Bayerische Motorenwrk Ord

Good afternoon, ladies and gentlemen. I would like to welcome you all to our telephone conference for the first 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 give them a general business update for the BMW Group. Afterwards, we will have time for a Q&A session. Nicola, it's your turn. Please go ahead.

Thanks a lot, Max. Good afternoon, ladies and gentlemen. As expected, the BMW Group started 2023 with a solid performance. Group earnings came in at around 5.1 billion euros with a Group EBT margin of 13.9%. After the first three months of the year, the automotive segment delivered an EBIT margin of 12.1%. We achieved this in the face of persistently volatile conditions. The geopolitical and macroeconomic situation remains tense. Inflation and interest rates remain at a high level in many markets. The same applies to materials and commodity prices. Sales of our all-electric vehicles increased dynamically in the first three months of the year. Just under 65,000 units were sold, an increase of over 83% compared to the same quarter of the previous year. Best sales at the BMW brand saw a growth of 112%. Overall, all electric vehicles accounted for 11% of customer deliveries. Sales momentum also came from the market launch of vehicles in the upper price segment, including, for example, the BMW i7. The BMW Group's total vehicle sales for the first quarter went down slightly on the previous year, with just over 588,000 vehicles sold. While the U.S. market posted significant growth, we saw a moderate decrease in deliveries in China. where the after effects of the coronavirus wave at the beginning of the year were being felt. Europe remained stable overall. In the first quarter of 2023, the operating result of our Chinese joint venture BBA was integrated fully into the automotive segment's income statement. In the previous year, BBA was only fully consolidated from 11 February. The automotive segment EBIT for 2022 and 2023, therefore, include consolidation effects of differing amounts. The previous year's financial results also reflected the high one-time effect from the full consolidation of BBA. The quarterly results are therefore not directly comparable. Ladies and gentlemen, let's start with a look at the group's earnings performance. revenues reached just over 36.9 billion euros with a cost of sales of around 29.1 billion euros. A key factor in these year-on-year increases of 18.3% and 13.5% respectively is a full integration of BBA's operating business in 2023. The automotive segment also benefited from positive pricing and mixed effects. The group financial result for the first three months was slightly negative at minus 246 million euros. This represents a significant decrease of just over 9.1 billion euros compared to the previous year. The main factor here is the one-time revaluation effect of around 7.7 billion euros from the fair market valuation of BBA equity interests in 2022. In the first six weeks of last year, BBA also still contributed approximately 300 million euros to the equity result. In 2023, BBA's earnings were no longer included in the equity result. In the other entity segment, the fair market value of interest rate hedging transactions declined slightly in the first quarter of 2023. In the prior year quarter, interest rate hedges had developed positively due to the sharp increase in interest rates. The difference in earnings from the previous year was about 700 million euros. At the end of the first quarter, group earnings totaled just over 5.1 billion euros. The group EBT margin of 13.9% was significantly above our strategic target of at least 10%. Ladies and gentlemen, our strong financial position laid the foundation for the transformation of the BMW Group. We continue to invest in new models and structures with a clear focus on topics for the future. electrification, digitalization, and automated driving. Research and development expenditure was significantly higher than the previous year, at just under 1.6 billion euros. Our R&D ratio of 4.2%, according to the German commercial code, was within our long-term target range of 4 to 5%. We are funding investments from our operational cash flow. Capital expenditure was about 200 million euros higher than the comparable figure for 2022 at just under 1.3 billion euros. Due to higher revenues, the capex ratio was on a par with the previous year at 3.6%. We expect the ratio for the full year to be around 6%. Let's move on to the automotive segment. EBIT margin for the first quarter came in at 12.1%. Earnings before financial result exceeded the previous year's EBIT by around 60% at just under 3.8 billion euros. Full integration of BBA's operating result increased both the segment's first quarter revenues and its cost of sales. With regard to BBA, segment earnings for the first quarter of 2022 were impacted by depreciation and amortization from the purchase price allocation and the elimination of interim profits in connection with intra-group deliveries, totaling around 1.2 billion euros. In the first part of this year, depreciation and amortization from the purchase price allocation resulted in an expense of around 400 million euros. Excluding the BBA consolidation effects, the EBIT margin would be 13.2%. In the first three months of the year, we continued to see robust pricing for our products. The product mix also developed positively, especially in the upper segments with products such as the new 7 Series, the updated X7, the XM, and of course, the Rolls-Royce family. Higher material and commodity prices, an increase in research and development spending, and a higher percentage of all electric vehicles also pushed up the cost of sales. In the first quarter, we were able to compensate for these cost increases with strong pricing and an improved product mix. Free cash flow in the automotive segment for the year to the end of March totaled just under 2 billion euros, despite the seasonal increase of inventory levels. We are therefore on track to achieve our targeted free cash flow of around 7 billion euros for the full year. By mid-2023, BMW AG will finalize its current share buyback program of 2 billion euros, which was launched in July 2022. The company's strong operating performance is the basis for continuing our share buyback activities. As announced yesterday, the Board of Management has therefore decided on a second share buyback program as part of the authorization granted by the 2022 Annual General Meeting. This program amounts to another 2 billion euros. It will start after the end of the first program and will be completed by December 31st, 2025 at the latest. Let's turn now to the financial services segment. In the financing and leasing business with retail customers, the volume of new business decreased by 14%. This was mainly due to price increases steaming from higher interest rates and intense competition in the financial services sector. However, price developments and an improved product mix in the automotive business had a positive impact, resulting in a higher average financing volume per vehicle. Segment earnings before tax totaled 945 million euros. This moderate year-on-year decrease of 6.2% is mainly due to higher refinancing costs. Income from the resale of end-of-lease vehicles remains consistently high, and the risk situation is stable. The credit loss ratio is still at a very low rate of 0.13%. The motorcycle segment also got off to a successful start in 2023. In the first three months of its centenary year, the BMW Motorrad brand grew its sales by 1.1% year on year, delivering its best ever first quarter sales result with around 48,000 units sold. This impressive performance is underpinned by an attractive product lineup. At the end of the first quarter, the segment's operating earnings totaled 154 million euros with an EBIT margin of 16.5%. Ladies and gentlemen, in the first quarter of 2023, the BMW Group's business developed positively despite the volatile business environment. We continue to benefit from stable pricing in new and pre-owned car markets. However, we do expect the competitive environment and pre-owned car markets to gradually normalize through 2023. There is still some uncertainty around stabilization in the Chinese market, which is an underlying assumption for our outlook. After a good start to 2023, as forecast, we expect the full year to progress in line with our outlook. Therefore, our guidance remains unchanged. This assumes that geopolitical and economic conditions do not deteriorate significantly. Group earnings before tax will decrease significantly without the tailwind from the revaluation of previously held equity interest in BBA. In the automotive segment, we are planning for a slight increase in deliveries overall. The all-electric share of total vehicle deliveries is projected to increase significantly. The EBIT margin in the automotive segment should be within the range of 8% to 10%, with a segment rosy of between 15% and 20%. In the motorcycle segment, we anticipate a slight increase in deliveries with an EBIT margin of 8 to 10% and a ROSI of 21 to 26%. In the financial services segment, return on equity should be between 14 and 17%. The size of the workforce and the share of women in management positions are forecast to increase slightly. Once again this year, we are targeting a slight reduction in CO2 emissions in the new vehicle fleet, as well as in CO2 emissions currently produced. The macroeconomic situation remains difficult, and the geopolitical environment is volatile. Our guidance does not factor in the possibility of a deep recession in key sales markets or further escalation of the war between Russia and Ukraine. Ladies and gentlemen, the BMW Group strategy remains robust, even in highly volatile times. It is well balanced and focused on the long term. With the positive effects of a strong operating performance, we continue to make targeted investments in the future competitiveness of our company. Even during the transition to emission-free mobility, the BMW Group will continue on its road to success. We are determined to stay the course, proceeding at the same time with prudence and flexibility, knowing that we can rely on our attractive product portfolio. We remain on track to meet our goals for the year in a volatile business environment and are looking forward to the rest of 2023 with confidence. Thank you.

