Welcome to the investor and analyst global conference call of Mercedes-Benz. At the request of our customers, this conference call will be recorded. The replay of the call will be available as an on-demand audio webcast in the investor relations section of the Mercedes-Benz website. The short introduction will be followed directly by a Q&A session. If you are connected online and listening via the web interface, please click the telephone handset button and then the raised hand icon. This will allow you to ask your question verbally as well. If you have joined by telephone and would like to ask a question, please dial star 9 pound key on your telephone keypad. You will hear the announcement your question has been received. If you would like to withdraw your question, please dial star 3 pound key. You will hear the announcement your question has been withdrawn. Once you hear the announcement, you may now speak. You can ask a question. After your question has been answered, your line will be muted again. You will be called upon by the moderator. Please bear with us for a moment while we register your questions. I would like to remind you that this teleconference is governed by the safe harbor wording included in our published results documents. Please note that our presentation contains forward-looking statements which reflect management currents views with respect to future events. Such statements are subject to various risks and uncertainties. If any of the assumptions underlying these statements prove to be incorrect, actual results may differ materially from those expressed or implied. Forward-looking statements speak only to the date on which they are made. With that, I would now like to hand over to Christina Schenck, Head of Mercedes-Benz Investor Relations, Digital and Communications. Thank you very much.

Yeah, good morning, ladies and gentlemen. This is Christina Schenck speaking. On behalf of Mercedes-Benz, I would like to welcome you all both on the telephone and online to our Q3 results conference call. I'm very pleased to have with me today Ola Kallenius, our CEO, and Harald Wilhelm, our CFO. To allow more time for your questions, Ola will give a brief introduction and Harald will walk you through the financials as usual. We will then move directly into our Q&A session. The corresponding presentation is available on the Mercedes-Benz Investor Relations website and can also be accessed via the webcast in the web interface. With that, I will hand over to Ola.

Thank you, Christina, and welcome everybody. As Christina said, Harald will go through the Q3 results in a minute. And of course, we're happy to answer your questions. But I would like to start by giving you a bit of context.

What's going on in the industry?

