Bayerische Motoren Werke Aktiengesellschaft (BMW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you very much for joining us online today for our BMW Group Annual Conference, Analyst and Investor Day. I'm very pleased that so many of you have joined our stream from all around the world. I hope that most of you had a chance to watch the launch movie on the completely new BMW Operating System 8, the most powerful data processing system and technology stack ever created. And I'm really excited that I have with me here today, Frank Weber, member of the Managing Board of BMW AG for development to discuss over the next 45 minutes the Operating System 8 as well as the very important strategic topic of the new cluster architecture, enabling the BMW Neue Klasse and we will have, of course, time in that period to answer your questions. Frank, thank you very much for being with us here today.

It's my pleasure.

Frank, we've seen in the movie. The new iDrive has few buttons but a large number of functionalities. How would you summarize the key highlights of the new iDrive and what are your favorite features?

I think everybody is aware that digital performance is a top priority, not only for us in a technical sense, but also for consumers out there. So we have a very, very long tradition in implementing complex digital systems in an automotive environment. Now Operating System 8, and I think Birgit said it before, is the most powerful digital system we have ever created here at BMW. Now the computing power, just to give you some hints how much more performance is now enabled through this Operating System, you can see the signal flow in and out of the system has doubled. Because we are 5G ready, we can transmit information in and out of the vehicle 40x faster than what we used to have with the old system. And when you look at the data amount that we are processing within all those super brands, we have probably 20x the amount of data volume that we used to have. So what you can see already, this is the sheer performance and the data volume that we can operate with makes the system much more intelligent. The other important piece is we have the largest fleet of connected vehicles. We have 14 million fully connected vehicles, and this means every individual vehicle sees with the eyes of the complete fleet. And we are sharing and exchanging the data of the entire fleet constantly. And so we have a learning system. But what is important to us is not only the intelligence or the computing power, what might be even more important, how you, as a consumer, interact with the system and the iDrive heritage that we have created over the last 20 years has truly perfectionized the way how you interact with the vehicle. I think BMW is the driving pleasure company, and we want you to keep the eyes on the road and stay really focused on driving. However, you want to -- when you want to enter navigation targets, you want other information, the iDrive controller that we have evolved over the last generations, has become better and better. Now our philosophy, how you operate such a powerful and high-performance digital system, is that there are different regional preferences and there are certainly different personal preferences how you interact with your system. So besides the pure performance, the emotional intelligence of the system is really important. And you see that speech is more and more often used, but not everything works well with speech interaction. Although we have become very natural, how you enter your comments in the system, some of the things where, for example, when you make selections, the iDrive controller is the perfect way of selecting something from a list or when it comes to gesture or to simply touch functions, selecting on a map a target is as a touch function optimized. So I think what is important, our system that you have multiple ways of interacting with the system in a very, very natural way. And so I think this makes our Operating System 8 and our ID8, which is then the iDrive Version 8 even more intuitive, even safer and much more -- and we have much more performance.

Thank you, Frank. A major topic when it comes to software and cars is the ability to generate revenue, yet a lot of the remote software upgrades are for free. So what is our plan at BMW to generate earnings revenue with this in the digital age?

Yes. Digital revenue streams are really important with all the digital functions because when you look back how we used to develop and sell cars, we were very much focused on start of production. I think this was the nature of our business. So we developed and then we finished the vehicle. And at the end, we worked during the life cycle on the vehicle on some enhancements and improving quality, and this was the major goal. With the digital possibilities that we have and that the systems are constantly learning and improving and we can enhance certain features and have app content, application content that is introduced in the vehicle after you bought a vehicle or when you actually get a new vehicle, creating those revenue streams is important, also because today, digital content, when you order a vehicle, when it comes to driver assistance, navigation systems, audio systems, so the digital portion of our revenue stream already today is a large one. And this will now even grow further because we have the opportunity to have a product that is always fresh and updated. And there will be many things, as Birgit said, that will still be for free. There are quick bug fixes. There are things we want to improve that are -- where we don't generate revenue. However, there will be other functions where people can make a selection, do I want to book this for a month, for half a year or for a year. And we expect that we have a revenue stream of probably EUR 5 billion on an annual basis for digital functions, either at the initial purchase or through the vehicle life. So this is a very significant piece of the business in the future.

Yes, yes. That is. Okay. Thank you. Over the past years, BMW has truly become a tech company. How has that changed the way our organization is structured? And what have we decided to develop in terms of in-house competencies? And where are we actually working with external tech partners?

Yes. I think the important thing to understand is, although we have grown the digital team tremendously over the last couple of years, you still work in a very large network. So you are -- although we have, in the meantime, we have 10,000 developers that are working in the software and hardware space. They are working for us in the digital car organization that is running within the development team. And maybe different to other organizations, the digital business, the digital development work happens at every function within the development team. We have not separated software and hardware engineers and said, "Oh, they do the digital business and the others do the old business." No, not at all. I think even chassis engineers and certainly powertrain engineers and people who do body functions are all part of a large digital network, and they're all enhancing with digital capabilities their individual functions. I think this is very important to understand. So we have grown this to more than 10,000 people. And I think mastering, in a vehicle environment, an operating system is really a big, big task. So when we launch now Operating System 8 with the BMW iX this is always a big thing when you have the first launch for a new operating system. But what you saw already in the past, and you will see it also this year, is that really we have an excellent network with very reliable structures that is able to execute those digital functions in a vehicle environment. However, you need many partners out there to make this work because it does not make sense to develop many of the functions on a stand-alone basis for BMW. Here, you have to use the scale that is available in the industry, especially on nondifferentiating functions. Here, you want to be sure that on what -- how you use suppliers and partners that they are based on similar software structure, similar tool structures. And here, it does not make sense at all to build up your own in-house capacities. So we have the control over the overarching software and hardware architecture. And here, we intelligently look how the content -- the outside content can be included in this operating system. And this is the philosophy, by the way, that we have already established on the hardware side for the vehicle. Look at transmissions. We don't build our own transmissions. We rely on a very strong partner. However, in the BMW, this transmission actually performs best within the industry. And this is a little bit also the strategy within the digital field.

Okay. Great. Thank you. So before we move to the Q&A, let's move to our second topic. So we announced with the kickoff of the Phase 3 of our electrification strategy, the BMW Neue Klasse. I would just like to discuss with you a little bit the strategic relevance for the competitive of BMW on this and also the key elements that you're focusing on when developing it?

Yes. I think we talked and discussed for a long time, should we call this Neue Klasse. Neue Klasse was in the '60s a real change for BMW. It's -- and it was pivotal what it did for the organization. And when we look what our goal is for 2025, creating a new cluster architecture that is able to deliver the entire BMW product portfolio with one building principle, I think this is very fundamental to develop this new architecture. Now when it comes to what are the elements that are important for this all new development? It's certainly uncompromisingly electric. There is, for you also, no doubt that this is the latest technology available from battery cells, how we evolve our in-house competence. We do our e-Drive system, the electric machine. We develop ourselves. We build ourselves. So this is an in-house product. And you can expect another generational step when we introduce it in the new cluster architecture. So on the e-Drive capabilities, there is a major step in the new architecture. On the cost side alone, you can expect from the complete e-Drive, including batteries, probably more than 30% on cost reduction just for the e-Drive piece alone. So uncompromisingly electric is the one thing and how you integrate high-voltage batteries. The second piece is another big step in digitalization. So there is another operating system that will be a revolution and a new human machine interface that has never been seen in the industry before. So it's a very unique way of how you express digital content in a vehicle environment. So uncompromisingly electric, uncompromisingly digital and the third piece, which is especially for an electric vehicle important is it needs to be uncompromisingly sustainable. And what we mean with this is that we have to go really deep into the entire supply chain. And when you look at battery electric vehicles, everybody is aware that many of your sustainability issues or your CO2 emissions move from the usage phase of the vehicle into the supply chain. You need a lot of energy to build and produce battery cells and high-voltage batteries. So when -- we are already today using for the iX and the i4 that you have seen, exclusively green energy. So all our cell suppliers are committed and have guaranteed that those cells are produced with 100% green energy. And when you take this approach and roll it out to the entire vehicle, making it truly sustainable, I think it is a very important piece for a next generation of vehicles that sustainability or circularity is something that will affect the entire industry. And it's a big thing going into every detail of your supply chain.

Right. Great. Thank you. Thank you, Frank, for all these really great insights. We will now start our Q&A session. So please, moderator.

[Operator Instructions] And the first question comes from Stephen Reitman, Societe Generale.

Yes. Could you talk a bit more about this cost reduction you're talking about with the Neue Klasse? It's quite a strong figures, 30% reduction. Split between the e-Drive and the battery cell, could you talk a bit about the saving elements there?

Yes. I think, as you can imagine, we cannot release details, but you can expect certainly more than a 30% reduction on the battery cell alone. But interesting is the complete e-Drive system because when it comes to the battery electric performance, efficiency becomes the key driver. And I don't know whether you are aware, the electric machines that we are today producing are very unique in the industry because they don't use any rare earth and they have a very, very high efficiency. And watt hours per kilometer, almost this becomes the gold source that your batteries are not -- the overall size of your batteries is not growing too much. So on a cell level, you can expect more than 30% because you have to watch the efficiency so much of your overall system. When it comes to power electronics, e-machines, I think combining a performance and efficiency increase and at the same time, reduce system cost by almost 30%, this together is very strong and will allow them, as a result, even longer electric driving ranges. But there is -- as I said before, you can expect technology steps almost every 3 years on batteries, and you are aware of this. And the timing is almost perfect when we are introducing our Neue Klasse because then there will be another big step in lithium-ion technology available at this point in time that enables this cost reduction.

And I think we can add that with that, we are able to actually match manufacturing and production cost for the Neue Klasse with the comparable equipped combustion engine.

Yes, absolutely. When you look at the goal, the goal is clearly, when you look at the latest regulatory standards on emission levels, that we want to compete with combustion engine cost levels.

Next question comes from Tim Rokossa, Deutsche Bank.

Yes. It's Tim Rokossa from Deutsche Bank. I would have 2 questions, please. The first one is really, when we think about your OTA capabilities, how much can you go into the center of the vehicle? Can you unlock range OTA, for example? Can you really go into the powertrain? And then the second question is, obviously, we're starting to see that Hyundai Kia, for example, even brings 800-volt architectures into the more mass market type of thing. When we compare that to your i4 and the iX, for example, I think the main difference would then be charging power and charging time there with. Do you have a chance to upgrade whatever the takes right now, whether that's 150-kilowatt or 200-kilowatt hours later on or is that fixed for the lifetime of the vehicle?

Yes. Let's start with over-the-air update. I didn't say it before, by the end of this year, BMW will have the largest updatable fleet in the industry. We will have 2.5 million vehicles that are capable of over-the-air updates. Now your question is a good one because you are asking us, how deep can I go really into each and every bit of the system. And now with Operating System 8, we can go and update every detail. It is -- it's on the propulsion side. It is on the chassis side though those deeply deep automotive functions, we are able to update as well as infotainment and other functions. So we are able to go into the complete vehicle. Now just one other performance indicator is how large are the update packages you can send over-the-air. With new Operating System 8, we will be able to process 1 gigabyte update packages in less than 20 minutes. This is really industry benchmark. So we are very happy with the progress we have made from the initial launch of over-the-air updates in '19 now what we can bring to the market in '21. This was over-the-air. The second piece was on...

The charging power...

The charging power 400 volt and 800 volt. Indeed, the only difference at the moment is the charging times you can achieve, and you need the charging environment that allows for those high capabilities. The charging times that we have here with the iX products are that you have in less than 10 minutes, you have 100 kilometers of range. Updating this from 400 to 800 volts is a change in generation because it affects batteries, power electronics and machines, and it's not something that you can easily do. And you will see the industry, there is still a large portion that the industry -- when it comes to overall efficiency, you cannot necessarily say that 400 volt or 800 volt is leading to a better result because you have other issues on 800 volts. So it will change over time, changing it on the fly is not possible.

The next question comes from Patrick Hummel, UBS.

It's Patrick from UBS. I have 1 question related to the software content. Could you just give us a rough share with Operating System 8? What is the share of the software content that's actually developed by BMW in-house and what comes from third-party? And how would that share look like in 2025 with Neue Klasse? And maybe more precisely, as far as the autonomous driving or a higher level of data driving functionality is concerned, is that all going to be in-house owned by BMW or what's the ratio there?

