Bayerische Motorenwrk Ord

Welcome back to our quarterly earnings call. Oliver Zipse and Walter Merkel 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. Please.

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 dialled in, please press star 9 to enter the queue. Once your name has been announced, you can ask the 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 9. Thank you and please stay tuned for our first question. Our first question comes from Patrick Hummel at UBS. Please unmute your line.

Yeah, good morning, everybody. Thanks for taking my questions. Two questions for Walter, please, and Oliver, no offense, but we just met in Munich for the strategic questions, so I'll focus on two financial ones, if you don't mind. First, regarding the tariff impact, thanks for the quantification. I think the 200 basis points in the second quarter impact, that's clear. If I apply simple math, 150 basis points in the first half, and 125 for the full year. That suggests about 100 basis points for the second half. So I'm just wondering if you would say this 100 basis points run rate for the second half for tariffs should be also a good indication for, you know, how things would look like going into 2026. even maybe as a more, let's say, cautious scenario because you might be able to mitigate more of the tariff impact via pricing and optimization of your industrial footprint. So that's the first question, is 100 basis points a conservative run rate for the future? And my second question, I think you're still holding on to your China guide volume-wise, flat-ish, which means better than minus 5 or at least minus 5. Are you still comfortable with that? And if not, if maybe the number would be a bit more closer to minus 10, would you still feel comfortable with the group guide in terms of slight volume growth and the 5% to 7% margin range, just to get an idea about, you know, stress testing your assumptions here for China? Thank you.

Thank you very much. Patrick Wolter.

Hello, Patrick. So with respect to your math on tariffs, I can just reiterate that for the full year impact, we have 1.25%, so one and a quarter, and it's around one and a quarter. You also do know that not every deal is closed yet. And I also mentioned already that we don't take our credit scheme we proposed and try to get into the US deal. We took that one out of this year's expectations, but we are still fighting for because we are still convinced that has to be included. to honor the production in the country, not just in the US, but also even in Europe, right? So we always talked about that one also in Europe. But with respect to our guidance and this one and a quarter percent point, that is not included anymore. But that doesn't mean that we are not fighting for it. With respect to your question on 2026, I will elaborate about this one in March at the press conference. And why is that? If you just have a look for the last six months, a lot of things happened impacting tariffs. So the next six months, I guess, there could be also some changes. And that's the reason why we rather speak about when it's due and time to discuss about it. The question about China, I just want to reiterate, we are not doing guidance by region. The guidance is set on the world and not on the region. Of course, we see all these topics in China affected by the strong monitoring of the authorities with respect to the commissions paid from external banks to the dealers and the impact, especially on the first week of July. Of course, we are seeing that. You're also aware that we are restructuring our But of course, was our ambition on flat dishes up to minus 5% versus last year's, we clearly approached that one from the level below. And of course, all depends on the recent developments in the markets. We see some improvements week by week, but it all depends. So I think that is still comfortable. And finally, to end up with our volume guidance, if you just have a look on Q2 in the quarter two, you just saw, despite the fact we lost 13.7% year on year in the quarter two, The full world was still positive by 0.4. So we compensated some losses in China year on year with European and America performance. So that is still a clear statement. The world guidance is intact, independent of the situation there in China.

Thank you. That's awesome. Thank you very much. Next question. Thank you, Patrick. Next question, please.

Our next question comes from Tim Rakosa at Deutsche Bank. Please unmute your line.

Yeah, thank you very much, Max, Oliver, and Walter. I have two questions. The first one to you, Walter, probably. I think one of the most appealing aspects of your equity story is that you can actually plausibly claim that the investment peak is behind you because you invested in all the necessary flexibility capacity. Now, can we talk a little bit about the phasing and seasonality here when we think about quarters? We have seen another step in the right direction during Q2. Is this something that you think will continue over the next few quarters? Is it volatile? And perhaps you can contextualize this with what we should expect in terms of seasonality for margin and cash flow in Q3 and Q4 this year. And then secondly, not sure, but probably Oliver, to you, I agree with your comment on the press call. It's all about building attractive products and that it outweighs things like even tariffs. Now, in Europe, we actually noticed that a couple of OEMs talk about good momentum now, even those with older portfolios like Mercedes, for example. Where do you think that emergence of the European consumer, at least on the premium side, but also upper mass market side, comes from? And how do you feel, how sustainable that is? Thank you.