What's going on in our company? And what do we see on the horizon? The big topic that is on everybody's mind, of course, is China. And you could say that that challenge is twofold. On the one hand, there's a cyclical downturn. The Chinese car market has contracted more than 20% this year. And the premium market in China has actually been declining for more than three years in a row. The top end segment has been hit particularly hard and we're seeing the same trend across other luxury goods as wealthy consumers and entrepreneurs hold back on spending. That's tough for us because this is one of our most profitable parts of our business. But maybe even more important is the structural challenge. More than 100 players are competing fiercely and that's driving down prices and profitability across the market. And that competition is not staying in China. It's spilling over into many other markets as manufacturers boost exports to get away from the fierce competition at home. So how are we at Mercedes responding to this? First of all, we are thoughtfully managing our operating point. We're looking very carefully at the ASP and have the highest average selling price amongst our competitors and have been able to Keep it relatively stable in this market compared to some others. But the result is lower sales volume. But to manage this operating point, you look at that and you look at the dealer profitability. So we're of course watching dealer profitability as well to protect it. And we have moved very quickly to adjust our production capacity to deal with this market condition. And needless to say, we're adapting our fixed cost structures in China also very swiftly. Even more important, the variable cost drive that we have initiated is starting to pay off, but it will take some time. We're moving away from a hybrid business model that we have used for the better part of the past 20 years. And instead we will source almost everything in China for our Chinese production. And the first vehicle that is under this new strategy is the electric E-Class that we will launch in the second half of 2027 and then continue like that beyond 2027. But even today, we're seeing early signs of stronger demand for BEVs. The electric GLC that we launched here in the late summer, early fall is attracting healthy orders at our chosen price point. At the moment, we have the top model only in our offering. and the upcoming six-seater and further variants will allow the GLC to position itself more favorably in the competitive set. We're looking carefully at our fan base, our customer base and our brand positioning with focus on safety, customer-centric innovation, quality and design continues to appeal strongly to Chinese customers. That's a good foundation. And our major push into intelligent vehicles is starting to strengthen our reputation in China, both for BEV and ICE, mind you. And customers know that Mercedes-Benz is a brand they can trust. The second topic attracting a lot of public attention is competitiveness in Germany. Why does this matter so much and so much to us? Germany accounts for roughly 15% of our sales, but two thirds of our employees, our structures are based here. And to reduce our fixed costs further, we have decided to restart the severance program in Germany in December. But this isn't just about Mercedes, it's about Germany as a place to do business. That is why we've also launched the Comprehensive Productivity Initiative in Germany. Discussions with the labour side are still ongoing, so I can't announce anything today, but I want to reinforce the core message. Germany must make a major leap forward to safeguard its industrial footprint and jobs. Further investment in Germany depends on a significant gain in productivity. On the other hand, Eastern Europe offers opportunities to lower our average costs across Europe. We already have a strong presence in Hungary and we can take further steps. The third topic to watch It's our product offensive and it's picking up pace. It's fantastic to see such a positive response to our new cars. In fact, our products have won more than 180 awards and accolades since 2025. More than ever before in such a short period. And here I want to give kudos to the whole team that have been working hard for years making this happen. It's even more gratifying that they're also resonating with customers. If you look outside China, car sales increased every quarter in 2026. And we expect full year sales outside China to reach their highest level since 2019. Orders for our electric cars in Europe have doubled since the beginning of the year. And that's only the beginning. More than 20 new models have made their world debut this year. The latest example is the AMG GT SUV, the most powerful electric SUV ever. and an absolute technological marvel. Speaking of technology, together with NVIDIA, we will bring point-to-point automated driving to Germany by the end of the year. We're the first OEM to offer such a system in Germany, in addition to what we've already launched in China and the US. The technology gives our customers a new level of safety, intelligence and confidence behind the wheel. You have to try this. And it underscores our determination to play a leading role in automated and assisted driving. As you can see, we've been building product momentum for quite some time and we'll keep working on our vehicle's variable cost and pull every lever at our disposal to turn that momentum into higher profitability. If we look further ahead, there has been some external speculation about our strategic moves for 2030 and beyond. Now is not the time to discuss the details of that. We will provide a more comprehensive update next year. But I can promise you this will make bold and exciting decisions on technology, products and how we organize our operations in our enterprise. We announced one major step just a few days ago. With the help of AI, we'll speed up product development at Mercedes-Benz by up to 30%. I think that gives you a sense of how ambitious we are about transforming our company. I don't want to miss the opportunity to acknowledge the performance of Mercedes-Benz vans. Yet again, we delivered strong results in a challenging environment. I want to thank the entire van team for what they have done, not just this year, but over the last years. Europe is our anchor in this business, and it acts a bit like a hedge to passenger cars in the current macro situation. And we're just at the beginning of the biggest product and investment cycle in the last 25 years. Three weeks ago, Thomas Klein, who runs Vans, and I gave key customers the preview of our future product portfolio. The use of Mercedes-Benz Vans, I think it holds a unique position in the van market going forward for midsize and large vans. We will have a 100% We will also have a 100% lineup of high-tech electrified eyes. And every one of these vehicles, 100%, will be software-defined. So each customer will have a perfect choice for their specific use case. And in the heterogeneous use cases that you have in light commercial vehicles, this is crucial for market penetration. As I said, a unique position. Last but not least, financial services, and of course I will let Harald elaborate on this, but I want to highlight the strong results, driven by effective margin management and cost discipline. Last year, we decided to bring all customer-facing functions together in one unit, and the goal was to create a seamless customer experience. That decision led to one of our largest restructuring efforts in decades. And now it's starting to pay off. Once again, thank you to the entire team. You did a tremendous job. With that, I'll hand over to Harald, who will take you through our Q3 results in detail. Thank you.

