Bayerische Motorenwrk Ord

Good afternoon, ladies and gentlemen. I would like to welcome you all to our telephone conference for the second quarter results. With us today are Oliver Zipse, Chairman of the Board of Management, and Nicola Peter, our CFO. First, Nicola Peter will take you through our financial results. Oliver Zipse will then give you a general business update for the BMW Group. Afterwards, we will have time for our Q&A session. We start with our CFO. Nikola, please go ahead.

Thanks, Max. Good afternoon, ladies and gentlemen. The BMW Group successfully managed the second quarter of 2022 and delivered good results, despite difficult business conditions. Overall, the first half of the year was characterized by continuing semiconductor bottlenecks and supply chain disruptions. This meant the BMW Group was not fully able to meet demand. As a result, vehicle sales were down 13.4% from the previous year's all-time high. Despite this, we sold a total of 1.16 million vehicles and we are still able to expand our leading position in the global premium segment in the first half of the year. Here, electromobility remains an important growth factor. As of June 30, the BMW Group had delivered almost 76,000 fully electric vehicles to customers in 2022, more than double the figure for the same period of last year. For the second half of this year, we expect solid growth in deliveries compared to the second half year of 2021. Deliveries declined in the first half of the year due to supply bottlenecks, the war in Ukraine, and disruption in supply chain. We therefore expect a slight decrease in deliveries for the full year. However, we intend to at least double BEF's deliveries for the full year 2022 compared to last year. Ladies and gentlemen, let's take a look at the BMW Group's key financial figures. Compared to the previous year, group revenues climbed 21.6% in the second quarter and 19.1% in the first half year, reaching around 65.9 billion euros at the end of the first six months. This significant growth primarily came from the full consolidation of our Chinese joint venture BBA in the group financial statements. Group earnings before tax for the second quarter totaled just over €3.9 billion. The deviation compared to the previous year is due to technical effects. On the one hand, the prior year quarter included income of €1 billion from the partial release of the provision in connection with the EU antitrust proceedings. On the other hand, the second quarter of 2022 was also negatively impacted by effect from the full consolidation of BBA of approximately 1.1 billion euros. In the first half year, group earnings before tax climbed 65.9% to almost 16.2 billion euros. The one-time effect of around 7.7 billion euros from the revaluation of previously held equity interest in BBA at fair market value was a major driver. Accordingly, the group EBT margin was at 11.3% for the second quarter and 24.5% for the first half of 2022. Our research and development expenses in accordance with IFRS rose by 14.3 year-on-year in the first six months to just over 3.1 billion euros. Our R&D activities remain focused on electrification and digitalization of our vehicle fleet. The R&D ratio, according to the German Commercial Code, of 4.5% at the end of June was on par with the previous year. We expect the figure for the full year to be within our target range of 5%. We are constantly working on the future of sustainable individual mobility. To this end, we are continually investing in new products in our production network and in a comprehensive digitalization of our sales network. With the recent plant extension in Shenyang, we have further expanded our production capacity. Our cutting-edge plant, Lydia, is already setting new standards for vehicle construction with its consistent focus on e-mobility and groundbreaking digital applications. Capital expenditure in the first half of 2022 totalled more than €2.9 billion, an increase of €1.2 billion over the same period of 2021. The year-on-year increase is primarily due to upfront expenditure for the ramp-up of e-mobility and investment at BDA. The capex ratio for the year to the end of June 30th was 4.4%. Ladies and gentlemen, let's move on to the individual segments. I will begin with the automotive segment. Segment revenues for the first six months climbed 18.8% year-on-year to just over 56.7 billion euros. In the second quarter, they were up 20.1%. This increase in revenues largely stems from the full consolidation of BBA. We were able to offset volume effects from the decrease in sales through good price realization for our premium products. Sustained momentum from the strong model mix contributed to this as well as continuing positive conditions in the pre-owned car markets. Revenues were also lifted by currency translation effects. The cost of sales in the automotive segment amounted to 48.1 billion euros in the first half year, an increase of 23.1%. Effects from the consolidation of BBA amounting to around 2.3 billion euros contributed to the increase in the cost of sales. As planned, this included depreciation from the purchase price allocation amounting to about 1 billion euros at the first half year, as well as an elimination of around 1.3 billion euros in intercompany profits from intra-group deliveries. Segment EBIT stood at just under 2.5 billion euros for the second quarter and and just over 4.8 billion euros for the first six months. This is a decrease of around 1.3 billion euros compared with the same period of last year. However, as already mentioned, this is due to some technical effects. On the one hand, the previous year had benefited from the partial release of the provision for the EU antitrust proceedings. On the other hand, the EBIT for the current year has also been impacted by the BBA consolidation effects mentioned above. The