Okay, we start with Oliver and then Walter.

Oliver, please. Good morning, Tim. Nice to talk to you. Let's have a look at Europe, and that is where your question is directed. Europe has an ever-aging age of the car fleet. And I think now also comes the time to replace that fleet. And customers, of course, know that. That's the first thing. So it's quite obvious that there is a replacement momentum in Europe. The second is that, especially BMW, we have a very attractive product portfolio over all segments, starting on the very top with Rolls-Royce, then 7 Series, the 8 Series is still in the market, and all the way down to the 1 Series and Mini. And you can have in every segment, you have combustion engines, you have the electric fleet. And on top, as I said in the media conference call, we never sold as many M products as we've done before. So, the whole breadth of product offerings leads to, of course, a growing market share. Is that sustainable? I think it is because the 27 countries in Europe are much more predictable than what we see, especially in China. And also, of course, we have political stability inside of Europe. So we see for the remainder of the year and also going into 2026, a robust, predictable market momentum, which is able to compensate some of the more difficult markets like in China, for example.

Thank you. Oliver, Walter, please.

And just reiterate the strength of Europe, just to speak about the second price level of our sole side is less than 20%. So we have a strong first price level. which is even more stronger than. With respect to your right directions you asked after Q2, so the free cash flow is on par with previous year's level, but we shouldn't underestimate the second half here is also different to previous year. Why is that? Because CapEx Peak, for example, was last year in Q4. And that is not going to happen this year. So we will have less capex in Q4. We have the seasonality of our working capital procedures. And not to forget, we are also aiming to organize profit in Q3 and Q4. Otherwise, we couldn't confirm our four-year guidance. All these elements together end up that we are still confirming our 5 billion free cash flow. And if you just think about last year when we had the big IBS impact, we also organized the right free cash flow ultimately, and we are not going to have that. Not to forget on the consistent approach which you saw on the cost side, R&D as well as the operational costs. We came down in Q1 year-on-year, we came down in Q2 year-on-year, and we are planning to go down in Q3 as well as in Q4 year-on-year. All that is proving our consistent approach, first of all, and secondly is underpinning a stronger free cash flow in the second half year.

um i think that's the main relevant thing for you many thanks thank you very much next question please our next question comes from stephen reitman at bernstein please unmute your line

Yes, good morning. Thank you very much. You mentioned in the speeches that you'd had already a journalist testing the IX3 in kind of like in a preform in Myanmar in June. Could you comment on the reactions you received, particularly from China?

That is your question? Yes. Okay. Then, Oliver, please.

I think what we have done, of course, on purpose, because the IX3 is not only the frontrunner of the NOE Klasse, it also encloses a complete product and corporate strategy uh directed towards four different um technology clusters and you can only experience that when you drive the car not by looking only at the battery size and so on and what we find out if you if you combine that driving experience around these four technology clusters wherever we go whether it's european journalists whether it's american journalists whether it's especially especially chinese journalists they say well wow, this is a masterpiece of engineering. How it fits together, how it feels when you drive the car, especially if you drive it against current competition. Just for example, if we have the objective, everything that has to do with assistance systems, meaning autonomous driving, It has to be smart, it has to be symbiotic, and it has to be safe. And symbiotic means that the car is your companion, and it's not just a function which you buy and put into a technology stack and put it in the car. And I think when the journalist drove the car, I said, I've never driven a better Beth in my life. And this is not only directed about the electrical drivetrain. This is how it feels. And therefore, we were extremely optimistic when we unveiled the car in early September and then launched the car in early November that there will be a substantial market demand because that car is going to be at that point in time the benchmark of the industry. And that is what whoever we talk to, whatever is written about the car, which is reflected by media and journalists. So, you already hear from what I'm saying. We are very optimistic about the market success of the iX3, but also the subsequent cars, the i3 and the other cars which are coming closely after.