Thank you very much, Nicola, and now our CEO, Oliver Zipse. Oliver, please go ahead.

Ladies and gentlemen, the BMW Group has a strong global footprint. It serves as a local partner in individual regions of the world, contributing positively to industrial economic value in all. We currently have production sites at 31 locations on five continents. We also have research and development centers in 17 countries, not to mention 41 sales and marketing and financial services locations across the globe. This is how we make sure specific trends, technological innovations, and the different needs of customers in the regions are incorporated in our products and their development. To achieve this, we enter into targeted strategic collaborations with strong and innovative local tech partners. Our environment remains highly volatile and will likely continue to be shaped by unforeseeable circumstances. Many experts assume that the major economic areas are likely to drift further apart, both from a political and technological perspective and also with regard to regulations. That is why it is so important for us to seize opportunities that will always present themselves at short notice in markets around the world. And at the same time, our strategic thinking, our actions and our decision-making are always looking forward with a clear long-term focus. Our goal is for the BMW Group to maintain its profitable growth and always be in a position to make appropriate investments in our future. In keeping with this logic, we are charting our own course for the future step by step with our rolling strategic approach and long-range corporate planning. And on the other hand, our strength lies in the consistency with which we pursue our strategy. On the other hand, it comes from the flexibility and speed with which we tackle sudden changes. Once again, we have ambitious plans for the current financial year. After the first three months, we're on track to meet our goals for the full year. And that holds true, by the way, also for the first four months. As Nicolas Peter explained, The financial results for the first quarter of 2022 and the first quarter of 2023 are not directly comparable due to the one-time effect from the full consolidation of our BBA joint venture in 2022. At the same time, our product lineup is younger, broader, and more attractive than ever. Because all brands, all segments, and all drive technologies with outstanding vehicles that were recently launched or will be released onto the market in the very near future. We are exploiting potential everywhere and experiencing a noticeable tailwind. As you know, we expect group deliveries to be slightly higher than this year compared to 2022 as we continue to build on our solid incoming orders. This applies equally, and that is a particular quality to our all-electric models and to our conventionally powered vehicles. This proves once again that our long-term product strategy, including ramping up this in the line with demand, is delivering results. positioning in the world regions, we can compensate for regional market fluctuations, just as, for example, a certain market weakness in China can currently be offset by a stronger performance in the United States of America. The same is true of our broad technology approach. This enables us to meet different demands in markets while accounting for the varying speeds at which they are creating the necessary infrastructure for e-mobility. We have remained true to our conviction that all types of drivetrain must make a positive contribution to reducing CO2 emissions. This is particularly relevant in the short and medium term. Our battery deliveries grew strongly in Q1 across all four major regions, Europe, Asia, the Americas, and the rest of the world. Web sales for the BMW brand alone grew by 112% on average. All regions contributed to this development. In April, the BMW brand continued this trend by doubling that sales yet again. Our global balance in best growth fits perfectly with our local for local approach to our worldwide manufacturing activities, R&D, and our best production. Together, all of these factors increase our resilience as a global company. Now, we're expanding this even more by adding an additional component, local manufacturing of high-voltage batteries. This has already been established for current electric models at our facilities in Germany and China. In the next step, we're adding further capacity for the sixth generation of our battery technology, for example, in Woodruff for our United States plant in Spartanburg, and in Deppertsen, for our future plant in Hungary as well as in San Luis Potosi, Mexico. Now, what will be the key success factors for us this year? First, our diverse range of products with a clear focus on ramping up e-mobility. Second, digitalization of our products and of the company. And third, on point preparation for the Neue Klasse. Let's first start with the first point. Regional differences in demand for alternative drive technologies are becoming increasingly evident. I experienced this for myself just recently. In April, I visited the Japanese market and the Shanghai Auto Show. In Japan, for example, hybrids and efficient combustion engine vehicles are especially popular with customers. There is also a lot of interest in hydrogen as an alternative method of propulsion. It was therefore not surprising that the BMW iX5 hydrogen from our global pilot fleet was welcomed with open arms. Demand for pure battery electric vehicles, on the other hand, is developing steadily but slowly in Japan and remains at a low level. On the other hand, we have China, where BEV demand is growing rapidly. Today, China is already the biggest growth driver for e-mobility. For the first time, BMW presented only electrified models at the Auto Shanghai Motor Show. These included the i7 M70x drive, the XM label red as a plug-in hybrid, and the iX1 long wheelbase version, which we built in China for China. It is no secret that China's dev market is highly competitive and equally among both established and new players. Several manufacturers are currently lowering prices, in some cases substantially, to gain market share. At the BMW Group, we have a strong position in China. In the first quarter of 2023, we sold significantly more best there than our established competitors and also more than many new manufacturers. By the end of this year, the BMW Group will already offer 11 electric models in China across all our brands. And