Bayerische Motorenwrk Ord

Our CEO, Oliver Zipse, and our CFO, Walter Mertl, are also back in the room with me. The line will be open shortly for your questions. The operator will first give you some technical instructions.

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 can 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. Press star nine. Thank you. And a moment for the first question, please. Our first question comes from Tim McCossar at Deutsche Bank. Please unmute your line.

Yeah, thank you very much. It's Tim from Deutsche Bank. I have two questions, please. The first one is, I think the key element to discuss today is the pricing element of your EBIT bridge. All of your competitors have already reported. We've seen reporting season with very clear trends. Volume was generally very weak. Pricing was generally very strong for your competitors. For you, that's not the case. Less volume issues, clearly speak for your superior supply chain and model cycle management. We love that about you guys. That's great. But the pricing raises a few question marks. So two questions on that. Is all of the negative pricing that we've seen in the bridging Q1 BEVs, or do you also see this for ICE? And secondly, will pricing stay as negative, get worse or better over the remainder of the year? And as an add-on question, Oliver, you are always very outspoken in your opinions. All German OEMs are against an import tariff from China. You said it as well again this morning. Why is this probably still coming nonetheless? Does Ursula von der Leyen just like to listen to Luca de Meo too much? Or are there key points when you talk to EU politicians that express where that would be the case? Thank you.

We start with Walter and then Oliver. Walter, please.

Hello, Tim. Thanks for the first question with respect to pricing. As I mentioned, Q1 is already an exceptional quarter in 23. And we do know that the softening side on global pricing was happening in Q2, Q3 last year, moving into the Q1 24. So we are running on the same level. If you have a look for our average revenue, you see that we are constantly maintaining roughly 50,000 euros a car per Plus minus effects. So I think we are quite proud about that we are so disciplined, not just in Europe, but also in the US or in China. because we can elevate these ones. And, of course, we have more BEFs, and, of course, we have fantastically good upper segment growth with more than 20%, which are really helping. So that means, with respect to your question on the AVID bars, this is 300 million. Yep, but there's a softening effect on pricing between Q1 and the later quarters, you won't see this effect in this level anymore if you would compare Q2 with Q2 or Q3 with Q3. That's leverage then already. And with respect to pricing, It has also an effect, as we all do know, how much stock you have on site on dealers. And just having a look on the dealers in the U.S., the average base outstanding in the industry increased by 13 days. So this time of year was 35. Now the average industry is 48. We, Mr. BMW Group, We also increased from 21 to 28 days, but just 28 days and only seven days worse than we've been last year. We are leveraging our effects operationally, in my eyes, quite good. And that also has an impact straightaway on our pricing levels in the fields. So I think we're doing an excellent job.

Thank you very much, Walter. The second part was the discussion or the political discussion about the tariffs between Europe and China. Oliver, please.

Tim, good morning. Why do you raise import taxes? The only purpose is to protect an industry. We don't think that our industry needs protection. First of all, because we are global market players. Unlike many other countries, we have many players, not only BMW, who act on a global base. And that is an industrial advantage. And you can easily endanger that advantage by introducing import tariffs. That's the first point. The second point is we are currently a strong player in China and also as an export location to Europe. This is quite a different situation for other countries. So that's the current thing. The third point is, and maybe that is the most fundamental point, we have bilateral dependencies, not on the final product, but on the component side and also on the raw material side. Let's just look at the year 2025. In the year 2025, and that is what we are preparing for, and that is mostly forgotten, we have the first introduction of the next step of CO2 reduction for European new car fleets by minus 15%. And that is only possible if you increase your level of battery electric vehicles, emission-free vehicles. And there is no single car, in the European Union without having components from China in there, and if it's only the raw material in the battery. So there is a mutual dependency, and I would not risk that dependency just by introducing an import tax on the final product. So we should always have this dependency in mind. In China, you cannot compare China with other countries, you know. And that to compare China is like other countries. This is not true. It's quite a single entity and has to be dealt with differently. And there is no green deal in Europe without resources from China. It's impossible. And you said I'm outspoken. I say this because afterwards politicians will say if I would have known. That's why I say this. They know now. And I strictly warn for importers for Chinese products, specifically because they're just starting. They're not even here yet. Their market share is very small to this very point. And the rest is about competitiveness, and BMW is competitive. Thank you.