EBIT margin of 8.2% for the second quarter was within our target range. At the end of June, it stood at 8.5%. Excluding the consolidation effects mentioned above, the EBIT margin would be 12% for the second quarter and 12.6% for half year. This reflects the strength our core segment in the second quarter, particularly given the difficult business conditions. The financial results for the segment totaled around 8.1 billion euros at the end of June, compared to a figure of approximately 1.3 billion euros for the previous year. On the one hand, this reflects the one-time effect of around 7.7 billion euros from the revaluation of the previously held BBA shares. On the other hand, with BBA's contribution no longer included, the equity result decreased significantly by 800 million euros. Thanks to a strong operating performance, the segment's free cash flow for the second quarter totaled almost 3 billion euros. At the end of June, it had reached around 7.8 billion euros. This figure includes an inflow of 5 billion euros from the acquisition of BBA's liquid funds, less the purchase price paid in the first quarter. Temporary closures of Chinese dealerships due to the coronavirus pandemic dampened the cash inflow from operating activities in the first half of the year. As a result, liabilities for advance payments from retailers and bonus payments to dealers decreased significantly. Due to strong demand for all electric vehicles, the BMW Group will increase its investments in electromobility. In addition, we expect a slight decline in deliveries for the full year. This will only partially be offset in our results by positive price and mixed effects and the development of the pre-owned car market. For this reason, we are now aiming for a free cash flow of at least €10 billion in the automotive segment for the full year. In the first half of 2022, the financial services segment concluded just over 815,000 new contracts with retail customers, down 20.8% from the previous year. The decrease in vehicle sales is also reflected in the number of financing and leasing contracts concluded. In addition, the financial services sector continues to be highly competitive. With a strong product mix, we were able to partially offset the reduction in volume of new contracts. The volume of new business from all financing and leasing contracts with retail customers was therefore only 12.3% lower than for the same period of last year. Our financial services portfolio generates consistently robust and stable income. Combined with continued high income from the resale of end-of-lease vehicles, this lifted segment earnings before tax to almost €2 billion for the first half year. This represents an increase of 2.3% compared to the strong prior year. Despite difficult external conditions, sales in the motorcycle segment were on a par with the previous year. In the first half of the year, we sold just under 108,000 motorcycles from our attractive model lineup. The segment's operating earnings for the first six months of the year totaled 235 million euros with an EBIT margin of 14.1%. Ladies and gentlemen, let's move on now to the guidance for our key performance indicators. Despite the challenges in its business environment, the BMW Group is on track to bring the financial year 2022 to a successful conclusion. Thanks to the full consolidation of BBA, we expect group pre-tax earnings to be significantly higher. In the automotive segment, we expect solid sales growth in the second half of the year compared to the same period of the previous year. In the first half of the year, the ongoing supply bottlenecks, the war in Ukraine and interruptions in supply chain have led to a decline in deliveries. As a result, we no longer expect vehicle sales to reach the same level as in 2021 for the full year. We are therefore currently forecasting a slight decrease in vehicle sales. Regardless of this, we still expect the EBIT margin in the automotive segment to be within the range of 7 to 9%. The percentage of electrified vehicles should also increase significantly and the number of all electric vehicles should more than double. We are targeting a slight reduction in CO2 emissions in the new vehicle fleet and CO2 emissions per vehicle produced. For the financial services segment, the consistently good development on pre-owned car markets led to a rising segment result. For this reason, we are raising our target range for return on equity by 3 percentage points. It should now be within the range of 17 to 20%. In the motorcycle segment, we anticipate a slight increase in deliveries, with an EBIT margin within our target range of 8 to 10%. Ongoing inflation and interest rate hikes will continue to shape the macroeconomic environment in the coming months and impact demand. Accordingly, the above-average order bank, particularly in Europe, is expected to normalize towards the end of the year. Our guidance assumes that political and economic conditions will not deteriorate significantly. It does not include any significant tightening sanctions against Russia or countermeasures by Russia, including an interruption in gas deliveries. An expansion of the conflict situation spreading outside of Ukraine, as well as further significant and prolonged lockdowns in response to the pandemic are also not factored in to our guidance assumptions. Ladies and gentlemen, The BMW Group is capable of delivering consistently good results, even under challenging conditions. Our robust operating performance gives us a high degree of financial strength and earning power. Our priority is a long-term growth of the BMW Group. To achieve this, we are investing in the transformation of our company in a targeted and sustainable manner. The BMW Group is ideally positioned for the future. Despite the increasing challenges, we are looking ahead with confidence. Thank you.