with our best, we are exclusively targeting the upper premium and luxury segments. Also, in China and in the current context, we benefit from our broad technological approach. The comparison of the car markets in Japan and China illustrates clearly the extent to which automotive manufacturers face varied market requirements during their transformation. We are targeting profitable growth with all drive technologies and in all segments, and therefore leveraging earnings potential. The upper premium and luxury segments are a good example of this. Growth in this segment will get a major boost this year from new BMW models, the 7 Series and the XM, as well as the X7 model update, not even to mention the Rolls-Royce model family. We're currently releasing X5 and XXX updates on the markets, including the particularly successful long wheelbase version of the X5 China. And let's not forget the popular and in-demand models from BMW M. Over the coming months, we will release the model updates for the X5 M and the X6 M. Many fans are also looking forward to the M3 Touring that was just And that's not the end. The M2 Coupe is already ready to hit the road. With our strong portfolio, we are targeting growth in the mid-double-digit percentage range in the upper premium and luxury segments this year. And we are aiming even higher with our fully electric vehicles and planning for high double-digit growth. Over the year, The deaths are expected to account for 15% of our global deliveries. This will be another big leap and the highest absolute increase we have targeted so far. Key models in particular will drive our sales, including at BMW, the BMW i4 Sport Coupé, the iX, the iX3, and the new i7 and the new iX1, and at MINI, the Cooper SE. And we will keep up the pace with additional new products. The new BMW 5 Series and new BMW X2 will be released onto the market towards the end of the year, including the i5 and the iX2 . The BMW group will then have at least one all-electric model in all its main model ranges on the roads. who recently conducted intensive testing of the i5 under the most difficult conditions, including extremely low temperatures. It also impressed media representatives at our recent pre-launch test drive events as the very positive coverage demonstrates. And the bottom line is the BMW 5 Series is the top business sedan with all drive trains, conventional just as well as fully electric. Our BATH roadmap is precisely defined. By 2024, at least one in five of the BMW's group's new vehicles should be a BATH. By 2025, it will be one in four. And in 2026, one in three. This is another reason why we are in a better position with our targeted BATH ramp-up than our key competitors. As a company, we remain innovative. In the fields, for example, of battery technology, we are in the top three for patent applications in Germany. There are only two battery specialists from Korea and China ahead of us last year. And with that, let's move on to the second topic. Digitalization is the most dynamic field in the mobility of tomorrow. That is why we are making BMW digital. Because digital products and features can only be created in an organization. that views digitalization holistically as an opportunity. The know-how we have in our team is crucial in this respect. That is why we have launched the biggest individual training program in the history of our company for key areas of digitalization. The digital boost, as we call it, will create the knowledge and tools we need to identify and implement digital potential in every area of responsibility. Let me give you three examples to show how we are implementing this knowledge to create a seamless digital experience of mobility that benefits our customers. First, in the new BMW 5 Series, customers will experience automated driving in a new dimension. It is equipped with the Highway Assistant, which continuously performs distance control and steering tasks. For the first time, the vehicle changes lanes using eye activation. An absolute world's first. Customers will not find such a comparable overall package anywhere else. Second, our Digital Key Plus. The Digital Vehicle Key is no longer just available for Apple devices. Customers can now also use their Android smartphone to unlock and start their BMW. This is made possible by ultra-wideband technology that guarantees maximum security. You don't even have to take your phone out of the pocket. And third, our built multimedia offering in the new BMW 7 Series. Earlier this year, we launched a pilot program that makes selected live Bundesliga games available in certain models. We are now expanding this option. In the new 7 Series, the theater screen transforms the rear compartment into an exclusive seat in the stadium. And this brings me to my third and final point. Alongside our current product lineup, we are also gearing up for the next big breakthrough in innovation. 2023 and 2024 will be the decisive phase of our preparation for the Neue Classic. It will bring added momentum to our sales of all electric vehicles from 2025 onwards. We plan to release at least six models in this entirely new BMW model generation onto the market in the first 24 months after the start of production. We are deliberately starting out in high volume segments with a sports activity vehicle and a sedan in the three series segment. The Neue Klasse embodies all three pillars of future mobility. It is entirely geared towards digitalization and sustainability and also fully electric. Our BMW i-Vision circular from 2021 and this year's BMW i-Vision D show the direction of our thinking. In just a few months, At the IAA Mobility, we'll be sharing how the topics of digital, circular, and electric complement each other to form a totally new and coherent overall concept. Ladies and gentlemen, as you can see, during the current financial year, we are once again taking a two-pronged approach. Internally, we are focusing on our operational excellence. Across all brands and all segments, we are offering our customers a new, modern, technologically diverse and innovative range of products. At the same time, we are systematically investing in our future and aligning the entire company for the launch of the Neue Klasse. The BMW Group remains focused on delivering its profitable growth and holding its successful course. For us, that means an EBIT margin in the automotive segment with our target range of 8 to 10%, even during the transformation towards e-mobility. Thank you very much.

