Bayerische Motoren Werke Aktiengesellschaft

Thank you for joining us for the Q2 2026 Investor and Analyst Q&A session following the speeches this morning. My name is Stefan Richmann and I'm Senior Vice President, Group Treasury and Investor Relations. With me are CEO Milan Nedeljkovic as well as our CFO, Walter Mertl, and we're happy to take your questions. I kindly ask you to stick to the usual number of two questions per person. We will jump straight in once the operator has provided the necessary 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 would like 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 please stay tuned for our first question. The first question is from Patrick Hummel at UBS. Please unmute yourself and begin with your question.

Good morning, it's Patrick from UBS. Thank you for taking my question. I would like to start with one more strategic one for Milan, please. You're starting the CEO job with a big restructuring task. I guess there are nicer ways to begin, but nonetheless, what needs to be done needs to be done. I'm curious, can you elaborate a little bit on the other Thank you very much. Everybody tries to do that. So I'm curious what else you're thinking needs to be done in China to stabilize the business over there. And my second question goes to Walter, please. In terms of the restructuring announced the 8000 headcount cuts, sounds like mostly overhead or white collar jobs. Can you give us a and also the timeline. Will we see all of that in 2028 already materializing fully in the bottom line? Thank you.

Good morning Patrick and thank you very much for your questions. I would indeed follow exactly how you suggested in handing the first one to Milan about restructuring. You asked whether there were any additional strategic directions taken apart from what was also communicated yesterday. And then the second one I would hand to Walter afterwards with regards to the magnitude of savings. And Milan, please, you go ahead with the first question.

Good morning, Petrik, and thanks for your questions concerning the restructuring. I mean, first of all, I would like to emphasize that the basic strategic direction of the BMW Group is not fundamentally changing. We have the open technology approach to our powertrains, which is one of our strengths and which brings us also into the future. We have a global footprint, a very strong product momentum with the Neue Klasse and all that is the backwind we have for the next years. On top of that, of course, and that's the issue we are talking is the cost structure of our company which we need to improve and it's not Thank you very much. Starting with the customer level and the sales organization, with direct sales we see a very good opportunity for us to stabilize our pricing on the market and improve our earnings on that side. The organizational bit will primarily focus on reducing complexity inside our own organization and reducing the time we need to time to market for our products. On the purchasing side, we want to work more on partnership levels with our suppliers and by creating long-term contracts, also leveraging some potentials on the value creation worldwide, the global footprint we have on that side. and last but not least, the way we develop our products must be changed more towards industrial standards. Not meaning that we are giving up any performance of BMWs or any specifications we usually have in BMWs but we have to realize that the supplier Hello, Patrick.

So with respect to all these topics Milan mentioned, it is a process to be adjusted. The attitude, how we work together and what we do, of course, also utilizing all digital aspects is taken into account. So this program, we agreed quite quick and fast and in silence with our working council, especially in Germany. That is one building block. of all the measures. And of course, all measures and all building blocks will end up on our way back to 8% to 10% of the EBIT margin, our strategic target, which we also refer to in our speech. So I think that is the most relevant thing. And of course, linking to our message we have given at the talk session on June 16, we assume, of course, whatever happens, a return which is faster than two years. Based that we have agreed to start our discussions with people from Q4 onwards, we could assume, as we also mentioned already at the ad hoc in June, that we will have hardly any cash outs in this year 26, but rather in 27.

And the run rate of savings would then be in the high three-digit million range from 28 onwards? Is that a fair assumption?

Well, that is an assumption, but we won't commit to this assumption. And maybe you get more clarity at the CMD end of September.

I'll hold my breath and thank you both.

The next question is from Jose Azamendi at JP Morgan. Please unmute yourself and begin with your question.

Good morning Milan, Walter and Stefan. Two questions please. The first one relates to improving the competitive footprint in Germany. So which measures are you implementing in Germany across your German plants to make the footprint more competitive? And second, how do you plan to balance this production footprint between higher-level cost countries and lower-level cost countries in Europe? A second question on China. Should we expect another capacity cut in China or is the current capacity that you have in China adequate for the current sales development? Thank you.

Good morning, Jose. Thank you for your two questions. I would actually hand both of them to Milan. First, you asked about the competitive footprint, whether we would be improving that, especially with regards to plants. Second one, then, you addressed capacity overall in China with your question whether it is adequate. And Milan also having run production, I think it's appropriate to hand these two questions to you.