Thank you very much, Nicola Peter. And now our chairman, Oliver, please go ahead.

Good afternoon, ladies and gentlemen. For the current year, we see both positive trends and risks for our business development. Without supply bottlenecks, We would have sold more vehicles in all three main markets in the first half of the year. In the second half of 2022, despite uncertainties in the supply situation, we now expect a solid increase in our deliveries to customers than in the same period of last year. Our order books are well-filled several months out. The BMW Group remains number one in the global premium segment. We offer customers an attractive range of products with a large number of new models and a great variety of drivetrains. As previously announced, we intend to more than double our sales of all electric vehicles for the full year 2022 compared to last year. And after the first six months, we are on track to do this. Our product and drivetrain strategy is now realizing its full dynamic potential. But we wouldn't be BMW if we weren't already gearing up our company for the next big leap forward. Our Neue Klasse will be coming in 2025 at exactly the right time when the e-mobility ramp-up will be reaching new levels. The Neue Klasse will speed up market penetration of electric vehicles even further. For the launch of the Neue Klasse, we are planning a compact sedan in the 3-series segment and a sporty SUV. By the end of the decade, the Neue Klasse should already account for more than half of our global sales. We could also imagine a hydrogen drive frame for this new vehicle generation. But the Neue Klasse is so much more than a comprehensive new product portfolio with the core characteristics electric, digital and circular. It defines what the BMW Group will stand for in the future and will make us an entirely new company. Because BMW was founded in 1916. In the 1960s, the company reinvented itself with the old Neue Klasse. And now in 2025, we will totally reinvent ourselves for the second time with the Neue Klasse. We see the Neue Klasse as a complete reset for the car and our understanding of mobility. Over the next three years, Our preparations will be intense, encompassing all areas of the company. At the same time, we are systematically transforming our production network for e-mobility as these three examples show. First, at our oldest plant in Munich, every second vehicle coming off the production line will be fully electric by the end of next year already. And there, we will also be producing the Neue Glaser there from 2026. Secondly, in China, we have expanded to the Dong side in Shenyang, where we are localizing the long wheelbase version of the X5 for our Chinese customers. We've also brought a comprehensive plant expansion on stream at the Tixi location. This is where we are producing a long wheelbase version of the new 3-series Beth for the Chinese market. By the way, we plant and simulated this plant in an entirely virtual environment. It is fully geared towards e-mobility. And thirdly, the same applies to our new plant in Hungary, for which we laid the foundation stone in June. Defletep will be the site for the initial launch of the Neue Klasse from 2025. For the first time in BMW history, We will be launching a new plant with a new vehicle architecture and a new generation of electric drives. Something else that is unique, Deflaten will be our first vehicle plant to operate completely carbon-free and without natural gas. We will be using heat transducers that can run electricity or even geothermal energy. This message has been extremely well received around the world. Each and every one of our production locations worldwide will become an iFactory. That means lean, green, and digital. Our plants already perform very well in the latest customer study by U.S. market research company J.D. Power. All BMW plants in Europe took top spots or made it into the top ten. The BMW Group won eight awards in total, the best performance ever. Ladies and gentlemen, we remain optimistic. In a complex environment dominated by macroeconomic developments, we are deliberately playing to our strengths. Rising raw material and energy prices, energy insecurity in Europe, high inflation, interest rate hikes, and worsening financing conditions, all these things affect our business as well as our consumer behavior. Semiconductor supply difficulties remain the dominant and decisive issue for our sales performance. Against this background, we've updated our sales guidance for 2022. We now expect deliveries for the whole year to be slightly lower than the previous year's level. Our EBIT margin in the automotive segment should stay within the range of 79%, as Nicola already mentioned. The crucial factor will be how the supply situation develops not just for semiconductors but also energy supplies in Europe. Our natural gas competence team is actively preparing for a potential gas shortage together with our suppliers. Extensive refusals are currently underway at our locations in Germany and Austria. We're looking at all areas and all fuels to see where we can reduce our gas usage. We could potentially envisage making up the electricity from gas-powered cogeneration plants by purchasing external power. We are evaluating whether this is feasible and what the possible implications might be. We've shared tips with our employees on how to save gas and electricity at work and at home. Resource efficiency has been a key issue for production at the BMW Group for many years. We are the leader in many areas, including lowering CO2 emissions and water consumption per vehicle produced. Over 99% of the waste from our production is recycled or recovered. At the present time, no one can reliably predict how the situation will develop in the coming months and years. But we at BMW believe in seizing opportunities wherever they arise. The flexibility of our vehicle architectures and our global production network are proving extremely valuable, as are our strong partnerships with our suppliers. We are able to serve diverse markets efficiently. And at the same time, our electric models are winning important comparative tests. There can be no question for us about whether to stand by our sustainability goals. This is more important than ever in the current volatile environment. We take the long view and we know where we are headed. The vision vehicle we unveiled at IIA 2021, the BMW iVision Circular, showed exactly how entrepreneurial thinking can work in a circular economy. And now, in January 2023, we will take things to the next level when we present a digital vision vehicle at the CES as well as our next gen in Las Vegas. It will showcase our digital expertise both in our vehicles and as a company and partner for tech players around the world. And for the IAA 2023, I can already promise you a glimpse of the NOE cluster with a spectacular digital experience for our customers. As you can see, We are right on the track, and we have ambitious plans for the future. Thank you very much.

Thank you very much, Oliver. Ladies and gentlemen, the line will shortly be open for your questions. Please wait for some technical advice.

Ladies and gentlemen, if you want to ask a question for the speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to counter your question. If you're using speaker equipment today, please lift the hands up before making your selection. Remembering, please, for the first question. And the first question is from George Gallier, Goldman Sachs. Your line is now open.