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

Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen, or if you have dialed in, please press star nine to enter the queue. Once your name has been announced, you may ask a question. If you want to withdraw your question, please lower your hand using the raise hand function in the Zoom app, or via telephone by pressing star nine. Thank you, and a moment please for our first question. Our first question will come from Dorothy Cresswell from Exane. Okay, I hope you can hear me. Can you hear me all right?

Yes, we can hear you.

Yes. Perfect. Okay, perfect. Thank you, and thank you for taking my question. I have two, if I may, one around the upper-end vehicle sales and the second around China. So I wondered whether, just speaking about fiscal year 2023, you could tell us whether the tailwind from new product momentum and growth in that upper end of the range will more than offset the headwind from a rising VEV mix. And then looking a little bit further out, is there a midterm plan to grow the sales contribution of the upper end vehicles to a certain proportion of the overall volume? And then turning to China, You outlined that it's noticeable that you're managing to take BEV share in China to a greater extent than your incumbent peers. But can I just ask at what stage you think that your BEV market share in China can draw level with your ICE market share? And is that something that you think can happen perhaps by the middle of the decade? because obviously you still have a fair amount of BEV products in the pipeline. And then just to finish, of course, I should say, Dr. Peter, thank you so much for our very many insightful discussions over the last few years and my very best wishes for your next chapter. Thank you.

Thank you, Dorothy. We start with our chairman, Oliver Zitze, and then Nicola. Okay, Oliver, please.

Dorothy, thank you for your question. Best regards from Munich. Let me start with your China question first. The BEV market, of course, in relative terms, is having this growth market momentum. This is market-driven, but this is also offer-driven. By the end of this year, we will have 11 fully electrified products from the BMW group in the Chinese market. So we believe in a strong market push. And by the way, whilst we were still down from the previous after March, after April, we are already up 4% in the Chinese market. So we are regaining momentum with a strong push from the product side. So with that said, when exactly is the death share of our market offerings at exactly the same volume as the ICE model. I don't know. I cannot tell you, but it will be, first of all, sooner than later. And of course, it will be in this decade and the rest of the market will show. We will have BEF models in every segment. from mini all the way up to Rolls-Royce and in every segment of BMW. And then we will see what the market is there. We are ready to follow the market wherever it moves. And, of course, as we always said, the market conditions will depend on infrastructure, on the availability of raw materials, and at the end, most importantly, to final customer taste. But, again, we started very successful in this year, and the rest we will see.

Thank you, Oliver. Nicola? Nicola?

Dorothee, really good to hear, and thank you for your very kind personal remark. Maybe let's start with all-electric sales, because we can look from two perspectives. One is to say, well, that's a margin dilution, and I will come to it. But we have to say we are very pleased that our all-electric cars, are performing extremely well in all three major regions. We are very confident from the level we've seen last year close to 10% penetration of all electric sales in 2022 to grow our all electric business to 15% in the course of the year and this is backed by really good, strong incoming orders, also in particular for the very recently launched IX1 and IX7, and you might have, you might have that the first feedbacks from the media, from journalists regarding the i5 was extremely, really extremely positive. So we are confident to achieve this target. Second comment is contribution is better for the all-electric car than we anticipated two to three years ago. So I would say the glass is half full, half empty. And we are very, very confident to be definitely also after the first strong quarter this year to be on track to achieve our guidance to 10%, and this is, of course, backed by the strong performance in the upper part of the segment. We will plus minus double our seven series sales in 23 compared to 22, even before having the full year effect as a volume model in china of the 7 series the x7 which got a facelift a couple of months ago is performing very well xm just launched rolls royce well on track and not to talk about the m model so We are, based on this, we are really confident to deliver in line with our guidance. And to be very, very clear, I would, it's too early because we are only four months into the year, but I would not be surprised if we would end up in the upper part of our guidance corridor.

Thank you very much, Dorothy. Next question, please.

Our next question will come from George Galliers from Goldman Sachs. Please unmute your line.

Yep. Good afternoon, and thank you for taking my questions. And similarly, I pass on my very best wishes to Dr. Peter and do hope we can remain in touch. I actually wanted to talk about two similar areas to Dorothy, but actually slightly different questions. Obviously, in the interim report, you do talk about competition in the Chinese auto market becoming more intense. When we consider BMW's portfolio, are you seeing the competition across your portfolio or only on certain vehicles such as compact cars? And how large a risk do you see from Chinese competition also becoming more prevalent in other regions such as Europe? The second question I had was also on the upper-end vehicles. I believe it's more than 12 months now since you purchased Alpina, a brand with enormous appeal to car and driving enthusiasts, arguably the ultimate Q car. But there's no mention of the brand on your product slide eight. And to date, I think the communication around the intent for Alpina has been limited. Maybe this call isn't the right forum, but does Alpina play any role in the double-digit percent growth that you expect for the upper segment this year? And can you give us any insight into when we might get to hear more about your plans for Alpena and its future role within the BMW group? Thank you.