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

Our next question comes from Sam Perry at BNP Paribas. Please unmute your line.

Sam? Are you with us? Hello? We don't hear you.

we will move on to the next question which is from jp morgan please unmute your line thank you very much uh two questions for oliver uh please and good morning oliver um in the light of uh the rapid developments we're seeing from tesla and waymo uh when it comes to deployment of level four autonomous driving, I would love to get thoughts on how you strategically think about autonomy within BMW and how do you tackle level three, level four autonomous driving in the house? Who are your key partners? And ultimately, whether you think this is a technology you need to be, you know, involved at the forefront in order to be able to protect pricing power in the premium segment. And the second question was for you as well. When it comes to tariffs, I would like to understand, you know, beyond the framework we have seen between Europe and U.S. when it comes to tariffs, what are the maybe outstanding bolt-on negotiations that BMW strategically is looking to pursue in order to maybe round up the agreement? Thank you.

Okay, thank you very much, Jose. The answer will come from Oliver.

The first question, if you talk about individual mobility, is you have to answer the question, what business are you in? And, of course, we ask ourselves, what business are we in? I can tell you what business we are not in. We don't build trucks. We don't build pickup trucks. We are not in mobility services. We are not in driverless cars. And that's the first question, what we have to do. The second thing, we are not testing out business models. When we launch a car, it must be profitable from the first car on. This is what we are in. And in line with that, and you will see that in the Neue Klasse, that assisting system, autonomous systems have to be in line with that business we are in. That means individual mobility in the premium segment. I cannot talk about other business models, but you have to answer the question, are you profitable? Do you have a chance to be profitable? Do you have a chance to be profitable if the regulator has not admitted specific things And only to have a testing ground in some areas of the world does not mean that this is scalable. So I cannot tell you the logic of other market participants who think that this will be profitable. I cannot answer that question. But we are in the business of having profitable, high-tech, premium individual mobility, and completely autonomous cars are not part of that business model. The second question, I think we have answered that before. I think the most important thing that we come to an agreement, what has been done by a handshake agreement between the EU and the United States, and we must now quickly finalize and implement the agreed measures. That's the first priority. And whether we pursue individual agreement that has to be seen, but that's not the most important thing. I think the most important thing to now come to a conclusion, to a reliable conclusion that we have a 15%, 0% agreement on United States and EU tariffs, that's the most important thing. And I think it's a good agreement for both sides because it ends a never-ending dispute which you can do forever. And I think that's the best thing for both sides that could be achieved at this point in time. And as we said before, it's not a complete disaster for our business model because BMW has a global business model. We import and export into the United States and the EU at the same time. So there is some offset included in that deal because we have that business model. And the most important thing is that Europe recognizes that this is a business model that works, which is not confined and restricted to the European Union, but this is a global business model. That is the most important thing that has to be recognized. And this is not a disadvantage. This is a great advantage for European companies.

Hey, thank you very much, Jose, for your question. Next question, please.

Our next question comes from Michael Punzer at DZ Bank. Please unmute your line by pressing star six and ask your question.

Hello, Michael.

Michael, can you hear me?

Yes. Yes. Yes, we hear you. Okay.

Please give us your question. Yeah, I have one question regarding the CO2 targets in Europe. You mentioned several times that you will meet the target already in 2025. Do you see the risk that become a disadvantage in competition in the years 26, 27, assuming that other carmakers can push best sales by lower prices or higher incentives?

Thank you very much, Michael. Oliver Zipser, please.

