FINANCIAL INSTITUTIONS

CREDIT OPINION2 January 2020

Update

RATINGS

Volkswagen Financial Services AGDomicile Germany

Long Term Rating A3

Type LT Issuer Rating - FgnCurr

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Analyst Contacts

Michael Rohr +49.69.70730.901Senior Vice Presidentmichael.rohr@moodys.com

Alexander Hendricks,CFA

+49.69.70730.779

Associate Managing Directoralexander.hendricks@moodys.com

Volkswagen Financial Services AGUpdate to credit analysis

SummaryWe assign A3 senior unsecured debt and issuer ratings with a stable outlook, as well as P-2short-term commercial paper ratings, to Volkswagen Financial Services AG (VW FS AG). Wefurther assign a (P)A3 senior unsecured medium-term note programme rating and a ba2standalone assessment to VW FS AG.

VW FS AG's ratings reflect its ba2 standalone assessment and its important strategic rolefor its automotive parent, Volkswagen Aktiengesellschaft (Volkswagen, A3 stable1), sinceit supports the sale of its parent's product as a provider of leasing and financing services.In addition, strong contractual and economic interlinkages exist with its parent, such as along-term control and profit-and-loss transfer agreement. All of these factors result in anequalization of VW FS AG's senior unsecured debt and issuer ratings with the A3 rating ofVolkswagen AG.

VW FS AG's ba2 standalone assessment reflects the company's narrow focus on enhancingthe vehicle sales of its parent, which has driven strong portfolio growth and results in assetclass concentration risk; its adequate financial profile, characterized by a stable profitabilityand sufficient, but likely declining, capitalisation; and its geographically diversified andbalanced funding mix, albeit displaying a meaningful reliance on secured (asset-backed) andwholesale market funding.

Exhibit 1

Gross customer loans and leases by countryExhibit 2

Gross customer loans by business line

Germany41%

UK22%

China9%

Brazil4%

Mexico3%

ROW21%

Includes current as well as noncurrent lease assets.Source: Company interim financial report (half-year 2019)

Retail 21%

Dealer 6%

Leasing 44%

Lease assets 29%

Includes current as well as noncurrent lease assets.Source: Company interim financial report (half-year 2019)

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths

» Proven availability of parental support to strengthen capital and liquidity, if needed

» Sound asset quality, with limited signs of deterioration

» Good leverage ratio, which is likely to decline because of lending portfolio growth

Credit challenges

» Maintenance of asset quality despite strong loan growth in recent years

» Management of residual value (RV2) risks in its leasing portfolio, particularly amid the ongoing issues at its parent following thediesel emissions issue, as well as the transition to alternative fuel or battery-electric vehicles

» Meaningful reliance on wholesale and secured funding

Outlook

» The rating outlook is stable because of the alignment of VW FS AG's ratings and outlook with Volkswagen's A3 issuer rating.

Factors that could lead to an upgrade

» VW FS AG's ratings could be upgraded if Volkswagen's ratings were upgraded. Please refer to the Credit Opinion of Volkswagen for adiscussion of the automaker's rating drivers.

» VW FS AG's ba2 standalone assessment could improve if (1) it strengthened its capital ratios, offsetting the strain on its capitaladequacy from its strongly growing lending portfolio; (2) it kept contained its asset-quality and asset-performance indicators also ina more adverse macroeconomic environment, thereby safeguarding its profitability and capital adequacy metrics; (3) it significantlyreduced its reliance on secured (asset-backed) debt issuance, thereby decreasing the relatively high encumbrance of its asset base;and (4) its business remained resilient to a potentially adverse impact from the automaker's continued diesel emissions issue.However, a higher standalone assessment would not result in an upgrade of the company's ratings.

Factors that could lead to a downgrade

» Because of the strong links between VW FS AG's and Volkswagen's ratings, we do not expect a downgrade of VW FS AG'sstandalone assessment to translate into a downgrade of its ratings. However, a downgrade of Volkswagen would result in a similaraction on VW FS AG's ratings.