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

The next question is from Jose Azamendi at JP Morgan. Please unmute your line.

Thank you very much, Jose from JP Morgan. A few questions, please. First for Walter, if you can please remind us, you announced recently some investments in Shenyang. Can you elaborate a little bit where the money is going to? Is it capacity expansion? Is it battery expansion? and which vehicles are currently being electrified in Shenyang. Also, if you could discuss a bit, how do you see the share of electric cars in China in 2024 for BMW? Obviously, you are delivering a much higher share of Beth versus your competitors, which continues to support that growth on a junior basis. Where do you see it towards the end of 2024? And then for Oliver, I would very much like to hear your views on your competitors seem to be insourcing further components within production and assembly of the vehicle. Some examples are gigacasting and also front bumpers across the production line. Do you see any opportunities for BMW to insource components to be able to reduce further the cost of the car. Thank you.

Okay, thank you very much. José, I think we start with your first part of the questions about investments in Shenyang with Oliver, because he was in Shenyang two weeks ago. Oliver, please.

Yes, thank you for your questions. Two weeks ago I was in Shenyang and we announced a larger investment into the factory infrastructure up in Shenyang. And that is specifically dedicated in the refurbishment of the oldest factory up in Dadong. So we will take that factory there because it also has production licenses. So China is a country where you need a production license to produce cars. And our mid to long-term vision is to keep our market share there, which, by the way, is substantially higher than the rest of the world. The rest of the world, we have about 2.93% for BMW. We already have 3.7% in China. And since the industry in China is growing, we need additional capacity for the future, specifically because... We currently increase our market share on the best side. I repeat that in the first quarter, our best sales in China grew by 18%, the average market grew only by 15%. So, our ambition is there to keep or even increase the market share, and that's why we need these production licenses in that Tatong plant, which needs refurbishment. So, that's the breakdown of that investment. So, very much in line, by the way, with our long-term strategy up there. You were questioned about insourcing. Let's have a look at what we do in-house on the high-voltage battery side. The high-voltage battery, so that's the element where we make out of single battery cells. but it's delivered from external sources, where we make a high-voltage battery, which is then assembled into the car. This is 100% in-house activity. We're currently building up five factories for these high-voltage batteries, one also in Germany, one in Hungary, one in China, one in the United States, and one in Mexico. So that's a complete in-house sourcing activity. on the more traditional components like bumpers we we currently see a stable sourcing uh environment there we're always looking very closely are there are there any changes in in in our supply landscape but that is a very not robust but there is a lot of multi-sourcing underway that we would always have other options to go. There is no major in-sourcing besides on the B side. Thank you.

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

The next question is from George Gangi at Goldman Sachs. Please unmute your line.

Good morning, and thank you for taking my question. Oliver, I really had two questions for you, which come back to the comments you made at the full year results and a lot of the conversation this morning around EU fleet CO2 legislation. I mean, firstly, I would probably say thank you to BMW for openly raising this topic, and I think you can raise it because you're in a position of strength with respect to CO2 compliance. However, investors have been asking questions whether it is now too late to make changes and does changing the legislation not potentially lead to greater uncertainty for both OEMs and the consumer and therefore put at risk the fact that there could be incremental challenges for the industry with the transition and also lower returns on the investments you've already made in your battery electric vehicles versus what might have previously planned So, I don't know what your thoughts are on this. Is it a case that we do need to change it and that changing it can lead to better economics for yourselves and your peers going forward? Or do you actually think change could create risk? And then related to this, what actually do you believe can be changed at this point? Obviously, 2025 is now very close. Is the change you reference more for the 2026 and onwards timeframe? Thank you.