Yeah, Michael, thank you for that question. I have a two-part answer to your question. We're not concerned about, and I can only speak for BMW, we're not concerned about 25, 26, or 27. you know we will we will reach the targets even if there is some market pressure we have enough leeway to to fulfill the requirements we have prepared for many many years for that um and we will never push something into the market just to reach a specific co2 requirement from from the from the legislator um at the same time while saying that i think we nevertheless need a different framework for CO2 regulation. To look only at the tailpipe will lead over time to serious market distortions, which less effectiveness of CO2 reduction with less profitability for market participants and therefore less investment capabilities into climate change. And therefore, we advocate for a different regime, which is oriented towards a lifecycle assessment, which includes supply chains through the creation phase of the car, which looks at a technology-neutral approach, which includes e-fuels or alternative fuels, which includes the type of power you use for driving the car, all the way down to what happens to recycling the car. This is the much more effective and much more competitive approach to CO2 regulation. Are we there yet? No, we are not there yet, but we made a proposal to advocate for, and I can tell that we get more and more institutions, market participants, who we convince that this is a better approach. Is that happening overnight? No, of course not. This will happen during the next 12, 24, 36 months until we are there that we get into a new regime. But if we don't start to argue what is the better regime, every week you run into much more difficult competitive situation, market situation in the markets, as you can already see in Europe, you know. People report diminishing profits, and that has nothing to do with the tariffs of the trade relation with the United States. This is purely self-inflicted, and that has only started now. So, yes, especially with the NOAA cluster, we will reach the targets, but at the same time, we advocate for a new regime. Thank you.

Thank you very much, Michael. So, next question, please.

Our next question comes from Adrian Januszczyk at Rothschild and Co. Redfern. Please unmute your line.

Hi, morning. Thanks, everybody, for taking my question. I had a question more at the top of the mix, even above GKL. and I'm talking about Rolls-Royce. So do you have any updates or KPIs that you might be able to share, whether it's ASP or personalization rates? And I think tied to that, maybe any updates on the Goodwood expansion and what it could contribute to the business going forward. And I think maybe a second part of the question on the same theme is, Any next steps that you're able to share on the development of the Alpina sub-brand starting next year? We had some early comments a couple of weeks ago. Sounds like it's still a very low-volume, high-performance orientation, but would love to get an update if it's possible. Thanks.

So we start with the voice question with Walter and then Oliver. Yes, Walter?

Hello, Adrian. Well, as you do know, we don't say explicitly to our brands dedicated numbers, as you do know. But with respect to Rolls-Royce, you do know that we have over 500,000 revenue, that one we shared already last year, and that is still the case. So it's more than 500,000 revenue a car. And Bespoke is more than 50% on the share. That is a really good business, but I'm not talking more about it other than, yes, we have an expansion on the Goodwood side because the business is really good. And we are not overdoing it because this is a special clientele, and that's the reason why we're not talking so much about it. Many thanks.

Whatever. Adrian, you apparently watch us closely, and that is a very good thing. If you look at our brands, especially in the upper segment, Rolls-Royce, but also BMW, what you see is that individualization plays an ever-increasing role. At BMW, we launched two cars, the Skytop and the Speedtop, for example. Very low volume, ultra-low volume, in the upper price range, in a never, until then, achieved price range, those two cars were immediately sold out, immediately. You mentioned Alpina. There's more to come, but that is a similar approach, low volume, high profitability, high individualization apart from normal products. So you have their Skytop, you have Speedtop, you have Alpina on the BMW side. And the same thing you see at Rolls-Royce, an ever higher individualization rate. And in that context, we also invest into to even expand that individualization. It's never about volume. It's about increasing the contribution margin per car. And that is working quite well. Because independent of market sentiment, there is a very very stable marketplace for ultra high net worth individuals and we are we're expecting targeting these these um these new um customer bases and rolls royce you see all kind of difference individualization you see the normal bespoke business which is ever increasing you see custom-built cars and you have even one of us which we've done in the in the past three years three times Rolls-Royce had one of cars which only exist one time. And so that business models to individualize in all kinds of segments and all kinds of price ranges, you will see that at BMW and you will see that also at Rolls-Royce. And that, of course, stabilizes both brands. Thank you.

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

Our next question comes from Sam Perry at BNP Paribas. Please unmute your line by pressing star six and ask your question.