Thanks, Ola, and hello, everybody. Let's have a look at the group numbers. Group revenue came in slightly below a prior year. EBIT and EPS are both significantly up as last year was mainly impacted by restructuring charges and legal proceedings. Well, if you look on the chart, you also see that the return sales at the group level was 5.8%. So you see Mercedes is more than cars and it demonstrates the return of more than 5 billion to shareholders year to date. In September, we started a further share buyback program Let's have a look at the Mercedes sales, car sales. So total sales are down 8% to 407,000 units, mainly reflecting the challenging market environment in China. Sales excluding China grew by 1%, driven by continued growth in Europe, 5% up, and the US, 6% up. With this, our China sales exposure decreased to around 20%. Top-end sales came in lower as a function of weaker Chinese market, as well as the current model transitioning, including the new GLE-AMG, GLS and S-Class together with their Maiwa and AMG variants. In the US, we only started supplying the new models to the dealers towards the end of Q3, while in China the market introduction of the new S-Class is expected early 2027. Top-end share reached 13% in line with our expectations for Q3. Our best sales increased by around 60% year-on-year, setting a new quarterly best sales record in the third quarter. The development continues to be firmly driven by Europe, where best sales increased by almost 80%, while GLC best sales more than tripled compared to Q2. Our XEV share reached 25%, also demonstrating good progress here. In Europe, almost every second vehicle sold was electrified. Looking at cars, financials, sales I just explained before, the revenue development is slightly better than sales, as it has been supported by growth outside China. The ASP is lower than the prior year, driven by net pricing, mixed and unfavorable FX. So let's go to the EBIT walk on the next page. In Q3, cars delivered an EBIT adjusted of 560 million and an adjusted return on sales of 2.5%. The volume structure net pricing bucket reflects mainly softer volume driven by lower China imports, a softer market mix, and net pricing. The FX bucket was mainly driven by Turkish Lira and Chinese Yuan. Again, industrial performance was clearly positive and provided strong support to earnings. While raw mats turned negative, total material costs were positive, driven by efficiencies. Efficiencies in production cost provided further support and lower cost for product related measures. The selling expenses reflect efficiencies but were more than offset by the phasing of direct selling expenses as well as effects for the rollout of our direct sales model in Korea. R&D reflects further efficiencies following our funding peak in 2025. The other bucket is negative driven by a lower VVC at equity result. I will come back to the adjustments later at the group level. Turning to cash for cars came in at minus 200 million. So as you can see on the chart that was driven by the working capital, we did see higher inventory driven by a heavier inventory mix. In the third quarter, with a higher share of available trade payables phasing. Investments came down following the funding peak, while depreciation increased as a function of recent product launches. Year-to-date, investments came down by 11% versus previous year, equalling around €900 million investment reduction year-to-date. The increase in other cash flow effects was mainly driven by favorable movements in tariff-related refunds and higher accrued tax liabilities. Again, adjustments we cover on the group level. Turning to Vents, Vents' performance, as pointed out by Ola already before, delivered a very solid quarter with sales stable around 84,000 units. Outside China, sales increased by 6% year-on-year. Thank you very much for joining us. On the cash flow side, it developed in line with our expectations and continues to reflect our investments into the new van architecture. As anticipated, investments are expected to peak this year at Vans, laying the foundation for the future of our van business. With the all-new electric VLE now in serious production, the next step will be the expansion of our lineup with the upcoming VLS Ascent. What are the key drivers? Volume was up, especially in China, especially ex-China, sorry. Mix was overall flattish, while net pricing was negative. In addition, no repeat of a prior year effect. The FX bucket was positive, mainly due to the US dollar. The industrial performance was supported by lower expenses for product-related measures, while ongoing ramp-up costs for the new architecture were a headland. Additionally, selling expenses and R&D costs were higher due to the launch of the new Vayner architecture and a reclass effect from selling expenses into industrial performance in Q3 last year. Turning to financial services, with the Atlant sale and the divestment of BlackLane in Q3, we further streamlined our portfolio and sharpened our focus on our core financial services business. and the penetration rate largely offset lower car sales and the absence of the Atlon Group since the end of July, resulting in broadly flat new business. Mainly driven by the Atlon sale, the portfolio declined compared to Quarter 2, 2026. On the profitability side, financial services delivered a strong performance in Quarter 3, An adjusted EBIT increasing by 42% to around 450 million. How did we get there? On the EBIT walk, we have the portfolio margin, which contributed positively and improved. The cost of credit risk also improved, supported by better portfolio quality at 8%. On the group EBIT, besides cars, Vans and Financial Services provided strong contribution to the Group EBIT. In addition, the RECON contributed positively. What's behind it is the Daimler at Equity result and the gains from further Daimler Truck disposals. This resulted in an adjusted Group EBIT of 1.8 billion. The adjustments offset each other. The main drivers were restructuring charges related to personal cost measures, M&A Transactions, mainly the Atlon sale, the divestment of Black Lane and the ongoing sale of our own retail footprint in Germany, and a valuation adjustment related to our equity participations. As a result, reported group EBIT also came in at 1.8 billion euros. On the cash flow side, cars and events, I explained already, the income taxes paid were at 330 million, interest paid Also due to seasonality of bond coupon payments. So the largest contribution comes this quarter from the further monetization of the Daimler truck stake, adding 620 million. Overall, this results in a positive cash generation in terms of the industrial free cash flow of around 170 million in a quarter. Looking at the net industrial liquidity overall, we generated over 3.1 billion in the first nine months of the year. As explained earlier, cash generation quarter three was soft. In September, we started new share buyback, a program of up to we have returned 5.2 billion of cash to shareholders in the first nine months of the year. The other bucket recorded cash inflow from the sale of Atlon. The total group cash proceeds are approximately 1 billion from that transaction. 450 million of that was recognized as a cash inflow in the net industrial liquidity in quarter three. The net industrial liquidity remains at a healthy level above 30 billion. Now, on the guidance, first on the divisional guidance for 2026, Please refer to the disclaimer regarding forward-looking statements at the end of this presentation in relation to the outlook. I want to emphasize in particular the ongoing conflict in the Middle East is adding to existing uncertainties, particularly around commodity and energy prices, inflation and unit sales, while our outlook assumes no sharp further escalation during the remainder of the year. Now turning to the car side on the sales guidance, we retain our view for the remainder of the year and continue to target volume growth ex-China. Q4 sales are expected above Q3, driven by increased global ramp-up of our new products, but below previous year due to China. In Europe, we expect to build on recent momentum and continue the positive sales development They are headed by the improved GLC availability. Likewise, we expect a positive development in the U.S. to continue, driven by the increased availability of new models, and this to continue in Q4. With the positive developments in Europe and the U.S., we are confirming our current sales guidance and continue to expect full-year 2026 sales to be slightly below 2025 levels. Our ICSI re-share stands at 22% for the first nine months. With increasing BEF momentum, we expect to finish the full year well within from our product momentum, mainly driven by higher volumes and an improved mix, also partly offset by a higher BEF share. On the cost side, we now expect the vast majority of the material one-time charges Thank you very much. We expect Q4 profitability to be below Q3. With this, we lower and narrow our full year guidance for the adjusted return on sales to 2-3%. Now, if you ask me what has changed since summer, where we guided H2 around 3%, I would highlight two major changes. Number one, the vast, and I really mean the vast majority of adjustment, is due to further deterioration of the Chinese market. And second, higher material costs from raw materials and product lifecycle measures were the trigger for the change. In terms of the guidance on investments, R&D is unchanged, while investments in PPE are now seen significantly below prior year. With this, the adjusted cash conversion rate has been raised to 1.2 to 1.4. On the van side, sales, as usual, we expect quarter four to be the strongest sales quarter of the year. However, due to softer consumer demand for the V-Class in China, the ramp down of small size vans and the first VLE deliveries in 2026, but there was a more meaningful volume contribution expected in 2027. We now see sales at prior year level for the full year. XEV share is unchanged. On the return on sales adjusted, the first nine months of the year, Benz achieved a strong 9.9% return on sales adjusted at the upper end of the guidance range. Against the year-to-date run rate we expect for quarter four, positive effects from higher volume, headwinds from cost seasonality, Thank you very much. We continue to navigate a volatile geopolitical and macroeconomic environment in quarter four, including volatility around interest rates and credit risk. Against this backdrop, we confirm our guidance and expect a fully adjusted return on equity in the upper half of the 12% to 14% range. And now to the group guidance. Obviously, that follows the same premises as the segment guidance. Revenue unchanged slightly below previous year due to the lower profitability at cars. We now see the group EBIT at prior year level. And looking at that refers obviously to the EBIT reported. Looking at the free cash flow on the industrial side following the adjustments at cars. We now see an increased likelihood of the free cash flow industrial crossing the threshold of slightly below, which sits at 4.1 billion euros. With this, we adjust the FCF guidance for the full year to significantly below prior year. This includes the cash flow in the first three quarters of 3.1 billion, including the 1 billion Monitorization of Daimler Truck shares but also 1.1 billion of restructuring cash outs. And this outlook includes a positive cash generation in quarter four, including M&A. The guidance considers a smaller amount of disposals of Daimler Truck completed in October, but no further potential disposals going forward. And I think that brings me to the wrap up in terms of the way forward. Well, as Ola pointed out, the road ahead is bumpy, but that requires disciplined executions and bold decisions. So what are we doing? First, we will leverage the strengths of our product and technology portfolio. Our focus is on ramping up and rolling out new models Expanding Ada's functionalities and translating our strong product substance into sales momentum. Second, we will enhance productivity and competitiveness. We will continue to address cost, structures and capacity, including measures to improve the competitiveness of our German footprint, ramping up production in Hungary and continuing our voluntary redundancy program. We are also driving efficiency through the broad use of agentic AI. And third, we will further enhance the resilience of the group. Mercedes-Benz is more than cars, with strong vans and financial services business. Our healthy balance sheet and Daimler truck stake gives us means to invest into the future, including adjacent business opportunities. Early next year, we will provide an update at Capital Market Update alongside our Annual Results Conference, including our outlook for 2027 and beyond. And with this, let's move to the Q&A now. Thank you.