This is a tricky. This -- when you look at the software in the vehicle, it is -- software is not one central package that you have. Software is distributed throughout your vehicle. And what I said earlier is we have 10,000 people working on hardware and software solutions. Even there is not -- it is not completely easy to separate between hardware and software functions. What I can tell you, just to give you some indications how much we have grown our in-house capability is, within the last 3 years, we have doubled the capacity of in-house competence in that particular field. Now at the same time, the software amount has grown also dramatically. So I think the art is not that I have the most software engineers at BMW, I think the art of mastering digitalization is that we are in control of the entire software and hardware architecture and include software pieces that are not done by us, that are done by others, especially when it comes to third-party applications and run those software pieces within our environment. And when you then would look how much software -- outside software we include, we talk about the 10 thousands of people who are writing codes for us. A bit different is autonomous driving. We have in -- close to Munich, we have a campus area with more than 1,000 people working on autonomous driving solution. Here, it is a bit different. Here, we do much more in-house. Here, you can say more than half probably of the entire software pieces are done by us because here, the -- how you do your development, how you include learning cycles and you do data-driven development is a part also of your software development function. So here, we do the majority of the software work in-house. However, also for autonomous driving, there are certain standards in the industry developed already that we include and incorporate when it comes, for example, to vision and camera-based functions. Here, there is already a lot of algorithms and and software developed. It does not make sense to repeat this. It would not be economical -- would economically not make sense. So it's -- from the 10,000 people double, we have roughly, you can say, 1/4 is for autonomous driving functions, and this is highly a software-related people. I hope this answers -- I would be curious whether anybody can tell you exactly what the share of in-house and outside software is. I would like to know it myself. It is -- it's very hard to quantify.

The next question comes from Horst Schneider, Bank of America.

Yes. I want to come back on this autonomous driving issue even though this is not the -- was not directly the topic of your presentation. Can you maybe explain again why you have decided last year not to hook up to Daimler on this NVIDIA deal? So why you stick to Intel? And what's the difference between the Intel technology between NVIDIA? And what are your general thoughts about this future that we have got basically software on a ship? And yes, you buy that all from Intel or that just refers to autonomous driving. Maybe you can explain that a little bit more.

So I think the first correction would be, we don't just buy this, as I explained earlier, from Intel. We work together with Intel and Mobileye on certain solutions. But what I said is 2/3 of the content and how you develop your specific level 3 functions, we do ourselves. Now in the joint work that we did with Daimler, where we, at the end, decided to go into different directions, the only thing I can tell you here is when you had -- do joint project work and your timing, when you want to have the first introduction does not align well, then it is very hard to develop a good proposition for both sides. And so we have decided it is not the right timing. And when you look back how we communicated that separation, we said we put it on hold and see how we can evolve this joint interest further. But at the moment, it would not be the right time to do this together. The -- when it comes to capabilities, the only thing I can refer to is the capabilities that we will introduce with the iX. We will have a completely new autonomous driving stack with the iX. It will be capable of Level 2, Level 2 Plus functions and it will be Level 3 capable. And so I think we have, at the moment, an industry-leading stack available for us and there would be no need to hook up with NVIDIA at this point -- with NVIDIA or anybody else in such a relationship at this point in time.

The next question comes from Dorothee Cresswell, Exane BNP Paribas U.K.

I'd love to come back to this EUR 5 billion digital revenue potential. That's obviously a really helpful number. But can you give us an EBIT number to go alongside that, like your peer in Stuttgart? And then could you give us some timing around that? And maybe you could really tell us where those digital revenues are at this point in time? And then if I could just confirm on the OTA capability, I'm guessing that would then also extend to autonomous driving functions.

Yes. I would not be able -- I think I would not connect to the EUR 5 billion annual revenue stream. I would not connect to any EBIT number at this point in time. Now when it comes to the content that I described, that is going to happen because we are -- we have now the capability to go deeply into the vehicle and we look at the willingness of our consumers in which area they are willing to spend for certain functionalities, we can exactly tell you the areas of of driver assistance, of infotainment and other functionalities or third-party applications what this willingness is. And so we looked at our overall volume in the different segments and this is how this number was generated. So it has, we look back and we look forward, and I think it is a reasonable number that we -- that generated the EUR 5 billion revenue stream. This was...

And then the over-the-air update question. Dorothy, you had another question over-the-air update.

Yes, just in terms of whether that extends to the autonomous driving functions? Will they be included in OTA capability essentially?

Yes, absolutely. Yes, autonomous driving function is maybe even a driver for some of the over-the-air updates because the system is constantly learning in the background. You don't even -- you don't recognize this. So especially for autonomous driving functions, you learn from your fleet. The fleet is identifying certain critical areas, and so you are improving this. You have probably not seen this. What we have is a control center. This control center has many, many screens and people are observing real driving situations that are currently happening with our vehicle in real driving situations. And then what we get is like an automatic alert, see this is -- and then people have put their vehicle on automatic drive, automatic drive. And then at the same location, it's always that they either switch it off or the system is no longer able to do this. And so we analyze instantly what is the situation here and we are constantly learning and implementing instantly this new feature, and this can then be updated over-the-air within a very short time and is back into the vehicle. So this is a learning system, and this is especially for autonomous driving, an important capability.

[Operator Instructions] And the next question comes from George Galliers, Goldman Sachs International.

Yes. I just had a question to start with on data collection from the fleet. Can you confirm what are you collecting at the moment? Are you collecting camera images from your vehicles, ambient conditions that the vehicles are being operated in, how the vehicle center sets are reacting to the changing environment? Could you give us an idea of what you're collecting and how you filter that and leverage it? And then with OS 8 what incremental data are you able to collect going forward? And then the second question I had was just with respect to the Neue Klasse vehicles. I think that you have made it clear that you still see a role for the internal combustion engine in these vehicles, but could you confirm is that with the combustion engine providing drive functions to one of the axles or is it predominantly in a range extender type of function?

Yes. Good question. Collecting data, I think, first of all, a premium digital experience means that you have absolute data privacy. And what we ensure, and you can see it how we handle data privacy within our vehicles that there are no individual consumer data that we are collecting. And there are always -- there are conditions around the vehicle or certain things that are available as fleet data. They are never individual data that are even available to us. Now the capability that we are able to monitor is an intelligent system. So what we have -- and you were asking what are now the new capabilities that you have. And this is almost like a mini controller in your vehicle, and we can send purpose -- I would say, purpose-built questions into the vehicle. So when you see certain issues, an abnormal behavior, something you are interested in, for example, charging times, things that you not normally get as data because you were saying the traffic information, accidents, traffic signs, this is anyhow available all the time. So where is the vehicle driving, at which location, and this is constantly flowing in and we can see this. But more interesting for us are the things that are not happening on a regular basis. So we can go into the vehicle and make analysis on certain functions on vehicles on a certain powertrain, on a certain digital component whether there is an abnormal behavior. So you can almost ask the vehicle any question and then get back an answer -- an anonymous answer back to us what's happening out there with your fleet. And by the way, when you look -- when you have ever seen a BMW menu and you go to your individual settings, consumers have to agree and say here is -- and they have various levels to which they can agree what -- which and what of the data we can access. And if somebody doesn't like it, actually, they don't have to check that box and we don't see any data of that particular vehicle.

And I think, George, had the last -- another question on range.

On range, yes. Uncompromisingly electric. So the Neue Klasse and the new cluster architecture are an electric architecture. And this all the vehicles that come off this new architecture will always have the big -- electric machine will always be on the right axle and it will always propel that vehicle. So if -- when there are options like a fuel cell or maybe other range extending options, it will not affect where the main propulsion is going to happen.

The next question comes from Arndt Ellinghorst, Bernstein.

Yes. Frank, as Head of R&D, what in future is really the outstanding competitive edge of BMW? I'm asking that question because a lot of the things we talk about here, I mean, they're great, but it's also a lot of catching up. Tesla does these type of over-the-air updates for years now. And in a way, you sell it as a revolutionary technology. It's a bit of catching up. And also on the battery side of things, when we listen to Volkswagen, they're obviously very, very aggressive. And you could say that they might have an edge in future. So where does BMW really fit in? And is that a wrong perception, am I too negative or is there a major difference in the outside perception versus what you see as Head of R&D?

Now the first thing I'd like to add, what makes a BMW today such a convincing product. It is the overall harmony of technical solution. And when we talk about driving pleasure or the ultimate driving machine, this will not go away with electric propulsion. So you can always expect from us that this experience that you get in the BMW and how things and functions are integrated. Our aspiration and our goal is clearly to be best in the industry for the overall solution so that -- and you will -- I think you will be -- you will have a chance to make this experience yourself driving an iX or an i4, and this has nothing to do with catching up. Pieter Nota said in his little video yesterday, the ultimate driving machine meets electric. So this is -- I think this will always be a competitive advantage for us. Now when you look at over-the-air updates, I don't want to sell this. I'm just saying is when you compare us with all the other OEMs, nobody has the update capabilities that we are introducing or have introduced already 2 years ago. Nobody has this. And so I would say the third piece that is, for us, important and we don't talk -- when we say we want to build the greenest battery electric vehicle and it should come from BMW, it is more than a slogan, I have to say. Making the greenest battery electric vehicle means that you really challenge your entire supply chain and not only for batteries or battery cells and where the raw material is coming from. You do this for aluminum, for steel, for many, many other components, plastic materials and you look at recycling and raw materials in a different way. So if you look at this combination, electric, digital, circular and environmental-friendly and a new way of expressing yourself, the aesthetics you can expect in 2025 will change quite dramatically for our products. So in this combination, and then could still be the ultimate driving machine. I clearly feel that there is a competitive edge for BMW.

The next question comes from José Asumendi, JPMorgan.

Very interesting. I have just 1 question and it comes back against the point on this and the opportunity for BMW what has this opportunity or the content of it. Can you talk a little bit about 2 topics. One, what kind of cost have you put on the BMW iX3 in terms of Level 2 or, in general, ADAS content. It looks to us like you are ahead of your premium competitors out there in terms of content. And I think the rest of your BMW family could be following the content you're putting on the BMW iX3. And then the second question, when do you think automated highway driving will be on a regulation base be allowed in Europe, especially in Germany? Do you think you will be able to offer this feature in the next maybe 2 years? And do you think this could represent maybe several thousand euros revenue opportunity per car for BMW?

Yes. So this is about autonomous driving and our autonomous driving functions. The iX that comes to market, as I said, has a new technology stack that is capable of doing Level 2 driving, Level 2+ driving, that is, by the way, only allowed in the U.S. and China. Europe is a little bit behind when it comes to the regulation for Level 2+ functionalities. And Level 3 is also enabled in the vehicle. Don't -- I think don't look for this Level 3 function at start of production. This is true for our competition as well as for us. You always need some development time from start of production to really make a Level 3 function possible with all the validation work that is required. I'm not sure whether you are aware. We, as a manufacturer, we have to validate our system and prove that it is safer to drive with a highway L3 function than a human driver. And when you look at the incident level at the German auto band, for example, you drive 700 million kilometers accident free. And so this is the proof point why we need always some validation time to say our system is -- we can guarantee that this is safer than a human driver. So Level 3 will come. The current regulation is only allowing speeds up to 60 kilometers that are kilometers per hour. This is growing over time. But at this point, it is only possible to go up to 60 kilometers an hour with Level 3. The regulation is currently under review, but it will take some time and I'll explain quickly to you why this is for the regulator tricky. With higher speeds, the distance that you have to look in front and backwards is quickly increasing rapidly. And when you take a highway situation where you automate automatically then want to pass another vehicle you have to really look far back and far in the front. So it's currently 60 and it will probably, in time, increase to 80 and then 100 kilometers. But the regulator is a bit careful what they also allow here.

Okay. Frank, I think we have time for 1 last quick question. So I think there's still 1 question in the line. Can we have that 1 question, and then we have to wrap up.

So the last question for now comes from Kai Mueller, Barclays Capital.

I'm actually following up from what José was asking on this regulation. I understand in Germany, there's currently the debate about this being passed for the back end of this year. Just to understand, when you compare your products or your offerings versus some more international peers, is that regulation that will be harder to meet for them because it's relatively complex or could that actually be the advantage for someone like you or maybe also some of your other German peers? And then the second question is, in terms of autonomous technology and longer-term in other regions, how do you make sure that your software can meet the standards that might be very different across the world?

Okay, 2 very different but important questions. Yes, when you look at the Level 3 regulation and how to comply with Level 3 regulation, I definitely believe that we have built up the autonomous driving campus here, and we have hundreds of people working on this is a competitive advantage. You will see that this is very, very difficult for others to meet those standards. I'm not saying that this is not possible, but I say it's even for -- even for us, it's really making a vehicle Level 3 compliant, completely Level 3 compliant is a big thing. And you have seen maybe recently also some announcement of our Californian competitor that clearly said is, I want to stay in the Level 2 field. And so you see there is a big, big hurdle to say the driver is in control or the vehicle is in control. So -- and this will continue to be the case for several years. This was question number one. And then China, yes. Yes, tech stack. We said it yesterday also in our conference. We are working on different technical solutions for China and for the rest of the world. China has developed so quickly with own ecosystems, with own applications, with own customer interest that we clearly have -- we have created a joint venture late last year with ArcherMind. It is BMW ArcherMind information technology. So it's a software company in a joint venture form that will also help us to be faster with regional Chinese solutions. We have, today, already almost 500 people working just on digital systems in China, sitting in China. And so you can expect that there will be more separation between the technical solutions in China and in the rest of the world.

