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

Good afternoon, ladies and gentlemen. This is Maximilian Schöberl. I would like to welcome you all to our telephone conference today. With us are Oliver Zipse, Chairman of the Board of Management; and Nicolas Peter, our CFO. First, Nicolas Peter will take you through our financial results. Oliver Zipse will then give you an update on the business performance during the quarter. Afterwards, we will have time for our Q&A session. So we start with Nicolas. Nicolas, please go ahead.

Thanks, Max. Good afternoon, ladies and gentlemen. The BMW Group's positive business development in the first 9 months of the year confirms our strategic costs. Throughout the semiconductor shortage, our employees have delivered outstanding performance month after month. That is how we were able to raise our expected targets for the year again in September. All segments are on track to meet our guidance for the year. We continue to focus on gearing the BMW Group towards emission-free mobility. Funding the investments needed from our ongoing business, we will keep our Performance program going with the main focus on the consistent expectation of market potential. Moreover, we are picking up the pace in the digitalization of processes across the entire company. And we will continue to work consistently on the optimization of our working capital, in particular, on our logistics. Let's start with the financial figures for the group. Group revenues for the first 3 quarters of 2021 climbed by 19.2% to EUR 82.83 billion. Third quarter revenues increased to EUR 27.47 billion. As expected, group earnings before tax for the year to the end of September were significantly higher than the previous year at EUR 13.15 billion. The figure for the third quarter was EUR 3.42 billion. The group EBITDA margin for the year to the end of September was 15.9%. In the third quarter, it was 12.4%. We, therefore, can be confident that we will not only achieve significantly higher group earnings for the year, as previously announced, but also surpass our long-term target of at least 10% for group EBITDA margin. After a strong first half year, third quarter vehicle sales were, as expected, lower than the prior year quarter due in part to the ongoing semiconductor supply bottlenecks. Strong customer demand is reflected in continuing positive pricing effects while the model mix has also continued to improve. Sustained high prices on international preowned car market also resulted in very favorable income levels from the resale of end-of-lease vehicles in the third quarter. This has enabled us to more than offset the decrease in volumes. Ladies and gentlemen, with the market launch of the 2 all-electric iX and i4 models in November, we reached another major milestone. New orders for both vehicles are very strong. We continue to push forward with the electrification of our entire model range as planned. As previously announced, we are also making further investments in digitalization. This will be a particular focus for us this year and in 2022 with respect to both our vehicles and our processes. By the end of the year, the BMW Group will have the largest fleet capable of over-the-air upgrades among the competition with around 2.5 million vehicles. Also, as previously announced, research and development spending for the third quarter was up almost EUR 200 million on the previous year at EUR 1.6 billion. This was also higher than the preceding quarters. The R&D ratio increased to 6.5% for the quarter and 5.3% for the first 9 months of the year. We continue to expect the R&D ratio for the full year to be on par with the previous year at about 6%. At around EUR 950 million, capital expenditure is also higher than the previous year's quarter, as planned. This represents a CapEx ratio of 3.5% for the third quarter and 3.2% for the year to the end of September. We still expect the ratio for the full year to be well below our target figure of 5%. Through the overall positive market development, the BBA result in the financial result continued to improve in the third quarter. Ladies and gentlemen, let's move on to the individual segments, starting with the Automotive segment. As expected, semiconductor supply bottlenecks slowed down sales in the third quarter. However, thanks to our ability to respond quickly and the high level of flexibility in our global production system, we were able to limit the impact on vehicle manufacturing. In line with strong customer demand, revenues increased to more than EUR 70 billion in the year to the end of September. Third quarter revenues totaled EUR 22.63 billion, around 3% more than the previous year. The segment also achieved a new all-time high with an EBIT of EUR 7.95 billion at the end of September. Despite the decrease in volumes due to the supply bottlenecks, EBIT for the third quarter rose by nearly 19% to EUR 1.76 