Bjoern Scheib - Head of Investor Relations Bodo Uebber - Member of the Management Board, Head of Finance and Controlling, Daimler Financial Services

Patrick Hummel - UBS AG José Asumendi - J.P. Morgan & Co. Michael Tyndall - Citigroup Horst Schneider - HSBC Stephen Reitman - Société Générale Daniel Schwarz - MainFirst Bank AG Sascha Gommel - Commerzbank AG Kristina Church - Barclays Plc Christian Ludwig - Bankhaus Lampe KG Fraser Hill - Bank of America Merrill Lynch Philippe Houchois - Jefferies Michael Punzet - DZ Bank AG

Welcome to the global conference call of Daimler. At our customers’ request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler website. The short introduction will be directly followed by Q&A session. [Operator Instructions] I would like to remind you that this teleconference is governed by the Safe Harbor wording that you find in our published results documents. Please note that our presentations contain forward-looking statements that reflect management’s current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlining any of these statements prove incorrect then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. May I now hand over to Bjoern Scheib, Head of Daimler Investor Relations? Thank you very much.

Good afternoon. This is Bjoern Scheib speaking. On behalf of Daimler, I would like to welcome you, both on the telephone and the Internet, to our Q3 results conference call. We are very happy to have today our CFO of Daimler, Bodo Uebber, with us. In order to give you maximum time for your questions, Bodo will begin with a short introduction, which will be directly followed by a Q&A session. For technical reasons I would kindly ask you to limit your questions to two. And please make your questions precise and short. With this, I would like to hand over to Bodo.