Okay. Great. Well, thank you so much, Frank. Thank you very much for all your questions. I think that was a great discussion. We now have time for a little break, and then we'll be back for a market review on China with Jochen Goller, President and CEO of the BMW Group in China. So we'll be back at 10:00 a.m. For those of you who are joining on the telephone, you can just stay connected.

Thank you. [Break]

Dear, ladies and gentlemen, welcome back. After the inspiring discussion with Frank Weber on our technological innovations, let's now shift gears and talk about one of our most dynamic markets. I'm very delighted to have with me online Jochen Goller, President and CEO of the BMW Group region, China. He's joining us here online from Beijing for another deep dive discussion on the Chinese market, its development and our BMW positioning in the market. Jochen, welcome, and thank you for joining us.

Well, thanks a lot for having me. And I still remember, 2 years ago, right, we were all in Munich.

And there, we could stand on stage and meet everybody in person. Jochen, this is our annual press conference, where we are reviewing 2020 results. I would like to start with a recap of 2020 from the Chinese market perspective. We've seen a remarkable rebound of the economy and also a strong recovery of BMW mini sales. We ended up having a 7.4% increase in deliveries year-on-year in 2020. Can you give us a little more insight on the driver of the growth and how -- what happened to post-pandemic recovery?

Of course, certainly. I think one of the key elements for that successful performance was obviously the handling of the pandemic in China. I think everyone is aware about the very decisive measures which were taken then in February and March. And it's actually, in fact, I would say, as of March, April, last year, China somehow had a good grip on the pandemic and that, of course, was translating into the sentiment, into the business mood. And this was accompanied by a lot of financial support measures; very, very smart measures, I would say; very targeted measures. So ultimately, I think after a very difficult quarter 1, the whole market really came back, and we were taking advantage of this. And as you said, we achieved another record year, 778,000 BMW mini cars, around 7.5% growth. And I would say it's on the one side really the very excellent handling year of the government as well as -- I mean, we obviously looked after our employees and after supply chain management. Our plant were only closed for 2 weeks in February. Afterwards, ramping up again. So I think the whole management here and the team also in Shenyang did an excellent job. And yes, we were delighted ultimately to have finished the year with such a result.

Yes. Well, now, of course, everyone is curious to understand how this positive development leads into 2021. How do you see the development? And what are your expectations for this year?

I think the Chinese economy last year has shown a lot resilience and people expected to -- actually we even expected that maybe in the second half last year that there might be a little bit of a slump after this kind of momentum, but that didn't happen. The economy was strong, consumption was strong, purchase behavior was strong and it didn't really decelerate. So when you look at our sales performance, for example, it went all the way around until December. So I think we're carrying a very good momentum into the year 2021. You know that just a couple of days ago the 2 sessions have concluded, which are the 2 big government conferences outlining the 14th Five-Year plan. And from what we see is on monetary side, on the similar side, the support will be continued. And so all in all, I think from the business sentiment, from the consumption sentiment, we are very confident about 2021. And when we talk to the business partners, for example, this confidence is also reflected, and we had some very good 2 months. So we had an excellent start into the year, carrying forward that momentum. So all in all, we're really confident and positive about 2021.

Great. That sounds encouraging. Jochen, in our deep dive discussion with Frank Weber just a few minutes ago, we were looking into the best strategy for the next years and then past 2025. My question is to use a little twofold. So for one, how do you see the NEV regulation in China and the Chinese market develop? And second, what is the latest regarding BMW's NEV offenses in China? I mean, with the new iX3, of course, we have very exciting product available now, and there is more to come.

I think, I mean, obviously, China has really adopted NEV a couple of years ago. It became part of the government plan of the big target. And some years ago, China has overtaken the U.S., for example, as largest New Energy Vehicle market. So the policies, I think, are very long term and have been, again, I think, yes, stressed. So there are some clear targets. The government is aiming towards 25% of NEV share by the year 2025 minimum and then roughly around 50% share of 2030 as kind of a goalpost, can go either/or. There are lots of incentives in place, whether it's monetary incentives in terms of purchase tax exemption as well as subsidies, but also non-momentary incentives, like And so we clearly see a shift -- a further shift towards NEV and predominantly BEV. When you talk about New Energy Vehicles in China, the main goal and the main direction is clearly a Battery Electric Vehicle. So we're very optimistic that we'll accelerate on the BEV side. We had a milestone last year which we could celebrate the launch of the iX3 produced in Shenyang, our BMW's first full electric SUV because, obviously, I actually was there, but -- so this car was a start of production in quarter 4. And as Mr. Zipse is also mentioned, we are now in the midst of an offensive 13 BEVs by 2023. And of course, all of them with either come to China are locally produced. So we are following that momentum with a lot of new additional BEVs. And as I said, I think China will clearly remain the dominant BEV market worldwide.

Yes. So staying a little bit with the NEV offensive. In the competitive landscape, we see a lot new entrants coming in at very competitive, also price positioning. How do you see ourselves at BMW positioned with our competitive advantages to win over customers?

Well, you're right. Because, I mean, in China, we have some brands which are mainly not so well-known in other countries there. When you talk about. I think Tesla is known to everyone, obviously. I see it that way. Chinese customers are very, I would say, curious about new technology, and also car ownership isn't that kind of a historic thing. So people are more flexible. And that's why I think NEV and BEV have a great future. And in a way, the competition helps to really create for that technology. And while, of course, we're competitive, ultimately, but, I think, if you have some strong competitors in the market that's creating a lot of buzz also for battery electric vehicles and so therefore, I think it's good for the market as a whole. And then, of course, the question is who has the better product, who has the strong brand. Don't forget the dealer network and service and so on and so forth. And so as a whole package, the whole package of all of that, I think we're really well placed here in the market.

That's great. Last but not least, before then we start our Q&A., I would have a question on the specific case and preferences of Chinese consumers and how are they affecting our product strategy. I mean, vehicle connectivity is just one area that comes to mind, but I'm sure there are others. I know we are leveraging some local R&D offices. We're also working with some well-established big tech companies locally. But so how do you see that we are addressing as BMW the specific Chinese customer needs?

Not -- perfectly right. I think, I mean, in China, first of all, our customers are extremely young. You talk about customers below 30, customers well below 40, tech heavy. And they also have preferences, for example, we have long wheel based cars here, we have especially comfortable seat configurations and you mentioned the digital topic. And that's why our largest R&D footprint outside Munich is actually in China. It's got around on 1,100, 1,200 engineers and tech people here. And we've just announced the joint venture with ArcherMind about the in-car connectivity because ultimately, we know that aside from, of course, brand, design and driving, feeling, the topic of technology and in-car connectivity is actually the main purchase mean. So you have these things, I'm sure, will spill over into other markets, clearly, after some time. But given the, I would say, the and the age of the customer in China, it's actually happening in near terms.

Okay. Great. Well, thank you very much for these introductory details regarding the Chinese market. We will now start our Q&A.

[Operator Instructions] And we have the first question coming from Henning Cosman from HSBC.

I have a first question about the iX3 in China this year. Maybe you could share a little bit about your volume budget, how many you are intending to sell? And if you could also talk a little bit about your price action that you had possibly in response to also Tesla's price action in the market? And I think related maybe to what you said -- was it also in a push to have a certain awareness for electric within BMW rather than it being potentially a risk going forward that you start with certain price points and then adjust in response to competition. If you could just discuss this complex a little bit? And I have another question, if I may afterwards.

Of course. No, thanks a lot for the question about i3. So I mean, the situation is following, the car itself, we introduced -- or we introduced in quarter 4. We actually invited a lot of Chinese media and opinion leaders to Shenyang to see the whole development of the car and also introduced the Gen 5 powertrain, which went down very well. So we saw an increase of awareness. And then the launch actually happened late in the year, in around November, December. And because we had a slow product ramp-up, so we didn't have too many cars in the market last year. And then, of course, I mean, ultimately, you have to look at the market what is happening at the market. And we were always in a way observing what Tesla would do with the local model Y because we know that before the model Y was only important. So therefore, what we did is we went out with call it a presale price. And then once we knew the new price configuration in the market, we adjusted the price. We are now at the low end of our X3 range. So we are still staying true to our range because the X3 in China is between RMB 400,000 and RMB 500,000 and our i3 in China is priced at RMB 399,000. And so we are actually in that ballpark from a pricing perspective. On the volume side, we're not giving any concrete model prediction for the year. All I can say is that we've received excellent feedback once on the car but also on the pricing. And we can see in our orders actually ramping up on a really week-by-week case. So we are basically going to happen -- to meet our budget in March, but I can't share numbers. So you will see that over time when we report our quarterly results. So we were confident about the car. Ramp-up is on track. But you also noticed maybe that we are not blindly following, let's say, any prices of the competitor. So we have a certain price strategy. We decided to move the lower end of that price range. But we are not slashing prices just to hit exactly prices of competitors. So I hope that answers the question.

Yes. That's helpful. And as a second question, if I may. If you could just talk a little a bit about the consolidation of the Chinese joint venture in 2022 and the implications for your business overall. If I'm not mistaken, the localization of the as part of the agreement. If you could also talk about other potential implications. What it means for potentially further localization of electric models as well and how it overall affects your China strategy?

Yes. I mean, we find our package we won in 2018 as part of that was that we would expand our capacities in Shenyang and we would take over 25% additional equity. That is going to happen in 2022. And so actually, we have a long-term localization strategy. It's very clear that, I mean, we have localized the key models, and we are also going to bring the respective BEV models into the and we are currently constructing an additional plant in Shenyang, well on track. By the way, despite COVID pandemic last year, we had no delays whatsoever. So I think -- I mean, ultimately, it's more a technical thing, to be honest, because the 25% increase obviously figures a consolidation, which I would then probably ask Birgit and Dr. Peter to talk about. From a business perspective, we have a long-term plan. And I would say certain mobilizations we have in mind. We decided actually independent of that equity increase.

Yes. No. And yes, I can maybe just add. So once you consolidate, of course, the whole P&L balance sheet and cash flow will be fully integrated, which means the external revenue from the joint venture will show up in the consolidated group revenues. We have to eliminate, of course, then the revenues for goods and services that we render to BBA today because they will then be intercompany. And the same will be true for the earnings. You will have the earnings, of course, in -- you eliminate the intercompany earnings and you also will have the BBA amortization, of course, that will be impacting the results. So there is an impact to it. But of course, a significant increase on the revenue line and earning increase and also the balance sheet, of course, will be prolonged by the assets of BBA, and the cash flow will also will have a significant impact. So all elements of our income statement, balance sheet and cash flow of course, will have that impact of the full consolidation as and when we have the legal framework to actually then control -- well, execute the deal and purchase the additional 25% and consolidate.

The next question comes from Charles Coldicott from Redburn.

I also wanted to ask about the iX3. I know you don't want to give a volume target, but I was wondering if you could maybe comment on how many months of orders you now have for that model? And also, what sort of conquest rate do you have for the iX3? Are the customers typically existing BMW customers or maybe electric vehicle owners from other brands?

I mean to be fair, I think you probably should talk about that in the second half of the year. Tell you why, because we launched the car and of last year, we did the new pricing just before Chinese New Year. Then you had 2 or 3 weeks Chinese New Year, and basically, the business only restarted in fact 2, 3 weeks ago. So therefore, when you talk about who's buying the car, it's very difficult to say because you talk about low numbers. At the moment, what we see is when you look at the consideration list, yes, so because we are always checking also what are the purchase choices the customers had. The good thing is, the wanted suspects yes, if you want a peer. Yes. So the NEV and BEV model, you all know are on shopping list of the iX3 customers, which is a good sign. But as we are at the moment, obviously talking about less than 1,000 or 2,000 units, which we are currently ramping up. I don't think I can give any predictable statements on that. But from the social listening and everything we do on the marketing side, we know that we are now getting on to the shopping list of people who consider a BEV. Hence, we assume that we have a large share of hunters. But at that point in time, it's really too early to give you any reliable kind of statements in that matter.

Okay. And if I could ask 1 more. Obviously, last year, you saw really strong volume growth in China. I'm just wondering, where is sort of much of that growth coming from? Maybe thinking in terms of geography, how much is coming from Tier 3, 4, 5 cities? And maybe also, how important is car financing for your growth in China?