Good afternoon and thank you for taking my questions. The first question I had was just on the electric vehicle development. You're clearly seeing very good traction for your battery electric vehicles. When I look at last year, your plug-in hybrids outsold the battery electric vehicles by more than two to one. But with your objective to double BEV sales this year, there seems to be a high probability that in the second half your battery electric vehicle sales will be at the same level as your plug-in hybrid electric vehicles. Is this correct? Do you expect the BEV volumes to be equal to or maybe even exceed the plug-in hybrid volumes in the second half and on a forward basis? And if this is correct, would you describe us as being at peak plug-in hybrid today? The second question I had was on hydrogen. I don't know if you could give any insight into what percent of industry passenger car sales could hydrogen account for in 2030. And at Q3 last year, BMW did reference the fact that the EV infrastructure had not kept up with EV sales. With this in mind, who does BMW think will pay for the hydrogen infrastructure? Will it be public investment or private investment? or is this even an area that BMW itself might support? Thank you.

Thank you very much, George. Your question will be answered by Oliver. Oliver, please.

Yes, George, hello. This is Oliver speaking. Both questions are very much lined up right in the heart of our strategy. The first one, we always said there will be a long period where where combustion engines, PHEVs and BEVs will run alongside. And we always said beginning in 2022 and then progressive all the way up to 2030, the amount of BEVs will have the strongest growth push. This year overall, we will have about 10% of our retail volume will be BEVs. And we are right on track in achieving this. The PFs, they will end up at about a little more than 200,000 units. And that has been the same last year. And we expect that to remain at that level for the next three or four years. And then we will see. And that is pretty independent of new car sales support from different countries because the PF is a very unique industry. product offering for the time being, especially when charging infrastructure, as you said, is lagging substantially behind market increase on the best side. So you will see a parallel world at the same time, and we are very happy that we can fulfill with really superior product both market demands. But, of course, best will have the stronger sales push than PFC. Then I go to hydrogen. You know, the reasoning behind hydrogen is if you want to become more, first, if you want to become more independent on raw materials, which you need in abundance for a bath, and you will see what we foresee that on a global scale, there will not be enough charging infrastructure. You know, the Nordic states, Germany, France, UK, Belgium, they might have enough charging infrastructure. But the other half of the globe, also inside of Europe, is extremely unlikely that we will have enough charging infrastructure until 2030 or 2035. And if we run into an emission pre-world, you have to have an offering of hydrogen. Otherwise, you will lose market share. We are heavily convinced that we have a few on the future on a global scale which requires an offering of hydrogen. And your last point was also the H2 infrastructure. No, you're not depending so much on solidly installed infrastructure like with electric charging infrastructure. It's very mobile and hydrogen can store energy. So there will be a parallel world. Of course, the hydroton segment will come at a much later time than the BEF development segment.

Good. Thank you very much. Thank you very much. George, next question, please.

The next question is from Charles Caldicott, Redburn. Your line is now open.

Good afternoon. Thanks for taking my questions. My first one, on the auto margin guidance.

Charles, can you speak a little bit louder?

Charles? Hey, sorry, is that any better?

Yes, now it's perfect.

Wonderful, thank you. Great, thanks. Sorry about that. So on the auto margin guidance, if I look at the consolidation effects from VBA, it had a negative 2.3 billion euro impact in H1, but your guidance is for only 700 million of one-off costs. related to BBA in the second half of the year. Nevertheless, your overall auto margin guidance implies total earnings in H2 will be similar to H1. So my question is, what are the additional costs that are fully offsetting those lower BBA consolidation effects in H2 versus H1? And then my second question, you referenced in your prepared remarks the BMW iX test that showed the real life range is significantly longer than the official range and also uses less energy per mile than all of its competitors, including the Tesla Model X. Obviously, you design and manufacture your own powertrain components for that model, so I wondered if you could talk a little bit about the technology that has helped the iX deliver market-leading efficiency.

Okay, thank you very much, Charles. We start with Nikola and then Oliver.

Well, Charles, first of all, I would like to restate that the first time here, our EBIT performance in the automotive segment, I believe, was a very strong one in such a volatile environment. And if you adjust by the BBVA consolidation effect, we are at 12.4% after six months. Now, you're absolutely right. We will see some positive effects coming from less PBA consolidation effects in the second half of the year. However, as always, in the second half of the year, we have higher costs, in particular in the fourth quarter. We have... some higher burden from logistics and supplier price inflation, as well as slightly more negative coming from raw material costs in the second half. Overall, we are confident that we are well within our guidance of 7% to 9%, which again is taking into account this very volatile market environment, I believe, and strong.

Okay, thank you very much. The second part of the question was the IX technology efficiency.

Oliver? Yes, Charles, that is a very good question. You know, efficient dynamics is part of our DNA. It has always been, even in the old world of combustion engines, we were able to prove that we always had the product offering which is more efficient in its fuel consumption. And the same DNA we kind of translate now into the new world of electric vehicles. In the case of the iX, we use every possibility to reduce driving resistance by lightweight bodies, for example, The iX also includes carbon fiber elements like we had in the iX3. We look at battery efficiency, where the main ingredient is temperature control. We have the actual drive chain, the so-called heat. It's the actual electric engine. It's fully 100% developed and manufactured in-house, and we think we have a substantial competitive advantage with that technology we developed in its fifth generation. Now, aerodynamics of the car, a big player in reducing the efficiency and also the whole mechanical performance of the cars in terms of driving some place into driving that efficient dynamics approach. And therefore, we think the best complete system leads to the results which you have mentioned. And we are also rather conservative in measuring it in a formal way. If now an independent institute measures that and sees the real efficiency, of course, that helps us to improve even further.

