations. The fair value of these assets corresponds to the market price (section 255(4) of the HGB).

Raw materials, consumables and supplies, and merchandise carried in inventories are measured at the lower of average cost and replacement cost. In addition to direct materials and direct labor costs, the carrying amount of finished goods and work in progress also includes proportionate indirect materials and labor costs, including depreciation in the amount required. Adequate valuation allowances take account of all identifiable storage and inventory risks. Prepayments made for inventories are recognized at their nominal amounts.

Volkswagen AG recognizes emissions certificates as of the date of issue or acquisition. They are measured at the lower of cost or fair value. Emissions certificates issued free of charge are recognized as a memorandum item. Each certificate is valued at €77.25 per tonne of CO2 as of the reporting date.

Receivables and other assets are carried at their principal amounts. Write-downs to the lower fair value are recognized for identifiable specific risks.

Non-interest-bearing receivables due after more than one year are carried at their present value at the balance sheet date by applying an interest rate to match the maturity.

Receivables denominated in foreign currencies are translated at the middle spot rate prevailing at the date of initial recognition. Receivables that are due within less than one year are translated at the middle spot rate at the reporting date. In the case of receivables with a longer term, a lower exchange rate at the balance sheet date results in the remeasurement of the receivable at a lower carrying amount, with the difference recognized in the income statement; a higher exchange rate at the balance sheet date (remeasurement gain) is not recognized. Hedged receivables are not remeasured at the closing rate ("net hedge presentation method").

Purchased foreign currency options are carried at the lower of cost or fair value until maturity. Securities classified as current assets are carried at the lower of cost or fair value.

Cash and bank balances are measured at their nominal amount.

Expenditure prior to the balance sheet date that represents an expense for a specific period after this date is recognized under prepaid expenses on the assets side of the balance sheet.

Deferred taxes are recognized for temporary differences between the carrying amounts required by the HGB and the tax base of all assets and liabilities. As Volkswagen AG is the consolidated tax group parent and thus also the taxpayer for affiliated companies with which there are profit and loss transfer agreements, the differences at those companies are also included when calculating deferred taxes. Volkswagen AG is also a partner in various partnerships. Deferred taxes in respect of the difference between the HGB carrying amounts of assets and liabilities and their tax base are also reported at Volkswagen AG where these relate to corporation tax. The deferred taxes in respect of these differences are calculated on the basis of an average income tax rate of 30.0% or 15.8% for temporary differences that are attributable to different carrying amounts at partnerships in which Volkswagen AG is a partner. The option to recognize excess assets in accordance with section 274 of the HGB is not exercised.

In Germany, interest on retrospective tax payments was calculated using an interest rate of 6% up until 2018 and of 1.8% from 2019 onward.

Prior-year differences between the carrying amounts required by the HGB and the lower carrying amounts allowed under tax law were recorded in the special tax-allowable reserves presented between equity and liabilities in the balance sheet.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Existing special reserves are retained since they were recognized before the year of the transition to the provisions of the Bilanzrechtsmodernisierungsgesetz (BilMoG - German Accounting Law Modernization Act). These are reversed to the income statement and are based on the provisions of section 3(2) of the Zonenrandförderungsgesetz (German Zonal Border Development Act), section 6b of the Einkommensteuergesetz (EStG - German Income Tax Act)/regulation 6.6 of the Einkommensteuerrichtlinien (EStR - German Income Tax Regulations), section 7d of the EStG, section 82d of the Einkommensteuer-Durchführungsverordnung (EStDV - German Income Tax Implementing Regulation) and regulation 35 of the EStR. No new special reserves have been recognized since January 1, 2010.

Provisions for pensions and similar obligations are measured in accordance with actuarial principles; the projected unit credit method is used for defined benefit plans. Future obligations are measured on the basis of the ratable benefit entitlements earned as of the balance sheet date. In addition to the pension payments and vested entitlements known at the balance sheet date, future increases in salaries and pensions are taken into consideration, along with other relevant parameters. The discount rate published by the Deutsche Bundesbank as of December 31, 2023 is used. This figure is used to measure pension provisions in accordance with section 253(2) of the HGB and is based on the discount rate of 1.82% for a remaining maturity of 15 years. For externally funded pension obligations, the fair value of the fund assets is offset against the settlement amount of the obligations in accordance with section 246(2) of the HGB. The fair value of the fund assets is determined on the basis of market values.