Thank you very much, George. Oliver? Thank you for that question. I think I try to circumscribe the framework we are working with. There is a three-step approach. 2025 is the first step with minus 15% on the CO2 fleet. Then in 2030 comes the next step with minus 55. I think these two will be inevitable. And that has been for the last eight years already. So that's not a new regulation. And all our strategy goes towards having products, products which are have such a high attractiveness that they're at the same time complying with the regulation. So what we cannot do to create products which create a non-compliant situation, but the other thing is also wrong to say the regulation is correct, but you don't have products to comply with. So they go hand in hand. And that's all what this game is about. And that is why we strictly are against taking the competitive element out of this game to say, well, to provide you planning security, we make that regulation. You completely forget customers and products. And that is counterproductive to any form of CO2 reduction. You can only do that with markets and not against the markets. Because in our industry, customers always have a choice. They can always keep their old product. You know? That's unlike in the energy industry. They don't have a choice. Our customers always have a choice. They just don't buy new cars. They just keep their old product to the detriment of CO2 reduction because that's a standstill in further development. And I think that is very important to understand. And BMW does not need planning security because we told all along that technology openness is the key. to profitability and at the same time to be compliant with the regulations. Open markets and technology openness is the key to everything. And I cannot comment on what others do, but if you don't follow that principle, you will have a very dire future. I'm absolutely sure about this. You might be compliant, but you will have a very dire future. And that's why I say it's never too late to talk about which only come into effect in 2035. You cannot talk about regulation which comes into effect in 2025. And that's not our point. But I think there are better regulations which keep the competitiveness of the European industry and at the same time do a better service to the environment. There is a solution which I explained earlier. you know, to have, first of all, a gradual evolution of CO2 reduction policies, and the second is to have a similar regime for the fuel industry at the same time. And I think there is a better solution, and it's never too late to speak up. Thank you.

Thank you, George. Next question, please.

The next question is from Patrick Hummel at UBS. Please unmute your line.

Yeah, good morning. Thanks for taking my question. Oliver, maybe the first one to you regarding The situation in China, if I look at the Q1 bridge, and especially in light of the strong performance of the high-end products, I have to assume that the EVs are very mixed dilutive. And just looking at pricing in China, which keeps getting tougher and tougher for everybody, that seems to be the very dilutive part in your bridge. And I'm just wondering... What's your strategy there? Do you want to defend your market share at any price? Because you highlight that you could keep participating in market growth or even grow faster than market, but it feels like you're doing that at a significant margin dilution. If you can comment on that, please. And the second question relates more to the coming quarters, and maybe that's one for Walter. You highlight that this year the quarters will be more evenly distributed in terms of the auto EBIT margin. Nonetheless, from prior years, we know that Q4 has a high skew in terms of cost. So can you just talk about the key building blocks and how you see them moving forward from the first quarter that make you so confident that we won't see a deteriorating margin trend in the coming quarters? Thank you.

Thank you, Patrick. Thank you very much. Both parts of your question will be answered by Walter. Walter, please.