Okay. Thank you very much, Charles. Thank you. Next question, please.

The next question is from Daniel Schwartz. Your line is now open.

Thank you for taking my question. First one would be on the cash flow guidance. Is it possible to split the 2 billion shortfall into an earnings effect, CapEx, or working capital effect? And then on the market outlook, the cut from plus 1 to minus 6%, these 7 percentage points, could you approximately say that is split into weaker demand and what is supply bottlenecks and just a follow-up question on the earlier question on the guidance so could you confirm that all of the the weaker earnings in the second half that's a higher cost and none of that is really a price effect that or deteriorating pricing from the first half into the second half okay daniel thank you very much this will be answered by nicola

Well, Daniel, maybe let's start with pricing. Pricing continues to be strong in all three regions. If you look at, for example, at the very recent Autodata report, which was published earlier this week, and if you look at all models, comparison to all brands, we are in an extremely, extremely strong position. despite the fact that we have outsold most of our competitors in the first half of the year. Very similar situation in Asian markets, and we've seen an improvement in terms of price realization in many, many European markets. If we talk about, because it's of course linked to it, residual values, we continue to see a strong pricing with regard to off-lease vehicles in the U.S., in the U.K., and in Germany, so that's positive. A second element is your question regarding Well, we have not adjusted our guidance by 7%. We have adjusted our guidance in terms of sales volume from flat to slightly below, which is in our wording between minus 1% and minus 5%. So let's see where we exactly end up. And your third topic was cash flow guidance. It's a mixture. And we've said, to be very precise, we've said minimum 10 billion. So let's see whether it will be exactly 2 billion or less. But the shortfall is on one hand side. related to the high demand in our electric portfolio, in particular I4, IX, and we anticipate strong demand for I7 and IX1, and this motivated us to further increase in the investment in particular of battery module production. To give you one example, we are just as we speak opening a second line of battery production, battery module production at our Leipzig plant.

Okay, good. Thank you very much. Daniel, next question, please.

The next question is from Jose Asomendi, J.P. Morgan. Your line is now open.

Thank you, Jose, J.P. Morgan. Three questions. Probably for Oliver. The first one, when do you expect to see a balance between supply and demand on semiconductors? Do you think this is something that could be achieved for BMW in 2023, or should we think this is a post-2023 discussion? Second, Oliver and Nicola, I'm sure you're seeing an opportunity to keep lower inventories or lower level of inventories across regions and protect pricing power. Do you have in mind the level of inventories you want to keep in different regions to protect this pricing power? And then three, if possible, could you please quantify how many gigawatt hour of battery capacity, not building modules, but producing cells, you would like to target maybe by 2025 or 2030? Thank you.

Okay. Yes, thank you very much, Jose. I think this can be answered by Oliver altogether. Yes, semiconductors. Yes, we start with the semiconductors.

Jose, to your first question, the semiconductor supplies, it's a two-sided view. The first is that we don't have any supply difficulties with the so-called advanced nodes. which are used also in the consumer industry. We don't have any supply problems. There's enough capacity. What we see in the consumer market, the orders are coming down, so there is some relief in there anyway. So that is not the problem. It's more on the mature side. So it's the power control, semiconductors. It's CMOS technology and so on. And in the past, the whole industry, I think, is overwhelmed by the by the continuum supply, by the automotive industry, by the machine suppliers, by everything that has to do with sustainable energy, wind turbines. They all need these mature nodes. And mature does not mean old. That means they will continue for 20, 30, 40 years of having that demand. And there we have don't have enough technology capacity. Now the way they look forward, I think We have peaked as we speak. In June, July, maybe August, we have peaked where we have a supply bottleneck. It will become better, but I think the capacity increase by some of the suppliers takes time. They've started to invest some 18 months ago. You need between two and three years until that becomes effective. So we see... a gap between supply and demand at least for the next 6 to 12 months. But again, there is bettering of the situation in sight. I don't think it will become worse than it is today, I'm pretty sure. And we have very, very close connections, I myself, with the semiconductors. So I think that's a description of today's situation. The second question was about our inventories. The inventories on the car side, of course, we perfectionize our inventories to demand. And that is independent of the region in the world. We try to lower our inventories to a level where we can supply the demand, but that we definitely do not have overcapacities. Of course, that means that you have a more stringent control of your inventories. The good thing is all of our cars at BMW are connected. With that connectivity, we know exactly where the cars are, and so we can have a very distinct steering of our inventories. On the part side, we increase our inventories for critical parts, so we become more and more independent of the actual supply situations. That's specifically on the semiconductor side, but also on the critical electric mobility part side. And the third question was, how many gigawatts hours of capacity in 2025 and 2030 planned? As you can see, we will five-fold our capacities here. This year, we will have about 10% of BEVs in our product portfolio. Maybe even earlier, by latest 2030, it will be 50%. That means we five-fold our capacities here. And we remain in our opinion that the direct production of battery cells is not the route we take because we currently have more than five suppliers of it. That means if you start doing this, you would have to reason it. You would have to supply all cells out of your... out of your own realm. And I think to play the market, which is very big, by the way, and very competitive, would be, at least from the perspective of the year 2022, would be a mistake. Where we invest heavily by ourselves is the complete battery pack, especially for the current situation, but even more so for the next generation of Neue Klasse in 2025, That will be done almost exclusively in-house, very close in proximity to our plans. So that has been our strategy, and I think for us it's exactly the right strategy.