Yes. It's fair to say that we grew in Tier 1 to Tier 5. But the growth in the big cities at Tier 1, the mega cities Shanghai, Beijing and was left because you have already quite a saturated market there. I mean, in some markets, I think in Beijing, the premium share is already 25%, 28%, yes. So you're talking about European premium share, whereas when you talk about 3, 4, 5, then obviously, it's much lower. So I would say, because of the debt side, volume wise, a lot of growth came from Tier 1 to Tier 2. But percentage wise, the number was, of course, higher Tier 3, 4, 5, yes. And we believe that actually, for example, our region West, which has a lot of Tier 3, 4, 5 kind of cities will be one of the growth engines. So I think you will see eventually a certain situation in the big markets. But then still, I mean, China is very big and, I think, at the moment it's 200, 300 cars per 1,000 households -- sorry, 2,000 people, whereas in metro markets, you talk about 800, 900, for example, in the U.S. So there's still a big growth, but you're right, it comes probably over the next years more from the other tiers. On finance, I mean, we've got a very healthy balance sheet here. The finance penetration is around 40%, 45%. But it is -- we don't actually have leasing or something like that. It's really a financing and a loaning business. We have an extremely healthy business here with a very, very low delinquency rate and that obviously adds additional profit to our company. And it's around 40%, 42% penetration.

The next question comes from Dorothee Cresswell from Exane BNP Paribas U.K. Ms. Cresswell, maybe you're muted. We cannot hear you talking.

Apologies. Can you hear me now?

Yes.

Yesterday, you very helpfully gave us new BEV target globally for 2025 and 2030. Could you share some BEV proportion target for China with us, maybe just for that market specifically? And then we also saw your Chinese joint venture operations improve their margins very nicely in 2020. Can you give us an outlook for the coming years given that, obviously, the proportion of BEVs will go up? And I'm just wondering how much that will dilute the profitability going forward.

Good. In terms of the BEV, there is -- there's a government target and there is our internal target. So the market is forecasted to go to 25% of NEV managed vehicle but it's actually predominantly BEV. So you can almost say 25% BEV share in China in 2025 and around 50% in 2030. So these are kind of the anchor points. And of course, this is also what we are aiming for. And I mean depending on the development, obviously, in the segments, what you also probably know is that you have certain kind of steering tools here. And you talk about SAQ credits. And you talk about emission targets like a CAFE target. And with our internal planning, we're very confident that we're well beyond what we need to do. And as also communicated yesterday, we're talking about 13 BEVs. By 2023, we will localize all of our kind of BEVs in the key volume segment. So I would say we are in a pretty strong position here. And sorry, what was the second part of the question?

On the financial development.

Okay. Well, I mean I -- obviously, the financial effects, you have to ask Birgit. I can just give you an outlook. The market is actually very strong. And we really improved our transaction prices, which is, of course, beneficial for the profitability of the import business as well as the local business. We have now the -- quite a young model portfolio. We're going to launch some additional costs. So I would say the profitability of the joint venture in our outlook should actually be healthy. It's -- at the end of the day, it's really also depending on the market and on the price points. So therefore, I would say we've seen an excellent year last year, looking at the mix. We have in mind for the next years, I would actually see an increase of the profitability and the performance. But one thing is the models you're launching in the mix. And the other thing is, of course, the consumer sentiment and the pricing. So therefore, this is something we only -- we can only influence to a limited extent.

No, I think you're right. I mean it's the growth in the market. It's been the good pricing that we currently have and, of course, the very strong financial position and the further localization, which will also support, of course, the profitability development. But against that goes the higher share of xEVs that we absolutely will expect.

The next question comes from Angus Tweedie from Citi.

The first one is could you discuss capacity growth in China. I think you've historically said you would invest RMB 25 billion to 2022. Should we be thinking about a 20% capacity growth rate in 2020, '21? And how COVID has impacted that? And then secondly, could you perhaps just discuss how you think about these CAFE targets and particularly how high-margin but high-fuel consumption import volumes play in that within the context of how you're localizing volumes?

Okay. I think the RMB 25 billion was -- are you referring to the global investment on that front?

Investment number. But if you could help with the capacity expansion, that would be great.

Okay. Okay. No, I mean what we've done, obviously, over the last years, we heavily expanded our footprint here in China. And as you know, I think in the future, we have 2 footprints, right? I mean one is in Shenyang with our provincial partner, Brilliance on BBA. And let's not forget and we also are now building up together with Great Wall, our Spotlight joint venture, which was going to produce MINI cars for China and as well as for -- as well as for the world market. I mean in terms of capacity, extension of sales numbers outlook, I really can't go into this. All I can say on the -- I would say on the volume, we expect really a good performance of the market, a growth of premium. And our aim is to grow with the premium market. So this is something -- and in terms of detailed capacity numbers, that's normally nothing we communicate. And the second part was, give me a second, on -- second part of the question?

Yes. If you could perhaps discuss -- at the moment, we're having very high fuel consumption on import volumes. But clearly, these have a margin premium to what you're doing locally. How do you manage that given CAFE targets are going to get stricter but, at the same time, protecting margins as you localize volumes and move more to their volumes?

I mean, obviously, the good thing is we -- I mean you have a correlation between the emission targets and the zero emission legal targets. So you can actually offset. And therefore, we have a very, I think, a solid plan now. We're increasing our best share on both, by the way. I mean for example, the cars you saw yesterday, i4 and iX will be imported to China. And then we are localizing the I versions of our [indiscernible] cars. So therefore, actually, we don't see any issues, to be fair, in hitting these at both at zero emission vehicle target as well as the CAFE target. And you can also look holistically at the business, by the way. You can offset in-between joint venture partners. So that's also a lever. In terms of profitability, I think that's not a China topic. It's a global topic. So we will, of course, localize. So we are basically leveraging on some localization effects. And as with the whole company, we're looking into, of course, cost down measures. I mean you have -- with the increase in volume, you also have economies of scale on the electrification part. And of course, we're also looking into our cost of sale here in China. So I think we're working on everything, material cost, the production cost, cost of sale, so that we can somehow also offset the effects which might arise from an increase of xEV.

The next question comes from Tom Narayan from RBC Capital Markets.

Tom Narayan, RBC. A follow-up on Dorothee's question. So hitting 50% BEV penetration by 2030 will require a lot of batteries and battery supply capacity. VW talked about how they've already secured 150 gigawatt hours of capacity in China through third-party suppliers, which is supposed to carry them through 2025. Given what we've experienced this year with chip supply shortages, there's a concern over what happens when you have multiple players making BEVs in China, especially domestic players who may have an advantage in securing battery capacity. Could you comment on your battery supply situation? And for how long have you secured this supply given your ambitious BEV penetration targets? And if I could on battery chemistry, could you benefit in China from innovations like iron phosphate and high manganese as was discussed by VW?

I mean, first, let me maybe also comment, I don't think you can compare the battery supply chain with what happened on the chip and component, right? Because what happened there is everyone expected the market to drop. And then basically, kind of, I would say, components were redistributed and then the market came back. I mean on the battery side, we have a very long contractual commitment. And so therefore, I think what we've done is, we have announced ambitious BEV targets. And of course, the material which we need to fulfill our BEV target is secured. And I think on the details, how long, what is secured, it's probably better to talk to Dr. Wendt, who's our Board Member for Purchasing. But what the targets we are communicating are, of course, backed by contract. So therefore, I'm -- basically, I'm pretty relaxed on this one. When you talk about battery, I mean, we have also -- that's the reason why we're having kind of different suppliers. We're not going into single sourcing. I mean in China, we're working with CATL for our MINI BEVs. And Spotlight, we're going to work with [ SY ] which is a local company. I think you know that we have other suppliers globally. So we have in total 4, 5 different battery suppliers. So therefore, I think we really are diversified. And given long-term contracts, I don't think that that's somewhat comparable to what happened with the semiconductors and the chips. In terms of chemistry, I mean as always, it's interesting because depending on whom you ask, you get many different opinions on battery chemistry and battery shapes and formats. And I think, honestly, here we have a clear strategy with our partners with CATL. And of course, for example, when it comes to China, we will leverage the cost advantage that we have in China. But on the battery chemistry, I think you usually have a long-term approach. What was very important for us is that we have a sustainable purchasing of the raw materials. I think you know from our statements that we pay very much attention where these rare earth and rare elements are coming from. I think that's important. But we have a long-term strategy. And I think if you would like to know more details about, really, the purchasing plan, that's probably something to talk to Dr. Wendt.

The next question comes from Tim Rokossa from Deutsche Bank.

Tim, we can't hear you.

I'm sorry. Tim Rokossa, we cannot hear you. Would you mind? Maybe you're muted?

Can you hear me?

Yes, now.

Okay. Great. I didn't change anything.

Okay.

It goes a bit in the direction that Henning also tried to get to with the first question. And that is can I actually -- when we think about the price actions that we're seeing you've taken on the ix3 in China, it obviously creates the fear in the market that indeed what the NIOs and Teslas of this world are telling us is that they are primarily targeting you to get market share from you versus other premium brands in the Chinese market. Can you take away that fear from us? And maybe how can we get more confidence in the fact that, that is not the case going forward?

Yes. No, it's a very relevant question. Let me put it that way. I think ultimately, when you talk about the premium car, you're not only talking about the price, you talk about many things. You talk about the brand strength. You talk about the product. You talk about distribution. You talk about aftersales coverage. And you talk about the customer experience. And that very clearly is we will demand a premium above those competitors very clearly. And with this, I think this is something which then has our profitability. If you ask how -- why are we confident? Well, we're confident because this package of what I said -- I mean people buy cars also because of design. They buy cars because of the customer journey. So what we need to ensure -- and I would say in China, we're really well on track. We basically are working on all of these levers. And by the way, maybe to give you some confidence. Despite NIO, despite [ Xpeng ], despite Tesla and whatsoever, actually, our transaction prices went up last year. So it's not all of a sudden like we are collapsing. What happened to the iX3 is, clearly, you need to be in a certain price band. That's very clear. You cannot be like 50% or 100% up. You need to be in a certain price band. And that's what we've done with the iX3. We're still at a price when we are comfortable in terms of our margins. But as I said, the sales price and our sales position in China actually last year was better than -- was as good as 5, 6, 7, 8 years ago despite increasing competition. So therefore, I mean we can't rest. You need to work on all areas. But the combination of brand, product of, really, also a very good dealer experience -- which we invested a lot with the dealers, by the way, in upgrading [ terms ] and the digital one-to-one marketing where I would say we're a benchmark because we've created our own company called [indiscernible]. It's a limited company under our framework here. And this is kind of a company which works on digital marketing and direct marketing. And I would say there's not one single bullet, if you want, but it's doing 10 things right. And then we're actually confident that we can retain the margin or even increase.

The next question comes from Patrick Hummel from USB (sic) [ UBS ].

Yes. Patrick from UBS, actually. So Jochen, I just wanted to follow up to Tim's previous question actually. I think you are in a pretty tough place right now. You have Tesla that's growing volumes very, very significantly. And they have become the price setter and you're the price taker. We talked about the emerging Chinese BEV competition that has a plethora of EV launches coming. And if I look into your pipeline, all the product that's coming now and in the next few years, except for the iX as an imported vehicle, is on a multi-energy platform. And we've seen that this might not be the perfect solution to customers. And it's going to take 3 years to 4 years from now to see the new cluster architecture arriving. So how can you make us more confident that in a market that's probably going to see significant growth in the premium EV segment, this is over the next 3 years, not going to be a continuous loss of market share and loss of profitability?

Yes. It looks like you've been in some of our internal workshops. So actually, first of all, we need to be also realistic about the size of the market. When we talk about 25% debt share in 2025, you're still talking about 75% of ICE share. So that is not going away overnight. And I think you have some players. They've decided to only play in one field and that is a growing field. And then you've got BMW. And we are actually leading, I would really say, the one field, which is a combustion engine field. And we're getting stronger and stronger than the other one. So that's why I'm pretty confident. Because I think over the next years, you will still see a very, very big share of ICE sales, of ICE premium sales here in China. And we will have this increasing share towards 25%, even 28%. And for this, we actually have over the next years, in all of the segments, at least one offer. I mean we will have iX and i4 obviously imported. I mean the first feedback on the iX in China was tremendous. Then, of course, every car, whether it's 3 Series and 5 Series and 7 Series, as you know, will have an I version. And ultimately, I think the status of the conversion topic is, in my opinion, nothing which the customer really discusses. I think the customer is discussing a design and the brand and the connectivity and the powertrain. And so you're right. At the moment, in that area, others have more products and then especially Tesla is stronger. But we are now ramping up. We've got cars in all the volume segments. Let's not forget next year, 3 Series, 7 Series and so on and so forth. And on top of that, I think for the next 3 or 4, 5 or 6 years, you will see a very sizable sales in the ICE, which we make good margin. And this is the transition, right, which we have to manage. But because we play in both fields, I think we will manage this.