» Although considered highly unlikely at present, a downgrade of VW FS AG's ratings could be triggered if Volkswagen were to loosenits ties with its financial services subsidiary. This could lead to a lowering of our support assumptions for VW FS AG.

» VW FS AG's ba2 standalone assessment may deteriorate following (1) an erosion of the entity's capital base beyond our currentexpectations; (2) a significant decline in its asset quality, particularly if associated with the significantly lower residual car values ofthe entity's lease assets, leading to additional loan-loss charges and lease asset depreciation; (3) a higher-than-expected increase inthe volume of confidence-sensitive wholesale funding, particularly if this no longer matches with the maturity of VW FS AG's leaseand lending assets; (4) any signs that the company's earnings have become, to a substantial degree, dependent on the support andsubsidies provided by Volkswagen; or (5) any signs that the serious internal controls and governance issues at Volkswagen are also aconcern for VW FS AG.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Key indicators

Exhibit 3

Volkswagen Financial Services AG (Consolidated Financials) [1]

06-192 12-182 12-172 12-162 12-152 CAGR/Avg.3

Total managed assets (EUR Million) 103,660.0 80,462.0 68,953.0 130,248.0 121,251.0 (4.4)4

Total managed assets (USD Million) 118,047.6 91,979.7 82,798.6 137,379.4 131,714.4 (3.1)4

Net Income / Average Managed Assets (%) 0.6 0.7 0.5 0.9 0.8 0.75

Tangible Common Equity (Finance) / Tangible Managed Assets (%) 10.3 10.0 11.1 12.9 12.1 11.35

Problem Loans / Gross Loans (Finance) (%) -- 2.0 2.3 2.5 2.4 2.35

Net Charge-offs / Average Gross Loans and Leases (%) 1.0 0.5 0.6 0.6 0.7 0.75

Secured Debt / Gross Tangible Assets (%) -- 16.1 19.4 15.5 15.1 16.55

[1]All figures and ratios are adjusted using Moody's standard adjustments. [2]IFRS [3]May include rounding differences due to scale of reported amounts. [4]Compound Annual Growth Rate(%) based on time period presented for the latest accounting regime. [5]Simple average of periods presented for the latest accounting regime.Source: Moody's Investors Service; Company Filings

ProfileVolkswagen Financial Services AG (VW FS AG) is Volkswagen's captive finance subsidiary that hosts (1) most of the carmaker's non-lending operations outside North America, that is, mostly its European leasing business; (2) the group's banking activities outside theEuropean Union (EU) and North America; and (3) additional activities, including mobility services and the insurance business. Thecompany's activities are targeted towards Volkswagen's automotive clients and its dealer network, and follow the sales strategy of thecarmaker.

Following the 2017 reorganisation of finance operations within Volkswagen, which led to the separation of VW FS AG's EU bankingoperations and their subsequent transfer to Volkswagen Bank GmbH (VW Bank, A1/A1 stable, baa23), VW FS AG oversees most ofthe group's worldwide non-banking operations4, except for those entities directly owned by Volkswagen, such as VW Credit, Inc. (A3stable5). In addition, VW FS AG is responsible for almost all of Volkswagen's banking activities outside North America and the EU. Asof 30 June 2019, VW FS AG's total assets amounted to €104 billion (2018: €80 billion). The increase in total assets was driven by thetransfer of several subsidiaries in the United Kingdom, Italy, Czech Republic and Poland to VW FS AG from VW Bank.

Customarily, the loan and lease products offered by VW FS AG benefit from the subsidies provided from the marketing budgets of theVolkswagen brands. These subsidies are granted to make monthly instalments more accessible to clients than if priced purely on a risk-adjusted basis by the captive.

Detailed credit considerationsStrong asset growth has increased the group's exposure to car market setbacksWe assign a weighted average Asset Risk score of Baa3 to VW FS AG, three notches below its initial score. This results from thenegative adjustments on the two components of the Asset Risk subfactor: (1) the two-notch negative adjustment for our Problem Loanscore, which reflects our expectation of rising nonperforming loans following a decade-long benign cycle for credit risks; and (2) ourfive-notch negative adjustment for net charge-offs, which takes into account VW FS AG’s policy to also book depreciations on leaseassets that, in our view, form part of value adjustments and losses otherwise booked as loan-loss provisions or charge-offs againstcustomer loans. By adjusting, we aim to capture the remaining RV risks and historical real losses through lease depreciations.