Hi there, can you hear me now? Hi there, can you hear me now? Yes, we hear you. Apologies, having some issues. Just a couple of questions on China, please. First one was about discussions currently ongoing regarding sort of minimum price guarantees replacing tariffs in Europe. for Chinese produced vehicles. Can you talk a bit about the puts and takes for that for BMW, both from a perspective of your mini exports from China to Europe, and also, I guess, the European business more broadly? Second question, also on China. At the CMB a few weeks ago, you mentioned the only area of the Chinese market growing was below 160k, and you didn't want to compete there, which was a large reason for why your volumes have been under pressure. However, the data I'm looking at, maybe I'm looking at the wrong data, but it shows that the market's going up to around the 300K mark, which is whereabouts you have about 50% of your product offering. My question, I guess, is, is the reason the volume's under pressure because you don't compete at that price point or because you're continuing to lose some market share? Thank you.

Yes, thank you very much, Walter.

Well, on the EU China tariffs, you do know our statement. We have been persisting serious criticism of this legally implementing regulation and on which these countervailing duties are based. The BMW Group has filed an action for an amendment of this regulation with the General Court and this is still ongoing. We haven't any conclusion yet. But we are coping with it. And with respect to the competing on the side, yes, you're right. On the tune side, up to 300,000, there was growth. Up to 150,000 renminbi, there was growth of 18% year-on-year. And between 150,000 and 300,000, there was growth of 4% year-on-year. But we shouldn't forget what I mentioned previously. We are restructuring our dealer network. The performance of the healthy dealers is still good one. But whilst restructuring these ones, and we are having a good progress by doing that one since November 24, and we will finish that by end of this year, we lose out here some performance. And that is the real kick in and the issue we are facing on the volume side.

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

Our next question comes from Michael Tindall at HSBC. Please unmute your line.

Morning, gentlemen. Thanks for taking my question. I'm going to stick with China. And, Walter, I wonder if you could help me out here a little bit. The dealer rationalization, what does that mean in terms of your P&L? Are those dealers a drag on volumes? Are they competing aggressively on price? Or are you, in fact, supporting them? through this transition? Is there compensation going out such that when those dealers are no longer in business, you'll actually see a meaningful impact? So I'm kind of, if you could give us a bit more detail as to what exactly will change once those dealers are no longer in operation. And then the second question for Oliver. Oliver, when we spoke last year, you very rightly described a Chinese market that was in this unsustainable state in terms of the number of operators. And I'm noting that you've said things have started to change in June. But I'm also noting that some consolidation efforts haven't really played out. From your perspective, are we on the cusp of seeing the Chinese market start to consolidate such that it's a more rational, sustainable market going forward? Thanks.

So we start with Pfizer and then Yes, Walter, please.

Hello, Michael. So on the dealer side, yeah, we mentioned that one already, that we are in the middle of this restructuring side. We are closing down some outlets and we are selling some outlets from one dealer group to other ones. And I want to reiterate, that existing dealer groups are buying those outlets. So that is positive. And with respect to end of this year, we are assuming that by then compared with end of 24, we will have roughly 10% less dealer points and roughly 20% less on the owner structure. So this is going on. There is nothing changed in our story. It's just getting executed. I think that is the big thing. With respect to compensation you mentioned, As I always said last time, no dealer compensation has been neither announced nor paid hence. And of course, while transaction pricing in the last three weeks has seen slight sequential recovery, Of course, it doesn't entirely compensate all these losses of the bank commissions they previously received or up to end of June they received. We are, of course, closely monitoring that one. And as good partners, we are, of course, also in good discussions with our dealer partners. That's the thing to your first question, I think.