Yes. Thank you. Thank you, Jochen. I truly support that. I think we have extremely competitive cars in this Phase 2 as well. Now we have time for one last question, please.

The last question comes from José Asumendi from JPMorgan.

It's José Asumendi from JPMorgan. Can you hear me?

Yes, we can hear you, José.

Jochen, can you talk a little bit more about the capabilities and resources you're building up in terms of autonomous driving in China? I mean every time we meet in the region, it's fascinating how you are accelerating the work in the region. Can you talk a little bit about also when you compare the different regions, China, Europe and North America, where are we in terms of the cutting-edge technology in terms of ADAS? What kind of progress are you making in the region? Obviously, it's very difficult to get hold of data for the region. So maybe you can just explain us a little bit more how far advanced are you in ADAS in China? How does it compare across region? And who are your key partners that support you and help you in this journey as well?

Yes. José, good to hear you. Well, let's put that -- absolutely. When you talk about advanced driver assist system, or ADAS, I think you have to link this to digitalization ultimately. And what is clearly happening in China is, as you know, from a government perspective, a lot of money is put into digitization, into 5G and into the intelligent infrastructure. So first of all, what you clearly will see is a tremendous growth in what we call intelligent connected vehicles, ICV, on the one side. On the other side, this belief or hype of next year, everyone is Level 4 and Level 5, everyone drives the kind has also gone a little bit in China because people understand it's actually quite complex. And while you see a lot of pilot projects, you don't really see, at the moment, a clear road map when Level 3 and Level 4 would really be permitted. So this is just a situation. When it comes to BMW, we have actually a tech set which we developed with the partners, for example, like Mobileye. But we also have local partnerships here. And our cars are currently Level 2 -- what we call Level 2+, right? I mean you have ADAS system, which help you to, in a certain situation, drive autonomously. But you need to be actually able to react and that is what you can do. We call it Level 2+, so on a highway in certain situations. And our iX3 is technically capable for Level 3 and so are the cars to come. So I would say from a capability, technical capability perspective, I think we are on the level of what is permitted. But I think it will also take longer here in China, even in China, until you see really kind of -- nationwide or in larger areas, kind of Level 3 or Level 4. So we have the tech sets globally. We basically are now increasing our footprint. To share with you, we have, I think I mentioned this, the largest R&D center outside Munich is in China. We've just announced early January the cooperation with ArcherMind, which is a local IT and tech company. We will have around 200 people in that joint venture by the end. And they work on in-car connectivity and on in-car tech sets. Also, exactly to do -- to take our tech set to adapt to China where necessary and to integrate local partners. So therefore, technically, it's Level 2+, what you currently see on the market, all the cars like. And if and when there is the infrastructure ready as well as the legislation ready, we will then also be technically ready to basically switch to a higher year.

Wonderful. Well, thank you so much. Thank you for all those great questions. I think that was a wonderful discussion. Jochen, thank you so much for taking the time to being with us here online from Beijing. Dear ladies and gentlemen, I hope you enjoyed our 2 deep-dive sessions. Let me now just please finish with a few housekeeping remarks. We'll now have another short 15 minutes break. And those of you who are on the phone can just stay connected. At 11:00 a.m., we'll be back with our annual conference with Oliver Zipse, Chairman of the Board of Management of BMW AG; and Dr. Nicolas Peter, Member of the Management Board of BMW AG Finance for our annual conference. And of course, and that included, will also be then Q&A. So our program will then finish at 12:30. Unfortunately, we can't have now coffee chat together. But I hope you have a good quick break and we'll see you all back at 11.

Thank you. Bye-bye. [ Break ]

Ladies and gentlemen, welcome to the BMW Group Analyst and Investor Conference. My name is Maximilian Schöberl. With me are the Chairman of the Board of Management of BMW AG, Oliver Zipse; and our member of the Board of Management for Finance, Nicolas Peter. We are standing next to a really cool car. Oliver, I know you are really fascinated by this model. Would you like to tell us more about it?

Yes, Max. This is the BMW iX, our innovation and technology flagship. We are excited to launch it later this year. The iX will enable all future BMW vehicles. Nicolas and I have driven it many times.

Exactly, Oliver. The iX is a true BMW. All-electric with a range up to 600 kilometers, according to WLTP. Short charging times, a unique discovery space with our Shy Tech. I'm sure customers will love it.

Absolutely. Ladies and gentlemen, shortly, Oliver will give us a closer look into the future. But before that, let's take a look back at the 2020 financial year and the outlook 2021. Nicolas, the stage is yours but, first, a short film. [Presentation]

Ladies and gentlemen, good morning. I hope you are all doing well. As we just saw in that brief video, 2020 was an exceptional year for all of us in our personal lives and in the business environment. The same is true for the BMW Group. In a very volatile market environment, we successfully dealt with the complex situations and were therefore able to limit the negative impact of the pandemic on our results. Under these circumstances, we were able to achieve solid group earnings. At the same time, we also made important decisions for the long-term success of the company and even stepped up our transformation process. We have put sustainability at the center of the company. This is also what our new BMW Group report represents. We are the first automotive manufacturer listed on the DAX to combine our sustainable value report with our annual report to create our BMW Group report from the reporting year 2020 on. The report shows how economic, environmental and social concerns are not only dependent on each other but complement each other at the BMW Group. Ladies and gentlemen, 2020 was also a stress test for our capacity for transformation. Almost as soon as a pandemic broke out, we initiated important company-wide measures to make us even faster more efficient, more digital and more profitable. As a result, we were able to reduce our fixed cost by almost EUR 1 billion and capital expenditure by around EUR 1.7 billion. Our performance program, which we initiated back in 2017, has an important part to play in this. The aim of our company-wide performance and cost-cutting program is to achieve a sustainable increase in profitability, make our structures leaner and speed up our processes. Digitalization provides decisive leverage in this respect. We are using it in a targeted manner to make our company more efficient. In sales and marketing, for instance, we set up digital systems to manage and increase the contribution margin at individual vehicle level. At the same time, by cutting back on our sales promotion programs and streamlining our structures, we were able to lower our selling cost. The impact will be even greater in the years to come. In parallel, we continue to focus on reducing variant and drivetrain complexity. By 2025, up to 50% of our current drivetrain variants will no longer be offered. We already reduced our range of diesel and petrol engines by almost 30% in recent years. As you can see, we are making the decisions necessary to raise and maintain our profitability within our target range of 8% to 10%. Ladies and gentlemen, let's start with the key figures for the group. Group earnings before tax totaled EUR 5.2 billion, with a group EBIT margin of 5.3%. The second half of 2020 underlined the BMW Group's performance capabilities. Our products were very much in demand and the strong product mix and better pricing also contributed to the positive effect. Our free cash flow was strong. On this basis, we are investing in the future and forging ahead with electrification and digitalization in particular. Research and development expenditure totaled almost EUR 6.3 billion in 2020. Thanks to strict cost management, this was slightly lower than the previous year without having to cut back on key upfront investments. The R&D ratio of 6.3% was on par with the previous year. The main focus areas here were on the development of the fifth and other future generations of our electric drivetrains, the new eighth generation of our BMW iDrive and highly automated driving. The financial result improved significantly year-on-year. The key driver here was a significantly higher at-equity result of more than EUR 1.2 billion from our Chinese joint venture, BMW Brilliance Automotive, mainly due to high volumes combined with effective pricing. From April on, sales figures in China were consistently higher than the previous year. The operating business of the YOUR NOW Group, with its focus on mobility services, also performed significantly better than the year before. The sale of shares in the mapping service provider HERE had a further positive effect. As a part of our transformation process, we are also moving forward with personnel restructuring measures. The size of our workforce decreased in 2020 as forecast, from 126,000 to 120,700. We are taking advantage of vacancies arising from voluntary agreements as well as natural attrition. The company is noticeably leaner than it was just a year ago. Ladies and gentlemen, in the face of challenging conditions, the BMW Group posted solid group earnings. The Board of Management and the Supervisory Board will therefore propose to the Annual General Meeting that BMW AG's net profit of EUR 1.25 billion be utilized to pay a dividend of EUR 1.90 per share of common stock and EUR 1.92 per share of preferred stock. This represents a payout ratio of 32.5% for 2020 and is therefore on a par with the previous year and within our long-term target range of 30% to 40%. At EUR 17.8 billion, Group liquidity remained almost at the same level as at the end of December 2019. We have the liquidity reserves we need to be able to act at any time if the situation deteriorates again. Ladies and gentlemen, before I move on to the individual segments, let me show you a brief film. [Presentation]

Ladies and gentlemen, I would now like to start with the Automotive segment. The EBIT margin for the segment was 2.7%. This is at the higher end of our forecast adjusted during the year to 0% to 3%. The third quarter EBIT margin of 6.7% was followed by a margin of 7.7% in the final quarter. This is the segment's best quarterly figure for 2.5 years. EBIT totaled EUR 2.2 billion and was therefore significantly lower than the previous year as expected due to the pandemic. The EBIT bridge in the Automotive segment for the full year shows that the negative impact from the steep volume decline in the first half of 2020 could be partly compensated by positive effects from our healthy model mix and improved pricing. Headwinds included the negative currency developments, increasing costs from the electric vehicle offensive, the segment share in increased residual value risk provisions and the cost for personnel restructuring measures. Reduced R&D and sales and marketing expenses had a partially offsetting effect. Ladies and gentlemen, let's take a look at free cash flow in the Automotive segment, which totaled around EUR 2.8 billion in the fourth quarter. For the full year 2020, it reached EUR 3.4 billion and was therefore significantly higher than in 2019. Healthy pretax earnings in the second half of the year were a key driver for this as well as a reduction in inventories and capital expenditure. We were able to lower inventory levels by almost EUR 1 billion from 2019 by optimizing lead times and through structural improvements in logistics. At the end of the year, capital expenditure totaled EUR 3.9 billion. With prioritization and a clear focus, we were able to reduce this total by EUR 1.7 billion compared to the previous year. The increase in free cash flow over the previous year also led to an increase in the segment's net financial assets of over EUR 800 million to EUR 18.5 billion. Ladies and gentlemen, let's move on to the Financial Services segment. Our financing and leasing business also felt the effects of the pandemic. As expected, earnings before tax were significantly lower than the previous year at EUR 1.7 billion. This is due to significantly higher risk provisioning in the mid- to high 3-digit million euro range for anticipated credit and residual value losses. Almost EUR 1.85 million new financing and leasing contracts were concluded with retail customers in 2020. This represents a moderate decrease from the previous year. In the last 6 months of the year, the number of new contracts concluded was on a par with the previous year due to the market recovery. We also benefited from positive development in the preowned car market. This resulted in higher income from the sales of end-of-lease vehicles. The credit loss ratio also remained low. The segment's return on equity was 11.2%. Particularly, thanks to the improved risk situation in the fourth quarter, return on equity was only slightly lower than the previous year. I would like to turn now to the Motorcycles segment. Despite the coronavirus pandemic, BMW Motorrad was able to achieve the second-best sales figures in its history. This underpins BMW Motorrad's successful growth strategy. Overall, segment earnings before tax were significantly lower year-on-year, as forecast, totaling EUR 100 million. This also reflected the negative sales volume growth in the first 6 months of the year. With 13 new models such as BMW R 18, the product offensive had a positive effect at 4.5%, the EBIT margin for 2020 was comfortably in the top third of our forecast target range of 3% to 5%. Ladies and gentlemen, we are actively driving the transformation process. In 2021, we will once again invest in a targeted and focused manner in the areas of electromobility and digitalization, financed by our profitable core business. We expect to see a positive development in key automotive markets this year. This is also reflected in our guidance for the year despite there still being a great deal of uncertainty. How the coronavirus pandemic develops from here remains uncertain even with vaccines available. The supply situation for semiconductors also remains tensed. Moreover, we also anticipate ongoing headwinds from raw material prices. All these factors could have a potential impact on the results of operations, financial position and net assets of the BMW Group. Any possible impact in connection with the EU's ongoing antitrust proceedings are not included in the following forecast of our key performance indicators. Let's now take a look at our guidance for 2021. We expect to see significant growth in group pretax earnings this year. The Automotive segment is forecast to post a solid increase in the number of BMW, MINI and Rolls-Royce vehicles delivered to customers. The EBIT margin in the Automotive segment is expected to be within the range of 6% to 8%, with a significantly higher ROCE for the Automotive business. In the Financial Services segment, we forecast a return on equity of between 12% and 15%. In the Motorcycles segment, we are planning for a solid increase in deliveries. We expect the EBIT margin to remain within our target range of 8% to 10% and ROCE for the segment to therefore also be significantly higher year-on-year. With the expansion of our outlook to include some of the following nonfinancial indicators, we are highlighting the strategic importance of ESG reporting and the systematic management of our ESG targets. The percentage of women in management positions at the BMW Group is expected to increase slightly in 2021. So with the continued personnel restructuring measures, the targets that have been set will be reached with a slight decrease in the size of the workforce. With the adjusted reference basis, we anticipate another significant reduction in CO2 emissions in the new vehicle fleet. This will be tied to a significant increase in the percentage of electrified vehicles as well as a further development of our highly efficient combustion engines. Plans also call for a moderate decrease in CO2 emissions per vehicle produced, which is included in the forecast for the first time. Ladies and gentlemen, 2021 will be all about profitability enhancement and growth for us. We are ready to respond quickly and flexibly to any further developments that could arise from the uncertainties described. We started the year off strongly. However, we are expecting an increasingly volatile business development over the course of the year. In the Automotive segment, we are nonetheless aiming for a free cash flow of over EUR 4 billion for 2021. You know the BMW Group: Our thinking and actions are always geared towards the long term. By making the right decisions today, we are creating the necessary conditions for reaching and sustaining our strategic target of an EBIT margin of 8% to 10% in the Automotive segment. We are on the right course and looking to the future with confidence. Thank you for your attention.

