Notes

34 IFRS 7 (Financial Instruments)

The table below shows the carrying amounts of financial instruments by measurement category:

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CARRYING AMOUNT OF FINANCIAL INSTRUMENTS BY IFRS 9 MEASUREMENT CATEGORY
€ million	Dec. 31, 2022	Dec. 31, 2021

Financial assets at fair value through profit or loss	28,185	22,998
Financial assets at fair value through other comprehensive income (debt instruments)	4,224	4,719
Financial assets at fair value through other comprehensive income (equity instruments)	277	687
Financial assets measured at amortized cost	170,857	157,770
of which classified as held for sale	570	142
Financial liabilities at fair value through profit or loss	2,522	1,737
Financial liabilities measured at amortized cost	247,694	240,268
of which classified as held for sale	132	142

CLASSES OF FINANCIAL INSTRUMENTS

Financial instruments are divided into the following classes at the Volkswagen Group:

financial instruments measured at fair value;
financial instruments measured at amortized cost;
derivative financial instruments within hedge accounting;
not allocated to any measurement category; and
credit commitments and financial guarantees (off-balance sheet).

RECONCILIATION OF BALANCE SHEET ITEMS TO CLASSES OF FINANCIAL INSTRUMENTS

The following table shows the reconciliation of the balance sheet items to the relevant classes of financial instruments, broken down by the carrying amount and fair value of the financial instruments.

The fair value of financial instruments measured at amortized cost, such as receivables and liabilities, is calculated by discounting the carrying amount using a market rate of interest for a similar risk and matching maturity. For reasons of materiality, the fair value of current balance sheet items is generally deemed to be their carrying amount.

For reconciliation to the carrying amounts, the “Not allocated to a measurement category” column in the table also includes items other than financial instruments.

The risk variables governing the fair value of the receivables are risk-adjusted interest rates.

“Financial instruments measured at fair value” also include shares in partnerships and corporations.

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RECONCILIATION OF BALANCE SHEET ITEMS TO CLASSES OF FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 2022
	MEASURED AT FAIR VALUE	MEASURED AT AMORTIZED COST		DERIVATIVE FINANCIAL INSTRUMENTS WITHIN HEDGE ACCOUNTING	NOT ALLOCATED TO A MEASUREMENT CATEGORY	BALANCE SHEET ITEM AT Dec. 31, 2022
€ million	Carrying amount	Carrying amount	Fair value	Carrying amount	Carrying amount

Noncurrent assets
Equity-accounted investments	–	–	–	–	12,668	12,668
Other equity investments	342	–	–	–	3,147	3,489
Financial services receivables	178	51,557	50,721	–	35,209	86,944
Other financial assets	4,735	5,626	5,533	3,471	–	13,832
Tax receivables	–	–	–	–	394	394

Current assets
Trade receivables	1	18,580	18,580	–	0	18,581
Financial services receivables	24	41,644	41,644	–	19,881	61,549
Other financial assets	2,845	11,051	11,051	1,270	–	15,167
Tax receivables	–	10	10	–	1,721	1,732
Marketable securities and time deposits	24,560	12,646	12,646	–	–	37,206
Cash and cash equivalents	–	29,172	29,172	–	–	29,172
Assets held for sale	–	570	570	–	163	733

Noncurrent liabilities
Financial liabilities	–	116,455	112,101	–	5,283	121,737
Other financial liabilities	1,518	2,623	2,502	4,047	–	8,188

Current liabilities
Financial liabilities	–	82,346	82,346	–	1,102	83,448
Trade payables	–	28,748	28,748	–	–	28,748
Other financial liabilities	1,004	17,386	17,386	1,430	–	19,820
Tax payables	–	17	17	–	709	726
Liabilities associated with assets held for sale	–	132	132	–	26	158