Thank you very much. Oliver, next question, please.

The next question is from Daniel Ruskar, Bernstein Research. Your line is now open.

Good afternoon, gentlemen. Thanks for taking my question. Maybe on the year 22 outlook, it sounds a little bit more cautious than some of your peers possibly. And I wonder if you're a little bit more pessimistic on the rest of the year, where does that leave us for 23? So may I ask which developments in the upcoming months would make you more optimistic on next year and which developments, neglecting, let's say, big black swan events, but which developments would make you less optimistic? And then during the press call and also earlier, you highlighted the importance of battery efficiency And the improvement process you're on could you put some numbers around that? So where do you where is the efficiency in your view on the on the IX now? and how much in You know in numbers. Do you think you can improve that into your next platform? And maybe just a short follow-up to clarify if I misunderstood, but did I hear correctly that lawyer classroom? potentially would accommodate a hydrogen drive train and later in the decade. It's again the question around BV only or BV first on Neue Klasse. Thanks.

Thank you very much, Daniel. We start with Nikola and then Neue Klasse and IX Oliver. Nikola, please.

Daniel, my perspective is slightly different. If you reflect on the sales results in the first half minus... 13.4%. We are guiding for the full year a slight decrease compared to 2021, which means on one hand side we have to accelerate and will accelerate versus the first half year of 2022, and we will be above the second half of 2021. We will be, compared to the second half year of 2021, you will see a solid growth of our global sales between 5% and 10%. So I believe that it's a very realistic plan we have in place, taking into account the situation in the different geo regions, taking into account what Oliver just outlined, the development on the semiconductor supply side, And on one hand side, our strong order bank and in particular, the development of incoming orders in particular in Europe. So I believe it's an optimistic and well-balanced scenario, growth scenario. And what will happen in 2023, we will discuss in a couple of months from now.

Okay, thank you very much, Nikola. The second part of the question was about the battery efficiency IX and Neue Klasse, BEV only or BEV first? Very easy question.

Yeah, with the IX, I think the IX is only one example where we can, or external agencies prove that our efficiency is part of this DNA and also being better than the competition. I would say with the iX, but also with the i7 we see, even with the i4, the realistically reached efficiency is about 10% to 15% better than publicly measured in the normal, during the normal methods. So we think we are about 10% to 15% better than Not anticipated, but then communicated. We are also always on the conservative side here. But in the test we see, we are also about 10 to 15% better than the majority of the competition. And that has been one of our core strengths. And we built on that strength and want to build that even further in the NOE class later on. The NOE class is electric only because the hydrogen car is an electric car. So that's the simple question. And whether we do a hydrogen price chain, we will decide on a later point. But because it's an electric car, it's quite easy to do.

Good. Thank you very much. Daniel, next question, please.

The next question is from Tim Rookhouse at Deutsche Bank. Your line is now open.

Thank you very much for taking my questions, gentlemen. I have two, please. The first one is on your strong BV demand, especially the I4 demand. We test drove it. I liked it. Lots of people seem to like it. But anecdotally, the waiting times can be up to 18 months in Europe at least. Now, lots of demand is a good problem, but it's still a problem because lots of your customers may end up still buying Tesla if two years is simply too long for them to wait. And in two years' time, obviously, also this may not be a very competitive vehicle in the market anymore. So any chance that you can realistically shorten these waiting times substantially in the near term, or is that just what customers have to live with? And then secondly, and I think that is actually the decisive question for your stock price performance today outside of your margin guidance, it's been a while since we saw an OEM taking up the CapEx guidance with quarter results. Now, for most of us, if I recall that correctly, that was basically in 2019, also when you were close to 5.5% of your top line as CapEx. And back then, a lot of your peers announced dedicated EV architectures. Now, you said there's no need to do that. Now, you have one, as we just also discussed. What do you say if someone looks at the results today and says that we are now looking for a situation where you guys will under-earn because you don't have this dedicated architecture and the flexible approach is quite expensive, as it seems, and at the same time you have to outspend your peers for the next two years in order to catch up? Thank you.

Thank you very much, Tim. This will be answered by Nicola.

Well, first of all, I will demand, Tim, First message, it's good news that our all-electric cars are in high demand. iX, i4 mentioned, you've mentioned, but mini electric as well. And as we anticipate that i7 and iX1 will be in high demand as well. This is the first positive feedback we are getting. This is exactly the reason why we are investing heavily in order to ramp up production capacities in order to shorten lead times and to have customers waiting a little bit shorter. I think you can wait for a premium product a couple of weeks, maybe even two to three months, but definitely now it's a little bit too long and this is why we are in investing. Second element, underperform, if you look at our key KPIs, we've delivered 12.4% EBIT margin. We've delivered in the first six months, if I'm not wrong, the highest free cash flow rate In in the industry, so I don't be honest. I don't see any any Underperformance and the fact that we are investing in In capex it exactly has nothing to do with Neuer cluster it has to do with the fact that our today's cars our today's cars which are the cars I've referred to are in high demand and from my perspective on those three elements are positive messages, positive news.