billion. This represents an EBIT margin of 11.3% for the year to the end of September and 7.8% for the quarter. As expected, the earnings momentum weakened at the start of the second half of the year compared with the first half year. In addition to the semiconductor issues, increased raw material prices and higher fixed costs due to the growth in research and development spending also had an impact on earnings. However, this was offset by positive pricing effects resulting from supply shortages and the positive trend in residual values. This development is also reflected in the contribution of our Chinese joint venture, BBA, to the financial result. The total third quarter at equity result was EUR 35 million higher than the previous year. The strong earnings momentum and consistent ongoing management of inventory levels are also evident in the segment's free cash flow. At the end of September, free cash flow totaled almost EUR 6.3 billion despite higher capital expenditure, scheduled cash outflows for personnel restructuring measures and payment of the fine imposed by the European Commission in connection with its antitrust proceedings. This means we are on course to meet our upwardly adjusted target for 2021 of around EUR 6.5 billion. We anticipate a further increase in capital expenditure in the fourth quarter as well as a significantly higher advance tax payments. Due to the supply bottlenecks I mentioned, earnings development will also weaken slightly compared to the first 9 months of the year. The Financial Services segment once again delivered a strong performance. More than 1.5 million new financing and leasing contracts were concluded with retail customers in the year to the end of September. This means the number of new contracts is also higher than in 2019 before the pandemic. Between January and September, segment earnings before tax climbed by nearly EUR 1.9 billion to more than EUR 2.9 billion. The figure for the third quarter increased to EUR 988 million. A key factor in this development remains the exceptionally positive trend in preowned vehicle markets worldwide, leading to higher income from the resale of end-of-lease vehicles. Expenses for credit risks auto remain low. In the prior year, we adjusted risk provisioning for the pandemic, which had a dampening effect on segment earnings. The Motorcycles segment also performed well in the first 9 months of the year. More than 156,000 motorcycles were delivered to customers in the year to the end of September, a fifth more than in the same period of 2020. The segment's operating earnings almost tripled to EUR 323 million. The figure for the third quarter was EUR 39 million. This represents an EBIT margin of 14.3% for the first 9 months and 6.1% for the quarter. Ladies and gentlemen, let's move on now to the outlook for our key financial and nonfinancial performance indicators. We expect to see a significant increase in group pretax earnings for the full year. The number of employees is projected to be slightly lower than last year. In the Automotive segment, we are forecasting a solid increase in the number of vehicles delivered to customers compared to the previous year. Electrified vehicles will account for a significantly higher percentage of total volumes. By the end of September, we had already sold more than twice as many battery vehicle -- electric vehicles than in the previous year. We will once again significantly reduce the CO2 emissions of our new vehicle fleet. However, the current uncertainty over semiconductor supplies will continue to disrupt production in the fourth quarter. As previously announced, high raw material prices and the increase in fixed cost towards the end of the year will also impact earnings. We expect the EBIT margin in the Automotive segment to be within the range of 9.5% to 10.5%, as previously communicated. The main reason for the positive adjustment of our guidance in September was continued positive pricing for both new and preowned vehicles. In the Financial Services segment, we expect a return on equity of between 20% and 23%, in line with strong business development and the positive residual value and credit risk situation. In the Motorcycles segment, we anticipate a significant increase in deliveries. The EBIT margin will remain within our target range of 8% to 10%. Our guidance assumes that political and economic conditions will not deteriorate significantly. Ladies and gentlemen, as previously announced, we expect a stable earnings development in the fourth quarter. Customer demand will remain strong. However, the semiconductor supply bottlenecks will still be the main influencing factor. Our strong performance in the first 9 months of the year, once again, proved our operating strength. At the same time, we continue to focus on the further technological development of our products. That is why we will enter the year 2022 with full confidence. Thank you.