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RECONCILIATION OF BALANCE SHEET ITEMS TO CLASSES OF FINANCIAL INSTRUMENTS
AS OF DECEMBER 31, 2021
	MEASURED AT FAIR VALUE	MEASURED AT AMORTIZED COST		DERIVATIVE FINANCIAL INSTRUMENTS WITHIN HEDGE ACCOUNTING	NOT ALLOCATED TO A MEASUREMENT CATEGORY	BALANCE SHEET ITEM AT Dec. 31, 2021
€ million	Carrying amount	Carrying amount	Fair value	Carrying amount	Carrying amount

Noncurrent assets
Equity-accounted investments	–	–	–	–	12,531	12,531
Other equity investments	760	–	–	–	2,240	3,000
Financial services receivables	290	50,146	51,326	–	34,519	84,954
Other financial assets	2,830	4,950	5,031	1,377	–	9,156
Tax receivables	–	–	–	–	635	635

Current assets
Trade receivables	8	15,513	15,513	–	–	15,521
Financial services receivables	26	37,204	37,204	–	19,268	56,498
Other financial assets	1,996	10,046	10,046	543	–	12,584
Tax receivables	–	9	9	–	1,608	1,618
Marketable securities	22,495	37	37	–	–	22,532
Cash, cash equivalents and time deposits	–	39,723	39,723	–	–	39,723
Assets held for sale	–	142	142	–	532	674

Noncurrent liabilities
Financial liabilities	–	126,481	131,359	–	5,137	131,618
Other financial liabilities	728	2,419	2,437	1,320	–	4,466

Current liabilities
Financial liabilities	–	77,476	77,476	–	1,108	78,584
Trade payables	–	23,624	23,624	–	–	23,624
Other financial liabilities	1,009	10,112	10,112	1,880	–	13,002
Tax payables	–	27	27	–	588	614
Liabilities associated with assets held for sale	–	142	142	–	96	238

The category headed “not allocated to a measurement category” is used in particular for shares in equity-accounted investments, shares in non-consolidated affiliated companies as well as for lease receivables.

The carrying amount of lease receivables was €55.1 billion (previous year: €53.8 billion) and their fair value was €54.1 billion (previous year: €54.8 billion).

Due to increasing investments in long-term time deposits (maturities of more than 3 months), these time deposits are reported together with securities in the current fiscal year.

Uniform valuation techniques and inputs are used to measure fair value. The fair value of Level 2 and 3 financial instruments is measured in the individual divisions on the basis of Group-wide specifications. The measurement techniques used are explained in the section entitled “Accounting policies”. The fair value of Level 3 receivables was measured by reference to individual expectations of losses; these are based to a significant extent on the Company’s assumptions about counterparty credit quality. The inputs used are not observable in an active market.

The following tables contain an overview of the financial assets and liabilities measured at fair value by level:

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FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE BY LEVEL
€ million	Dec. 31, 2022	Level 1	Level 2	Level 3

Noncurrent assets
Other equity investments	342	91	0	251
Financial services receivables	178	–	–	178
Other financial assets	4,735	–	2,571	2,165
Current assets
Trade receivables	1	–	–	1
Financial services receivables	24	–	–	24
Other financial assets	2,845	–	2,283	562
Marketable securities and time deposits	24,560	24,487	73	–
Noncurrent liabilities
Other financial liabilities	1,518	–	1,439	79
Current liabilities
Other financial liabilities	1,004	–	982	23

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€ million	Dec. 31, 2021	Level 1	Level 2	Level 3

Noncurrent assets
Other equity investments	760	579	0	181
Financial services receivables	290	–	–	290
Other financial assets	2,830	–	1,477	1,353
Current assets
Trade receivables	8	–	–	8
Financial services receivables	26	–	–	26
Other financial assets	1,996	–	1,733	263
Marketable securities	22,495	22,406	89	–
Noncurrent liabilities
Other financial liabilities	728	–	529	199
Current liabilities
Other financial liabilities	1,009	–	905	104

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FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT AMORTIZED COST BY LEVEL
€ million	Dec. 31, 2022	Level 1	Level 2	Level 3