Thank you, Ola. Thank you, Harald. We'll now move on to the Q&A. You know the drill. I'll identify each question by name. Please, before asking your questions, state your name and the name of the organization that you represent. As usual, please ask your question in English, and for reasons of fairness, please try and limit yourselves to a maximum of two questions. Before we begin, the operator will explain the procedure once again.

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Okay, we start and the first question goes to Tim Rokosa from Deutsche Bank. Tim, over to you.

Good morning, Christina, and good morning, Harald and Ola. First of all, Ola, as a German citizen and a CHI analyst for 18 years, thank you for making these very strong interest statements. I think you guys are spot on. Germany really needs to get the act together. Now, to my two questions. When we think about China, Ola, obviously we discussed this before, but as you say, it is on everyone's mind, right? We have seen this death by Maybe more strategically, what will China ultimately be? Let's say we see a bit of a recovery. Is this going to be one of the three major regions for you still? Or is this something where you're going to sell a lot of tests maybe going forward, but it's somewhat of a more niche market ultimately in your thinking? And then secondly, Harald, obviously lots of moving parts on profitability. Some seem to go away. Some you might still negotiate. Some will likely stay next year, like China, for example. Can you help us understand what you're thinking is there to stay and what's not, especially when we think about the run rate for 2027? Is this rather a Q4 number like we see it right now, or is it rather an H2 number? Shall we think about something totally different?