Thank you very much, George. Please, Oliver.

George, thank you for your questions. What we see in China is, and I think that is very important to discover, Market segments are more alive than ever, and I'm talking about car sizes, UKL segment, MKL segment, GKL segment, and the premium segment. The fastest growth in the Chinese market is in the base segment. Unlike here in the Western world, it's exactly the other way around. The biggest growth starts from the base segment. And of course, through that development, there's a lot of competition underway. That does not mean that the premium segment is the segment which is attacked first. And in our case, we are a strong premium segment player with most of the cars more expensive than 350,000 renminbi in the Chinese market, going well over a million renminbi. That is very solid. And in that segment, which is still very much alive and very solid, the competition is not as challenged than in the base segment. I think that's very important to know. With the competencies which are built up in the market, of course, there will be a global footprint, an increasing global footprint of Chinese manufacturers. And that is at a starting point. And I cannot tell you what the development will be. Conquering new markets is always a difficult task, and it takes not years, it takes decades. As you can see with us in the American market, that should take more than 25 years with local manufacturing footprints and so on. And we took more than 20 years to develop our market position in the Chinese market. And the same holds true for any new competitor trying to hold foot in the European market. So that is to see. And, of course, we see what is going on on the world, and we are not ignoring it. And the rest we will see how, at the end of the day, customers will behave. To your second question, Alpina, Alpina has a 50-year-old tradition and a super strong market value. After making that acquisition, we, of course, sat down closely. How do we preserve that market? And that, of course, will never be a high-volume segment. And in 2026, we will offer products branded Alpina. And that, of course, will build on that manufacturing product competence, brand history that brand has. And we just looked at this, just this week, we looked at the cars, and I can only say I'm very excited and I'm very happy how our plans to further develop the Alpina brand further. And the rest, we will, you have to be surprised then when it comes to the market.

Thank you very much, George. Next question, please.

Our next question comes from Jose Asumendi from J.P. Morgan. Please unmute your line.

Thank you very much, Jose from J.P. Morgan. And Nicolau, also, thank you for all the great dialogue over the past years and the strong collaboration. We already had the opportunity to exchange a few weeks ago, but again, thank you from our side. Maybe a few topics, just on CAPEX, if you can. Maybe provide a bit more context about the capex ratio in 2023. Especially in the first quarter, we're starting to see, you know, substantial increase in capex on a year-on-year basis. Can you maybe provide additional colors with regards to the proportion that goes into BEV or into ICE? and how much of the increase we're seeing now, which actually is substantial, is related to China. Very well balanced, by the way, with depreciation, but a bit more color as to where the absolute capex is going in 2023. Second, if you could please provide a little bit more maybe guidance with regards to the work you're doing to improve the the cost competitiveness of BEVs and achieve this disparity between ICE and BEV in the coming years will be appreciated. And for Oliver, I would love to hear a bit more around the battery technology. You mentioned in your remarks that you are you know, top three in terms of patents for battery registrations in Germany, I believe. Can you provide a bit more color? What do you mean with these statements? How far, how competitive is BMW on battery technology and what do these battery applications mean at the end of the day? Thank you.

Okay, thank you very much, José. We start with Nicola and then Oliver.

Nicola. José, maybe to start with the topic of capex in 2023. We are mainly investing on one hand side in battery module production. You might have read that we are kicking off also here in Bavaria between our plans Regensburg, Dingolfing, and Munich, a new production site. We are investing in the ramp-up of our plant in Hungary, in Debrecen. This is a plant where we will kick off Neue Classes, the all-electric platform, from 2025 onwards. And at the same time, we've announced a couple of months ago that we are investing in particular in the U.S. environment as well in order to prepare Spartanburg for all electric cars with on one hand side an investment of 1.7 billion U.S. dollars in the plant itself and in battery module production as well as a little bit outside of the plant. At the same time we are ramping up with a partner, Envision in South Carolina, a battery module production. So it's definitely very, very much focused on the EV, on the EV ramp up. And this is, of course, backed, again, as I've mentioned already, by the strong demand we see for our all-electric cars. Cost competitiveness, I rather would talk about contribution parity. Contribution parity is definitely the ambition, the goal we have set ourselves for Neue Klasse, so by 25, 26 we want to be on contribution parity. And of course, costs play an important role, and this is exactly one of the reasons why we invest in the sixth generation of battery cells. The objective is to have a significant around 50% cost reduction with the sixth generation, which of course will contribute to contribution parity.

Oliver?

Well, let me talk a little bit wider what the electric drivetrain does for us. When we look at the electric drivetrain, we, of course, look at the cell, and I will come to your question in a minute. But we also have to look at the high-voltage batteries, which is so the assembly of all the cells into one large battery. We have to look at the drivetrain technology, including the transmission. And then, of course, most importantly, how is all that integrated into a fully functional vehicle? Besides the cell, we're manufacturing all the other steps by ourselves. So, we have a very, very high vertical integration of all elements of the drivetrain. Now, you might ask, why don't you do the cell all by yourself? And as we announced already, we are in the development of the sixth generation of our battery cell. That's also why we have that very high amount of cell patterns. So the next cell technology will be cylindrical and has a diameter of 46 millimeters. And that will be at the point of market entry of the benchmark of that technology. Do we need to have a very high manufacturing footprint to do that? No, you don't, because there is ample global competition with that technology. There are a multitude of local players, and we will distribute this with our R&D-developed cells around the globe with different suppliers. To do that all by yourself would mean you would, at the same time, you would have to start up factories in at least four regions in the world at the same time, and that is, I think, a task which you should So we think whether that is possible. So with our technology, with our de-know-how, we look for various partners to ramp up quickly. And I underline quickly. In various regions, our new cell technology will then, with the other components I talked about, to ramp up the NOE cluster quickly. So it's not only about the manufacturing, to sum it up, almost the R&D technology and the R&D knowledge is even more important for the ramp up of the Neue Klasse. Thank you.