The Baa3 weighted average Asset Risk score further reflects the close correlation among the growth in VW FS AG's assets over time,the company's stable credit performance and the growth in Volkswagen's car sales. While these trends are mutually supportive in astrong car market, the close relationship among these factors may also prove self-reinforcing in a downward trend.

In particular, the future sales performance of diesel engines appears less certain and predictable than it was in the past ten years6.The ongoing debate about regulations and tax levels for diesel engines and fuel, accompanied by persistent customer reluctance toacquire diesel cars, is increasing RV risk in Europe. However, the uncertainties surrounding the future value of and demand for dieselcars have not (yet) translated into any rise in asset-loss rates. The future challenge for VW FS AG lies in the unpredictable speed ofvehicle depreciation owing to the uncertain future technology development and the speed of the roll-out of battery-electric (BEV) or

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

alternative fuel vehicles (AFVs). In addition, new government policies - such as favorable taxes or high sales incentives for the purchaseof new electric vehicles - could accelerate residual value deterioration for traditional combustion engines.

In order to mitigate these risks, VW FS AG plans to increasingly penetrate and gain further access to the used cars market throughvarious channels, supported by subsidizing vehicle sales and offering attractive financing/lease packages, all with the aim ofsafeguarding affordability (and, therefore, its asset quality) for its customer base. At the same time, and since Volkswagen plans toinvolve its captive operations even more intensely in its vehicle distribution approach by raising its used car penetration rate7 as part ofits TOGETHER2025 strategy programme, we expect the resulting asset growth to further expose VW FS AG to RV risk for each newlyfinanced vehicle.

In addition, for VW FS AG, any residual value risk is to a large degree an indirect risk as the main exposure rests with the car dealers.The main downstream risk for VW FS AG therefore is deteriorating creditworthiness of the car dealers as Volkswagen’s financial servicesarm also provides day-to-day financing to Volkswagen’s vehicle dealers. Given the importance of the dealer network to the value chainof the broader group, we therefore consider it likely that the carmaker will compensate its dealers for losses recorded on the resale ofthe affected diesel cars, alleviating larger potential RV risks at the level of its captive finance subsidiary.

For VW FS AG, the RV risk - prior to any likely support from the carmaker - would be highest in the large German leasing and UKpersonal contract purchase markets. VW FS AG acquired the latter business from VW Bank as of the end of the first quarter of 2019,as part of the reorganisation of the carmaker's captive finance operations. Therefore, VW FS AG will be exposed to the RV risk of thisand other affected subsidiaries' leasing operations. In particular, the British captive finance segment of Volkswagen, with an estimatedcommitted return value of all theoretically returnable cars under personal contract purchases and operating lease assets of around£12 billion8, makes VW FS AG's future results potentially more sensitive to car return rates and value fluctuations in the UK used carmarket.

However, and although recently increasing, net charge-off rates over gross loans (excluding lease depreciations) continue to besupported by persistent ultralow interest rates, which, combined with select manufacturer subsidies (such as extended warranties andcheap financing packages for used cars), have kept monthly installments affordable for most clients, thereby safeguarding VW FS AG'sasset performance to date.

Good leverage ratio, but set to declineWe assign a Capital score of Ba3 to VW FS AG, one notch below its initial score. The negative adjustment results from VW FS AG’sintention to reduce the overall required capital for its captive finance operations under the new organisational set-up, particularlyconsidering the targeted portfolio growth. We, therefore, expect VW FS AG’s tangible common equity/tangible managed assetsratio (TCE/TMA; our equivalent to a leverage ratio for finance companies) to decline towards 9% over time (30 June 2019: 10.3%).The decline would be commensurate with the assigned Ba3 score, and in line with the level recorded for most of the company'sinternational peers in terms of the TCE/TMA ratio. This further captures the remaining RV risks from lease contracts that could, in ahighly adverse scenario, lead to larger losses at VW FS AG, temporarily weakening its leverage ratio.