Thank you, Bjoern, and good afternoon. Again, we closed the quarter with record results. And once again, we are demonstrating that we are pursuing the right strategy and progressing with our attractive products and innovative services. Daimler’s unit sales grew by 5%, driven by Mercedes-Benz Cars and Mercedes-Benz Vans. In September, Mercedes-Benz for the first time sold more than 200,000 vehicles in one month. And with a total of 566,000 vehicles the third quarter was the best-selling ever. New record sales were set in Europe, Asia-Pacific and the NAFTA region. In particular, our SUVs and the E-Class contributed to the success. And we continued our product offensive with the start of production of the new E-Class wagon, the world-premiere of the new class All-Terrain and the first deliveries of the E-Class sedan as a plug-in hybrid. At the Paris Motor Show we presented our new product brand for electric mobility, EQ, and the amazing concept car. Before the end of this decade, the first EQ model will be launched in the SUV segment, followed by a model offensive that will gradually supplement the Mercedes-Benz Cars portfolio with electrified vehicles. But now let’s discuss our third quarter results. Group revenue increased to €38.6 billion, up by 4%, adjusted for foreign exchange effects, group revenue climbed by 3%. EBIT adjusted for special items increased significantly to €4 billion. Net profit amounted to €2.7 billion, equivalent to €2.43 per share. The increase in profitability was driven by Mercedes-Benz Cars, Mercedes-Benz Vans and Daimler Financial Services, because of the current market challenges Daimler Trucks and Daimler Buses posted earnings below the prior-year quarter. Year-to-date the industrial free cash flow was €2.6 billion, which is significantly lower than last year. This number includes payment of €1 billion in connection with a settlement with European Commission in the antitrust proceedings in the Trucks segment, higher tax payments as the prior-year period was influenced by tax refunds, and higher investments. As a result, the net liquidity of our industrial business reached €17.9 billion at the end of the third quarter. Let’s take a closer look at the major developments in our divisions. Mercedes-Benz Cars increased its unit sales by 11% in the third quarter. It was once again the strongest growing premium brand. We achieved double-digit growth in many European countries. Sales in China grew by 20% to a new high and numbers in the U.S. were also above the prior-year period. Mercedes-Benz EBIT from the ongoing business significantly increased to €2.7 billion, which represents a margin of 11.4%. The success is the result of higher volumes reflecting our strong product lineup, the strong sales mix, exchange rate effects, and positive net pricing. Also in the past quarter we continue to invest heavily in new technologies and future products. Daimler Trucks had to deal with a quite challenging market environment in the third quarter. While we achieved positive sales development with growth of 7% to 21,000 units in Europe, our business was not immune to the weak market environment in other key regions. So overall volumes decreased by 24%. In particular, slowing demand in Class 8 in NAFTA region had a significant impact on our truck sales there, which decreased to 31,000 units. However, with a market share of more than 39%, we maintained our market share leadership in the Class 6 to 8 market. As order intakes in the third quarter indicate the continuation of the challenging NAFTA market in the coming months, we initiated additional steps at Daimler Trucks North America to adjust our production program accordingly. Beside those market developments we presented our new flagship in the heavy-duty segment, the new Freightliner Cascadia, which sets new standards for fuel efficiency in the Class 8 market. Reflecting significant lower unit sales and intense competition in Europe, EBIT adjusted for special items decreased to €510 million with a return on sales of 6.5%. In light of the heterogeneous and weak market development in our key regions, our truck results are relatively good. However, keeping in mind the necessary investment for the further development of our business and the anticipated development in our key truck markets, we have to anticipate continued headwinds. In light of this development, we have to consider and evaluate measures enabling us to reach our target returns in the future. At Mercedes-Benz Vans, we achieved our best third quarter sales with growth of 13%. The main driver for the higher numbers was the market success of our mid-sized vans. EBIT adjusted for special items came in at €319 million with the corresponding profit margin of 10.2%. Unit sales at Daimler Buses decreased by 17% in the third quarter due to the difficult situation in Brazil and Turkey. EBIT adjusted for special items was significantly below last year’s third quarter and decreased to €52 million constituting a profit margin of 5.5%. At Daimler Financial Services, contract volume increased by 5% to €122 billion at the end of the third quarter. In the third quarter, the Financial Services division reported EBIT of €438 million and a return on equity of 17.7%. The higher EBIT was mainly the result of an increased contract volume and slightly better cost of risk. Net credit losses remained at a very low level of just 32 basis points at the end of the third quarter. In July, we announced the acquisition of Athlon Car Lease International. This will make us one of the leading providers in the European fleet management business. We expect to close the deal in the fourth quarter. At mobility services, we extended our worldwide leadership in car sharing and passed the mark of 2 million customers at car2go. At mytaxi we were able to achieve significant gross compared to last year and are now joining forces with a London taxi app provider Hailo, creating Europe’s largest taxi e-hailing company. Now, let’s look at our expectations for the full year. Due to our global footprints, our attractive products, and above all, our highly motivated employees, Daimler is growing sustainably and profitably. That’s why despite volatile sales and financial markets, we are from today’s perspective well on the way to achieve our guidance for 2016. Global demand for cars is likely to grow from its high level at last year by about 2%. For the passenger car markets, we continue to anticipate support from the Chinese and Western European market. At the same time, we do not expect too much tailwind from the U.S. market. Moving on to the truck markets, demand for our key trucks should be noticeably below last year’s level. The negative factor will be the ongoing market decline in North America for Class 6 to 8 trucks by approximately 15%, with Class 8 being far weaker. Because of the slowing dynamics in Europe, we have had to adjust our projections for this market. Now, we are expecting growth in the magnitude of 5% to 10%. Concerning Brazil, there is no turnaround in sight from today’s perspective. For the van markets, we continue to foresee a positive development and expect markets in Europe and the U.S. to grow significantly in 2016. Our market guidance for buses also remains unchanged. Western Europe is expected to grow significantly. In Brazil, we once again expect significantly lower demand. Reflecting the more challenging market environment in our key truck markets at the Daimler Group level, we now expect slightly higher unit sales resulting in group revenue in the same magnitude of last year. Our foreign exchange guidance for full year 2016 remains unchanged. At current spot rates we expect a slight tailwind for Daimler Group. Positive effects result from currency such as the U.S. dollar and Chinese Renminbi, but negative effects arise from currencies like the Russian ruble, Brazilian real and Turkish lira. So based on current assumptions, our 2016 EBIT guidance for the divisions and for the group remains unchanged. The anticipated earnings development in our automotive business would also be positively reflected in our industrial free cash flow. Our industry free cash flow is still expected to be significantly lower than in 2015 and significantly above the dividend payment in 2016 of €3.5 billion. Let’s now take a closer look at the fourth quarter. Driven by the strong product portfolio Mercedes-Benz cars sales in the fourth quarter will reflect the same pattern as in the third. Based on our strong product portfolio favorable hedging and continuing disciplined efficiency management, we expect adjusted EBIT in the fourth quarter to be significantly above last year’s level. At Daimler Trucks, based on our current assumptions, we expect EBIT adjusted for special items in the fourth quarter to be significantly below last year. Mercedes-Benz Vans expects fourth quarter adjusted EBIT to be significantly below last year due to higher spending for future products. At Daimler Buses EBIT adjusted for special items will be slightly above the prior-year level. And at Daimler Financial Services, we expect EBIT in the fourth quarter to be at last year’s level. To sum up, we are working to safeguard, but also further improve our current performance step by step, with the continuation of our product offensive in all divisions, structural optimization and efficiency improvements within the entire group, further increasing operational flexibility and continued comprehensive financial discipline. Our strategy is paying off and Daimler continues to make a promising investment case. With our strong balance sheet, we have a very good base to invest in the future of digitalization and electrification. But despite our financial strength we must remain focused and disciplined. The major challenge for the automotive industry will be to optimize and prioritize budgets not only for the current business, but also in terms of structural, technological developments. Today we are utilizing and further strengthening our core competences and have generated a robust and profitable business model. The fact is however that our industry is changing and that all Daimler divisions are impacted by the automotive transformation process. For us this offers opportunities as we have already started to position ourselves. The extensive investment in the future in combination with a focus on efficiencies, profitable business models, attractive products and services will deliver long-term sustainable and profitable growth. We want to our shareholders to participate in the success of our company by driving shareholder returns and continuing to target the payout ratio of 40% of net profit attributed to the shareholders. Furthermore the target, we targeted sustainable dividend development. I now look forward to your questions. Thank you very much.