Thank you, guys.

Good morning, Tim. Of course, in a market condition like we're experiencing in China right now, and deteriorating beyond what we had thought would happen this year certainly what we thought at the beginning of the year but even you can see now in the second half the weakness of that market the even stronger weakness on the upper end where we are the dominant brand that is affecting us in a situation like that and reflecting on the last three years you called it death by a thousand cuts or whatever at least there have been some cuts You do a 360-degree inventory. You look at every single aspect of your business. Brand, brand relevance, product portfolio, go-to-market strategy, production strategy, sourcing strategy, technology, the whole thing. And we have already put a whole series of measures in place to deal with this situation. But your question is, Thank you very much. Thank you very much. But bear with me for a comprehensive operating point and a strategic play for the longer term picture. And we will present that to you in the near future.

And Tim, on your second question, well, I do understand lots of moving parts and a bit difficult, I mean, to grab what it is. So let me help to clarify maybe and simplify. First, in terms of mean the run rate, I mean, how could we think about mean the run rate? Definitely, I would say it's not the quarter four, which is a run rate. I mean, usually you have the cost phasing, which is more back loaded. You have this fixed cost capitalization, which is in particular pronounced this year. So I would rather suggest maybe, I mean, to look at, I mean, the run rate right now is a function of the H2 run rate in taking into account the guidance update we made yesterday and explained, I mean, here today. So you depart from that one, how to think about 2027 and obviously this is not the point here today to give any guidance for 2027, but what we're driving, what we're trying to do in 2027, departing from that call it run rate, clearly we want to leverage and capitalize on the product momentum. which we see in part in 2026 but should definitely have more momentum from it in 2027. Second, we'll continue to drive the variable cost hard and definitely the target, the objective is to bring variable cost mean further down. The same applies to fixed costs and the same applies to funding. In the nine months you can already see quite encouraging investment down and we continue to take that approach also for 2027. So I think I mean these are somehow I would say the building blocks which are somehow under our control. Obviously that leaves me in the market side. I don't want to speculate too much about it. But as we see that favorable main customer feedback on the new products, including the BEFs, I would say clearly the target is to continue close momentum in the US and Europe and all other parts of the world as we're coming together in February.

Very clear. Thank you both.

Thank you, Tim. I'll hand over the next question to Jose Azumendi from JP Morgan.

Good morning. Thank you, Christina. Two questions, please. Ola, can you speak a bit more about the topic of China? And you mentioned the new E-Class. Which changes have you done to the car to improve the overall competitiveness? Which vehicles will follow up on this new E-Class, which I think will set A new benchmark for you in China in terms of cost competitiveness. And do you think you need to do further capacity adjustments in the region? And then question two will be for Harald. Can you speak please about the working capital and your level of confidence of turning around that working capital in the fourth quarter?

Thank you. Good morning Jose.

We will of course invite you to the world premiere of the new E-Class which will happen next year. So I don't want to give too much technical details about the vehicle but I can tell you the approach that we took when we started the journey of developing this car about maybe three years ago or so was really more or less a white sheet of paper. So you will see a dedicated battery electric vehicle that in all its features, technology, styling, space, but also the traditional values of Mercedes that are more important than ever, I have to say, especially in China, safety, quality, the right. We are positioning that vehicle very much right for China and everywhere else for that matter. But the crucial point is, and that was the point I made in my opening speech, is that that will be the first vehicle in this variable cost, material cost initiative that we started a couple of years ago to switch from what I call the hybrid business model to a new business model in China, is that we will get close, not all the way, but close to this Full sourcing in China for Chinese production. And that will help us lower the variable cost significantly, significantly vis-à-vis the past business model. And we're going to be realistic about the price point. I mean, who knows where price point is going to be 12 months from now in this Chinese market environment. I don't think anybody can know. But we will then have water under the keel to adequately price point these vehicles, although we will never take the fire sale market share at all.

And let me remind them in the quarter three, so build up of the inventory to support higher quarter four sales, but at the same time, a higher mix in the quarter three inventory. Piotr Czajkowski Well, that leaves some cash generation also on the organic side in the fourth quarter. If you think about the margin, obviously, that is not that strong. So the organic cash generation is supposed to come from the working capital rain reduction, which means inventory down. But don't forget about the payables. They will go up at the same time. As you lower the production in the early days or in the course of December, that has an impact on the payables. But the net being a working capital contribution, that explains, I think, why we're building up in the third quarter, coming down in the fourth quarter and explains the cash flow guidance.

Thank you.

Thanks, José. Next question goes to Patrick Hummel from UBS.