Okay. Thank you very much. The next question. Thank you. The next question, please.

Our next question comes from Horst Schneider from Bank of America. Yeah, hello. Thanks for taking my questions.

You can hear me?

Perfect, perfect.

Okay, excellent. Go ahead. The first question that I have that is relating to other cost changes. If I get it right, you are saying that basically other cost changes are getting a bigger headwind in the next few quarters. Volkswagen said today that they expect cost tailwinds in H2. Just want to understand what's your view on cost, and I know you have got other items also included in that line, so it's not comparable. Maybe also might be due to lower capitalization, but maybe you can elaborate a little bit what's driving your view on other cost changes and what's the path in terms of quarterly progression that we can expect from here. Then the other question that I have that relates a little bit to financial services, because you were stressing that the competition is increasing. and you are not willing to follow the trends in all regions. I just want to understand where you see particularly these competitive trends the most. So, where's the competition the highest? Is it more an issue for particular regions, or it's all over the place, or it's just in certain vehicle segments? Thank you.

Thank you very much, Horst. Nicolas, please.

Horst, maybe let's start with financial services. First of all, what I believe is extremely relevant to mention from a residual value perspective and risk management perspective, credit risk management perspective, financial services is in good shape. So we are very, very confident. We see residual value still trending in positive territory, in particular in the U.S. environment. well in the four-digit area per car. So that's a really positive situation. Increasing competition is in particular China topic and is related to the non-automotive financial market participants and is in particular related to the way provisions are paid to the network, to dealers. And this is definitely something we are not following because we believe it doesn't make any plan in particular in an environment. And you have seen this looking at the numbers where we despite the drop in financial services, we grow our market share with the automotive business. So this means we We don't see any reason to accelerate in this area, but we are very confident we have seen this in the U.S. market. If you look to the U.S. market, you've seen a drop in particular at the end of the third quarter, beginning of the fourth quarter in 22, and now we are back to penetration levels of close to 70% in the U.S., Now, if you look at the auto bridge, which is, I believe, the background of your question, and I, of course, can't comment on Volkswagen numbers. We are focusing on our numbers. look what we anticipate for the full year. You will see in particular positive development with a slight volume increase which is planned and we are already four months into the year slightly ahead of previous year from a global perspective. We expect on The other hand side, a very solid product mix development for the reasons I've outlined, in particular with, on one hand side, growth in the high-end segments and some headwinds coming from the higher bet share, and also a stable situation with regard to pricing, which is underlined also by the situation in China, despite what we've seen in China. in China in the non-premium market, our pricing position remains very, very stable. On the other, in other cost changes, we have, we anticipate slightly positive effects coming from and base effects from BBA. Cost inflation, so inflation impacts will have, in particular, higher material costs and component costs. Cost of logistics will have a negative impact. The same goes for personal costs. This has to do with the collective wage agreement in Germany. And we expect also some cost headwind in connection with lower capitalization ratio in Germany. the area and for residual values, we anticipate a slight gradual normalize, what I would call normalization.

But material costs are going to be a tailwind in H2, right, as well for you?

Material costs are going to be a headwind for the full year, have been headwind for the Q1 as well. If you look at raw material and FX, we've guided for both combined between mid-three-digit to high-three-digit. Today, I would rather say it's probably in the lower part of the more positive part of this corridor, which means mid-three-digit. But, of course, it can develop. Okay. Okay.

Thank you very much.

All the best.

Yes, thank you. Next question, please.

Our next question will come from Tim from Deutsche Bank.

Yeah, thank you very much. I have two questions, please. Oliver, the first one for you. Over the last years, you've made a pretty tireless effort to tell everyone about the need for flexibility of drive frames, and it's fair to say that that didn't resonate very well with the capital market and a lot of other stakeholders. Now, all by that leaves a lot of potential savings on the market. I certainly changed my view on that a bit with everything going on globally last year, and I think others will follow. Now you see the German press being more positive on it this morning. Do you feel like your message resonates with an emphasis on BEV, but other options better with regulators and other stakeholders as well? Are we further away from banning ICE in Europe? Are other OEMs perhaps coming to you asking for more engine corporations? And then secondly, Nikolai, we touched on this already with full year results, but I try it again. Now, you announced the next shared buyback program. I think it's fair to say that everyone really likes this from a capital market perspective. Why don't you institutionalize this and just say that from now on what's excess cash will return to shareholders in the form of these buyback programs whenever it's available?

Thank you. Thank you very much, Tim. We start with Oliver.