Thank you very much, Bodo. Ladies and gentlemen, you may ask your questions now. The operator will identify the questioner by name, but please also introduce yourself with your name and the name of the organization that you’re representing. A few practical points, first of all, please avoid using mobile phones as well as hands-free speaking systems. And please as always ask your question in English. Last but not least, as a matter of fairness and as a practical point, please limit the amount of questions that you are about to raise to two questions, so that you give everybody on this call the opportunity to ask questions. Now, before we start, the operator once again will explain the procedure.

Thank you. [Operator Instructions] The first question is from Patrick Hummel, UBS.

Yes, good afternoon. Thanks for taking my questions. I’d like to start with R&D. There have been comments from the media conference this morning on the wire suggesting that Daimler will continue to invest massively in the future technologies. Then a couple of weeks ago or actually last week the CEO, Dieter Zetsche, was on Bloomberg saying at a meeting with some German business journalists that the investments actually could come down in 2017 to a range of €12 billion to €13 billion. So I was just wondering if you can confirm that the guidance that you gave back in February as far as investments are concerned for this year and next year is still valid or if there is an adjustment to be made. And if you can, of course, also a qualitative statement looking forward into 2018 in light of your EQ strategy to which extent we should assume this is going to be a plateau situation for the coming years or do you see any chance to actually even reduce the R&D and total investment ratio from here? Thank you.

So thank you for your question. First of all to comment on this year’s development, our R&D budget is in line, which what we indicated in February for the two years period. You see our quarterly developments against last year, of course, by increasing R&D spending. On the other hand on the CapEx side, of course, you see also our increase compared to last year, but for this year, as we also indicated in February, the budgets for CapEx is a - so to say, a limit. And we will not spend all the money, which we have initially targeted in the February conference call for the two years period. So that’s one indication for this year. The second topic is Dieter Zetsche discussed a couple of days ago more the question how to optimize the spending in the different kind of business models so to say. So first one is of course our current one, where we need to prioritize, optimize spending. Of course, in which there are - with the future trends in this aspect. On the other hand, we need to spend more money for new business model upcoming that you see everything around the EQ branch in passenger cars. In that what he wanted to say, how to balance these both aspects. As a general topic, we will update you in February again about our two years periods. So please come back with your question in February. There we will outline more of this optimization process.

Thank you. And if I may, a quick follow-up on the EQ strategy, you presented in Paris the vision and you were saying that this car or these cars will be produced in existing facilities. Can you also share some thoughts, whether these models will be produced on existing production lines? How flexible are you at production lines to produce the EQ car or SUV?