Thank you very much, Nicolas. And now Oliver Zipse. Oliver, please go ahead.

Good afternoon, everyone. As Nicolas Peter just outlined, the BMW Group is profitable and the company is growing. This is thanks to our customers around the world as well as strong demand for our products and drive technologies in all their diversity. We delivered 1.9 million BMW MINI and Rolls-Royce vehicles to customers in the first 9 months of the year as well as 156,000 BMW motorcycles and scooters. This represents an increase of 18% and 21%, respectively, above the previous year. BMW once again gained market share and captured 3.4% of the global market as a premium manufacturer. We were also able to expand our strong competitive position in key markets, such as the United States of America and China. BMW leads the premium segment in numerous countries. In addition to China and the U.S., this is also the case in Mexico, Brazil and other markets in South America as well as South Africa and several European countries, including our domestic market of Germany. This shows that we are maintaining our successful business development, and we can, therefore, confirm our adjusted guidance for 2021. Our profitability is ultimately a means to an end. In this way, we are now laying the foundation for continued investment in relevant future areas of activity. More than half of our investments go into future fields of activity. As a global company, we have a responsibility to ensure the BMW Group's business model is viable in the long term and under all possible conditions. On the one hand, this means we have to approach the short-term changes in our environment with flexibility, but also consistently. At the same time, we continue to follow our strategic direction in line with our long-term goals and are making the necessary decisions. I would like to discuss with you these 2 perspectives in more detail today, what are we focused on right now and how are we setting ourselves up for the years after 2025. Now directly to the first point. This year, we have demonstrated once again that we are capable of overcoming difficult situations. This applies equally to the lingering effects of the coronavirus pandemic as well as to the current situation with semiconductor supplies. Our divisions, Purchasing Development and Production as well as Sales and Marketing, are working together very closely on this and exhausting all possibilities. Our stable and trustful relationships with suppliers worldwide also mean that we have so far been able to cushion the impact for our customers better than many of our competitors. Not only all our brands, but also all major regions of the world saw significant growth until September. Europe, more than 10%; Asia, almost 20%; the Americas, over 30%; other markets grew by almost 30%. As expected and as previously announced, the sales momentum for our electrified vehicles is particularly strong. Our deliveries of electric vehicles and plug-in hybrids doubled between January and September compared to the previous year. Our BEV sales were even 120% higher year-on-year. E-mobility has fully arrived in our everyday lives. However, the charging infrastructure isn't keeping up. Here in Germany and all across Europe, it needs to be expanded swiftly and noticeably while also being binding and ambitious. I'm also advocating for this as ACEA President. The growth of electric cars already exceeds the growth of current charging capacity in Germany by a factor of 5. Many EU countries still don't have a charging network at all. Without a coherent framework, no technology can be implemented or become widely accepted. This applies to both e-mobility and hydrogen. A further fundamental requirement is that our customers are already enthusiastic about eDrives today, and we can state that we are on the right track here. To quote a recent headline, "The best 4 Series is electric." The new BMW i4 is getting a lot of praise like this. Some of you have also driven it and were impressed. This is how we create desirability. We are building the new i4 at our oldest plant right here below our headquarter. And this is where the change is most visible. We're gradually relocating our engine production to other sites without cutting jobs. Instead, an assembly plant for electric cars is being built on the same site. That gets us moving swiftly and quickly. By 2023, at least half of all vehicles from plant Munich will have an electrified drivetrain and the overwhelming majority of them fully electric. With its new vehicle assembly, the plant will also be able to produce up to 100% BEVs from 2026 onwards. That is how systematic transformation works. Starting this month, the i4 and the iX will also be available alongside our electric pioneer, the BMW i3, our successful urban model, the MINI SE and the BMW iX3, which is built in China. And then over the next 2 years, these will be joined by fully electric version of the high-volume BMW 5 Series and X1 as well as next year, the 7 Series. What this means for our customers is that by 2023, we will have at least 1 fully electric model in about 90% of our current market segments, so our customers will be able to choose. Nevertheless, we still have a long way to go until all our customers in all countries around the world are able to rely solely on electric driving. But when it comes to climate protection, every single gram of CO2 we can avoid today counts. That is why we need competition between technologies in the interest of customers and for less CO2. Anything else would put us on a consolidation course. Now let's move on to my second point, how are we setting ourselves up for the years after 2025. We see technological change as a tremendous opportunity to strengthen our business model for the long term. Technology can protect climate. We're systematically gearing the BMW Group towards climate neutrality. What does that include? First, continuing to ramp up e-mobility for all our brands. MINI and Rolls Royce will be exclusively all electric from the early 2030. We will be taking our core BMW brand into a new fully electric dimension with an OE cluster from 2025 onwards. The same applies to the digital experience of mobility for our customers. Second, our strong commitment to climate neutral mobility. To achieve this, we've again tightened our ambitious sustainability goals for the supply chain, production and the use phase. And thirdly, our focus is on the circular economy. We showed what this looks like in practice at the IAA Mobility here in Munich. We have received extremely positive feedback worldwide on the BMW i Vision Circular. It is made of 100% recycled material and is itself 100% recyclable. And we don't just make announcements. We let our actions speak for themselves. For the Neue Klasse, for example, we are sourcing green steel manufactured using hydrogen and green power from Swedish -- from the Swedish start-up, H2 Green Steel. In this way, we can drastically reduce CO2 emissions from the very beginning of the supply chain. The real question after all is, what is a vehicle's overhaul carbon footprint throughout its life cycle? From the use of raw materials through industrial manufacturing and active use all the way to its recycling, the credibility of this is measured by whether concrete action can be verified at the end. That is why the BMW Group became the first German automotive manufacturer to join the Business Ambition for 1.5 degrees. This entails a commitment to climate neutrality by 2050. Furthermore, the BMW Group will gradually increase the percentage of secondary material it uses in its vehicle from 30% to up to 50%. In all sectors, sustainability and digitalization have long been closely linked. And that is precisely why we have established together with other partners, the industrial flagship project, Catena-X, which now -- which we now seek to strengthen further. Catena-X creates transparency from small suppliers to OEMs. This cross-sectoral connectivity is a real advantage for Europe as a manufacturing location. Today's modern vehicles are already shaped largely by software. With research and development activities at 10 locations worldwide, our own and also at our joint ventures, we have a total of around 10,000 IT and software specialists working on digitalization of vehicles. We have been moving forward with connectivity in our vehicles for more than 2 decades. And we see this again right now. By the end of this year, the BMW Group will have the world's largest fleet of vehicles with over-the-air updates and upgrades capabilities on the roads. Our Remote Software Upgrade benefits our customers directly. Their vehicle is not only always up to date, it also keeps on getting better because we can access every line of programming code in the vehicle. Standardization is key to the digitalization of cars. In this process, we are working with tech players like Apple, Amazon, Tencent, Google and Intel, but still -- while still competing with them at the same time. I see this less as a clash between OEMs and tech giants and more as an expression of the market reality in the digital age and a way to guarantee further progress. Ladies and gentlemen, in a multilayer transformation process, employees are meaningful seismograph, providing a valuable indication of the state of a company. The result of our employee survey in October show our team really sees the transformation as an opportunity, we have the right balance of disruption and stability, and we consistently combine change and responsibility. We are finding solutions and moving fast and taking our people along with us. This is how the BMW Group will remain on course for long-term success by being profitable, innovative and responsible. Thank you.