Well, concerning the improvement of the competitive footprint, as I mentioned, with the program, we are tackling different directions, starting from sales with production, purchasing and the way we develop parts. The biggest contribution in Europe will, of course, be the supplier network and how we integrate the competence of the supplier into our own organization. How do we localize more parts close to our new plant in Debrecen? And how do we gain benefits from a long-term contract which gives more stability to us and the supplier? Based on those three approaches, we do see significant potentials which will improve our cost position in Europe. The production footprint is, in our case, quite balanced and well loaded, especially looking on to Europe. So our plants in Europe and the US are well balanced, also in South Africa. So the only market which gave us a surprise was China. And as you know, we did implement a new plant in China a couple of years ago. Thank you very much. in China is adequate to the number of associates we have there, and it gives us the potential to grow, but we don't see a need to reduce installed facilities.

Maybe I add another aspect on the cost side, right? So we installed Cretan and have buildings, but it is not fully established with the capacity possible. Hence, there is no cost. And even on the buildings, you also are fully aware of that the cost position is a totally different one than outside China. Hence, depreciation is also a totally different level than outside China. and we mentioned already that we have taken already actions last year and further this year with respect to all cost elements in China. So we are reducing these ones already that is contributing but not compensating anything on the contribution margin side which we achieve in China of course. Thank you.

The next question is from Tim Ricossa at Deutsche Bank. Please unmute yourself and begin with your question.

Thank you very much, Milan, Walter and Stefan. I have two questions, but can I clarify something first that you just said, Walter, before I start with my two, and that is the strategic margin target of 8 to 10 percent that's still intact, right, regardless of what we're going to hear new at the CMD. And then my two questions is, obviously, there's quite a few things that you're kicking off at the same time here. There's the efficiency program, new ways to run the business. What shall we expect from the CMD? Perhaps, Milan, to you, is this where you're going to reveal the master plan, so to say, or is this more of a longer process that we need to adapt to and learn about? Secondly, on China, Mercedes has obviously taken the right down. I get that you are de-risking your case through the PPA consistently, but given how different the business is developing versus your own expectations, can you help us understand why you have not to take more strategic actions there, thinking about writing off some of the stake and so on and so forth? Thank you.

Good morning, Tim. Good morning to Frankfurt. I would first, before we come to your two questions, briefly hand the word to Walter with regards to, let's call it the pre-question, with regards to the strategic target corridor, 8% to 10%. Walter, would you like to make a brief statement on that topic first?

Yeah, brief and clear. Hallo, Tim. As we mentioned already, we intensify and speed up our structure and efficiency measures to end up with our strategic corridor of 8 to 10%. That's confirmed. And of course, with respect of the current situation, we have to do more than maybe we expected 12 months ago. And we are just in the middle of doing so. With all these elements Milan mentioned beforehand, they should all help step by step. We are becoming better and you will see our execution.

Thank you. And now coming back to your questions, the first one with regards to expectations for the CMD, I would hand that to Milan in just a minute. The second one, you commented on Mercedes-Benz having written down assets. We will, of course, not comment on what our friendly competitors in Stuttgart have done. You were asking us why we were not taking more strategic actions there. Walter, I would kindly ask you to answer the second question, but first to you, Milan.

Tim, thanks a lot for your question to the CND. As you know, we are putting a lot of emphasis on that meeting and the reason is we are doing now very intensive work on setting up A detailed presentation for you for that meeting. I mean the core element of it is of course our transformational program which I did explain in rough right now. But on top of that, of course, we also will have some discussion about technologies and products and derivatives and furthermore. However, the core orientation of our strategy as a group is not changing. We still stick to our global footprints. We still stick to our technology openness. We will come with the Neue Klasse and the technologies. All this remains and is a robust strategy. And then with respect to impairment, we have to do impairment tests quarterly and have to check our assets.

and of course maybe some assets are differently measured if you have an equity consolidation or a full consolidation. Now with respect to us, we do have a full consolidation aspect of our joint venture in China. What is that meaning? That we have the whole balance sheet in our group balance sheet integrated and not just one element of financial assets. That's the first difference, but you know that. The second one, of course, is that with the takeover of the further 25%, we had to add value on our asset based on all the balance sheet side. And on this immaterial element, we are depreciating the purchase price allocation. And this will end mid-28. There is the second element of the goodwill, which we can't depreciate over time. And that is stated and disclosed of roughly a billion euros. and that one of course also has to do always this impairment test and we don't fail the impairment test and hence there is no write-off but just the ordinary depreciation not a write-off it's an ordinary depreciation of our purchase price allocation since February 22 and this is ending May 28. That's the different situation between these ones having to check out at equities or we having done the full consolidation. Hope that helps

The next question is from Stephen Reitman at Bernstein. Please unmute yourself by pressing star six and begin with your question. Please unmute yourself by pressing star six and begin with your question. We will move on to Michael Tindall at HSBC. Please unmute yourself and begin with your question. Please unmute yourself and begin with your question.