So you’re right, we have said that the production of this product will be based on the existing production network and will be on the existing assembly lines. Let’s not make any final decision on where we put this product, the first one and the second and the third. But it will be in the existing facilities and the existing assembly lines.

Thank you very much.

Welcome.

The next question is from José Asumendi of J.P. Morgan. José Asumendi: Thank you. Jose, J.P. Morgan. Couple of items, Bodo, can you just remind us, did you just say that the fourth quarter auto EBIT expectations for - in 2016 is going to be significantly above last year? Is that what you said?

Yes. José Asumendi: It is, okay, okay. And the number we’re looking at is so - and just as a quick reminder, so 10% on top of last year’s number, which was about €2.1 billion, is that how we should think about it at least?

You know our criterias which we had and significantly reflects over and above 10% compared to last year’s quarter, that’s right. José Asumendi: Okay, okay. So the - so there should be a sort of a similar fourth quarter versus third quarter in terms of EBIT or there is a greater chance that the outer [ph] EBIT could be similar maybe?

José, of course we have given - I do think we gave you a lot of indications. We have said what the guidance is for this year. José Asumendi: Fine.

I do think you can go back and make your own calculations with our indications to come up with the right number. José Asumendi: Great. Then the second thing is, as we think about also 2017, and you’ve got I guess there is the impact of the portfolio impact on the E-Class. Can you just remind us a little bit like how do you think about 2017 product-lifecycle-wise? Well, I look at the share price reduction today and it looks like everything is over. So as I think of 2017, what do you have in terms of product-cycle and how do you think about platforms and cost savings?

Of course, we make our final assumptions in, or final guidance in February. With regard to the product lifecycle or products portfolio next year, of course, we will see the full-year impact on the E-class. As you know, we have the regional rollout this year. Well, fourth quarter is dominated by the launch in China or the launch has already happened but the effects are more in the fourth quarter. We have the station wagon, as I said before, launched in September. So you will see the E-Class developing nicely next year based on full year effects. For next year, we have to consider, of course, that we have face-lift of the S-class in mid of the year, which should give us some stabilization, of course, in the lifecycle. And, of course, I do think our SUV portfolio is a pretty strong one. Currently, of course, the GLC and also the Coupe versions of the SUVs are developing well. And so that it should give us some momentum also for the year 2017. It is too early to say where the markets are going. But we think there are not too many very negative developments currently to be seen. China is doing well. U.S. is kind of flattening out on a very high level and Europe is doing very nicely this year. And on this basis, we will give you further indication in February during the press conference. José Asumendi: Thank you.

Thank you.

Thank you. The next question is from Michael Tyndall, Citigroup.

Yeah. Hi, gents, it’s Mike Tyndall from Citigroup. Bodo, I wonder if I could just push you a little bit more on the CapEx front. Where it’s roughly €4 billion so far this year, your target was at €1.7 billion. Is there anything coming in Q4 that would see a material step-up? If I think about the battery plant that you’ve announced, if I think about engine factory that’s been announced, is there any milestone that potentially would see that step-up materially in Q4? And, I guess, that’s within the context of your free cash flow guidance for the full year. It looks like we need a pretty strong Q4 to make that guidance. So that’s the first question. The second question relates, I guess, in slightly to the EBIT walk in terms of volume mix and price, a very strong number in Q3. I’m wondering, I know you won’t give me a split in terms of price. But what are you seeing in terms of price erosion on the new models? Is it normal sort of price erosion that you would see in a typical lifecycle or is it different, potentially better given that very strong volume mix price contribution in Q3? Thanks.

Okay, Michael, thank you for your questions. First of all, in CapEx we do have more or less a kind of seasonal development. If you look at last year’s numbers or Q4 number in spending, it was also the highest one in 2015, and that will happen again in 2016. So, yes, there will be an increase in our CapEx numbers in fourth quarter. But as I said before, we will not spend so much as we have indicated in the beginning of the year. So we will stick a bit under this number. There will be a step-up as we have seen it seasonally in 2015, same in 2016. Jeopardize our cash flow guidance, not, because we have spent for it. Our guidance is based on this higher CapEx spending in the fourth quarter. Your next question was with regard to pricing in general terms. Of course, we are very pleased with our net price positioning and the development of course it is also based on new models. On the one hand, the GLC, for example GLC Coupe, for example the E-Class development in the market is pretty positive, and also from an SUV point of view. But you can see of course in the market it is also that you have lifecycle effect always, but not the extraordinary ones. In total, we are very pleased with the situation, where we are currently trading in net price positioning. And, of course, we are also always trying to offset effects from emerging market countries with some pricing actions to counteract the currency development in these markets.