The leverage ratio could also decline because of further increasing total assets as a result of the transfer of the remaining leasing andother operations from VW Bank to VW FS AG, although most of the planned business transfers took place in 2019 already. Goingforward, we expect most of the company's future asset growth to be organic, and driven by both financing operations and a moreprominent role of mobility services in the Volkswagen group's overall value chain.

Stable profitability post restructuringWe expect net income (NI) as a percentage of average managed assets (AMA) — our equivalent of return on assets — to remain withinthe 0.5%-0.75% range over the next two years post restructuring and the onboarding of the UK business from VW Bank. As a result,our assigned Ba2 Profitability score is in line with the initial score.

As of 30 June 2019, VW FS AG reported a net income of €294 million, equivalent to NI/AMA of 0.6%. The increase from the level ayear earlier (€247 million) was because of the higher operating result as well as a €30 million gain on miscellaneous financial assets.

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Increased reliance on wholesale and secured funding following the reorganisationWe assign a weighted average Cash Flow and Liquidity Score of Ba2 to VW FS AG. The assigned score captures VW FS AG’s increasedreliance on secured and wholesale funding following the reorganisation, and our expectation of a further moderate increase inconfidence-sensitive funding sources as a result of the group's strategic funding plan.

Like most finance companies, VW FS AG relies on confidence-sensitive wholesale funding sources, leaving the company vulnerableto market disruptions and illiquidity. However, because of VW FS AG's strategic importance to its parent, we expect the company tocontinue to exercise good discipline regarding the management of its liquidity risks.

Following the deconsolidation of the deposit-rich VW Bank in 2017, VW FS AG's dependence on wholesale funding sources has risen.However, VW FS AG was able to maintain access to a diversified range of funding sources, including senior unsecured debt (€24.6billion as of the end of December 2018) and intragroup funding (€13.9 billion), followed by asset-backed securities (€13.1 billion) andliabilities to banks (€12.3 billion). In the asset-backed securities area, the company benefits from the established market presence of itsVCL lease asset-backed security programme and the non-EU 'Driver' auto-loan programmes, which could help fill liquidity or fundinggaps under more adverse market conditions.

VW FS AG operates with only limited liquid resources at hand and in the form of securities holdings, with high short-term cash inflowunder its lease and loan contracts. In light of the constant portfolio growth at Volkswagen's captives, cash inflow has historically beenoutweighed by payouts under new loan and lease contracts or renewals. In case of need, the company has access to additional fundingsources, not least under a multi-billion euro committed standby liquidity facility from its parent.

Operating environmentWe assign a Baa3 weighted Operating Environment score to VW FS AG, based on the industry and macro-level risks at its global carfinancing and leasing operations. The score benefits from VW FS AG's activities in Germany (Aaa stable), where VW FS AG holds mostof its total lending and leasing exposures, and to which we assign a Baa2 Operating Environment score (see the scorecard below).

The Baa3 weighted Operating Environment score is constrained by VW FS AG's exposures to the United Kingdom (Aa2 negative), China(A1 stable) and Brazil (Ba2 stable), all of which display lower Operating Environment scores. However, this has no bearing on VW FSAG's overall Ba2 Financial Profile score.

Macro-level and industry-risk indicators for the home marketVW FS AG’s exposures primarily relate to the German car financing and leasing markets. The Aa1 German Macro-Level Indicator scorereflects Germany’s very high degree of economic and institutional financial strength, with a low susceptibility to event risk.

We assign a Baa Industry Risk score for German car finance and leasing companies. Firms in this sector benefit from relatively highbarriers to entry and pricing power. Although auto lending is indirect in nature, a growing proportion of leases is underwrittenat the point of sale, as indicated by rising new and used car penetration rates. In addition, banks in Germany have been slowlybuilding competitive leasing offers. Amid this relatively mild competition, VW FS AG expanded its market penetration and improvedmanufacturer loyalty.