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

[Operator Instructions] And the first question is from Dorothee Cresswell, Exane.

It's Dorothee Cresswell from Exane. My first one is around the raw material supply for batteries, so cobalt, lithium and nickel. We've recently seen costs for those materials spike. And there is also a concern that we could run into real supply bottlenecks in the not-too-distant future. So how concerned are you in terms of what that means for your BEV profitability assumptions? And are you worried that supply shortages could put your BEV growth targets at risk? I have one more question around your BEV production plan. So I think among your German peers, you've provided no details on which electric products were localized in the U.S. And I'm just wondering whether that's because your electric SUV needs are fully covered by capacity in Germany and China or should we expect you to announce the production of a BEVx model in Spartanburg in the near future.

Thank you very much, Dorothee. I think we start with Nicolas and then for the protection -- production plans, Oliver. Nicolas, please go ahead.

First of all, Dorothee, as you can imagine, we are following the topic of development of commodity prices extremely closely. And if you reflect on the last quarter Q3 and compare it to Q3 2020, we have been able to offset by operational strengths and negative impact in the low 3-digit million area coming from commodity prices, and we are offsetting this by, in particular, an improvement in mix and pricing and, of course, sale of used off-lease vehicles. And if you look -- because your topic is not only focusing on the short term and we have plans for '22, as you can imagine as well, but it's even more mid- and long-term oriented. And this is why the issue which was addressed by Oliver, circularity, is so extremely important. To become less impacted by fluctuation of raw material prices, it's extremely relevant and important and this is why we work very hard in research and development and procurement to reuse, to recycle step by step even more materials and not only sell material, but this is related to all components of the car, and Oliver mentioned one important example being also the steel topic.