Hello, hopefully you can hear me. A couple of questions, if I may. Just the first one, sorry to stick on China, but can we talk a little bit about cost flexibility? Because I guess this is a key difference between China and the rest of the world. And I'm curious, given the volume decline you saw in Q2, did China stay profitable? Did the joint venture stay profitable in Q2? And if so, can you tell us how you manage that? How flexible is that? Thank you very much.

Good morning, Mike. And yes, we were able to hear you. Thank you. Both questions will be going to Walter. You're first with regards to available flexibility in China. You asked how we were actually managing that and whether we remain profitable in China itself. And the question then, one item under others, warranty, whether there was any correlation between the improvements we see there and also recall rates in the US. So, Walter, please, if you don't mind. Hello, Michael.

Well, China flexibility is all based on cost, first of all, and that we started our homework already the year before last year. So we have positive effects year on year on the cost side for the production, like we just mentioned beforehand. And with respect to the joint venture profitability, we are still profitable in the joint venture. It's positive. Thank you very much. So I can't see any reverse actions in the second half here you're asking for. Thank you. Brilliant. Thank you.

We will now go back to Stephen Reitman at Bernstein. Please unmute yourself, pressing star six and begin with your question.

Yes, good morning. Stephen Reitman here from Bernstein. I think the technology is working now. Thank you, Milan, about using changes in the supply structures and how that's moved on in terms of them offering technology solutions. Obviously, we think about particularly in China, in terms of China, but could you also talk about the potential also in the other European operations as well? And secondly, again, looking at your European footprint, are you happy with a mix of to high cost and low cost locations. I'm also saying that in context of a competitor that's recently doubled

Good morning, Stephen, and yes, this time around we were able to hear you and we took note of those questions. I will actually hand both of them to Milan due to his most recent responsibility within the company before becoming our CEO. With regards to the changes in supply structures, you were wondering whether there are any potentials in other European operations beyond specific China supply chains. And the second one then, whether we were happy with our mix Stefan, thank you very much for these questions.

Concerning the supplier structures, it's not only the structuring of the supply base, it's about the way we work together. In general, there are two core aspects if we talk about the supply chain. One is how do we create the contracts with them and if the contracts are based on long-term partnerships, there is high potential for finding common standards which allow us to optimize for both of the partners the manufacturing costs of these components. And the basis would allow us to significantly reduce the cost level irrespective where the supplier is located. The second, of course, inside Europe, we have a different price level in different countries. And since we have a new plant in Davidson, our approach will, of course, be to localize more suppliers in that area and to optimize supply. The cost base of these new settlements and that again would allow us to get a good supply also for the European and the German plants out of that location. These are the core elements of the idea and it doesn't change the complete structure of the supply chain, but it does change the significant elements which give us a high potential for cost saving. If we come to the European footprint, yes, I mean, this element I just said is one of the elements where we want to utilize in a better way the different low-cost locations of Europe. But looking onto our own manufacturing network and our plants in Germany, our approach is in the last decade already to highly automize Thank you very much. So we don't plan to change our footprint dramatically. Our way forward is more to utilize the equipment we have in a better way.

And when you say reducing cost per unit, are you talking about the factor costs per unit?

The cost per unit in our case is the complete expenditure we have or expense we have for one plant. It's including the cost of people, the cost of energy, the cost of supplies, depreciation, all in. So cost for a plant divided through volume produced in the plant and that's the basis. So it's all in. Understood. Thank you very much.

The next question is from Christian Frains at Goldman Sachs. Please unmute yourself and begin with your question.