VW FS AG further benefits from exclusive subvention programmes from its parent, Volkswagen, which provides access to loan andlease origination volumes, bolstering the car financier's franchise. Moreover, VW FS AG's diversified and long-standing product suitedisplays a strong track record of low net charge-offs and low net losses.

Environmental, social and governance (ESG) considerationsBanks and Finance Companies have been classified as “Low” risk in our environmental risk heatmap9 and as “Moderate” risk in oursocial risk heatmap10. However, considering the close linkages of VW FS AG to its car-manufacturing parent, we assess the exposureof VW FS AG to environmental risks as equivalent to the risk levels of automotive manufacturers and, thus, be classified as “Elevated -Emerging”. The value of vehicles that back the company's auto loans and leases might be impacted by a more pronounced change incarbon and air pollution regulations in VW FS AG's countries of operations and, consequently, increase the residual value risk for VWFS AG. In addition, the change in the environmental regulations and the need to meet the requirements of the Paris agreement putpressure on the Volkswagen in terms of higher investments into greater efficiency and electrification of its vehicle fleet11 in order tomaintain compliance and avoid fines or additional costs.

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

In line with our general view for the Finance Companies sector, we assess VW FS AG's social risks as “Moderate”. The most relevantsocial risks for the automobile lenders arise from the way they interact with their customers such as fines and reputational damage, forinstance due to product mis-selling. So far this social risk has not had material implications for the issuer. This assessment also takesaccount of our expectation that VW FS AG will be able to deal with the changing customer preferences and graduate shift towardselectric and hybrid cars as well as the development of self-driving technologies and the consequences this might have on its productportfolio and, potentially, margins.

We do not have any particular governance concerns for VW FS AG. Governance12 is highly relevant for VW FS AG, as it is to all FinanceCompanies, in part owing to the complexity of its multi-country operations. VW FS AG remains further exposed to reputational andfinancial risks potentially stemming from the ongoing diesel emissions scandal and the related unsatisfactory governance practicesobserved at its parent in this regard. In an effort to shield itself from any undue contagion risks, VW FS AG has recently strengthenedits governance principles and installed as well as added processes that should help safeguard its governance and control processesagainst unwanted behaviour. Nonetheless, corporate governance remains a key credit consideration and continues to be a subject ofour ongoing monitoring.

Support and structural considerationsAffiliate supportVW FS AG's default probability and expected loss are closely linked with those of its parent Volkswagen. The globally active carmakerhas a strong economic incentive to support VW FS AG because of the latter's important role as a leasing and financing provider thatsupports the carmaker's sales. During the first half of 2019, 25.5% of Volkswagen's new car deliveries in countries where VW FS AGoperates were accompanied by a financing or leasing contract of the company; in the German core market, this ratio stood as high as45.7%. At the same time, a long-term control and profit-and-loss transfer agreement contractually requires Volkswagen to support VWFS AG in case of losses.

Government supportWe continue to consider the probability of government support to be low for VW FS AG, which does not result in any rating upliftfrom government support. This assumption reflects VW FS AG's relatively small size compared with the German banking system, itsinsignificant market share in the domestic deposit market and its limited degree of systemic interconnectedness.

Rating methodology and scorecard factorsRating methodologyThe principal methodology we use in rating VW FS AG is our Finance Companies methodology, published in November 2019.

Output of the Finance Companies rating methodology scorecardThe ba2 assigned standalone assessment is at the midpoint of the Finance Companies rating methodology scorecard output. Whilethe organisation benefits from a long track record of operational stability, our consideration surrounding the effects of the recentreorganisation leads us to mainly focus on our forward-looking expectations rather than on historical metrics backing VW FS AG'sstandalone assessment.