Fair value of financial assets measured at amortized cost
Financial services receivables	92,366	–	–	92,366
Trade receivables	18,580	–	18,580	–
Other financial assets	16,584	615	5,389	10,580
Tax receivables	10	–	10	–
Marketable securities and time deposits	12,646	84	12,562	–
Cash and cash equivalents	29,172	29,172	–	–
Assets held for sale	570	557	13	–
Fair value of financial assets measured at amortized cost	169,927	30,428	36,554	102,945

Fair value of financial liabilities measured at amortized cost
Trade payables	28,748	–	28,748	–
Financial liabilities	194,447	47,343	145,444	1,660
Other financial liabilities	19,888	592	18,854	442
Tax payables	17	–	17	–
Liabilities associated with assets held for sale	132	132	–	–
Fair value of financial liabilities measured at amortized cost	243,231	48,067	193,062	2,102

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€ million	Dec. 31, 2021	Level 1	Level 2	Level 3

Fair value of financial assets measured at amortized cost
Financial services receivables	88,530	–	–	88,530
Trade receivables	15,513	–	15,513	–
Other financial assets	15,077	996	5,126	8,955
Tax receivables	9	–	9	–
Marketable securities	37	37	–	–
Cash, cash equivalents and time deposits	39,723	39,043	680	–
Assets held for sale	142	85	57	–
Fair value of financial assets measured at amortized cost	159,032	40,162	21,385	97,485

Fair value of financial liabilities measured at amortized cost
Trade payables	23,624	–	23,624	–
Financial liabilities	208,835	51,759	155,499	1,577
Other financial liabilities	12,549	858	11,375	316
Tax payables	27	–	27	–
Liabilities associated with assets held for sale	142	–	142	–
Fair value of financial liabilities measured at amortized cost	245,177	52,617	190,666	1,893

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DERIVATIVE FINANCIAL INSTRUMENTS WITHIN HEDGE ACCOUNTING BY LEVEL
€ million	Dec. 31, 2022	Level 1	Level 2	Level 3

Noncurrent assets
Other financial assets	3,471	–	3,471	–
Current assets
Other financial assets	1,270	–	1,270	–
Noncurrent liabilities
Other financial liabilities	4,047	–	4,047	–
Current liabilities
Other financial liabilities	1,430	–	1,430	–

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€ million	Dec. 31, 2021	Level 1	Level 2	Level 3

Noncurrent assets
Other financial assets	1,377	–	1,377	–
Current assets
Other financial assets	543	–	543	–
Noncurrent liabilities
Other financial liabilities	1,320	–	1,320	–
Current liabilities
Other financial liabilities	1,880	–	1,880	–

The allocation of fair values to the three levels in the fair value hierarchy is based on the availability of observable market prices. Level 1 is used to report the fair value of financial instruments for which a price is directly available in an active market. Examples include marketable securities and other equity investments measured at fair value that are listed and traded on a public market. Fair values in Level 2, for example of derivatives, are measured on the basis of market inputs using market-based valuation techniques. In particular, the inputs used include exchange rates, yield curves and commodity prices that are observable in the relevant markets and obtained through pricing services. Fair Values in Level 3 are calculated using valuation techniques that incorporate inputs that are not directly observable in active markets. In the Volkswagen Group, long-term commodity futures are allocated to Level 3 because the prices available on the market must be extrapolated for measurement purposes. This is done on the basis of observable inputs obtained for the different commodities through pricing services. Options on equity instruments, residual value protection models, customer financing receivables and receivables from vehicle financing programs and other equity investments are also reported in Level 3. Equity instruments are measured primarily using the relevant business plans and entity-specific discount rates. The significant inputs used to measure fair value for the residual value protection models include forecasts and estimates of used vehicle residual values for the appropriate models. The measurement of vehicle financing programs requires in particular the use of the corresponding vehicle price.