Okay. Thank you very much.

The next question is from Horst Schneider, HSBC.

Yes, good afternoon. It’s Horst from HSBC. First of all, I’ve got a question again on Mercedes Cars. I remember back to the H1 conference call, there you said that other cost changes at Mercedes-Benz Cars should not exceed €900 million for the full year. We are now after nine months already above €1 billion negative of the cost change. So if I would be interested to know if you see in Q4 finally a positive impact from other cost change or if here a downward revision has happened on this number? And, yeah, so that’s question number one. So question number two that I have is on Daimler Trucks. When I look at your group revenue revision, it leads me to the conclusion basically that the sequential revenue development at Daimler Trucks should be down versus Q3 2016. Is that right? Thank you.

So thank you for your questions. First of all, you quoted us right with the €900 million of the cost changes and you’re doing the right math. So that means we need to be positive in the fourth quarter. That’s the first answer. And the second is, of course, we don’t give sequentially guidance. But what we have indicated, that we have the same quarter-to-quarter comparison also in the fourth quarter to last year’s development. We have indicated where the markets will be. We have said that the NAFTA market, of course, is in decrease, especially also Class 8. And we have announced these slower dynamics in the European business. And that will, of course, impact first quarter revenues and therefore also first quarter EBIT.

Then coming back to your first answer that means basically if you see positive other cost changes and a continuation of this positive volume mix trend, we should see a super strong fourth quarter. You think that Q4 will be representative already for 2017 or that’s basically just an exceptional quarter that we should not write forward for 2017?

First of all, I would like to say that in February, we said in Q1 that we are targeting 10% for this year in terms of return. And, of course, as we also started with a weaker first quarter, we said that the second-half should be better and also in terms of profitability than in the first. I do think we nicely demonstrated in Q3 that we have a north of 11% return. And from today’s perspective, of course, Q4 will be a good quarter. And we’ll complete the year with our 10% target, that’s one. Also the second is for 2017, would like to remind you final guidance is in February to be done. I do think we will start into next year with a strong product portfolio. As I’ve already outlined E-Class full-year running next year, and of course with face-lift of the S-Class. And again, we have a strong product portfolio. We have a strong management. We have a strong focus on efficiencies and other topics. And final guidance will be given in February next year.

Okay. Thank you.

The next question is from Stephen Reitman of Société Générale.

Yes, good afternoon. Stephen Reitman, Société Générale. I have two questions as well. On sticking on the EBIT bridge for Mercedes, as you pointed out €900 million or so other costs associated with Mercedes in its passenger cars. Assuming the large part of that is relating to launch costs and changeovers. If we look at 2016 and compared that to 2017, just looking on Slide #26, it’s clear that - it appears that 2017 is a less busy year in terms of product launches. So could one therefore assume that the elements of launch costs in the other costs in the bridge at Mercedes will be lower in 2017? Secondly on China, clearly your equity result in the third quarter was you almost doubled that year-on-year, BBAC. You mentioned that you now started producing the new E-Class there. How far are you do you think along in terms of bringing BBAC to the level of profitability you’re comfortable with?

Stephen, thank you for your questions. The first one, I like to remind us we have in the other cost bridge also effects from interest rate environment. So we have - I do think for the full year €100 million or so roughly in terms of interest costs impacting our long-term provisions, that is always a net present value topic and that is also included. Honestly, I cannot forecast this number for next year. So I hope that the interest rates are not further going down on the one end, because it reflects the weaker general environment in Europe or in the world. And therefore, that is I can’t comment on this. Other than this, the launch cost should not really impact us next year. It’s more that we will, of course, certainly invest further into technologies; electrification, digitalization. That will be a major piece of our next year’s effort to develop the company in the right direction. Therefore, of course, our other cost changes as we say, of course, certainly will be impacted by this. But as you have seen, of course, the target is also to offset some of this. As we have seen this year year-to-date it is minus €1.1 billion on the one end, including this interest rate cost impact and others. We could offset this with a strong volume, strong pricing, strong product portfolio. And, of course, we have not finalized our discussions for next year. But as I said before, also we will update you in February about our guidance and in the beginning of February in the press conference. BBAC is from my point of view in a very good performance currently. You have seen that we have more than €200 billion at equity impact in the third quarter. And from today’s point of view, I can assume that BBAC will perform another good quarter in the fourth quarter, because it will be impacted by volume on the one hand. And I don’t expect that the efficiency is going different direction. And therefore, we should see also a good impact on the first quarter on BBAC.

