Presentation - subject to modification during presentation -

Rupert Stadler, Chairman of the Board of Management of AUDI AG

Neckarsulm, 2013-05-16

Speech to the 124th Annual General Meeting of AUDI AG

Part 2

Ladies and gentlemen.

One thing is clear: In economic terms, 2013 will be more challenging than last year. The International Monetary Fund foresees negative growth of 0.3 percent for the euro zone this year. Worldwide, the IMF experts anticipate moderate growth of 3.3 percent in their latest forecasts. Car markets are slowing down as well. Global market expansion is expected to be significantly lower than the 7.2 percent of last year.

How will we at Audi deal with this uncertainty? We intend to continue our growth also in 2013, and we are sure that we will do so. Now, in May, we look back on an excellent start to the year: For the first time, we have passed the magic mark of half a million cars delivered after four months. So we have grown by 6.7 percent compared with the prior-year period. The impetus for this development was provided by the sales regions of Asia and North America, where we are expanding at double-digit growth rates.

In China, Audi’s biggest sales market, we had delivered more than 14,000 cars to our customers by the end of April. That’s an increase of 14 percent compared with last year.

In the United States, we also set a new record at the beginning of this year. We shipped a total of 47,343 cars in that country in the first four months of this year, an increase of 15.5 percent. We are delighted to have made such a good start to the year in the USA.

In Europe, we have an extremely difficult market situation at present. Many countries have posted double-digit decreases in car sales. There have been slumps not only in countries such as Greece, Spain or Cyprus, but also in Finland for example.

The only European country with rising sales of cars is currently the United Kingdom.

In the British market, we picked up speed in the first four months of this year and achieved growth of 9.6 percent.

Positive for Audi: We are now performing against the trend in Europe. With more than 253,000 cars shipped from January through April for example, we maintained the prior-year level in our biggest sales region, and our development is much more stable than the overall market.

We are carefully observing current market developments.

Our answer in this phase: We have to strengthen our competitiveness.

Ladies and gentlemen, you know what our long-term goals are: annual deliveries of more than two million cars by 2020. We have set the number of 1.5 million by 2015 as an important interim target. On the way there, we achieved an increase of 360,000 units solely in the past two years. That means: Firstly, we will reach the mark of 1.5 million sooner than planned. And secondly, we are thus gaining additional entrepreneurial energy and financial strength for our growth curve. It is a crucial phase, because we are now positioning Audi for the next surge of growth. This is taking place at all levels of the company, with people and markets, products and production.

Somewhere in the world, a customer buys an Audi every 22 seconds. Our production facilities, logistics and distribution must keep up with that pace.

In a period of just three years, we will implement the biggest investment program in Audi’s history with a total volume of 11 billion euros. 5.3 billion euros – nearly half that is – will serve to strengthen and expand our sites in Germany.

In detail:

  • Münchsmünster near Ingolstadt, where we are adding an aluminum die-casting facility, a press shop with transfer presses, and production lines for form-hardened body parts.
  • Neuburg an der Donau, where we are constructing a driving experience center for our customers and where we will develop and build our motorsport cars.
  • Neckarsulm, where we are investing in the Böllinger Höfe industrial park and strengthening the site’s production logistics for the long term. In addition, we will locate the production of our R8 models there.

At the same time, we are expanding our global production network:

  • Since April, we have been assembling cars for the Russian market at the VW plant in Kaluga.
  • In June, we will put our expanded plant in Győr, Hungary, into operation.
  • And by the end of the year, we will complete a new plant in Foshan, southern China. This will allow us to create production capacities for more than 300,000 additional automobiles.

About two weeks ago, on May 4, we laid the foundation stone for our first plant in North America: in San José Chiapa in Mexico. This puts us closer to our customers in the United States, Canada and Latin America. From San José Chiapa, we will export duty-free to the United States and Europe. We will reduce our exchange-rate risks in the US-dollar area. We will invest more than €900 million and create production capacity for 150,000 cars per annum.