The table below provides a summary of changes in level 3 balance sheet items measured at fair value:

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CHANGES IN BALANCE SHEET ITEMS MEASURED AT FAIR VALUE BASED ON LEVEL 3
€ million	Financial assets measured at fair value	Financial liabilities measured at fair value

Balance at Jan. 1, 2022	2,119	303
Foreign exchange differences	53	−6
Changes in consolidated Group	0	–
Total comprehensive income	2,027	−127
recognized in profit loss	1,999	−127
recognized in other comprehensive income	28	–
Additions (purchases)	167	–
Sales and settlements	−601	−46
Transfers into Level 1	0	–
Transfers into Level 2	−584	−22
Balance at Dec. 31, 2022	3,181	102

Total gains or losses recognized in profit or loss	1,999	127
Other operating result	1,962	127
of which attributable to assets/liabilities held at the reporting date	1,322	31
Financial result	36	–
of which attributable to assets/liabilities held at the reporting date	12	–

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€ million	Financial assets measured at fair value	Financial liabilities measured at fair value

Balance at Jan. 1, 2021	1,383	908
Foreign exchange differences	48	12
Changes in consolidated Group	−297	–
Total comprehensive income	1,114	−367
recognized in profit loss	802	−268
recognized in other comprehensive income	312	−99
Additions (purchases)	616	–
Sales and settlements	−157	−227
Transfers into Level 1	−333	–
Transfers into Level 2	−255	−23
Balance at Dec. 31, 2021	2,119	303

Total gains or losses recognized in profit or loss	802	268
Other operating result	753	268
of which attributable to assets/liabilities held at the reporting date	296	290
Financial result	49	–
of which attributable to assets/liabilities held at the reporting date	−6	–

The transfers between the levels of the fair value hierarchy are reported at the respective reporting dates. The transfers out of Level 3 into Level 2 comprise commodity futures for which observable quoted prices are now available for measurement purposes due to the decline in their remaining maturities; consequently, no further extrapolation is required.

Commodity prices are the key risk variable for the fair value of commodity futures. Sensitivity analyses are used to present the effect of changes in commodity prices on earnings after tax and equity.

If commodity prices for commodity futures classified as Level 3 had been 10% higher (lower) as of December 31, 2022, earnings after tax would have been €291 million (previous year: €237 million) higher (lower). The equity is not affected.

The key risk variable for measuring options on equity instruments held by the Company is the relevant enterprise value. Sensitivity analyses are used to present the effect of changes in risk variables on earnings after tax.

If the assumed enterprise values at December 31, 2022 had been 10% higher, earnings after tax would have been €8 million (previous year: €6 million) higher. If the assumed enterprise values as of December 31, 2022 had been 10% lower, earnings after tax would have been €8 million (previous year: €6 million) lower.

Residual value risks result from hedging agreements with dealerships under which earnings effects caused by market-related fluctuations in residual values that arise from buy-back obligations under leases are borne in part by the Volkswagen Group.

The key risk variable influencing the fair value of the options relating to residual value risks is used car prices. Sensitivity analyses are used to quantify the effects of changes in used car prices on earnings after tax.

If the prices of the used cars covered by the residual value protection model had been 10% higher as of December 31, 2022, earnings after tax would have been €470 million (previous year: €416 million) higher. If the prices of the used cars covered by the residual value protection model had been 10% lower as of December 31, 2022, earnings after tax would have been €504 million (previous year: €468 million) lower.

If the risk-adjusted interest rates applied to receivables measured at fair value had been 100 basis points higher as of December 31, 2022, earnings after tax would have been €7 million (previous year: €3 million) lower. If the risk-adjusted interest rates as of December 31, 2022 had been 100 basis points lower, earnings after tax would have been €4 million (previous year: €3 million) higher.

If the corresponding vehicle price used in the vehicle financing programs had been 10% higher as of December 31, 2022, earnings after tax would have been €6 million (previous year: €8 million) higher. If the corresponding vehicle prices used in the vehicle financing programs had been 10% lower as of December 31, 2022, earnings after tax would have been €6 million (previous year: €8 million) lower.

If the result of operations of equity investments measured at fair value had been 10% better as of December 31, 2022, equity would have been €8.5 million (previous year: €6.2 million) higher, and earnings after tax would have been €5.0 million (previous year: €8.7 million) higher. If the result of operations of equity investments measured at fair value had been 10% worse, equity would have been €8.5 million (previous year: €6.2 million) lower, and earnings after tax would have been €5.0 million (previous year: €8.7 million) lower.

OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The following tables contain information about the effects of offsetting in the balance sheet and the potential financial effects of offsetting in the case of instruments that are subject to a legally enforceable master netting arrangement or a similar agreement.

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				AMOUNTS THAT ARE NOT SET OFF IN THE BALANCE SHEET
€ million	Gross amounts of recognized financial assets	Gross amounts of recognized financial liabilities set off in the balance sheet	Net amounts of financial assets presented in the balance sheet	Financial instruments	Collateral received	Net amount at Dec. 31, 2022

Derivatives	11,497	−36	11,461	−4,523	−37	6,901
Financial services receivables	149,090	−597	148,493	–	−81	148,412
Trade receivables	18,620	−39	18,581	0	–	18,581
Marketable securities and time deposits	37,206	–	37,206	–	–	37,206
Cash and cash equivalents	29,172	–	29,172	–	–	29,172
Other financial assets	18,018	−127	17,890	0	–	17,890

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				AMOUNTS THAT ARE NOT SET OFF IN THE BALANCE SHEET
€ million	Gross amounts of recognized financial assets	Gross amounts of recognized financial liabilities set off in the balance sheet	Net amounts of financial assets presented in the balance sheet	Financial instruments	Collateral received	Net amount at Dec. 31, 2021

Derivatives	5,408	−89	5,319	−3,195	−7	2,117
Financial services receivables	142,057	−605	141,452	–	−102	141,350
Trade receivables	15,552	−31	15,521	0	–	15,521
Marketable securities	22,532	–	22,532	–	–	22,532
Cash, cash equivalents and time deposits	39,723	–	39,723	–	–	39,723
Other financial assets	17,191	–	17,191	0	–	17,191

Other financial assets include receivables from tax allocations of €10 million (previous year: €9 million).

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				AMOUNTS THAT ARE NOT SET OFF IN THE BALANCE SHEET
€ million	Gross amounts of recognized financial liabilities	Gross amounts of recognized financial assets set off in the balance sheet	Net amounts of financial liabilities presented in the balance sheet	Financial instruments	Collateral pledged	Net amount at Dec. 31, 2022

Derivatives	8,009	−163	7,846	−4,523	–	3,323
Financial liabilities	205,185	–	205,185	–	−3,225	201,960
Trade payables	28,787	−39	28,748	0	–	28,748
Other financial liabilities	20,777	−597	20,179	–	–	20,179

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				AMOUNTS THAT ARE NOT SET OFF IN THE BALANCE SHEET
€ million	Gross amounts of recognized financial liabilities	Gross amounts of recognized financial assets set off in the balance sheet	Net amounts of financial liabilities presented in the balance sheet	Financial instruments	Collateral pledged	Net amount at Dec. 31, 2021

Derivatives	4,425	−3	4,422	−3,195	−19	1,208
Financial liabilities	210,202	–	210,202	–	−1,756	208,446
Trade payables	23,654	−31	23,623	0	–	23,623
Other financial liabilities	13,765	−692	13,073	–	–	13,073

The “Financial instruments” column shows the amounts that are subject to a master netting arrangement but were not set off because they do not meet the criteria for offsetting in the balance sheet. The “Collateral received” and “Collateral pledged” columns show the amounts of cash collateral and collateral in the form of financial instruments received and pledged for the total assets and liabilities that do not meet the criteria for offsetting in the balance sheet.

Other financial liabilities include liabilities from tax allocations of €17 million (previous year: €27 million).

ASSET-BACKED SECURITIES TRANSACTIONS

Asset-backed securities transactions with financial assets amounting to €28.0 billion (previous year: €33.0 billion) entered into to refinance the financial services business are included in bonds, commercial paper and notes, and liabilities from loans. The corresponding carrying amount of the receivables from the customer and dealer financing and the finance lease business amounted to €34.6 billion (previous year: €38.2 billion). Collateral of €53.1 billion (previous year: €55.8 billion) in total was furnished as part of asset-backed securities transactions. The expected payments were assigned to structured entities and the equitable liens in the financed vehicles were transferred. These asset-backed securities transactions did not result in the receivables from financial services business being derecognized, as the Group retains nonpayment and late payment risks. The difference between the assigned receivables and the related liabilities is the result of different terms and conditions and the share of the securitized paper and notes held by the Volkswagen Group itself.