Thank you.

Thank you.

Then next question is from Daniel Schwarz, MainFirst.

Yes. Thank you. I have two questions. One is given the very low equity valuation multiples and the low cost of that, is the share buyback program still an instrument you would say you would say rule out? Are there things that could create shareholder value at some point? So the second question is the recent discussion about a ban of combustion engines in Germany beyond 2030. Is that a discussion you take serious? And would you consider that technically possible at all?

Daniel, regarding your question about share buyback, I do think the time is not speaking for share buybacks. We have a lot investment in front of us. We are in the situation as I also reported out in my introduction that we need to invest into the future on the one hand, and we have to prioritize also our current business model. I do think there is a lot of financial strength necessary for this direction. On the other hand we have so much volatility in the markets that is better to keep some liquidity on board just for the preparation of risks which might occur. And, of course, looking back for this year how many political and economic surprises we have seen, which have impacted financial markets negatively, I do think it’s better to keep the money in house and to spend it in the right direction and to keep it as a risk management tool. Your second question with regard to the German discussion there, we commented on this in the way that we do think that the government should not dictate so to say something in terms of technology direction. I do think that is market who defines it, customer who defines it and the industry so to say. And I hope so that this discussion will stop again.

Okay, thank you.

Thank you. The next question is from Sascha Gommel, Commerzbank.

Yes. Thank you for taking my questions. I have also two questions. First of all, on the U.S. we’ve seen that especially in the used vehicle market that the subprime share is going up quite a lot. Are you monitoring the used vehicle market closely and are you concerned that this will have quite a big impact when default rates go up potentially in the future? And my second question would be on the E-Class. Can you tell us when the derivatives like the coupe and the convertible are coming? And are you impacted by the conti [ph] bottlenecks in the interior division by any means? Thank you.

Sascha, thank you for your questions. With regard to the U.S., of course, we are monitoring whatever we can get from the market, of course. And we see this development. But we do have a different customer base in the U.S. So we are not in the subprime business and also not in with financial services in subprime. And therefore, we don’t have any effects, but of course we are monitoring the whole market always. I have pointed out that our credit loss development is a good one. We have 32 basis points credit losses. Of course, there is a difference in the world, where you see higher numbers in Brazil, you see higher numbers in Russia for example, and other emerging markets. U.S. is on a very good level, but of course they trend basis points by basis points, but basis points up, but as a normal I would say lifecycle effect on the seven years. Of course, they are currently on a good - in the passenger car business on a good level. You asked for E-Class, next year the derivatives will come in the second-half of 2017, the coupe and the convertible. And so the last question…

There was some conti, is there any bottlenecks from the interior division?

From the interior division, so I [Multiple Speakers] we have no bottlenecks to which we can report today. So there are no bottlenecks.

All right, okay, thank you very much.

The next question is from Kristina Church of Barclays.

Yes, thank you. My first question is related to your car2go scheme. I was just wondering if you could give us a little bit more color on, potentially on the financial statements of that business. When you could see that that business might become profitable in the future? And then my second question is coming back to China and what your outlook. You sound pretty confident in your outlook on China, but you did mention in the press release that a lot of the volume is stimulated. Do you see that you’re being impacted by the government stimulus or do you expect that there - do you see that there’s still a very strong underlying demand in China as well? Thank you.

Kristina to your first question car2go, of course, finally every business should do some EBIT and should have a breakeven point, no doubt, and should be a business case, as car2go is not a marketing gimmick so to say. It’s a business. And as we are investing into more into the fleet on the one hand, into cities on the other hand, of course, breakeven will come somewhat later, but because we see also a lot of cities in car2go which are very profitable. So it’s a matter of time and a matter of, of course, further developing the business model in the right direction.

But there are cities that are already profitable with the scheme.

It is? Yes.