Thank you, Christina. Good morning, Ola and Harald. My first question, Harald, is a follow-up regarding the puts and takes for 2027. You mentioned that you expect variable cost and fixed cost to be further down now. In Q3, you even managed to overcompensate for the rising input cost. And I'm wondering whether that comment You keep lowering your growth expectations, basically, and China, of course, is the main driver. And I think, you know, the idea behind the wider capital allocation framework was probably to to have EPS accretion to create value for shareholders, but share buybacks don't really create value if the business is shrinking. So I'm just wondering in the grand scheme of things, how you think about the capital allocation framework today when it comes to growth, when it comes to M&A, does it still make sense to sell on DTG to buy back stock? And maybe more specifically, and that might be one for Harald, How should we think actually about the dividend going forward in that context? Do you still want to keep it flat in absolute terms, which is what you did last year, or will it be more closer to the target payout ratio of 40%? Thank you.

Thanks, Patrick. So on building blocks and variable costs in 2027, The targets which we outlined as part of our efficiency program, the NLP2, I'd like to remind you that MINS are before raw mats or ex-raw mat movements and also ex-life cycle measures. As you can see, 2020 has been said. Again, I don't want to speculate now on the raw mats, on commodities. MINS for 2027 needs to be watched in particular if you think about chips and semis, I would say. But what is in our hands clearly means this is what we want to drive downwards.

So, Patrick, of course it's our goal to grow. I think we have demonstrated this year that ex-China we have grown, which means that the product offensive is working. But China has more than outweighed that, and that's the point. And as was the question before, where is that sound operating point for China? I think that's a sound operating point for China, whereas you don't have 100% predictability. It is something that we have to seek and define and say what is our play and then go from there. So we will come back with a more detailed and comprehensive view on China next year. But it's clearly our goal to grow. I think the capital allocation policy so far has worked quite well for us in turbulent times. As Harald said, we will finish off the billion that we kicked off by the annual shareholders meeting next year. What then the best choice of capital allocation is, that decision we will make at a given point in time. But I think this is important for the shareholders. Whatever decision we make, we will make in the interest of the shareholders. So that is how we act. You can see in spite of giving back billions back to shareholders, strength. On the M&A side, shoot from the hip M&A certainly will not be our plan. If there is meaningful addition to our portfolio that strengthens our business, or an adjacency that is a logical extension of our business. Yes, we have the firepower to look at that, but this is not something that you do in a hectic way as a reaction to, oh, you have issues that you need to deal with, now you try to escape through M&A. It's not our mindset. M&A has to be a strategic contributor to the core business or a meaningful adjacency. Should there be something there, rest assured you will know.

I would just briefly like to remind you of the capital allocation framework. I mean, we can only distribute what we generate. So, shareholder returns would be frame-sized by the cash generated or expected to be generated in 2027. I would say and from that probably Divi will be served first and all of the others we'll see in Fed.

Thank you very much.

Thanks, Patrick. And the next question goes to Harald Hendrikse from Citi.

Morning, can you hear me? Yes, we can.

Perfect. Thank you so much for taking my question. Ola, Harald, thank you so much. My question relates more, I mean, going away from China, you know, if we look at where the financial results stand today and obviously the disappointing, you know, impact and, you know, all of your peer group than we ever thought before. And in fact, of course, the decline in Chinese profitability is a problem this year. But is it maybe the real problem that the rest of the world profitability is actually lower than maybe we all thought it was? So, you know, we understand that the BV impact is significant. We understand the tariff impact in the US is significant. So, you know, those are not the real problems. But what I really want to understand is when we go to 27, or more importantly, 28, 29, you know, how, you know, your business is doing okay, right? Sales are okay. Mix is okay. You've got lots of new products. You know, how can you ensure that the profitability of the non-China business is actually much more rational for a company of this size. I'm sure you would agree that the global business, even ex-China, should be doing, I don't know, margin. Can you talk about that a little bit more? And if you had had the foresight and the knowledge that China would be as difficult as it is now, what would you have done differently in the rest of the world? Or would it have changed the strategic situation in the rest of the world for you?

Maybe if you could address that. Sorry, difficult question, I know, but that's what I feel. If I start, then I will pass on to Harald.

Yes, the China business is profitable, and it's now less profitable, so stating the obvious. And a business system is a business system as a whole, so every region contributes to the fixed cost of the overall business and also carries the funding of the overall business. So if one significant piece of that breaks away, the fixed cost aggression effect of it is felt. What is the measure you have to take? And also, this is obvious, is you have to reduce your fixed cost and you have to reduce your funding. And we have been on a path of doing that over the last few years, quite successfully so. But the fall away of the revenue side, of the profitable revenue side of China moved faster downwards than what we had originally anticipated. I am not the cry over spilled milk type of person and should have done this and should have done that. But going forward, we have to continue on that path so that indeed the more healthy at the moment business around the world and the growth trajectory that we're starting to get there In spite of wars and other things, I could complain about the fact that the very profitable Middle Eastern market for known reasons is not as vibrant this year as it has been for us. It's an upper-end market where we sell a lot of our heavy goods that also make a lot of profit. There are many things that are working here. But we will continue with determination to adjust the structures of the company to fit the revenue position of the company and there is an inertia between those two if the dynamics on the revenue side have moved ahead in a direction that we did not foresee at that magnitude.