Yes. Hello. Can you hear me? We can hear you well, Christian. Perfect. Thank you. I've got two questions, one on restructuring and stabilization of the P&L and the second on China. My first question, if I understood the media call this morning correctly, your full year restructuring is expected to be about 125 basis points. I don't think there was anything in Q2. I assume it implies roughly 250 basis points of restructuring activity in H2. And using company compiled consensus, that would imply an underlying automotive operating margin of 3.4%, which is somewhat close to the 3.6% reported in H1. I'm just wondering... Two things. Is the 250 restructuring basis points correct in H2? Is that assumption correct? And would you, as you look into 2027, expect a stabilization of the P&L? Is that something that we could assume? And then my second question, very briefly, on China. Obviously, we've seen the Chinese ice market collapse post-Iran conflict. And I'm just curious about What your thoughts are on the Chinese ice market as we move into 27 and what proportion of your China offering will actually be BV or EV based in 27? Thank you.

Thank you, Christian, for your questions. I would hand both to Walter. However, with a caveat, Christian, since we are talking half year 2026, we would like to focus on 2026. So your question about balance sheet and P&L in 2027, we would not answer at this moment in time. Also, what are our specific thoughts on China in 2027, since we will come to guidance at a later point in time. But obviously the first question you had, with the overall amount for 2026 and how that plays into our expectation for the second half of 2026. Walter will be answering that.

Hello, Christian. So just to clarify our disclosure we did on Note 22, we have an average impact of up to one and a quarter percent. and this is a year's number but most likely only at the end of the second half here. That one for the clarification and our guidance which we confirmed based on our June message in the ad hoc is one to three percent and this includes one and a quarter EBIT points for our restructuring program. And the second one you got the base feedback for 27 already from Stefan On the start, I think we go to the next question, right?

I would like to add, though, Christian, obviously, that we put a lot of high hopes into the IX3 starting in China at the end of Q4. So that will surely have an effect in 2027, as we've mentioned a couple of times already.

The next question is from Stuart Pearson at Oxcap Analytics. Please unmute yourself and begin with your question.

Yeah, good morning. Thanks for taking the questions. So a couple, one more strategic, I guess, to start with and just the capital intensity of the new strategic plan when we get to it and how we should think about that. Just listening to you just talk a little bit about, I guess, the improved supplier offer. Reducing complexity. I mean, historically, premium car makers tend to have slightly higher R&D spend to a certain degree, CapEx. I mean, is that something that could change going forward? Perhaps we could see even more outsourcing from BMW and obviously R&D and CapEx has eased a little bit in recent years, but can that continue? Or in fact, could there be a plan where we need to see some more investments? Just how to think about cap intensity? And then the second question, just quickly on residual values, how do you flag some issues there? I wonder if you're seeing anything on residual values that are weaker anywhere that's worth flagging and also how you think about the residual values that you're offering in leases for the new Neue Klasse EV range, whether you're taking more conservative stance there until we get some more visibility in the market. Thank you.

Good morning, Stuart, and thank you very much for your two questions, which I will both hand to Walter. The first one was whether we were fundamentally changing approaches that premium car manufacturers have been doing or have been doing so far with regards to capital intensity. Even you mentioned outsourcing potentially at some point. Walter will be handing that and the second one you asked about residual values also specifically there whether with regards to the Neue Klasse and the IX3 that is on the market already ready whether we were taking a more conservative approach to residual values. Walter please. Hello Stuart.

Well with respect to the capex intensity you asked for or the R&D we are heading long range still the same what we mentioned in July We will come into our strategic corridors and that means on both elements less than 5%. We are heading into the strategic corridors and we will keep that. There is no intention to elevate this 5% again as we had to do during the course of the Neue Klasse implementation on CapEx as well as on R&D. So we are still sticking to our strategic corridor and that means between 4% and 5% for the R&D side. and less than 5% on the CapEx side. So that is clear. On the residual value side, you also recognize that we mentioned permanently less positive than previous year and that is still the case. So months and months, we can see that it's less positive. But the trend is different in all regions. Let's take a look on the US, for example. We assumed EV cars will deteriorate, but you recognize for the last four months that the deterioration is not happening, not in the way we expected it. So it is The UK market is totally different because the UK has a different scenery. The CEF mandates are elevating permanently, so there's more pressure on the new cars on ice. And of course, every OEM has to organize its PV share, otherwise we pay £15,000 penalty per car. Thank you very much. Maybe there might be some differences in having contracts on the balance sheet, but we always have a base understanding for the year when we receive the car back. So let's say usually we have 36 months, so we assume permanently which car has to be evaluated for in 36 months to return and which market rate we assume that. So, and of course, quarterly, we revaluate on the total portfolio, ending up with plus or minus, or have to adjust further provisions. And, you know, based on our disclosures, it's around two and a quarter billion euros on extra provisions for. All the rest is running on an ordinary depreciation from T0 to the end of contract. So I think we are utilizing that not differently across the models, but we evaluate every model independently anyway. Hope that helps and is not confusing.