Okay. Thank you very much, Tim. Then we come to the next question, please.

The next question is from Gabriel Adler, CT Group. Your line is now open.

Hi. Thanks for taking my question. My first is on the impact from supply price recovery that you mentioned in answer to another question about the second half cost pressures. Are you expecting those price recoveries to continue into 2023? I mean, can you give us any more details on how the contracts are structured? Are these one-off repayments or are they price increases that are going to be negotiated annually? And anything that could quantify the impact in the second half of this year would be really interesting. And then my second question is sort of a follow-up on the previous one on CapEx again. I just really want to understand here whether this increase should be seen as an opportunistic response to the strong EV demand that you're seeing or whether it really represents a change in strategic thinking and it means that EV investments being pulled forward and CapEx would actually be higher in 2023 and 2024 perhaps than initially anticipated. Thank you.

Thank you very much. Yes, I think this will be answered by Nicola.

Well, Gabriel, maybe let's start with your second question, EV investment. And I'm repeating in a certain way what you just said. It's a positive news that our EVs, our all-electric cars, are in even higher demand than we've anticipated. And this is exactly the reason why we are investing. We are planning to more than double our sales. And maybe to start with the first half, if you look at our performance in the all-electric area, we are ahead of... Take aside those manufacturers which are only focusing on all-electric.

We are ahead of all others in the premium segment.

demand continues to be strong. We are anticipating high demand for i7 and iX1 as well. And you are aware that we are launching additional models in 2023. And of course, we have an investment plan which is in line. with our ambition to grow from today to approximately 50% of our global sales being all electric by 2030. Your first question was on cost pressures in the supply chain. Of course, this has to do a lot with energy price raw material price development. We've seen in raw materials some volatility in the last couple of weeks in both directions. And talking about raw material impact in 2022, we've guided for the full year 2022 raw material and ethnics low to mid three-digit negative deviation. Now we are on the opposite side. We have, thanks to the development on the FX side, we are forecasting now a low to mid three-digit positive impact. And we are, as you can imagine, our procurement department is discussing with every individual supplier different type of So I'm confident that, and this is reflected in our guidance, that despite those challenges, we stick to our guidance of 7 to 9% in 2022.

So thank you very much, Tom. So it's 3 o'clock, but we have time for some additional questions. The next question, please.

The next question is from Tom Narayan, RBC. Your line is now open.

Hi, yes, Tom Narayan, RBC. Thanks for taking the questions. The first one is, I suspect this is a regulatory issue, but is there a reason why BMW includes purchase price accounting in the adjusted EBIT? And then I just wanted to confirm some of the answers you've given in the Q&A session thus far. So you called out logistics, supplier price inflation, raw materials, as to why H2 EBIT margins exceed PPA will be lower versus H1. And your comments suggest that price mix should remain strong in H2, and I guess semis still could be better in H2 versus H1. Just wanted to make sure that's a fair assessment. And then lastly, could you just update us on your specific exposure to net gas energy use? And on that topic, some of your peers have voiced some optimism that governments, specifically the German government, will do what they can to protect industry, and this is in reference to the supply chain. Just curious if you share this optimism. Thanks.

So we start with Nicola for the first and the second part of the question, and then the third about the net gas energy comes from Oliver. Okay, Nicola, please start.

Well, Tom, number one, We stick to our guidance. So 7% to 9% is unchanged. You're absolutely right. We will see a lower PPA impact in the second half of the year. Mix and price is okay. We will see volume developing in the right direction. On the other hand side, We have, as always, in the second half of the year, we have higher costs, in particular in the fourth quarter, and all together is leading to a confirmation of our profit guidance of 7% to 9%. Reason for inclusion of PPA in the EBIT, we follow IFRS standards, and regarding IFRS standards, it's the right way to account for the PPA in the auto sector.

Oliver? Yeah, Tom, I think this is a very crucial question. We currently think of the 3,500 gigawatts energy used by BMW here in Germany and Austria, about 1,500 gigawatt hours are gas. I think some of it we can convert, especially the gas to power conversion units we run here. The electricity part can be bought otherwise. We are quite confident in that. Can we completely save or replace the rest of the gas? No, we could not. I think any industrial operation could not do that. So we are very happy that the policy in Germany and Europe is targeted towards keeping the pipelines running. And even if we could counteract on the gas shortage, I think our supplier base will have even bigger problems because some manufacturers, especially the chemistry industry, uses processed gas, which you cannot replace by electricity and so on. So I think it's absolutely mandatory, at least for the majority of gas, that the pipelines keep running. And that's our demand to the policymakers in Brussels and Berlin.

Thank you very much, Oliver and Tom. So I think we have time for two more additional questions.