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Exhibit 4

Volkswagen Financial Services AG

Financial Profile Factor Weights Historic Ratio Initial Score Assigned Score Key driver #1 Key driver #2Profitability

Net Income / Average Managed Assets (%) 10% 0.69% Ba2 Ba2 Expected trendCapital Adequacy and Leverage

Tangible Common Equity / TangibleManaged Assets (%)

25% 10.29% Ba2 Ba3 Expected trend

Asset QualityProblem Loans / Gross Loans (%) 10% 2.28% Ba1 Ba3 Pro-forma

adjustmentsExpected trend

Net Charge-Offs / Average Gross Loans(%)

10% 0.54% Aa1 A3 Differencesin accountingand reporting

Expected trend

Weighted Average Asset Risk Score A3 Baa3Cash Flow and Liquidity

Debt Maturities Coverage (%) 10% - Ba2 Ba3 Pro-formaadjustments

Near-to-mediumterm maturities

FFO / Total Debt (%) 15% 5.79% B3 B2 Pro-formaadjustments

Expected trend

Secured Debt / Gross Tangible Assets (%) 20% 16.07% Baa1 Baa2 Expected trend Otheradjustments

Weighted Average Cash Flow andLiquidity Score

Ba2 Ba2

Financial Profile Score 100% Ba1 Ba2Operating EnvironmentHome Country Factor Weights Sub-factor Score ScoreMacro Level Indicator 0% Aa1

Economic Strength 25% aa2Institutions and Governance Strength 50% aa1

Susceptibility to Event Risk 25% aIndustry Risk 100% BaaHome Country Operating Environment Score Baa2

Factor Weights Score CommentOperating Environment Score 0% Baa3ADJUSTED FINANCIAL PROFILE Score

Adjusted Financial Profile Score Ba2Financial Profile Weight 100%Operating Environment Weight 0%

Business Profile and Financial Policy Adjustment CommentBusiness Diversification, Concentration andFranchise Positioning

0

Opacity and Complexity 0Corporate Behavior / Risk Management 0Liquidity Management 0

Total Business Profile and Financial PolicyAdjustments

Ba2

CommentSovereign or parent constraint Aaa

Standalone Assessment Scorecard-indicated Range

ba1 - ba3

Assigned Standalone Assessment ba2Source: Moody's Investors Service

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MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Ratings

Exhibit 5

Category Moody's RatingVOLKSWAGEN FINANCIAL SERVICES AG

Outlook StableIssuer Rating A3Senior Unsecured -Dom Curr A3Commercial Paper -Dom Curr P-2

PARENT: VOLKSWAGEN AKTIENGESELLSCHAFT

Outlook StableIssuer Rating A3Senior Unsecured MTN -Dom Curr (P)A3Commercial Paper -Dom Curr P-2

VOLKSWAGEN FINANCIAL SERVICES AUSTRALIALTD

Outlook StableBkd Senior Unsecured -Dom Curr A3Bkd Other Short Term -Dom Curr (P)P-2

VOLKSWAGEN FINANCIAL SERVICES JAPAN LTD.

Outlook StableBkd Senior Unsecured -Dom Curr A3Bkd Commercial Paper -Dom Curr P-2Bkd Other Short Term (P)P-2

VOLKSWAGEN FINANCIAL SERVICES N.V.

Outlook StableBkd Senior Unsecured A3Bkd Commercial Paper -Dom Curr P-2

VOLKSWAGEN LEASING GMBH

Outlook StableBkd Senior Unsecured -Dom Curr A3Bkd Commercial Paper -Dom Curr P-2Bkd Other Short Term -Dom Curr (P)P-2

SKOFIN S.R.O.

Bkd Commercial Paper -Dom Curr P-2VOLKSWAGEN LEASING, S.A. DE C.V.

Outlook StableBkd Senior Unsecured -Dom Curr A3NSR Bkd Senior Unsecured Aaa.mxBkd Other Short Term P-2

VOLKSWAGEN BANK, S.A.

Outlook StableBank Deposits Ba2/NPNSR Bank Deposits A2.mx/MX-1Baseline Credit Assessment b2Adjusted Baseline Credit Assessment ba2Counterparty Risk Assessment Ba1(cr)/NP(cr)Bkd Senior Unsecured -Dom Curr A3NSR Bkd Senior Unsecured Aaa.mx

Source: Moody's Investors Service

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Endnotes1 The rating shown is Volkswagen's long-term issuer rating and outlook.