I would like to answer the question about the Chinese market situation. Of course, the Chinese market will remain very dynamic in the coming weeks and months and even years. Two things are very important to recognize. First of all, the market share of Chinese manufacturers in the home market is still below the value of European manufacturers in Europe. So the current share of Chinese car manufacturers in China is 59% compared to over 65% of European players in Europe. So there is even more development. And what is the final end gate? Is it 70%? It's probably going to be above the 66%. So we must expect that in the next months and years, the market share of Chinese manufacturers will grow up to 65 or 70%. That's the first thing. Everything else would be, I would say, unrealistic. First thing. But that means for the rest of them, for non-Chinese players, there's still a market share of one-third, which is substantial due to the size of the market. Now, with these remaining Chinese manufacturers, you currently have more than 100 brands. Can you expect that these 100 brands with the remaining market share in China will remain? That's also very unlikely. If you ask the question, who are the dominant players, I cannot answer that question. But there will be some flourishing brands. There will be some brands who struggle. what you see that the profitability level in the Chinese markets is very low, also for the Chinese players. So that will lead to more market dynamics, but brand will become even more important. That's the good thing. Whoever has a strong brand, who has some heritage, who has a track record of reliability, of high-quality products, has an advantage. even if the current market conditions are very fierce that will be the remaining element who's able to to to to to stabilize market share or even to grow market share and bmw will be one of these friends thank you thank you very much so our last question comes from horse schneider

Yes, good morning. Yes, good morning. I hope you can hear me. Good morning. The last question that I have is, the last question may be something for Walter. Walter, maybe you can help me to understand the drivers in terms of earnings for H2 now, also more from a sequential perspective. If I reconcile that, you expect rising volumes, China pricing is improving, In contrast, or also tariffs are declining, then material costs are going up, you ramp up NOE plus, you ramp up temperature in the plant. So it's a kind of trade-off. But when I look at your free cash flow guidance, so you say the free cash flow is higher in H2 than H1. It implies to me that also earnings should be in H2 higher than H1. Is that conclusion right? And does that mean that basically you stay within the 5% to 7% margin guidance also in H2 or also in Q3 and Q4 even? So in other words, Q2 was a trough in terms of margin. Is that conclusion correct?

Thank you. Walter?

Hello, Horst. Nice try. So the full year guidance is still intact, as I mentioned. So the full year guidance is still intact. And I think we have a good starting basis, because if you have a look for my half-year numbers, auto EBIT, is on 3.6 billion euros. And my total group profit is starting with 5.7 billion euros, all half year numbers. So even if you would just double it up, it is already in reach of my guidance. And we have, of course, a lot of ups and downs in the second half year. with respect to profit and everything could happen, of course, but there are chances and not just risks. So I think we have a good starting basis, first of all, eventually better than a lot of other ones, first of all. And secondly, I can just reiterate what I mentioned to Patrick and Tim beforehand on the free cash flow. We presented that our fixed costs, our operational fixed costs are declining every quarter. We presented and proved that one in Q1, and we have done so in Q2. And we also promised already in March that we are going to do that all along, meaning also in Q3 as well as in Q4. Plus, not to forget our seasonality and working capital in Q4. You know how our structure is running in Q4. That's always beneficial for free cash flow, which we also presented last year. And last but not least, our CapEx development over the quarters. If you have a look for 24, you saw there was a huge CapEx impact as a burden on free cash flow in Q4. And we also mentioned that we have a very good slowdown of CapEx because we did our homework already. Other ones have eventually a different strategy and have to have more CapEx in Q4, whilst we not, especially not versus last year where we had our final peak. And if you put all these jigsaws together, you end up in our free cash flow prediction and you end up with our guidance on profitability on group as well as on outer EBIT.

Many thanks, Horst. Good. Many thanks to Walter. Yes, Horst?

Yeah, just a follow-up maybe to Walter on that. So, in other words, so CapEx is up H2 versus H1, and working capital in H2 is a tailwind or a headwind?

Horst, let's try again. So, again, on my full year number. CAPEX is lower on full year this year than last year. And you saw already a decline in the first half here. You will also see a decline in the second half if you just compare year on year the first half versus first year, first half year 24, or the same on 25. That is just easy. Okay. Thank you.

Okay. Thank you very much, Horst. Thank you very much for your last question. and all the best to you and we have reached the end of the telephone conference bye bye and servus from