Hello, Patrick. Well, with respect to China, eventually I have to reiterate two things. Number one, 23 was not just exceptional for non-China, but also for China, with respect to manufacturing costs in principle. We also have in the quarter one, the five series ramp down in China that happened in non-China already in Q4, but in China in Q1. And the ramp up of the five series just happens more or less after Chinese New Year. And we're just there in the ramp up phase. With respect to that, we see still our net price effects positive because ultimately it all belongs to attractive products. And if we have a look for the BEF market in China, as we discussed last time in New York, I think, we have to understand that 90% of the BEF So a cell in China is under 300,000 RMB, which we had touched on from 300,000 RMB, and we said, yep, there is eventually an effect on the 3-series on the X3, but not above. And even if we have a look for the next between 300,000 and 400,000 RMB, it's further 5%, right? So again, reiterating also what Oliver mentioned beforehand, we grew on our BEV sales in China by 18%, whilst the total market, even with all these lower segments, grew by 15%. And not to forget, our localized X5 is also contributing in China for China. So we are producing it in China. We all have these positive local effects already in, not just in now, but also since we build it and produce it. And the prices are really stable on the X5. You can check that out. So with all that, we are moving even in China ahead. So in Q1, of course, you see a total sales down by 4%, but that is mainly because of the 5-series ramp down and ramp up. So I'm not worried about that. And with respect to the quarterly developments of our EBIT margins, yes, in principle, Q1 is always a strong one. But if you ever look for 2022, you can see that we manage it always over 8% and within our strategic corridor. And that is what we guided and that is what we execute. So we deliver as we promise, as I say. Many thanks.

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

The next question is from Daniel Schwartz at Stifel. Please unmute your line by pressing star six and ask your question.

Yes, thank you for taking my question. I have one question on the financial services. Could you say what's driving the increase in penetration in first quarter? I think you mentioned competitive pressure in the past. Is that easing somewhat or are you pushing the business a bit more? And the higher leading penetration, why did the elimination line not become more negative? And what's the expectation for the next two quarters? Just one follow-up question on pricing again. I understand the high base from Q1 last year, the negative effect. You said that easing in coming quarters, but does it include expectation of improving pricing sequentially from Q1 to Q2 to Q4 this year.

Thank you. Okay. Okay. Thank you very much, Daniel. Walter, it's your turn.

Hello to you. Financial services is really turning around. Last year, you remember that Q1 and Q2, we compared with the year 22. And since Q3, we are elevating Q3 23. And we still do. So that means we had 422,000 new contracts, a growth by 21.5%. And that is not just new car business, but also used car business for lease as well as finance. And both new as well as used grew by between 20% and 22%. And with that, we organized good margins for the future with it. And the total new contract volume was on level of 15.6 billion euros. Mainly Europe and the US, but even China grew on purpose previous year Q1 in the financial services business. So that is quite positive. On the elimination, of course, with new business, we have in the eliminations, negative effects. But this is not the only one hitting the elimination segment. We also have to convert more or less all the interest subsidies we helped, especially in the US with the IRA topics. And that, of course, if you help an automobile, you have the positive effect in the consolidation. So I really also Assume that interest rate over the course of the year, especially in the second half year, will slightly be reduced. And then, of course, the support can be reduced, too. And then the math is ending up in the way you expected. So, and I think I have to reiterate also our pricing level. With respect to the sequentials, we mentioned in our guidance that we are leveling it on the same average like previous year, which is roughly 52,000 euros in average, plus minus FX, and that's the level we presented in Q1, and that will be more or less the same level in Q2. So we assume rather keeping the average of previous year's level rather than having ups and downs over the course of this year.

Thank you very much, Walter, and thank you very much, Daniel, for your question. I think we have two more questions. Yes.

The next question is from Horst Schneider at Bank of America. Please unmute your line.

Yes, good morning. I hope you can hear me. I have got two questions left, please. The number one that I have is, I mean, first of all, big compliment to USBMW. on production and process. I think you're the only German carmaker not affected by supply shortages. And while that is a compliment and positive, of course, I have got in mind that when the other carmakers basically get rid of their shortages, for example, if Audi can sell again six and eight-cylinder engine vehicles, Mercedes gets rid of the 48-volt shortage, do you envisage the situation basically that there could be some supply pressure in the market, that we get an imbalance of supply and demand, or how do you think about it, that all your competitors talk about it to ramp up volumes to a stronger extent, then they get rid of their shortages. That's number one. The number two question that I have is a more structural one for Oliver. It's a question that I ask myself constantly and also ask myself when I was visiting the Beijing Auto Show. We see there are a lot of PHEVs with a range of 200, 250 kilometers. Lee Auto with a special concept and its extended range concept. Why are the German car makers not doing that respectively? Why is BMW not doing that? Just extending the PHEV range? Because my view is on BEVs, it's difficult really to, I don't know, to stand out. And on PHEVs with a combustion engine still in, I think it would be a much better offer or not for the German car makers and BMW. Thank you.