Well, Tim, it didn't resonate Well, not because it was wrong. It was despite the fact that it was correct isn't resonating because apparently you didn't want to listen, but it's okay. I think if you look at markets, if you look at markets, they're so diverse. And I was talking about our visits to Japan and China this year. They're so diverse. And if you look at electromobility ramping up, depends on raw materials, depends on charging infrastructure. In Japan, on market taste, on customer taste, it's not even about regulation alone. And so many, you have to make so many ticks in the boxes. And as you see, the few, as we saw last week and saw this week, the few on electric mobility is very positive. But if you see the development, the risks of that 100% only approach is becoming very apparent to everyone involved. Raw materials, the infrastructure, where I remain saying it's almost impossible to build 100% charging infrastructure in Europe in 12 years' time. And if you look at the development, that remains true. And that underlines the necessity to have the ability, first of all, to be able to respond, to be able to build products which are independent on drivetrains. And that is what we've done for the last five years. And if you see the first messages from the i5, you see the test drive from the i7 against the competition, These are not compromised products, and I was trying to convey that to the public. But, of course, I see that you need to see the products and drive the products to believe. And they are now on the market. And I think it underlines the strategy that we are in a very volatile world. You have to have a product strategy which is resilient and not pinpointed toward one solution This brings you in a big dependency on outside circumstance. But as you rightfully said, the world is turning quickly and I think I'm very happy that the world is finally understanding what BMW does. And with that to Nicola.

Nicola.

Yes.

Tim, maybe to start with. BMW has definitely one of the strongest balance sheets in the industry and this is reflected also in our rating which is the second best in the global industry and still the best amongst all European OEMs. So we are definitely in a strong position. This is exactly why after having probably completed program one in the next couple of weeks, We will immediately continue with the next phase, which was announced yesterday. And this also gives you an indication that we are very confident that we are able to generate the cash flows. We anticipate $7 billion for this year. And if you take into account the results of the first quarter, this, I believe, should make the market confident that we are well on track. On the other hand side, we've experienced a lot of volatility in our business, if you reflect on the last two or three years. And this is why we believe it makes, on one hand side, a lot of sense to implement and to run in a very systematic, consistent manner our share buyback program without saying it will go for the next decade exactly in this way. So I believe it's the right combination we are implementing right now. We have executed program one. faster than we initially anticipated. We continue now with Program 2, and when we come to the end of Program 2, we will decide what's next, but we still have now some way to go.

So, thank you very much, Nikola. So, we come to our last two questions, and then we close our Q&A session. Next question, please.

Our next question will come from Patrick Hummel from UBS.

Yeah, thank you. Good afternoon, and Nicola, also from my side, many thanks for the great partnership and all the open dialogue we had over the years, and all the best for the future. First question right away to you. As far as your comment about pricing is concerned, I think you emphasized that a little bit more as a risk for the remainder of the year, and I'm just wondering if you can share a little bit more of your thoughts, which segments, which regions your caution is about or coming from, just to better understand to which extent there's BMW's usual conservatism built in that kind of wording or whether there's any specific reason to be more cautious on the pricing side. And the second one, just following up on the capital allocation question, It's great you continue with the share buyback, the $2 billion, and that's despite a significantly higher share price, and you keep paying a regular dividend. But on top of that, because you have a $7 billion per year free cash flow, you're sitting on a big cash pile. That doesn't seem to be needed for anything CapEx-wise in the next few years. Is that what you really need to stay a top-rated automotive company, or is there anything you are – potentially considering the cash pile you currently have. Thank you.

Good. Thank you very much, Patrick. Nicolas, please.

Maybe, Patrick, to start with pricing, and maybe it's worthwhile to go through the major three markets a little bit more in detail. To start with the U.S. market, you follow, as we do, follow U.S. auto data. you see that overall there's a slight increase in discount levels, but really a slight increase in the first three months. And amongst all the premium manufacturers, we are definitely the most positive one with the lowest discount levels. And if you compare those to historical levels, they are very low. And what makes us confident for the US environment on top is that from a product allocation, due to the fact that we have now a full year availability of X5 after the China localization of the X5. We definitely have the right product mix for the U.S. market. And the third element, if you look at inventory level, we are still trading below 20 days. That's a really low level, and we are gaining. segment share at the same time. So that's a really good, strong combination of the different KPIs in the US environment. If we look at China, China, we've seen in particular in the upper part of our business, very good pricing, very good pricing also in terms of If you look back in history, we've been able over the last two years to grow prices in line with inflation and elevated costs, material costs. So we are on a really good level in the China environment. We have not adjusted prices for bets in China. We've seen business in the last, in particular in March, April, developing well. So we are confident for the Chinese environment. In Europe, as we've already said, the situation is different market by market, but if you look in particular at the number one market, Germany, Yeah, there is some more market pressure in the market. But on the other hand side, we sit on a very strong order book. And our order book in Germany and in the other European market brings us to the beginning of the fourth quarter of this year, now with production being available on a much better level and in line with customer orders. We are confident to manage this period in a very, very good manner. And we have, in particular, also in Europe, a very strong demand for all electric cars. Now, Patrick, CAPEC, Capital Allocation, as we've already discussed in several meetings, we are planning and I've outlined the reasons to invest in particular in the ramp up of e-mobility investing in Europe, in U.S. 1.7 billion. And on the other hand side, as I said, the environment is volatile and therefore it makes a lot of sense to remain flexible and on one hand side to continue programs like the share buyback program whenever the situation is is as it is right now so solid and we are confident to on one hand side deliver a strong cash flows but on the other hand side we have enough room to maneuver if needed to act and if we would have something in mind Patrick I would not announce it now in but we would have the flexibility, of course, thanks to our strong liquidity and cash position.

Good. Thank you very much. I see. You want to leave a big savings account to your success. Okay. Thank you. Thank you. Last question, please.

And our last question will come from Henning Kosman from Barclays. Star six will allow you to unmute, Henning.