The next question is from Daniel Schwoz at Metzeler. Please unmute yourself by pressing star six and begin with your question.

Thank you for taking my question. First would be on cash flow to Walter. The other cash flow line that was a large part of the free cash flow, you mentioned, I think, earlier that interest received was one factor. Could you maybe provide more details? Is that a factor that could swing negative in the second half? And the other one is a follow-up on China. You mentioned JV was profitable in Q2. including parts, component sales and imported vehicles. Is it fair to assume that profitability in China is still clearly above the average for the rest of the group? Thank you.

Good morning, Daniel, and thank you very much for your questions. Both, obviously, will go to Walter. First one on cash flow, you asked about a specific part of the others bucket. Walter will be elaborating on that. And the second one, then you extended a previous question with regards to the joint venture in China, asking about all the other items that we have with regards to our business in China. And Walter, please go ahead.

Hello. So with respect to the free cash flow, you're right. The other bucket with interest and expense accrued could be also a calendarization effect that is positive and negative. So it could be different than the second half here. On the other side, we shouldn't forget and underestimate that we are going to unwind our working capital markets. Thank you very much. Parts and imported vehicles. Imported vehicles are not done via the joint venture but by our national sales company which is owned 100%. And I can also confirm that on parts and imported vehicles we are also positive and profitable in China, also on group level. Thank you. Thank you.

And our final question is from Horst Schneider at Bank of America. Please unmute yourself and begin with your question.

Good morning. I hope you can hear me. It's Horst from Bank of America. I have got two questions. One is a follow up to Walter. It's a follow up basically to Christian Frenner's question. I try it from a different perspective. Could you maybe explain, Walter, what is changing in H2 versus H1? When we see all these bridges, there's always a year-on-year effect, and I sometimes struggle with the base, because the base is also changing. So therefore, could you maybe outline what is changing sequentially? So it can be on volumes, on price mix, on raw mats, on FX, on other cost changes. That would be helpful for doing the forecast. The number two is a question to Milan. Milan, we discussed with your predecessor Oliver Zips always this growth aspect and Oliver always said growth is most important for BMW and I would agree. For a car company what matters the most is how many cars you sell. But what are your thoughts on scale? Is it still important for an auto company to have a certain level of scale? You think BMW needs to increase the scale or rather reduce the scale? Because if you look, for example, at your brands, it looks to me that MINI is loss making. So is that a brand really that BMW needs long term? Thank you.

Good morning, Horst, and thank you very much for your questions today, bringing up the rear of our call. Let me phrase your first question. It sounds like a controlling question to me, actually. A little bit. You were asking whether we could build another bridge just for you, a sequential one, H1 to H2. I think Walter will obviously elaborate on that. And then the second question, more about growth in general. And just on a personal note, your last comment there about MINI, that surely hurt me personally. I know, Stefan. I apologize for that.

I know you're a big MINI fan.

Yeah, yeah, yeah.

And my wife drives a Mini. I can say that. My wife drives a Mini. The family is a Mini fan.

Please get her a new one. Okay, Walter, please, you go ahead.

So it's quite interesting you're asking for this extra bridge for the second half here, which I'm Thank you very much. But if you remember in our ad hoc messages, rather on commodities. So the commodity was hardly any impact first half year versus previous year. but based on all the situation and elevated prices on the commodity side not everything is hatchable as you know and we do do commodity hatching wherever possible but there's still a headwind in the second half here based on that so first of all on this and the volume and the mix and the price I will tell you then in November okay thank you and coming to your question of growth

Growth is important. It's a natural thing. The growing organism is something which is biologically a good thing. However, for us, growth is not the target in itself. It's a result of the business. That's why our target is more to offer a good product range, which is convincing to our customers. With the upcoming and 40 derivatives in the market, we do see potential for growth. Of course, we are aware of the headwinds we are facing in the different regions and especially in China. But nevertheless, for us, we do see growth also in future as a core element, but not as a standalone target or the core target of our company.

Thank you very much, Milan. I think it was a very suitable question to end our Q&A session. We are at the end of the Q&A session. Thank you to all of you out there for making the time to participate and also especially my thanks to Milan and Walter for sharing your insights. If you have any further questions, please don't hesitate to reach out to our friendly investor relations team. We wish you a great remainder of the day. All the best from Munich.