Part of the answer, you can see already, I mean, I commented before that basically the exposure, if you want to say, to China sales is down to 20%. Clearly, I mean, that was higher than a third some time ago on the sales side. And we're expanding in the other parts of the world, rest of the world. We're growing, as you can see, with the numbers in Europe and the U.S. If you look at that from a profitability point of view, well, we're not separating out the profitability by regions, but I think you're right. The profit pools from China were very important, very material. The decline we absorbed already as we speak is definitely thanks to the strong product momentum, but also thanks to the cost work. So what's the plan therefore? Get less dependent on the profit pools from China. Absolutely. Are we at the point where we're completely independent of the profit pools from China? Not maybe in brackets yet, but clearly I think given the uncertainties, that's what we have to drive for. And I think we see the building blocks with the product traction in the other markets. We'll take the variable cost further down, the fixed cost of funding as elaborated before. We also work on how do we kind of ring-fence China that it's self-sustainable and therefore make the entire value proposition more resilient and less exposed to China. That is definitely the plan. and probably February is a good moment to talk about that in a bit more detail.

Thank you very much.

Thanks a lot, Harald. I will hand my next question over to Henning Kosman from Barclays.

Yeah, good morning. Thank you, Christina. Morning, Ola. Morning, Harald. Sorry, just to come back to China. Actually, I'm sorry to label this, but Ola, you said your ambition is certainly to grow regardless of what your new target picture for China will be. So I appreciate your talk on the right page. So when you say you want to grow regardless of what the new China picture will be, I suppose compared to to 2025, we're tracking about 150,000 units down. Do I understand you correctly there that if the current run rate remains or declines even further, growing means overcompensating that in other markets? I just wanted to clarify that. If you can grow even if China remains or declines in your new target picture. And then the second question, much more for Harald, On the free cash flow, please, Harald, just to clarify a few things around free cash flow. Firstly, if you could just say how much the Daimler truck stake sale was in October. You said it's small. If you could quantify it, please. But more generally, if I look at your free cash flow in the nine months, you had a pretty big outflow for these operating leases. I understand that the costs on operating leases were up a lot year over year, but it makes a big difference to the operating free cash flow, so if you could touch on that specifically. But just overall a statement on the underlying free cash flow. There's a very large contribution from payables versus receivables. I think the cash tax looks pretty low relative to the P&L tax. There is obviously the DTG stake sale of Old Work Billion in there now. So if you could just make a statement about the structural underlying free cash flow without help from working capital where you say there's going to be a bit more even in Q4, how do you assess

Good morning, Henning. Perhaps I was not precise enough in my answer, but I will restate it. I will kind of quote Harald. For the remainder of this year, I repeat what Harald said. Q4 will be higher than Q3, but Q4 will be lower than previous years. We intend to grow world X China in Q4. But we expect China to be down in Q4. So the net of all of those is what Harald said below previous year. That does not mean that we don't have the general ambition for the business as such, and maybe that's where I was not so precise, that over time we want to grow the business. But I also appreciate, and I think that's your question, Where is that landing point for China? And where is the platform from which you then rebuild, so to speak, that we are going to have to deliver to you? But we don't want to shoot from the hip doing that here today. We have started a whole host of actions that we could discuss for hours to strengthen and secure our position in China. But the market Thank you very much for joining us. The operating point for China makes sense for us.

The operating lease sideline, but we don't see a major take-up on the operating lease. The industrial free cash flow is anyhow X in any of the financing stuff. If that requires clarification, we can take that offline. In terms of how to think about I mean, cash flow generation and levers. Let me point out, I mean, number one, obviously is driven by the margin of the business on the industrial side, so cars and vans. We cannot disconnect the cash flow from the margin evolution. I think I'm stating a bit the very obvious. But then what are we doing? In terms of working capital management and here I think we need to look beyond the quarter and rather look on full year. We want to do continuous working capital improvement and thereby basically absorbing impacts like the direct sales model. If you look over a couple of years now, we took quite some billions of inventory on the balance sheet from the direct sales model, but you don't see a take up in inventory as such, which means we had been doing improvements on working capital. But for this, I think you really need to take a full year picture. And again, once we have completed 2026, we can have a look at that. Which means basically working capital should be either, I mean, a neutral up with the new models being launched, having passed the start of production. Investments is coming down. I mentioned 900 million in the nine months, I mean, year to date. and that number will be even bigger on the full year so in other words investments versus depreciation is going to be supportive accretive to cash conversion ratio so on the pre-tax basis therefore I would say we should see on cars in cash conversion at least at one moving forward And on Vance, I think it will come up progressively. The investment peak is in 2026, not jump to one right away. But over maybe two years or so, we'll come back to one. And then there's a great potential, I think, to exceed one in the midterm. And on the tech side, Yeah, cash taxes are running lower than P&L taxes. I mean, as in some countries, we are in a tax loss situation. I guess where the tariffs, for example, end up, I mean, in Germany, and that makes it to mean that the cash taxes are significantly lower than the P&L charges you see over there. I hope that helps.