San José Chiapa is the thirteenth automobile production site in the Audi Group. When the first Q5 rolls off the production line in Mexico in mid-2016, for the first time in our history, we will be producing a car for the world market exclusively outside Europe.

In San José Chiapa, we will create approximately 3,800 jobs.For months now, we have witnessed enormous enthusiasm and motivation. More than 700 Audi employees from Ingolstadt and Neckarsulm would like to be involved in the project on the spot in Mexico.

The stabilizing effect for Audi is not to be underestimated. In view of the market situation in Europe I have just described, that is becoming especially important: Only a global presence can offset regional fluctuations and strengthen our sites in Germany.

As of the beginning of May, 70,023 people work for the Audi Group; 50,652 of them in Ingolstadt and Neckarsulm. In 2013, we will expand our workforce in Germany to meet requirements. We plan on about 1,500 new hires and more than 700 additional apprentices this year. In the search for well-qualified employees, we have the advantage that we have won several prizes in the employer rankings of students and university graduates – recently once again in April as Germany’s most popular employer. We are delighted that in surveys, young engineers quote our groundbreaking technologies such as piloted driving or the networked automobile when asked why a job at Audi is especially attractive. We regard that as both recognition and further motivation.

Ladies and gentlemen, another thing is important to me in this context: The number of our worldwide sites may increase, but one standard stays the same: Made by Audi. That’s our promise for the same excellent manufacturing and product quality in every Audi – irrespective of where it is made.

How do we ensure that? For example, by means of an international training offensive. The idea of a dual course of study and training is turning into an export success at the Audi Group. We combine the proven theoretical training of local technical colleges with practical experience at an early stage in our apprentice workshops.

At Audi Hungaria, we have been doing so successfully for twelve years now. In addition, we opened our own training center there in 2011. And since last year, as well as dual vocational training in Hungary, we also have the dual study system according to the German model, which we initiated together with Győr-based Széchenyi University.

In Brussels, dual vocational training is just starting in a pilot phase. In April, we were voted the best employer in Belgium, which we are very pleased about.

In China, we are continuously extending our cooperation with the vocational training college in Changchun. Our goal is to have 650 young people completing their apprenticeships as auto mechanics and mechatronics technicians each year as of 2015. And in Mexico, we are already starting the dual training system. Construction of the building started this April. This is training made by Audi – worldwide.

One standard for our products, but one standard also for service in retailing. Please allow me to give you a brief overview of China in this matter: J.D. Power carries out a survey there each year on how satisfied buyers of new cars are with the brand’s service. Audi was ranked in first position for the third time running in 2012. At present, we are rapidly expanding our dealer network in China. On average, one new Audi dealership will open each week in China in 2013. By 2017, we want to increase the number of Audi dealerships to more than 500.

Ladies and gentlemen, it is our mission to fully comprehend and incorporate what our customers’ wishes are. The prime example in China is the long version of the Audi A6. It is specially focused on the needs of our Chinese customers. A brief summary of this car in figures: 130,000 units sold in 2012 alone, making the Audi A6 once again the best-selling premium automobile in the market. In “Best Cars 2013,” a readers’ award from the Chinese issue of “auto, motor, sport” magazine, the long version of the Audi A6 was the winner in two categories. In total, Audi took ten first places – more than any other manufacturer. Among other things, we were awarded the prize for the most environmentally friendly brand. This was partially due to our start-stop technology and kinetic energy recovery system, both of which are meanwhile standard on all Audi models produced in China. In addition, we were the first manufacturer to integrate lightweight components into models produced in China.

As a result, we achieve the weight-based targets of the Chinese government’s CO2 legislation more than any other premium brand. Since 2011, we have reduced the average fuel consumption of our locally produced models by more than 15 percent.