To your second question, Dorothee, you know that we have a global production network with large footprints here in Germany, of course, where I've just said that we are rebuilding the Munich factory and the Dingolfing factory. The actual rollout of electromobility depends on the launches of the cars. And with our life cycles of some 7 years, over time, there will also be pure BEVs in the United States, which is still our biggest plant in Spartanburg. But of course, that depends on the actual launch of the vehicles. So yes, over time, there will also be electric cars, but it's too early to tell the exact date.

The next question is from Kai Mueller, Barclays.

And the first question really regarding your pricing and mix. We saw a pretty good development on your revenues despite, of course, weaker volumes, yet some of your peers seem to have been increasing prices even more aggressively. Can you give us a sense in terms of how you balance internally your pricing versus volumes? And would you be willing to sell a few -- fewer cars at higher price points? The second question was really around your dividend policy. You've traditionally paid out about 1/3 of your net income. Should anything change when we think about now the one-off book gains you've had, of course, related to the revision of the provisions as well as the pension? And how do we need to think about it once you have your book gain next year from your Chinese acquisition? And thirdly is just on your order intake on the i4 and iX, and thanks again for organizing this driving event, which was excellent, how have they been trending so far? And I remember there were difficulties actually sourcing the battery sourcing supply to meet the increased demand. Could you give us an update on that as well?

Okay. Kai, thank you very much. We start with Oliver about the iX and the i4, and then Nicolas. Oliver, please.

Yes. Thank you for your question, Kai, and also thank you for participating in our drive event. The order intake for the i4 and the iX likewise are very high. We have a big production list, and this will lead well into the next year already. So we are very happy about the current success of these 2 cars. About 6 months, we announced that we almost doubled our sourcing of our batteries from some over EUR 11 billion to over EUR 22 billion. And that, of course, gives us the possibility to follow this market demand. And there's no specific update on that. We are preparing for a swift ramp-up more than 100% in the year '22 compared to the current year. So we are prepared to follow the market demand.

Kai, first, your question about pricing mix development. As you can imagine, we are following extremely closely what our competitors are doing in terms of pricing and list pricing. And to be very straightforward, I do not know one of our competitors having been more aggressive in terms of pricing. I know one, in particular, in the EV area who has reduced in quite a substantial way prices in China, in particular. So -- and this brings me to the balance between volume and pricing. It's not the one or the other. You have to have, and this is exactly what we've developed, a very clear road map, what do you want to earn by segment and by market because, as you can imagine, due also to currency fluctuations, profitability is different and varying from market to market. And we have a very clear system in place to manage this in a very consistent event with. And this is why I've already mentioned in our conference this morning with media representatives that our improvement in terms of pricing and price realization and profitability started before the corona and -- COVID impact due exactly to those improved processes. Talking about dividend policy, we have a clear dividend policy, which means between 30% and 40% of profit being distributed to our shareholders. And from today's perspective, there is no reason to change our policy.

The next question is from Gabriel Adler, Citi.

This is Gabriel from Citi. I've got two, please. My first is on semiconductors. It's very clear you mentioned that BMW has done very well this year compared to peers in managing semiconductor availability. And it looks like that continued in October from the latest European registration data. Can you just help us understand maybe how much of this is because you canceled fewer orders when the crisis first emerged and how much of it relates to managing your supply chain differently to peers through the crisis? And then my second question is also on pricing, but slightly different. Can you maybe help us understand how much of the price benefit that you've seen in the auto business was coming from used cars? I understand the profit-sharing agreement means that both auto and FinCo will benefit from remarketing, but it would be really helpful to get some more color on the rough split here and how much used cars specifically supported auto margins in Q3 perhaps.

Yes. Thank you very much, Gabriel. Your question will be answered by Nicolas.