Hi. Thank you. Good afternoon. Nicola, thank you very much for the very comprehensive pricing comments. I wanted to come back maybe in that context. I found very interesting what you said on contribution margin, wanting to discuss contribution margin for the best parity rather than cost parity. So can you just confirm the difference of price with respect to contribution margin and how you see that developing? My understanding is you want to keep pricing that's higher than internal combustion engine cars to help achieve that contribution parity. Maybe you could just talk about this a little bit more, not least in the context of, of course, the price pressure that Tesla has brought into that market segment. And sort of on the same topic with the prices, while I really appreciate the detailed comments, you've also confused me a little bit because they're telling it all really, really constructive, but at the same time, I understand that you're also seeing potential pressure from the new car pricing in the further course of the year, which is part of the reason for your still more conservative guidance drifting back into the range. So, if you could clarify that. And then, if I can squeeze in one last one, just on the headwind bucket of supplier costs specifically, Can you give us any kind of magnitude? I mean, I appreciate that perhaps, again, something that you don't want to discuss in a public earnings call, but just in a sort of rough magnitude, if that's one of the larger buckets, or if you think you end up with a relatively minor headwind, that would be really helpful. Thank you.

Yes, thank you very much, Henning. Nicolas, please. Henning, maybe start with number one. Contribution parity is not only focused, of course, on drivetrain. Drivetrain plays an important role, but the ambition with Neue Klasse is to be, if we compare, to each other to be on contribution parity. So when we say, well, Neue Klasse will significantly contribute to achieve this target, it's not only related to the sixth generation of battery cells, but it's also to the impacted in a positive way by the way Neue Klasse is designed, produced, and so on, so we are confident to . And, of course, pricing plays an important role. So what I describe is what we experienced today, what we experienced today. But this is, of course, no guarantee for the quarters to come. And this is exactly one of the reasons why we are, on one hand, confident for the quarters to come. We remain very careful, and we observe exactly what's going on in the various markets. Headwind from supplier cost plays an important, is a relevant headwind and this is why we have set up together with our colleagues from procurement, from purchasing division and initiative where we discuss in detail with our top 100 suppliers what can be done in order to mitigate, to reduce those And I'm confident that despite those headwinds, we have a very, very, we are well on track to achieve our EBIT margin corridor of 8 to 10%. And as I said, based on our today's situation, we are confident to end up in the upper part. So that's included in this guidance.

Okay, thank you very much. All the best. Yes, thank you very much, Henning. And ladies and gentlemen, before we conclude, I would also like to sincerely thank Nicola Peter. Nicola, you have been with the BMW Group for 32 years and our CFO since 2017. Next week, you will hand over your position to Walter Mertl. This conference call was your last of a total of 19 quarterly conferences. In addition, you led seven annual conferences. You are not only an absolute finance expert, but a true strategist. And you have always guaranteed the BMW Group's profitability, even in volatile times. Dear Nicola, it was an honor and a pleasure to work with you. I would like to thank you personally as well as on behalf of all our employees at the BMW Group. And by the way, ladies and gentlemen, I think we have another guest on the line who would also like to say a few words. Tim, please go ahead. The line is open for you.

Yeah, thank you, Max. And Nicola, I can, we few of us discussed about it, and I was picked to summarize this, but I know that I speak on behalf of all of us on the call today. But as you prepare to embark on your next chapter, we really also wanted to take that moment to express our sincere gratitude for the many years of collaboration insights that you shared with us. I can tell you it's going to be really hard to imagine a BMW call-in event without you. Your leadership and the ability in particular to express numbers to us has been instrumental in how the capital market sees BMW and our understanding of the business. And many of us have been very fortunate to have had the opportunity to work closely with you over many years in many different settings and countries. And we've always been not just impressed by your dedication and professionalism, but what made it really special, and this is something that Max also already said with full results, is that on a personal level, your sense of humor, your kindness have made our interactions a real joy. And I'm very grateful for the personal connection that we built over the years. And now to let everyone else in on a little secret, you always say you have a very strong cost focus, but clearly you missed out on one very big opportunity. You've been publicly praised just by Max again for your very strategic thinking of being a CFO, but you've also been very passionate for marketing. I remember you literally giving chairs and tables and causing nightmares for all technicians when you started rearranging the furniture for the fire sessions we had.

Yeah.

So the background actually looked a little bit nicer. And I'd say you could have probably easily taken over that responsibility on the board level as well and save on Nick Bernal's position for brand and sales. Obviously, just a bit of joking. But once again, that is proof for your professionalism and passion. And I can tell you there was never as much demand for a farewell dinner with my fellow analysts as high as it is for you. We clearly all hope to stay in touch. We look forward to seeing your next steps. So thank you very much, Nicola, for being a great discussion partner over so many years from all of us.

Tim, a big, big thank you for your really very, very kind words, and dear colleagues. Well, as you know, I really appreciated the dialogue with all of you, independent, by the way, how our results were, independent, because for us to develop our strategy, and as you know, the BMW Group and we are in the bottom, and we spend a lot of time to think about our strategy, to develop our long-term plan. And outside view is extremely relevant. Outside view is extremely relevant. And this is where you definitely supported the development of our strategy because in our discussions, And I know you not only talk to us, you talk to all the other OEMs, you talk to the suppliers, you talk to the industry. And this is giving us a much broader perspective in which direction industry, suppliers, other OEMs are heading. And this is why I always personally also appreciated the dialogue with all of you. I hope to see one or the other out of this group at other occasions, so stay healthy. Follow the BMW group with a positive attitude, and I'm very convinced that the group is extremely well on track. Thanks a lot.

Thank you a lot, Nicola. It was a pleasure, and now we clip all your hands together. All the best. Thank you very much for your attention, and we see each other. Bye.