Speaking of local production: I have already mentioned the new plant in Foshan. We are also increasing our production capacities at the plant in Changchun. Added up, production capacity for 350,000 additional units will be installed in China in the next three years. Together with our joint-venture partner therefore, we are increasing our capacities to a total of 700,000 units each year. But production volumes are just one side of the story. If we want to continue growing, we have to continue anticipating what our customers of tomorrow would like to have on the product side. For this purpose, we opened our own center for research and development in Beijing with more than 300 engineers a few weeks ago.

From China to the US - let’s take a quick look to the American shores where our diesel concept is an important element of our growth strategy.  Our clean-diesel technology, along with sporty starting torque combined with long range and efficiency have truly convinced the Americans. We have the biggest range of clean-diesel automobiles of all premium manufacturers in the United States. Today for example, every third Q7 driver in the USA chooses a TDI. We will further expand our TDI range in the US market this year – with the A6, A7, A8 and also with the Q5. For this year, we have set ourselves the target of delivering the new record number of 150,000 automobiles. In the year 2020, we want to achieve more than 200,000 units.

Understanding customers doesn’t only mean understanding which product features they want, but also knowing how they decide on them. The fact is that more and more customers configure their own personal Audi. In other words: haute couture instead of off the peg. In Germany alone, our revenue from optional extras has increased above average in the past years.

Ladies and gentlemen, a market is not just a place; it also has the dimension of time. We accept the future challenge. In the Audi Urban Future Initiative, we are occupied with the city of the future. A fundamental question is how we will cope with space in cities becoming scarcer. In order to optimally use this limited space, the networking of cars, infrastructure and people will be increasingly important.

At the Consumer Electronics Show in Las Vegas this January, we presented a technology that is pioneering in its field, and has the potential to have a sustained impact on global life. This is not our assessment; it was printed in the MIT Technology Review, the magazine of the most famous technical university in the United States. It listed us as one of the 50 most innovative companies in the world. We are talking about piloted driving. With this technology, the car steers, applies the brakes and accelerates on its own; in stop-and-go rush-hour traffic for example. The driver can make efficient use of his time – to make phone calls or write e-mails for example.

In Nevada, we are the first and so far only car manufacturer worldwide to receive a license for tests of piloted driving on public roads. In the coming years, we are committed to establish the legal framework for actually bringing this technology to our customers.

Ladies and gentlemen, we are continuing the expansion of our model range in 2013 – and with some particularly emotive automobiles. In its 30th year, Audi Sport will launch four new RS models on the market. The evolution of the RS philosophy is impressively apparent in the new Audi RS 6 Avant. Despite significantly higher power output, it consumes 30 percent less fuel than its predecessor – partially due to the consistent application of lightweight construction and intelligent downsizing with cylinder-on-demand technology. All of the combustion chambers are only switched on when the engine’s full power is required. Otherwise, the car operates on four instead of eight cylinders.

We want to increase our unit sales of high-performance cars by one third in 2013 compared with 2012. So in 2013, we will have the biggest range of RS models of the past 30 years. And we will therefore spread availability of our RS models to international markets – China for example. The Audi RS 5 Coupe was our first RS model in China in 2012. It was followed by the RS 5 Cabriolet in April 2013. In addition, for the first time we are giving an SUV the RS badge. The Audi RS Q3 is the pioneer in the new segment of compact, high-performance SUVs. We have taken the same sporty approach with the TDI and TFSI versions of the Audi SQ5, which will also be delivered to customers as of this year.

We are successively expanding the new A3 family in 2013.