Provisions for obligations under partial retirement agreements are also measured in accordance with actuarial principles, taking account of expected salary trends and the latest mortality tables. They are discounted using a discount rate of 1.03% in accordance with section 253 (2) of the HGB. This rate has been determined on the basis of a seven-year average and a remaining maturity of two years. For agreements entered into in the reporting year, it is assumed that the agreed benefits constitute remuneration. Consequently, the top-up amounts are accumulated ratably over the vesting period.

Provisions for taxes and other provisions are calculated according to the principles of prudent business judgment.

Adequate provisions are recognized at their settlement amount for identifiable risks and uncertain obligations on the basis of prudent business judgment, taking into account expected future price and cost increases. Provisions cover all identifiable risks of future settlement.

Provisions that have an expected remaining maturity of more than one year are discounted at an interest rate to match the maturity.

Provisions for warranty obligations are recognized on the basis of the historical or estimated probability of claims affecting vehicles delivered. Assumptions were made in respect of the warranty provisions recognized in connection with the diesel issues. These depend on the series, model year and country concerned and relate in particular to the effort, material costs and hourly wage rates involved, or to vehicle values in the case of repurchases. 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 past experience.

Provisions for litigation risks relating to the diesel issue, which comprise criminal, civil and administrative law cases as well as product-related lawsuits, including adequate defense and legal advice expenses, were calculated as the best estimate based on the present state of knowledge and current estimates.

Provisions for long-service jubilees and death benefits are also measured using the projected unit credit method.

Liabilities are carried at their settlement amount.

Liabilities denominated in foreign currencies are translated at the middle exchange rate prevailing at the date of initial recognition. Short-term foreign currency liabilities due within one year or less are measured at the middle spot rate. Long-term foreign currency liabilities are recognized at a higher carrying amount, with the difference recognized in the income statement if the closing rate is higher. Lower exchange rates at the balance sheet date (remeasurement gains) are not recognized.

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Annual Financial Statements of Volkswagen AG

Notes to the annual financial statements

Payments received are recognized at their nominal value.

Receipts prior to the balance sheet date that represent income for a specific period after that date are reported under deferred income on the equity and liabilities side of the balance sheet.

Currency forwards and commodity futures contracts are measured by comparing the agreed rate with the forward rate for the same maturity at the balance sheet date. A provision is recognized for any resulting unrealized loss. Any positive gains (remeasurement gains) are not recognized. Gains and losses are not offset. Measurement gains or losses are discounted to the present value.

Where possible and feasible, derivatives entered into for hedging purposes are combined to form hedges if they have comparable risks to the hedged item. These are recognized using the "net hedge presentation method"; i.e. the items are not measured to the extent that and for as long as offsetting changes in fair value or cash flows are compensated. In some cases, the gross hedge presentation method is used, i.e. offsetting changes or cash flows are recognized separately and compensate each other.

Derivatives not included in hedge accounting are measured individually at fair value. Any resulting unrealized losses are recognized in income. Assets or liabilities hedged by cross-currency swaps and currency forwards are translated at the contractually agreed rates at the time of initial recognition. Transactions denominated in foreign currencies are translated at the exchange rates prevailing at the transaction dates or at agreed exchange rates. Expected exchange rate losses at the balance sheet date are reflected in the measurement of the items.

Equity investments are translated at the rate prevailing at the date of acquisition.

Production costs are recognized on the basis of directly attributable material and labor costs, as well as proportionate indirect material and labor costs, including depreciation and amortization. Administrative cost components are not included.

Cost of sales contains all expenses relating to the purchase of materials and the production function, the costs of merchandise, the cost of research and development, and warranties and product liability expenses including the amounts recharged by subsidiaries.

Selling expenses include personnel and non-personnel operating costs of our sales and marketing activities, as well as shipping, advertising, sales promotion, market research and customer service costs.

General and administrative expenses include personnel and non-personnel operating costs of the administrative functions.

Other taxes are allocated to the functional areas.

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