Could you confirm that there are cities that are already profitable?

Yes, of course, yeah, yeah, yeah, of course. I didn’t get your question, sorry. But, yes, there are cities which are very profitable. As I said before, it depend sometimes on the how long are you in the city on the one hand and how the structure is, how you tailor-made the shape of the city, so the - what is the area are you operating in that needs to be optimized on the one or the other hand. So that is good, of course, you make money. And again, of course, as I said before, we invested in cities, which are not pretty - Madrid [ph] for example, is a very young city. Taking all this into account, of course, finally it will be a profitable business.

Okay.

Your second question with regard to China, of course, I do think when we go back to February this year I do think nobody was really optimistic on China. But I do think that, of course, on our indication we had it will be a good year in China. But also with our product portfolio we outgrew the market the last nine months. Of course, there is some support from the government in terms of VAT tax today. But our portfolio is 20% to 25% impacted. So our main momentum comes from our own product portfolio and from segments which are not impacted by the tax suspension of the government. Having said this, of course, we are also very positive for the future in China long-term, as you might have also seen at the divisional-day [ph] we discussed the long-term opportunities China have. And finally, and that should also be an indication for next year, but as I said before, the final guidance on markets you will get in February next year during the press conference.

Thank you.

Welcome.

The next question is from Christian Ludwig of Bankhaus Lampe.

Yes, good afternoon. Christian Ludwig, Bankhaus Lampe. Also from my side two questions. First of all, going in for the North American truck market, do you already have some indications, anything from your customers that after the weaker Q4 we may see a pickup in early next year or is it still a very bleak outlook? And the second question would be on e-mobility. I heard that you basically come to an agreement with the other term in OEMs that you are going to install a supercharger network on the European highway system. Is that correct? And what kind of investment are we talking?

To your first question, Christian, currently we - of course, our order intake development you’ve seen for the last three months. But as we also said that the current - demands of getting bigger orders and there are some. We can’t say - right now, it’s not - we don’t have too many orders to confirm to you that everything is fine for 2017. But as an indication the second-half of next year could be a turning point in the market that we see higher numbers. That is what we currently see with some order - with some better higher deals, fleet [ph] deals and ongoing discussions we have with bigger customers. On the other hand, there is also from a used car business point of view, if used trucks are - the inventories going down, you will see also some effect that there should be a replacement during the course of the year 2017. Your second question, I can’t give you any more information. Currently, there are ongoing discussions between OEMs and governments about the highway system. We will inform you when we have something to report. Sorry to say so.

Could you give at least an indication of when you think you will have a final answer there?

Leave it there that we will inform markets if there is anything we need to report.

Okay. Thank you.

The next question is from Fraser Hill of Bank of America Merrill Lynch.

Hi, good afternoon. Yeah, Fraser Hill from Bank of America. Just wanted to ask one question on Cars and one on Trucks. On Cars, obviously you have front-end loaded some of these other costs and pretty sure they’re going to be low in the fourth quarter. But when you look at year so far, you’ve had pretty stellar revenue growth and barely any growth in the operating profit. Clearly, you’ve been investing in the business. And I know you are not going to tell us what you are going to invest next year. But we’ve gone from 20% operating leverage give or take for the last two years to I think 2.5% so far this year. So is there any reason to think the operating leverage of the business can be accelerating in the next year or two? Or is it just going to be a feature of late cycle markets and higher investment requirements keeping that leverage ratio low? Just interested to see if - that we can get back to a bit more leverage from the business. On the Truck side of the equation, could you just explain what the other cost benefits have been in each of the first three quarters of this year? I mean, they’ve been very helpful in offsetting the volume headwinds. How much longer are they going to last? What’s driving that and can you see that running into 2017? Thanks.