Thank you very much, Nicolas. You have given us a lot of confidence for 2021. Thank you very much. Now I will hand over to Oliver. Oliver, please come on stage.

Ladies and gentlemen, since August 2019, I've been working with my strong new Board of Management team to lay the foundation for a new beginning. Firstly, we adopted our integrated approach to sustainability with concrete goals up to 2030, in line with the Paris Climate Agreement. In fact, our own CO2 emissions target is a lot more ambitious. We are also submitting our activities to external scrutiny, as demonstrated by our first integrated BMW Group report. Secondly, we instilled the team with confidence. BMW certainly has all the capabilities it needs for the age of sustainable electromobility, which, by the way, we launched ourselves as pioneers almost a decade ago with the i3. And thirdly, we dealt with the effects of the coronavirus pandemic with typical BMW flexibility. In fact, our global market share even increased during the pandemic. What counts for you is looking ahead. And now it is time for the next big push. We are driving the transformation the company needs to ramp up e-mobility at high speed. The BMW iX standing here next to me is a good example of our technology offensive. And there will be much more to come. Take a closer look. [ Presentation ] Well, here it is, the brand-new BMW i4 live in front of you. The fully electric i4 comes right from the heart of BMW. And we know that customers are really looking forward to this car. This is a clear sign that markets are now ready for electromobility. It's all about timing. We will bring this sporty, fully electric Gran Coupé to market in autumn. At major tipping points, BMW has often ushered in change with bold decisions. Our entire product line at BMW, MINI and Rolls-Royce is based on technological innovation. It meets our customers' different needs in different markets worldwide. And that is exactly where our strength lies in the current phase of our transformation. We are electrifying BMW and picking up the pace of electromobility. And here is now our road map for 2021, '23 and '25. Through our technology offensive, we have prepared ourselves with the necessary depth and precision. This year, our xEV sales are expected to grow by more than 75% compared to last year. The percentage of fully electric vehicles will continue to grow and is expected to more than double compared to 2020. And by the end of this year, we aim to have delivered more than 1 million electrified vehicles to our customers since 2013. Then 2023 will be a key year for us in e-mobility with 13 fully electric models on the roads. Positioning our BEVs in the high-volume segments will enable us to ramp up quickly and achieve swift market penetration. To this end, we have empowered our structures in recent years. Others focus on individual market segments and niches. We, on the other hand, are taking a targeted approach across all market segments. By 2023, we will already have at least 1 fully electric model on the roads in all market segments, from the compact car segment all the way up to the ultra-luxury class. By 2023, we will already have at least 1 fully electric model on the roads in all key segments. Again, from the compact car to the luxury class. This means by the end of Phase 2 of our transformation, we will have fully electric models for all our major series covering about 90% of our segments. With an eye towards regulations, we could even serve certain segments exclusively with fully electric models. The most important aspect is always ensuring an optimal balance between the product offering and profitability. And I want to make it quite clear. If demand in certain markets shifts entirely to fully electric vehicles already within the next few years, we will be able to deliver. And then by the end of 2025, we will have delivered a total of around 2 million fully electric vehicles to our customers. We will also be growing our sales of fully electric models by well over 50% per year over the next 3 years, more than 10x the figure for 2020. We have been focused on this growth and have prepared for it systematically, as you know us, so we can adapt flexibly to market developments at any time. MINI will be the first BMW Group brand to go fully electric. MINI is perfect for the city and, therefore, for e-mobility. We will be releasing the last model with a combustion engine variant in 2025. And then by the early 2030s, MINI will be exclusively fully electric. And you can also expect to see fully electric products from Rolls-Royce. As an industry, we will only be able to meet current and future mobility needs with an open technology approach for all drivetrain forms. This includes e-fuels as well as hydrogen, which will be an alternative worldwide. Next year, we will be releasing a small series of the BMW i Hydrogen NEXT. We could also imagine it as a production vehicle. Our production network is swiftly and efficiently integrating electrification into our existing plant structure. And with our intelligent vehicle architecture, we're in an optimal position to industrialize and scale manufacturing, using a single production structure with maximum flexibility and exchangeability. By this, we can tap the full potential of differentiated demand around the world, both today and in the years to come. The BMW X3, including the BEV model iX3, will now be followed by the high-volume 7 Series, X1, 5 Series models and the MINI Countryman, each with 4 drivetrain variants. By 2022, each of our 4 German vehicle plants will be producing at least 1 fully electric vehicle. We are making our plants a worldwide fit for the ramp-up of electromobility. Technology is our enabler for climate neutrality in 2050 because the greenest electric car in the world will be a BMW. Our customers can rest assured that their BMW will always have the smallest overall carbon footprint. And that sets a very high standard, and it's a challenge. At the high end of the market, in particular, where customers are willing to pay more, they are already asking specifically for sustainable product features in their cars. Luxury and sustainability, they go hand-in-hand. And that is another reason why we have been so successful in the luxury segment. In 2020, despite the pandemic, the 7 Series, the 8 series, the X7 saw sales growth of 12% compared to 2019. And since 2017, it is even 70%. At the same time, we are reducing CO2 emissions throughout the entire life cycle. That means supply chain, production and, of course, the use phase. We will reduce carbon emissions per vehicle by at least 1/3 across all these phases by 2019. The supply chain is especially important in e-mobility. And here is a brief insight. [Presentation]

We are serious about making BMW sustainable. As a high-tech company, we drive technological innovation forwards. Frank Weber showed you this during the deep dive this morning. We always think of mechanics and digital together and develop hardware and software in a highly integrative manner. This capability will also be crucial in the next phase of our transformation from 2025 onwards. The electromobility growth curve will continue to climb between 2025 and 2030. Our BEVs will see average growth of more than 20% per year during that period. And to this end, we'll be launching a radically new product offering in 2025. We call it the Neue Klasse. BMW made a similarly radical change in its product direction once before, back in the early 1960s with its rediscovery of the sporty mid-range car. But most all, back then, it was about our mindset and sheer determination to change things. We're being just as bold and just as radical again today. And we are asking the question, what does BMW need to be in 2030? What fits our customers? What does society need? And what does it demand? For us, the Neue Klasse forms the nucleus of rethinking the car from the ground up. And we are liberating ourselves from today's segments and architectures. We are revolutionizing the underlying logic of our product offering and combining it with a new vehicle architecture, based on the principle of e-mobility first. An electric drivetrain based on the hydrogen fuel cell could also be a part of this. We see the Neue Klasse as a combination of an entirely new IT and software architecture, a newly developed electric drivetrain and battery generation, a new level of sustainability geared towards a circular economy. Digitalization, electrification and sustainability are the defining characteristics of the Neue Klasse. Circular is already a USP for BMW, and we have defined new efficiency standards for the models of this new car range. We're purposely using secondary materials such as recycled steel, plastics and aluminum and so on. And we're even considering a paradigm shift towards secondary first, where the quality and availability of materials allow. Circularity is both an aspiration and, at the same time, a promise for us. We're developing the vehicles of the Neue Klasse from the outset, so the raw materials can be recycled at the end of their life cycle for use in new vehicles, so to say, from cradle to cradle. In addition to e-mobility first, the Neue Klasse also aspires to be digital first. We're developing a totally new kind of user experience never before seen in a production vehicle. And because every region of the world has different digital ecosystems, we are using regionally customizable technology stacks. They tailor the vehicle's operating system perfectly to localized conditions and update it constantly to ensure it is always fresh. Our customers can book and reconfigure features throughout the vehicle's life cycle. The Neue Klasse will create a complete emotional experience and, at the same time, secure our long-term profitability. In terms of range and manufacturing costs, we aim to match the level of our state-of-the-art combustion engine vehicles. The Neue Klasse underlines our clear commitment to achieve an EBIT margin within the target range of 8% to 10%. One thing is already certain. The vehicles of the Neue Klasse will be true BMWs. They are designed to win over our customers, inspire them. By 2030, at least 50% of our global sales will then be fully electric. Over the next approximately 10 years, we'll be releasing a total of about 10 million fully electric vehicles onto the roads. The Neue Klasse is our global product offering for the markets of the future. And we will grow with this unique portfolio, and we'll manage the necessary complexity. We can do that. We have confidence in our abilities. We think far into the future all the way until 2050. Our approach is tech forward. And we are also optimistic about the financial year 2021 now. Our sales figures for January and February seamlessly continued the trend at the end of the strong fourth quarter of 2020 with significant double-digit growth sales. Ladies and gentlemen, taking the car into the future is the most exciting challenge. It takes passion and excitement for mobility. And the greenest car, the greenest electric car will be a BMW, and the boldest company, the BMW Group. In other words, BMW is going electric, digital and circular. Now Nicolas Peter and I are looking forward to your questions. Thank you very much.

Oliver, thank you very much from my side. Ladies and gentlemen, you made it quite clear that BMW has a great road map for the future. Now ladies and gentlemen, we will start with our Q&A session in a few moments. We will be right back. Thank you. [Break]

[ Oliver Zipse ] and Nicolas Peter are going to answer your questions here in the room via telephone. We are streaming around the world, so please understand if there are minor technical delays. We don't expect this to happen. However, should the connection not work, you can also send your questions per e-mail to [email protected]. The line is now open for your first question, please.

[Operator Instructions] The first question comes from Arndt Ellinghorst, Bernstein.

Oliver, my first question for you, please. It really seems BMW is mastering engineering, but you're struggling with the perception of all your efforts. And I know it's a recurring question over the years that we keep asking. So I just would give you the chance to reflect on this. And I'd also like to understand whether you recognize the issue of perception. And we can take it offline to discuss why I think that's the case, but I think many would share that view. And then secondly, for Nicolas, please. Nicolas, also something we've discussed before. And thank you for the more than EUR 4 billion free cash flow target this year. I think that's great. When would you be in a position to provide medium-term financial targets for BMW, please?

Thank you very much, Arndt. I think we start with Oliver.

Arndt, thank you very much for your question. I think it's a valid one. But it's not unexpected. My take on that is, we started -- let's talk about electromobility. We started in 2013. And then we thought how to go further from here? And we took a difficult way, but I think an extremely strong way. Difficult was because it took some time to take the idea of electromobility into the breadth of the infrastructure of BMW. That took some year and the perception, of course, was we are not continuing with our path. We did exactly the other thing. We took it so seriously that we made a strategic reconciliation of what we do and said, we take 3 years time and enable us to took that very quickly in all segments, as I just said. And that, of course, needs develop a new architecture, develop the fifth generation of battery cells. And we knew the price for that would be that there is a perception that we are stopping our efforts. Now in 2021, you will see it's time to harvest. We will ramp-up in almost all segments this year, next year, 2023. And then we take now the next step, Phase 3, we call that, from 2025 onwards. And if you ask me, would I do it again? Yes, I'll do it again, exactly the same way. And the price tag behind us, and you rightfully mentioned it, is that during these 2 years, 3 years between '18, '19, '20, there was an impression that we are not delivering. We will grow very quickly now because everything is invested to enable this quick expansion through all market segments. And let me give you 3 figures. Our market share in Germany last year was about 9.8%, almost 10%. In Europe, it's a little bit about 7%. Worldwide, it increased last year to 3.2%. And now combined with electromobility, I think you see from these figures, there's potential for BMW on -- especially on a worldwide scale. And I'm not only -- the management team of BMW is very confident that we have now exactly the right setup to conquer some of the market share which we aimed for some years ago. And now, again, it's time to deliver. And I'm really looking forward to that. Thank you.