The next question is from Harald Hendricks, Morgan Stanley. Your line is now open.

Yeah, guys, can you hear me?

Yes, we can hear you.

Perfect, perfect. Thank you so much for taking my question. I was very late pressing the buttons. Obviously, best thing, so thank you for highlighting that just now from Tom. My question, slightly more usual one, but we can see it again today, right? Unit sales in the quarter down, obviously, quite sharply. Revenues at all-time highs. So the discrepancy and the huge move in ASP is obviously incredibly helpful. And you've already highlighted that on the pricing. My question is obviously what I think most investors are asking themselves. You know, at a stage when the consumer is obviously under pressure, you know, inflation is hurting the consumer everywhere when interest rates are going up. And so putting probably some pressure on leases. I mean, how sustainable do you think this pricing situation is? Do you think this is 22? Or if I was going to model 2023, would I still expect positive pricing on top of these very high ASPs? I know it's a bit conceptual, but maybe some of your thoughts would be more valuable to us.

Thank you. Yes, thank you very much.

This will be answered by Nicola. Harold, of course, this is one of the most important questions you are asking. And if you reflect on our guidance, adjustment we made today. This is exactly supporting your assumption. Our ambition is very clear. We want to, based on our strong product portfolio, based on the good momentum, in particular with all electric cars, to maintain and to keep pricing at today's level. As I've already said, if we look at the most transparent market in this regard is the U.S. market. And if you look at what are the key elements next to a strong product portfolio, which we have, is to manage supply side in the right way, which we do. If you look at inventory levels, you've already asked, someone asked the question a little bit earlier, look at inventory levels in the industry. end of June for example in the US but we follow exactly the same strategy in all regions. We have one of the lowest dealer inventory levels in the industry and if you look at the share between SAVs and cars it's exactly the right one in line with customer demand. Second element which is key in this regard is to have flexible plans to be in a position to follow demand, to follow demand, be it on the product side or on the allocation to different markets, because we are a global manufacturer, it's very difficult to forecast exactly in detail how every single market will develop in 12 months from now. So flexibility is extremely important, also to maintain a high pricing, That's definitely one of the strengths we have in our organization. The third element is, as Oliver already outlined, to know exactly where your stock is and what level of stock you have in every single dealership around the world. And thanks to our tracking possibilities, this is something which we are able to deliver today and have the basis for a really strong and extremely helpful supply and demand allocation of our production. So I'm confident on top of this that due to the not only our new car pricing, but also our strong residual value position that we will see also beyond 2022 and strong pricing position. And we will definitely not fall back into those behaviors we've seen in the industry before the Corona crisis.

Okay. Thank you very much. Thank you very much, Harald. And now, last question, please.

The last question is then from Stephen Reitman, SoftGen. Your line is now open.

Yes, thank you very much for taking my questions. I have two questions on China and then maybe a third one, a conceptual one. First of all, on China, now it's become obviously even more important given the full consolidation of business. Could you comment about the efficiency of your operations over there? We see in Shanghai Tesla record levels of production there from its Shanghai Gigafactory. I'm just wondering how the efficiency of your plants compare, your three plants in the Shenyang area compare in terms of abilities to work how many days and shifts and things like that. Certainly if you'd comment on what's the demand has been like for a section of the locally produced X5 long wheelbase version and where you think that's going. My third question is you're talking about 10%, being at a 10% BEV share by the end of the year. If your BEV capacity was unfettered, you could actually produce as many BEVs as you think the market demanded. Where do you think your market share, the share of BEV in your mix would actually be then, if you could actually make as many BEVs as the customers were demanding? You can talk about the very strong and long waiting times you have for these vehicles. Thank you very much.

Thank you for your question, Stephen. The answer will come from Oliver.

Steven, in China, we have three plants up there in Shenyang. The newest one called Lydia, which has just been opened about eight weeks ago. They're absolutely on global competitive levels. There is no difference between a German plant, a United States plant, a Mexican plant, or the Chinese plant. The efficiency almost exclusively depends on capacity utilization. The higher the capacity utilization is, the better it is. And up to now, all plans were running on full throttle, more or less. Also, and that leads me to the second question, the ramping up of the X5 long wheelbase, the demand is extraordinarily high. Really, that was, I think, one of the best decisions we ever made to localize the X5 also to have a capacity extension, but also to have it part of the local production network in China. So demand is very high, and that leads automatically to a very high efficiency rate. And your last question, 10%. Yes, if we could, we would do more. That's true. But I think we are not completely out of line with the natural capacity demand of global demand. The best market on a global scale is still very small compared to other sizes and we will grow with demand. We will double it again the year after next and we go very much in line where the markets go. But we currently do everything possible to get enough batteries, to get enough semiconductors specifically, especially on the mature nodes, as I said before, to meet market demand.

So, thank you very much, Oliver. Thank you very much, ladies and gentlemen. Thank you for joining us today. All the best for the summertime. Stay healthy and goodbye from Munich. Bye-bye.

Ladies and gentlemen thank you for your attendance. This conference has been concluded. You may disconnect.

Best for the summertime. Stay healthy and goodbye from Munich. Bye-bye.

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