Fraser, thank you for your two questions. First of all, in general terms speaking, of course, we are very happy with the current margin we have achieved. And we have achieved this margin by at the same time investing into the future of our product portfolio and technology. And that is, of course, what you see we have a step-up in R&D cost, as we have outlined in the beginning of the year. Of course, we have also increased our CapEx with regard to expansion of our capacities in certain plans and preparation for models upcoming in the future. And I do think that is something you will see also in the years to come that we need to do some spending for very long-term future success of the product portfolio in Mercedes-Benz. And it will not happen so to say, from the current point of view that we will change our margin target of 10% to other directions. And so that will be the major direction we will take further into our - in our business. On the Trucks side, material costs is one major topic, of course, which is certainly material cost is a major share of our products. Same holds true for passenger cars but also in trucks. So there we have - we are very successful in driving cost down year-by-year. That is one area. On the other hand, also we are looking for always to make our place more efficient. On the other hand, the third element is our heavy-duty, efficiency in heavy duty truck by scaling it. That is axels [ph] and then heavy duties. These are the major terms, of course, once in a while. Of course in the long-term trend, our warranty cost in passenger cars too and in the Trucks side we try to reduce always in the right direction. These are the major elements. On top you’ve seen that we have adjusted our capacities in Brazil, which should help us next year that we have lower personnel cost.

But just to come back on the Cars’ margin, the 10% target for this year, I mean, you set that target earlier this year. If you strip out the China associate from the contribution, the non-China portion of the business of year-to-date is a declining margin thus far. So was that always in your planning that you would see a better China associate contribution compensate for declining core or consolidated margin? Or has that surprised you as the years progressed? Thanks.

Yes, Fraser, in general term China was always part of our plan. You know that we have the biggest gap we had in China volume wise, and of course we have not only locally produced products, we have also imported products. So based on our general strategy, when we go back about four five years ago, of course, certainly to reposition China in terms of organizations, IT, people and so on and so forth, products made in China for China and so on was based in our overall plan. And that is something, of course, which contributes today also to our margin development, but also big time on our volume and revenue development.

Great. Thank you.

Thank you.

The next question is from Philippe Houchois of Jefferies.

Yes, good afternoon. Two questions on my end, please. The first one is this morning you’ve made a comment about the European truck environment being more competitive. Your competitors at Volvo in Sweden have not been able to confirm that. So could you explain a little more how you see the environment changing in terms of truck maybe pricing in Europe in particular? And my other question would be regarding Tesla’s recent announcement of a price about $8,000 for the autonomous features that they intend to offer to their customers. Do you have any reaction or comment about the customer value proposition or the $8,000? This would squares with what you’re looking at potentially, with how your customers would see in terms of value from those features. Thank you.

Philippe, thank you for your questions. The first question with regard to the Europe in truck environment, I do think also Wolfgang Bernhard pointed out in the second quarter and also in February that we saw price actions not only - not this month or this quarter. But that goes back already to Q4 2015, maybe saw a very price competitive - competitors, more some than others. And they reduced the pricing. So during the year 2016 we adjusted to this level so to say. And so they might not have done any actions, because I’m not in contact with them, so I don’t know the specifics. In general, the competitive environment is more competitive and that holds true for the last six months so to say. And that holds true also not only for one competitor, but also for more than one. With regard to Tesla, of course, we are always watching the markets. We are - if somebody announces something, but that holds not only true to this competitor you’re mentioning, but also to others. We are looking what they are doing. We are making up our mind and then we will make decisions, but it’s nothing I would like to comment on their strategy.

Thank you.

Thank you.

Final question is from Michael Punzet, DZ Bank.

Michael Punzet, good afternoon. I have two questions. First one is one toll collect. Could you give us an update there, especially when do you expect the final decisions come to an end? And the second question with regard to all the discussions about the structural changes in the auto industry. Do you see the risks that you have to write on your capitalized R&D expenses for maybe diesel technology or something like that, in the case that we could see a bend in some markets?

Thank you for your two questions. First of all to the toll collections question, as a general principle we do not express any opinions on ongoing proceedings. But in principle, an end to the arbitration proceedings would be desirable for all parties. You know how many years we are in this case. To your second question, you see, answer is, no, we don’t see the risk.

Okay. Thanks.

Thank you.

Thank you. We have no further questions.

Now, ladies and gentlemen, thank you very much for your questions and being with us today. Also thank you very much to Bodo for answering all your questions. IR definitely remains at your disposal to answer and deal with any further questions that you may have during today or in the coming days. And to all of you here on the Internet or on the phone have a great afternoon, great evening. We look forward to talk to you soon, at the latest with our full-year 2016 Analyst and Investor conference here in Stuttgart, which will take place on February 3. Have a good day. Thanks and bye-bye.

Ladies and gentlemen, thank you for attendance. This call has been concluded. You may now disconnect.