Thank you, Oliver. Nicolas, on the second part?

Arndt, before answering your question, it's really great to be able to hear all of you. Of course, we would have preferred to share this hour with you in Munich, but it's a great opportunity to share some of our thoughts with you how our business is going to develop. If we reflect first on 2020. I think, in particular, the second half of the year showed clearly the strength of the BMW Group. After having reacted fast and flexible in end of Q1 and in the second quarter, we were able to ramp up our business, manage inventory level in the right way by doing so, improving used car prices. And we saw the result with an EBIT margin in the second half of the year -- in the second -- in the last quarter of the year of 7.7% and a free cash flow which was significantly above the previous year. The main objective -- and we know and we've even learned in 2020 that our business environment is extremely volatile. And our main objective is, on one hand side, to manage the technological transformation, the transition, while sticking to an EBIT margin of 8% to 10%. And in 2020, we used and we implemented a lot of actions to improve the quality of our business, be it on the revenue side or on the cost side. Based on that, I'm optimistic that we are going to achieve our EUR 4 billion free cash flow target. Clear midterm and long-term objective is 8% to 10%. We've delivered 7.7% in Q4. We had a strong -- as Oliver outlined, we had a strong start into '21. So let's see how in the following quarters, our business is going to develop.

Thank you very much, Nicolas.

The next question comes from Dorothee Cresswell, Exane BNP Paribas UK.

My first question is around the consolidation of the Chinese joint venture from next year. I'm wondering whether that might actually lead you to announce new strategic targets for profitability and free cash flow, given that both should be boosted as a result? And then my second question is around the likely working capital evolution in 2021. You've mentioned yesterday, I think, a normalization of payables and a continued effort to reduce the inventories. And so if we take that together, what's the likely working capital tailwind included in your EUR 4 billion free cash flow guidance for the current year? And maybe you could also share the 2021 targets for CapEx and R&D with us?

Thank you very much, Dorothee. The right questions for Nicolas. Nicolas, please?

Let's take -- let's start with the first part. So the plan is to consolidate BBA in -- as already outlined, in 2022. And I should have mentioned this already when answering Arndt's question, this will have a positive impact on free cash flow in our automotive business. Your second question was on -- but to a less extent, on the EBIT margin. Why to a less extent, because we consolidate not only the bottom line, but also the top line. So here, there might be a minor impact, maybe with the exception of the first year of full consolidation. CapEx and R&D targets for '21. Let's start with CapEx. We will be below our strategic target of 5% in '21, probably slightly above '20, but below the strategic target of 5%. Somewhere between 4% and 4.5% is probably the right number. The rate for F&E, R&D will be plus/minus on the same level as in 2020. And your third question was on working capital tailwind, which we expect. We expect a positive impact from liabilities coming back in the mid-2 -- yes, mid 3-digit million euros amount. Inventories should be relatively stable despite an increase in sales, which we anticipate for the full year.

Thank you very much.

The next question comes from Tim Rokossa, Deutsche Bank.

It's Tim from Deutsche Bank. Oliver, the market certainly appreciates your much stronger BEV focus now, as you can see from stock price development. Why not going all-in now? Why not building a bit more charging infrastructure, considering premium customers certainly demand a premium charging infrastructure? Why not doing a bit on the cell manufacturing side yourself given the shortage fear that we have in the market? Why just sticking to a much more aggressive target, which is appreciated, but feels a bit like this is really 1 out of 2 or maybe 3 steps. And then secondly, Nicolas, it's probably for you. With the announcement of the Neue Klasse, which is a pretty cool name, by the way, do we have to fear that the investment spending that you just referenced for '21 does indeed have to steady on that level or even go up a little bit again as we approach 2025, 2026 and the launch of the new platform? Or can you, similar to most of your competitors, say that you have surpassed the peak in spending?

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

Yes. Tim, it's great to talk to you. Why don't we go all in? That is a very good question. Why should we? I stated you the 3 figures at the very beginning, 10% Germany market share; 7% in Europe, a little bit above that; and then a little bit over 3% in the worldwide markets. And we are on a growth scenario. We're not on a shrinking scenario. Now let's look until 2025, 2030, 2035, even until 2040. Yes, there will be some markets here in Europe, maybe also some regions in China, which will go all electric. And as I said before, we will be ready to follow 100% because we have BEV offering in all segments. And our production structures, our supply chain will be highly flexible, all the way to raw materials. That is what we have built up in the last 5 years. But at the same time, some of the growth markets, they have not even started thinking about electric. And I'm not even talking about charging stations. There is no mindset on the consumer to switch. And so at least for the next decade, maybe even for the next decades, it's good advice to be flexible and the major investments we already have behind us because we flexibilized our product structures and we flexibilized our production structures. And again, we are on a growth path. And look at the first 2 months of this year, which is for us an important year. We grew by 25% compared to the year before. And at the same time, as electromobility was growing, cars with hybrids and also only-combustion were also growing at the same time. And from our point of view, that will continue. My favorite example is the comparison between 2 cities, and that could be any cities, just for the sake of the argument. In Oslo, probably, it will be possible without losing much customers to switch pretty quickly to electromobility. You've sustainable power supply. You have a lot of charging stations. There's good infrastructure, you have tax incentives, all the ingredients you need to develop that industry you have there. Now you go to any city in Southern Italy. They haven't even started thinking what that could mean. And that could be any other region where they have not started thinking about electromobility. And that is happening at the same time. And I'm currently running as President of the ACEA, which is the European group of automobile manufacturers. And overall, there is no 100% way towards full electromobility visible, not in the next 2 years, not in the next 10 years. And since we want to grow still, we also think that it's good advice to do both at the same time. Percentage-wise, of course, the electromobility is growing faster, of course. And that's why we aim to 50% of our market share in 2030 being BEVs. Last argument from a climate point of view. And we told you we take that serious. It's not just a game. That is really serious. Combustion engines, which are still sold in the next 5, 10, 15 years must contribute with the lowering to the CO2 emissions. If you stop developing them, very soon you will drive -- you will see old technology on the roads. And the progress then is 0. And as long as we cannot assume that every single car in the world is driving electric, that is very good advice from a profitability point of view, but also from an environmental point of view at the same time. And therefore, we come to the conclusion, at least for the time being, that we will do both at the same time and -- because we are a growing company and not a shrinking company. Thank you.

Nicolas?

Tim, if you look at our industry and at the BMW Group, probably on average, every second generation, we -- of products, we invest into a new architecture. If you look at our today's portfolio, which is a very strong portfolio, this is now exactly the right timing to invest into a new architecture. And this is exactly what we have decided. So from this perspective, I'm not expecting, I'm not expecting that CapEx is going up in a significant way. In contrary, I do expect this is a clear target that we will design this architecture in such a clever way, and we have good ideas that the development of individual models based on this architecture comes at an even better cost level, number one. Number two, as we've discussed a couple of times, we have already invested a lot of money in the flexibility of our plants throughout the last couple of years in order to our plants to be able to handle ICE next to plug-in hybrids and full electric cars. So the high share of the CapEx expenditure is already behind us. So I'm clearly expecting that this will contribute to the fact that despite the costs, we have to invest the money we have to invest in developing the next-generation of an electric drivetrain, the money we have to develop in software, as you've discussed in detail with Frank Weber earlier today, that we will be on track to meet our 8% to 10% EBIT margin target.

Thank you, Nicolas. Thanks, Tim, for your compliment for our naming Neue Klasse. Thank you very much.

The next question comes from Stephen Reitman, Societe Generale.

I have 2 questions, both on technology. You've shared with us details about the operating system and the advances you're making on there with all the updates and general technology. Can you talk a little about electronic hardware in the Neue Klasse and what you're developing also with the iX? Is -- are you moving to a in-class server type architecture, reducing the number of ECUs in the vehicle? And how does that [ compare to ] maybe what is recognized to be probably best-in-class at the moment, which is Tesla with its hardware 3, full self-driving computer? And secondly, on batteries. We've had some indications about the reductions in costs that you're expecting from sales by 2025. Could you give us some idea about the chemistry that you're thinking about? Is it going to be with a higher emphasis on manganese and a reduction in cobalt?

Thank you very much. Stephen. This will be answered by Oliver.

Well, first of all, the name Neue Klasse was from Max Schöberl, just to mention that, that's I think that is very important. But we think it was a good idea. Talk about technology a little bit. I think Frank gave you some insight this morning as well. Let's talk about the electronics. 2025, and we said before, it's all about timing, is the perfect entry point also to make a big leap on the digital side because that field, just as the battery is quickly developing, and it's all about when do you start with the product where the architecture will last for, let's say, at least 1 decade. And 2025 is a good time to go in there. The number of CPUs, of course, today, we have -- our CPU is integrated in the component structure, which has a lot of advantages in terms of quality and exchangeability. But of course, the next step, to do that more centrally. Will we all go through towards 1 CPU? No, because there are different CPUs. And in the industry, you have very different CPUs. You have high-performance CPUs for all functions, for example, autonomous driving, real time, very high data-driven. And there will be 2 or 3 CPUs on -- which perform on high performance. Then there's a second one for all safety critical issues, they must be as quick as possible. Real-time response. And then, of course, they will be specialized to use for everything which has to do with communication and entertainment. So we will reduce the number of CPUs drastically, but it will not go back to 1. It will be somewhere, possibly 5 or 6 or 7. So that is a big leap in our industry. That's the way to go. And the second question, which you might have asked, but you didn't ask, but maybe you meant it, what is our in-house competence in that. I think we will build up some in-house competence quickly. But we will do that with partners. We can talk about it yet. We will not do it alone. And there, we will have an overall system, which is, first of all, highly performant but at the same time, flexibly enough to have the right partners, which could be even different partners throughout the world. That was your first question. The second question on batteries. Batteries, of course, that's not a secret. The cost down issue is one of the major factors. And cost down has much to do with the chemical structure of the batteries. We have our own resource center with 250 people working on it. And they are working on the sixth generation of our battery cell. It's too early to talk about details. I'm very frank with you because that is also a true competitive advantage we would like to achieve here. But the chemistry of the next-generation of fuel cell will be of eminent importance to achieve that cost down and, at the same time, of course, power density and energy density. At the same time, last sentence on the cell side, I think it's really important to reduce the amount of critical elements like, for example, cobalt in these cells. That -- we already, today, we buy lithium and cobalt by ourselves to make sure that we have enough of that. We don't leave that alone to our cell suppliers. And we are very happy with the current partners, by the way, whether that's CATL or Samsung or EVE in China and then later on, from 2024 with Northvolt. I think we're not in a monopod situation here. It's a strong -- really strong supplier network. There's no need to invest in that ourselves, at least not for the time being. And looking at the end of the decade, of course, there's discussion about solid-state batteries. I compare that very much to the development we have on the quantum computers side. It's not 100% sure which kind of physical effect at the end makes the race. Is it the oxide, the polymer side? Or is it the sulfide side? There's a race going on. At some point in time, there will be solid-state batteries, but not in 2025. But of course, it can happen then very quickly afterwards. We will have to see. That would be my questions (sic) [ answers ] to your both questions. Yes. Thank you.

Thank you very much, Stephen.

Next question comes from Angus Tweedie, Citi.

Hello, can you hear me?

Yes, we can hear you.

Yes, we can hear you. Go ahead.

Firstly, to Oliver, and perhaps coming back on this going all-in point to exhaust that one. I mean, clearly, you're ahead of the free cash flow targets we've been thinking about in the past as we go into 2021. Would you consider using excess cash flow to accelerate your growth and perhaps expand that pool of 10 million vehicles you're targeting in the midterm that you can monetize through software? And secondly, for Dr. Peter, if we could just touch on fixed costs. Firstly, you had very impressive reduction in headcount this year, and we're expecting a further decline in 2021. Can we expect further declines from there going into the midterm? And then secondly, a question we continue to get from investors, and it'd be great to get some clarity on this, is clearly, having a multi-powertrain approach at the moment to your EV strategy gives you flexibility but does come at a higher variable cost situation. Can you perhaps discuss how much of a drag that is on margins at the moment to help us scale that? And how much upside we could potentially see as you eventually part from ICE?

So thank you very much, Angus. We start the first part, was the free cash flow target and the multi-powertrain will be answered by Oliver and then Nicolas about the expectation for the fixed cost. Yes, Oliver, we'll start with you.