Thank you. Can you share the number for the DTG stake sale in October?

Apologies, so that was a very small three-digit million number. Thank you both.

Thank you, Henning. I will move on to the next question, and that one goes to Horst Schneider from Bank of America. Horst.

Yeah, thank you for taking my questions as well. I have got a few still. I tried to constrain myself to two. You made a lot of statements, Harald, on Q4, but I'm not sure if you quantified now if Q4 could slip into losses or not. So if I take a new guidance range, the midpoint of the range implies something like a round break even in Q4. Maybe you can say what's your ambition for the fourth quarter? Stay in positive territory and achieve upper end of your new guidance range? Or should we really work With the midpoint, and maybe you can clarify again, what are then the precise drivers? I think you have not yet said what could be the magnitude of supplier compensation, for example. And then the second question that's for Ola. Ola, when I was on the Paris Auto Show, one of the most shocking things for me were that the Chinese OEMs, they try to push team to try to push more into the premium space. Maybe also related to the fact that their tariffs are increasing now. But don't you think that this could be into 27 and thereafter a bigger threat to your business also in Europe that they finally take more share just because their vehicles are priced a lot lower than those of all the German premium brands? Thank you.

First question on quarter four. I think if you apply it mechanically, it goes somewhere from minus one to plus one or so. So I would say call it a break-even quarter. We're sailing with not a lot of water under the keel here, obviously, I think in the other direction. So that's why I think why We should not exaggerate, I think, the level of granularity we're chasing here, but call it a break-even quarter. I mean, that's what I would say for cars in quarter four. Let me be clear on the supplier compensation. One of the reasons for the kind of adjustment next to China is higher raw mat cost and lifecycle measures. It's not higher supplier compensation. This one is a phasing, which means supplier compensation has moved to the right into the fourth quarter, but has not been stepped up. And I want to make that extremely clear. There's not a single cent more for suppliers in terms of compensation. It's just a matter of fact that has been moved to the quarter four, which makes the phasing a bit unfortunate. I really want to be absolutely clear about that and moving forward. I don't want to prejudice what Jörg is doing on On the purchasing side, but I think the times in terms of supplier compensation, I think in the challenges we're facing in the industry, in terms of the uncertainty and the volatility, I think the times of supplier compensation for volume are gone.

So if we talk about circulation, it's part of the equation. And every market is different here. But when we develop our product, technology and pricing strategies actually to deal with both. And yes, many Chinese manufacturers are seeking their luck in Europe as well. You can see that there's also been a regulatory response to that with the recent trip of Commissioner Stefkovic to China to actually introduce quotas now as well as one tool on top of the The battery electric vehicle anti-subsidy study that was put in place a couple of years from now to maybe create a little bit more level playing field on the pricing side and on the ability to flood a market with certain vehicles. But you can't rely on that. You got to rely on your own strengths and your own strengths is ultimately your product and your pricing play. If we look at what's going on in Europe Right now I'll take the German market as an example because it's a good bellwether and it's by far and away the biggest market in Europe. For I think the third month in a row now Mercedes-Benz is the clear premium leader for battery electric vehicles. And the most selling vehicle I think in this month is probably the electric GLC. So it's not just a matter of looking at How do you deal with new Chinese competition? It's also a matter of looking at how do you deal with the competition that was there in the first place. And here I think our product offensive will carry momentum for us. It's not a coincidence that Mercedes-Benz is the first car company with level 2++ now being launched in Germany and then ability to proliferate throughout other countries. We will power play on that next-gen technology and be at the forefront. And not every non-European manufacturer that comes into the market masters that digital environment as well as we do it right off the bat. It took us a little bit of time to get our hands around that in China. But if you look at the digital play now in China, we're at the frontier. We're at the technological frontier. Our automated driving systems are as good, if not the best. Our new smart cockpit, and we launched yet another version, significant upgrade in the fall now, is as good, if not in some aspects, the best. So we're not going to stand still and just watch this happening to us. We're going to take the bull by the horns and play our play.

Thank you very much, Horst. Thank you very much, Ola and Harald, for answering all of the questions. I see a few more people in the line. Unfortunately, we're running out of time as well. We will reach out to you. And of course, from an investor relations standpoint, we remain at your disposal for any further questions that you may have. Now to all of you, have a great morning, have a great afternoon and a great evening, depending on where you are in the world. Thank you very much and goodbye.