  • The A3 Sportback has been at our dealerships in Europe since February 2013.
  • The Audi S3 and S3 Sportback will follow from the summer on.
  • We added a new family member with the A3 Sedan, which we unveiled at the Shanghai Auto Show. This is an important derivative which will stimulate additional growth, especially in China and the United States.
  • And there is one more version, the A3 g-tron, our compact model with bivalent gas/gasoline drive. The A3 g-tron can run on both gasoline and natural gas. It has a range of more than 1,300 kilometers per fill-up – an impressive demonstration of the everyday drivability of this system. When the driver fills tank of the A3 g-tron with Audi e-gas, we cover the entire spectrum from wind turbine to steering wheel. Because our e-gas project is based on wind power from the Emsland region of Germany. We have just completed the world’s biggest power-to-gas plant in Werlte in the north of Germany. Not because we want to become an energy supplier any time soon; it’s more a matter of demonstrating feasibility. The starting point is surplus electricity from the wind park, which is used to produce hydrogen. We then convert hydrogen and CO2 from a biogas plant nearby into synthetic Audi e-gas. We deliver e-gas to customers through the public gas network. That is, we use the existing infrastructure.

In this way, e-gas is used as a practical form of energy storage for electricity in addition to the battery. When the A3 runs on e-gas from our plant, the customer is driving with a CO2-neutral impact. Because the exhaust system emits only as much CO2 as was previously used in the production process for e-gas. This means that the A3 g-tron is as climate friendly as an electric car whose batteries are charged with electricity from regenerative energy sources.

This example shows: Efficiency does not work as a solo, but only in concert. That’s why we’re looking far beyond the car. In addition to our e-gas project, we are doing research on other synthetic fuels such as e-diesel and e-ethanol. Here we are working with our American partner, Joule. In the US state of New Mexico, a demonstration plant for the production of sustainable e-ethanol is being built. Microorganisms use the sun’s energy to produce this fuel out of CO2 and industrial water. Its overall CO2 balance is significantly better than with fossil fuel. Another point is that the process needs no biomass, no farmland and no drinking water: a good example for pioneering and sustainable technology.

In parallel, we are working continuously on the efficiency of our engines. 112 combinations of engines and transmissions at Audi currently have emissions of 140 grams of CO2 or less per kilometer. According to a study by the Center of Automotive Management, among the premium manufacturers, Audi is the brand with the lowest fleet emissions in Germany. And it does not stop there. At the entire Volkswagen Group, we stand firmly behind the new EU climate target of 95 grams of CO2 per kilometer. To achieve that, we are utilizing the full spectrum of drive concepts: from diesel and gasoline engines to natural gas to electric drive.

The starting signal into the electric era has been given at Audi. We presented the Audi A3 e-tron at this year’s Geneva Motor Show in March, as a plug-in hybrid with norm fuel consumption of 1.5 liters per 100 kilometers, a range of 50 kilometers on batteries alone and nearly 1,000 kilometers in total. Its CO2 emissions are about 35 grams per 100 kilometers, setting a benchmark for the mobility of the future. The e-tron version of the Audi A3 is efficient, practical for everyday driving and also affordable.

Ladies and gentlemen, along with our growth, our responsibility grows too.

In our Strategy 2020, we have established an awareness of “we live up to our responsibility.” In this context, we place value on the three pillars of sustainability:

  • social responsibility,
  • ecology and
  • economics.

For us, sustainability means that we shape products and processes in a sustainable way along the entire value chain. That’s why we operate as prudent entrepreneurs.

That’s why we create a positive working environment for our employees and offer young people training and prospects. That’s why we are constantly making our automobiles more efficient and safer for their occupants and other road users.

And we effectively tackle the great challenges of the automotive industry:

  • Electric mobility,
  • hybrid solutions
  • gas-gasoline concepts,
  • alternative energy sources,
  • lightweight construction and innovative materials,
  • and intelligent electronics.

We utilize the synergies of our global network for procurement, development and production. We minimize the use of resources at our worldwide sites – in production as well as in IT and the offices.

We are actively working on the city of the future and on new transport concepts.

Detailed information on the progress we have made so far and on the measures planned can be found in the Audi Corporate Responsibility Report, which we are pleased to hand over to you today.

All of this supports our vision of CO2-free mobility. We are firmly convinced that it will become a reality in the future.

And we are committed to support this vision at full speed. That’s our promise.

Thank you.

Thank you!

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