Okay, thank you very much, Horst. Oliver?

I don't know what to respond to your first question. We will keep our supply chains intact, and we live for the last 100 years in a competitive environment. I cannot give you an answer to that. Okay. I don't know what to answer to that. We will keep our supply chains intact. And as we said before, we have a growth ambition for this year. And you see in the first quarter that the strategy works in there. And if we can gain market share with supply chain interruptions at the competitor side, we will continue our path. The second one is, BMW Group is committed to technology openness, and that, of course, includes PHEVs. And I think the range of PHEVs, this is a very individual discussion. What is right This is a matter of cost effectiveness. There is a balance between when do you step into a BEV with a much larger battery. I think there is a limit to the range where it makes sense to offer PHEVs, and our PHEVs with currently around 100 kilometers reach, I think are at the perfect point where the customer says, this is what I would like to pay for. Never forget that the larger the range is, the larger the battery gets, And to have a very large battery plus a combustion engine in there, there is a limit to the financial logic in that. But on the PF side, we have that offering. They're, by the way, very stable. Over the past year, they always linger about 200,000 units. And especially in the X5, the X5 PF is always sold out. So we are quite happy with our offering in that segment. Thank you.

Thank you very much, Forrest. Last question, please.

The last question is from Henning Kosman at Barclays Capital. Please unmute your line by pressing star six and ask your question.

Yeah, thank you very much for taking my question as well. I appreciate the comments on pricing. I think we understood most of the building blocks, volume getting a little bit better in the course of the year, sequentially mix also affects commodities staying positive. So I wanted to perhaps ask you on the other cost changes sequentially. So compared to Q1 2024, do manufacturing costs and remarketing gains, does that get less negative in the course of the year? And does that help in terms of sequential margin development perhaps into the upper half of the full year range. And then if I can just ask you point blank if you would be prepared at this point to indicate if you hope to be in the upper half or if you think you could be in the lower half of the full year automotive EBIT margin range. Thank you very much.

Good. Thank you very much. Walter, please.

Hello, Henning. So, of course, on the manufacturing cost side, if you compare quarter by quarter, even versus 23 quarter one, there was a big one off already in Q1 versus Q2 within 2023. So the run over the beneficence of the lower cost manufacturing cost from 2022 rather was all in Q1. And since Q2 23, we are rather running on this inflated manufacturing costs. So that means in comparison, if we compare Q2 this year with Q2 next year, the manufacturing costs will be more or less gone. But with respect to remarketing profits, That is still coming down. Now it's just a question. We recognized in 23 already a deterioration of the profits quarter on quarter, as we mentioned. And this is going alongside. So with respect to the difference between Q2 and Q2 previous year, it's just a question how fast it could deteriorate this year. So we have our understanding. and expectations, but I would assume that this hit shouldn't be that big anymore as it was already in Q1 because we definitely had an extra supply of new car vehicles from Q2 last year onwards with all these effects which lasted already in the course of last year, Q2, Q3, Q4, still moving on. So from that perspective, I think that was the leverage. And with respect to the total impacts on price mix and volume, we mentioned that this should be slightly positive. Never forget that the five-year ramp-up is just there, even in China, as I mentioned, just since mid-February, moving on. And our GKL, our upper segment class, also compared with the first half year last year, is leveling up. So all that in combination makes me positive that we are in the quarter always between this range of 8 to 10. Rather consistently and constantly than we had last year. Because Q123 was exceptional. Many thanks.

Many thanks. Ladies and gentlemen, we have reached the end of the telephone conference. Thank you for joining us. All the best to you. Bye-bye and