Yes, Angus, thank you. I think these questions are very much at the fundament of our company philosophy. Profit and cash performance is always extremely important for us to combine that with the long-term perspective. Let's look at the first 2 months. We increased our xEVs in the first 2 months by 112%. And that, of course, is pushing money right into our free cash flow. So that is working pretty well. And as I said before, that's on the EV side, that's on the hybrid side, and that is again on the internal combustion engine side. And if we can grow faster, we will do so. It's all about operational performance. And as you heard already, until now, we have not stopped any plants due to the chip shortage. That is also, I think, a strength from BMW to have an in-depth knowledge of supply chains all the way back to the foundry and the fabs. We cannot exclude that there will be no problems in the next couple of weeks. But until now, I think we showed a really good performance here. And that is right linked to our multi-powertrain philosophy. If you -- that's our conviction. If you do that, and you not only say it, but you do that, you will be on a shrinking scenario. You will not be able to grow from the point on when you stop that. And by the way, no one is stopping selling combustion engines now. These are all things about 10 years in the future. And there's no indication that the whole world will shift inside of one decade. And I think the -- you don't have a choice. If you want to grow market share, you have to do that. The only thing you have to do, you have to be -- you have to have the best combustion engine in the world. And if you look at the combustion engines and I look now 5 to 10 years in the future, that is a different combustion engine than we know today. Currently, you have 48-volt systems, which are called mild hybrids. And there will be a different step beyond that, a lot more electrified, but they're still a combustion engine. But that has nothing to do with current combustion engine we see today. So that is also important, what is happening on that side, because also in 10 years, there will be people with -- who do not have access to a plug. From our point of view, today, it will be 30%, 40%, maybe even 50% of the -- of our customers. Yes. And I think the cost answer, I think, Nicolas is going to answer.

Yes. That was a question about the expectation for fixed cost development, Nicolas, yes.

Angus, maybe let's start with the personnel development in 2020 and what can be expected in '21. As I've outlined, we've reduced by approximately 6,000 employees. The truth is, the reduction was more significant because, at the same time, we were building up, increasing, reinforcing our teams in very relevant areas of the company, in particular, electrification and digitalization software, software competence. And as we are speaking, we are setting up, I think Frank outlined this already this morning and Jochen as well, we are setting up a partnership in China to add some additional software engineers to our workforce. For '21, you can expect a further slight reduction overall, but we will continue on our journey to, on one hand side, become more efficient in many, many areas, while at the same time, reinforcing our teams in the very relevant and critical areas for the future. And this is something which is not only related to headcount targets. You've seen in our numbers that overall, on the fixed cost side, we have become much more efficient. This is due to our performance program, which played a key role in this reduction. Just to give you a further example, we've been able, over the last 1.5 years, to reduce our indirect cost spending. So not related directly to production and as a car by approximately EUR 1 billion per year, which I believe is a really good and strong result. Now if you think about the multi-powertrain cost effects, I think the important element, I already gave in my previous answer, is the fact that we have invested in the last couple of years, significant CapEx in order to reinforce the flexibility in our plants. This is something we definitely will benefit from. And this is exactly why we are able, in a very efficient way, to produce today in one plant. And best example is China, where we produce an X3 with a combustion engine on the same production line as an iX3, which is exported from China to other markets.

Thank you very much. Next question, please. And we can take some more questions. Yes, we have a little bit more time.

The next question comes from Daniel Schwarz, MainFirst.

It's actually on the dividend. So you had a very strong cash flow last year and you're guiding for better cash flow this year. You said earlier, a large part of the investments are done, and it's time to harvest. And still, you cut your dividend for the third time in a row and you end up at lower end of the payout ratio. So the question is, really, why do you not at least go to the upper end of the 30% to 40% payout range as the market seems clearly not to reward you for owning so much cash? And my second question would be on CO2. Could you say how much you benefited from the phase-in rule in 2020 in Europe and from super credits in terms of grams for the fleet average?

Okay. Thank you, Daniel. We start with Nicolas and then Oliver.

Daniel, I really think we have a very, very consistent strategy regarding our dividend payout. When our -- in years where our results are better, we pay more. And in years like 2020, where, for obvious reasons, the coronavirus, the result is different from what we expected, we adjust our dividend in the other direction. And we believe that, in particular, 2020 was a clear indicator how important a strong cash position in our businesses. We had liquidity position in our company, which, by the way, is highly appreciated by the rating agencies. We have the second best rating in the industry from a global perspective and the best rating of all European manufacturers. And this is very relevant in our business model. Why? Because, as you know, approximately 1 out of 2 cars are financed via our financial services organization and the strength of our credit rating gives us the access to the capital markets we need. So based on that, we believe that the strategy we've implemented since many, many years is a very consistent, a very reliable one. And we are planning to stick to the 30% to 40% range. And as I said, in particular, in years where we had a lot of high volatility, we believe that EUR 1.90 is exactly the right decision.

Thank you. Nicolas, Oliver?

Yes, your question towards the phase-in. Let's look what we achieved last year. BMW achieved the biggest decrease of the year before with an underlying underscoring of almost 5 grams towards our target of 104 grams, we ended up with 99 grams. So we stayed substantially below the official target from the EU. And of course, the phase-in through double counting of BEVs, through tech innovations and so on, that had an effect. But the effect is not as big. It's a single-digit gram, a low single-digit gram effect. Why do I say that? This year, in 2021, we have new targets. They are not NEDC anymore, they are WLTP. And our difference to the target in our prognosis will be even higher than the 5 grams we scored last year. And most of the phase-in effects will be gone. So the underscoring of the 5 grams we have here did not depend very largely on the phase-in effects we had here because the year 2021, you will see even bigger effects. That would be my answer here. And I think what is important compared to 2019, in 1 year, we reduced our footprint of the new car fleet by almost 20%. It's a big, big, huge leap, and we will continue that, of course. And this year, of course, our best offensive and electromobility offensive will play a major role in that.

Thank you, Oliver. So ladies and gentlemen, thank you I think we have time for 3 more additional questions. So who wants to start with the next question?

The next question comes from Patrick Hummel, UBS.

Yes. Can you hear me?

Yes, fine. Go ahead.

Okay. Perfect. Patrick from UBS. The first question I have, and it's good to see that you're accelerating your EV effort. It would be great if you could just underpin that a little bit. Looking at the next 5 years, your spending in CapEx and R&D, can you just give us at least a rough split what goes into EV, what goes into software and what still goes into the legacy business? And my second question is about the strategy to market with your EVs. For the next few years, most of your EVs are going to be on these multi-energy platforms, which means that you really can see what demand is, you can react flexibly as you highlighted, but there are others in the market that really push the pedal to the metal literally in EV cells. They have built dedicated plants. They have dedicated platforms that need to be amortized through higher volumes, through scale. And they might have a better cost position than you have. So you are more in a price taker situation in a way, if you really want to push your best volumes as well. So can you just help us a little bit balancing this price volume conflict and the fact that there will be others in the market that will push their best sales way harder than you might?

Thank you, Patrick. I think we start with Nicolas, and then for the second part of your question, Oliver. Nicolas, please. Yes.

Patrick, as you can imagine, as we are accelerating the rollout of EVs with the clear targets we have set for '25 and '30. And as we are investing even more, in particular, in the area of software competence, this share is going to increase in our overall spending. And if you add up CapEx and in particular, R&D costs, it will be above 50% of our total spending.

Oliver?

Yes, Patrick, thank you. Thank you for that question. I think we have to say something about how we develop cars. And we still think what I explained to you now is of fundamental importance and a big competitive advantage BMW has. BMW has never thought in platforms, never. And that is for a good reason we think in tech modules. One example is, if we look at an operating system, but that could be any other component as well, could be a battery cell. This tech component, you will see in all our cars. If you look at an operating system, you will see that in a MINI, BMW and a Rolls-Royce. The customer, of course, doesn't see that. And that is where we scale our efficiencies. And the platform, like you traditionally think of a platform, there's a plant with a lot of robots and then specific components come to the line, and that is one platform, and there's a different platform for other segments. This is not how BMW works. And that -- and I don't know any company who works like BMW because you need decades to build up that competence. How does that filtrate into our products? Look at the iX, which we showed, that is not a platform. That's a tech stack. And you will see the operating system, you will see the battery cells, you will see the steering wheel mechanism, you will see the control units for our axles in other cars as well. They might be adapted if it's a higher market segment or with different weights of the car. But the principle is always the same. There is a car and the iX is not a platform at all. It's a singular car with a dedicated vehicle body, but all the components, and that is where the real cost lie will be scaled substantially beyond that car. And that is the trick how we do that. And that's, by the way, we needed such a long time to start that offensive. And you will see that competence now in the i4, you will see that in the 7 Series, and if you think in platforms, you might have the impressions that you need to go on these platforms. And I think we have a strong, a really strong competitive advantage to do the business quite differently. You make, of course, a big step then when you need different tech stacks, either on the battery side or on the operating system side or on the digital side. And that's why the [ new ] cluster. It's time in about 5 years to make a next big step. But that's not only a platform, we rather think in tech architectures, and that has proven extremely efficient for ourselves. And that is why it's also important that all plants can do these tech stacks as we call them. And the best -- you will see the i4 and the iX. You might think they are not on a dedicated platform. They will be superior in their performance. And we do not think in these very black and white platform thinking because we see a true competitive advantage on the cost side to do it rather in a module-related kind of way. Yes, that would be my short explanation to that. Yes.

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

The next question comes from Henning Cosman, HSBC.

I have two questions, a little bit similar to Dorothee's, both on China. So if you could please just confirm that the dividend from China contribution towards your 4 billion free cash flow guidance will be normalized again this year, maybe in the order of magnitude of 400 million, 500 million. That's my first question, please. And then secondly, if you allow me to just ask you or challenge maybe a little bit on the free cash flow accretion from the JV consolidation in 2022, I believe that the data you mentioned the 3-digit million number when you address it for the first time in the next January. If I consider the longer EBITDA and you adjusted for CapEx and for tax and you net out the dividend that you won't be receiving anymore, I calculate more in the order of magnitude of 1.5 billion for free cash flow accretion. So I'm just wondering if you could help us out as I'm completely off there with my calculation, or if that's maybe an order of magnitude that you could agree to?

Yes. Thank you very much. Henning, this will be answered by Nicolas.

Well, let's maybe start with the way how we decide in our joint venture on dividend payments from BBA to BMW. And this is, of course, done based on profitability and cash position. In 2020, we had an exceptional situation, an exceptional inflow as we've already referred to in our -- I think it was in our August telephone conference. It was a second part of a dividend payment, which was decided for the year 2019. In '21, we will take the decision, as always, during the during the second quarter. Of course, you have to integrate that 2020 [indiscernible] and you probably followed the telephone conference with [indiscernible], was a pretty good year in China, where we have seen not only volume, but profitability developing in the right way. And of course, BBA is generating based on this volume development and strong pricing has a good free cash flow development. And this will have, of course, of course, a positive impact in the first year of consolidation. Let's see next year what the impact will be exactly, and we will include this in our guidance.

So ladies and gentlemen, we come to our last question, please.

The last question comes from Horst Schneider, Bank of America.

Well. I basically just have only anymore -- 1 left, and that is on pricing. So we haven't talked about that so far. When I look at your Q4, then there seems to have been a positive price impact, but not as big as those that we have seen, for example, at Mercedes or Audi. So therefore, I want to understand why that was, in relative comparison, a lower effect? What trends you are seeing year-to-date? And if you don't think that you have got considerable catch-up effect ahead on pricing compared to the peers?

Oliver?

If you look at contribution margin, it's a very simple equation. You have a cost side and you have a pricing side. And what we do very rigorously since a couple of months to look very clear on the cost side. We talked about that already what our performance programs are. And of course, the second part of the equation is the pricing side. We're not in the business of losing money. We want to increase the share of profit with every individual car we sell. And that has a lot to do with data analytics that you look at every market, every segment, every region, every customer to deliver exactly what the customer needs. And that is the trick. You don't do mass marketing in the premium segment due to individual offers for individual customers. And I think that is where we learned a lot, and we are continuing to learn how do we attack markets with very individual pricing approaches. And that to have the right pricing in the market is an art, and we are getting better. And you just said, you saw it in the market, and we would like to push that further to get that -- the equation between the cost side and the pricing side right. And I think we are moving quickly on that side.

Nicolas?

If you look by individual regions, we have -- and I'm not comparing to competitors, I'm focusing on our numbers. We have seen a very strong development in China. We have seen a really good development in the U.S. and this good development is also backed by the development of the inventory level, be it new cars or used cars in the dealer organization. And we have seen strong momentum in the most relevant European markets despite the corona crisis. And this is, I guess, backed also by the quality of our product portfolio and moving into 2019. One of our clear objectives, we have fixed ourselves is exactly to maintain this strong development in terms of pricing.

So thank you very much, ladies and gentlemen, thank you for your questions and your personal interest. We hope it is not too long before we see one another again. We wish you a pleasant day and above all, stay safe. Thank you very much from Munich, all the best for you. Bye-bye.