2 The RV risk depicts the risk of a larger-than-anticipated fall in the price for the leased asset or loan collateral between a contract's conclusion and a pre-agreed repurchase.

3 The ratings shown are VW Bank's deposit and issuer rating together with their corresponding outlook(s), and its Baseline Credit Assessment.

4 Although costly for the Volkswagen group and in some areas overlapping with the local regulator supervision, the comprehensive oversight by theEuropean Central Bank (ECB) previously ensured a coordinated central view of VW FS AG's operations, potentially enabling the ECB to initiate swiftprotective measures for the core lending and leasing business, if required. Following VW FS AG's exit from direct ECB supervision, under which it previouslystood jointly with VW Bank, VW FS AG's creditors cannot rely on such an early intervention in a crisis being centrally coordinated by a sole supervisor.Accordingly, we believe creditors of VW FS AG will face a higher severity of loss in case of default. Despite the higher loss severity, the probability ofdefault remains unaffected based on the contractual commitment and economic incentive for Volkswagen to support its core captive operations.

5 The rating shown is VW Credit, Inc.'s backed senior unsecured rating and outlook.

6 After years of unabated popularity, diesel cars face uncertain prospects because of environmental concerns. Diesel is a more efficient fuel than petrol/gasoline in terms of carbon dioxide (CO2) emissions, but it produces several times more of the pollutant nitrogen oxides (NOx), a factor that has led toproposed bans in some large cities in Europe.

7 This ratio measures the frequency of instances in which a used car sale is accompanied by a captive lease or loan. As of 30 June 2019, VW FS AG's new carpenetration rate stood at 25.5%, an increase from 21.5% the year earlier.

8 As of 31 December 2018, on a total of 874,120 units. VW FS UK primarily grants leasing and balloon loan products known as personal contract purchases.

9 Environmental risks can be defined as environmental hazards encompassing the impacts of air pollution, soil/water pollution, water shortages and naturaland man-made hazards (physical risks). Additionally, regulatory or policy risks, like the impact of carbon regulation or other regulatory restrictions,including the related transition risks like policy, legal, technology and market shifts, that could impair the evaluation of assets are an important factor.Certain finance companies could face a higher risk from concentrated lending to individual sectors or operations exposed to the aforementioned risks.

10 Social risk considerations represent a broad spectrum, including customer relations, human capital, demographic and societal trends, health and safetyand responsible production. The most relevant social risks for financial companies arise from the way they interact with their customers. Social risks areparticularly high in the area of data security and customer privacy, which is partly mitigated by sizeable technology investments and finance companies’long track record of handling sensitive client data. Fines and reputational damage because of product mis-selling or other types of misconduct is a furthersocial risk. Societal trends are also relevant in a number of areas, such as shifting customer preferences toward digital services increasing informationtechnology costs, ageing population concerns in several countries affecting demand for financial services or socially driven policy agendas that maytranslate into regulations that affect finance companies’ revenue bases.

11 For more detail see: “Substantial variation exists in automakers' carbon transition risk profiles”.

12 Corporate governance is a well-established key driver for finance companies and related risks are typically included in our evaluation of the financecompanies' financial profile. Audit committee financial expertise, the incentives created by executive compensation packages, related party transactions,interactions with outside auditors, and ownership structure are among the areas we may consider in our assessment of how corporate governance affectsthe issuer’s credit profile. Corporate governance weaknesses can lead to a deterioration in a company’s credit quality, while governance strengths canbenefit its credit profile. When credit quality deteriorates due to poor governance, such as break-down in controls resulting in financial misconduct, it cantake a long time to recover. Governance risks are also largely internal rather than externally driven.

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REPORT NUMBER 1204178

10 2 January 2020 Volkswagen Financial Services AG: Update to credit analysis

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Contributors

Maryna HarbalAssociate Analyst

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

11 2 January 2020 Volkswagen Financial Services AG: Update to credit analysis