Most of the public and private asset-backed securities transactions of the Volkswagen Group can be repaid in advance (clean-up call) if less than 10% of the original transaction volume is outstanding. The assigned receivables cannot be assigned again or pledged elsewhere as collateral. The claims of the holders of commercial paper and notes are limited to the assigned receivables and the receipts from those receivables are earmarked for the repayment of the corresponding liability.

As of December 31, 2022, the fair value of the assigned receivables still recognized in the balance sheet was €32.8 billion (previous year: €38.5 billion). The fair value of the related liabilities was €27.5 billion (previous year: €32.6 billion) at that reporting date.

The Volkswagen Bank GmbH Group is contractually obliged, under certain conditions, to transfer funds to the structured entities that are included in its financial statements. Since the receivables are transferred to the special purpose entity by way of undisclosed assignment, the situation may occur in which the receivable has already been reduced in a legally binding manner at the originator, for example if the obligor effectively offsets it against receivables owed to it by a company belonging to the Volkswagen Group. In this case, collateral must be furnished for the resulting compensation claims against the special purpose entity, for example if the rating of the Group company concerned declines to a contractually agreed reference value.

ADDITIONAL INCOME STATEMENT DISCLOSURES IN ACCORDANCE WITH IFRS 7 (FINANCIAL INSTRUMENTS)

The table below shows net gains and losses on financial assets and financial liabilities by measurement category, followed by a detailed explanation of key aspects:

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NET GAINS OR LOSSES FROM FINANCIAL INSTRUMENTS BY IFRS 9 MEASUREMENT CATEGORY
€ million	2022	2021

Financial instruments at fair value through profit or loss	3,024	3,097
Financial assets measured at amortized cost	5,771	5,889
Financial assets at fair value through other comprehensive income (debt instruments)	10	1
Financial liabilities measured at amortized cost	−4,885	−3,247
	3,919	5,740

Net gains and losses in the category “financial instruments at fair value through profit or loss” are mainly composed of the fair value measurement gains and losses on derivatives, including interest and gains and losses on currency translation.

Net gains and losses from financial assets measured at fair value through other comprehensive income (debt instruments) relate to interest income from fixed-income securities.

Net gains and losses from financial assets and liabilities measured at amortized cost mainly comprise interest income and expenses calculated according to the effective interest method pursuant to IFRS 9, currency translation effects, and the recognition of loss allowances. Interest also includes interest income and expenses from the lending business of the Financial Services Division.

The table below presents total interest income and expenses from financial assets and liabilities measured at amortized cost, separately from financial assets measured at fair value through other comprehensive income:

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TOTAL INTEREST INCOME AND EXPENSES ATTRIBUTABLE TO FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
€ million	2022	2021

Financial assets and liabilities measured at amortized cost
Interest income	8,199	7,099
Interest expenses	4,705	3,540
Financial assets (debt instruments) and liabilities measured at fair value through other comprehensive income
Interest income	12	5
Interest expenses	0	0

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GAINS AND LOSSES ON THE DISPOSAL OF FINANCIAL ASSETS MEASURED AT AMORTIZED COST
€ million	2022	2021

Gains arising from the derecognition of financial assets measured at amortized cost	1,189	583
Losses arising from the derecognition of financial assets measured at amortized cost	−1,006	−1,003
	182	−420

In the fiscal year, €2 million (previous year: €1 million) was recognized as an expense and €23 million (previous year: €27 million) as income from fees and commissions for trust activities and from financial assets and liabilities not measured at fair value that are not accounted for using the effective interest method.

Rating

Systematic assessment of companies in terms of their credit quality. Ratings are expressed by means of rating classes, which are defined differently by the individual rating agencies.