Look, Gabriel, let's start with your second question. If you look and we are talking about the third quarter and compare the third quarter '21 to 2020, we had, on one hand side, a negative impact from volume development in the area of EUR 0.5 billion and then we had a positive impact from pricing, which was slightly higher than EUR 0.5 billion. So that's with pricing. And then another EUR 0.5 billion coming from the -- resell or the better pricing in used cars. So overall, the balance between both affects pricing on one hand side and used car pricing on the other hand side was pretty well balanced. Regarding semiconductors, you're addressing I think exactly the 2 relevant topics. On the one hand side, we have been already at a very early stage last year in the third and fourth quarter very transparent with our suppliers what we expect, what we anticipate in terms of volume in '21. And if I look at the outcome and incoming orders, our planning was pretty accurate, I have to say. And the other element is, of course, that -- and I can't judge what others are doing, but what I can tell you is that our team is really working, and I'm not exaggerating, day and night, to discuss and -- with our suppliers around the world to optimize and to find solution even for difficult situations. And in -- on top in a very -- not only the procurement department, but as you can imagine, also our production colleagues are involved in this. And we have also, I have to say, a very agile and flexible sales organization, which has been able to discuss in a very transparent way the semiconductor situation with our customers having placed orders. So all this together I think ends up in a result. And you're absolutely right, October was not bad, definitely not bad wasn't again a month in which we've seen our business developing slightly better than -- to be honest, than we've anticipated. And this has to do with this operational performance Oliver and myself addressed already.

The next question is from Arndt Ellinghorst, Bernstein.

Two questions, please. First one, Nicolas, please, on the cash flow performance. BMW delivered EUR 6.3 billion free cash flow, if not more, excluding the Cartel fine. And if I see it correctly, you haven't even received the dividend from China so far this year. And I think you're also not expecting a dividend in the fourth quarter from China this year. Can you just confirm that that's the right way to look at your free cash flow performance that if you finish with a free cash flow of EUR 7 billion to EUR 8 billion for the full year, that's basically excluding any dividends from China? And secondly, for Oliver, very interesting comments again on the importance of holistic emissions assessment across the entire value chain. In that context, it will be extremely important in my eyes not just to talk about full battery electric vehicles and starving importance of PHEVs, but also to discuss really smart future hybrid powertrains, which the public just has stopped completely to discuss. Can you just update us what you're thinking about hybrid powertrains is in the future, the importance, the relevance? And yes, that would really be helpful.

Okay. Thank you very much, Arndt, for your -- for the 2 questions. Okay. We start with the cash flow question with Nicolas and then Oliver.

Arndt, you -- of course, you -- and you know our guidance, it's around EUR 6.5 billion. And my team has prepared me all explanations why around EUR 6.5 billion is absolutely correct. On one hand side, we have additional investment. And then we have -- as you can imagine, we have more tax payments in '21 due to the improvement in results. And you are right also to refer to the fact that our year-to-date number does not include any dividends from China. Having said this, I would be disappointed if we would not be above EUR 6.5 billion, being at EUR 6.3-and-something billion at this point in time.

Yes, Arndt, this is Oliver speaking. Thank you for your question about the drivetrains and the PHEVs specifically. As we already said, for us, all 5 drivetrains are of high importance for our future setup. That's the diesel, the autos, the BEVs, the PHEV and then also the hydrogen. And talking about hybrids, you must not forget that in preparation for EU 7, the normal combustion engines become 48-volt engines, which are called mild hybrids. So more or less over time, all classical combustion engines will be electrified. It starts already next year with the next big ramp-up of the second generation of 48-volt engine. And on top, we have, of course, the high-voltage PHEVs. And we think they have still a place in the marketplace. They have been growing this year because they are very attractive customer -- offers for our customers, specifically in Europe, but also in China. And there's currently no regulation of who takes them out of the market. And I think for the customer, this is one of the best offers at least for this decade until the early 2030s where we can bridge the way into full electrification for some of our customers. And on top, a lot of high-performance vehicle, you will see they have high-performance plug-in hybrids. And the high-performance segments will be fully electrified or half electrified in the next coming years. So to answer your question, there's a solid place for plug-in hybrids in the BMW portfolio, yes.

The next question is from Patrick Hummel, UBS.

It's Patrick from UBS. Also two questions from my side. First one, for Oliver. And sorry to come back to benchmarking versus Tesla, but you delivered an 8% auto EBIT margin in the third quarter. Tesla is making now a 14% clean EBIT margin and even a 29% gross margin. You're at 8% EBIT and 19% gross margin. And I assume the EVs are a little bit below average of the group still. Needless to say, Tesla is growing much faster, its BV sales in absolute terms. And if I'm thinking about how BMW will ever close this gap in terms of margins to Tesla, I just don't have a smart answer. So what is your master plan? That's the essence of the question. In particular, in light of tightening raw material supplies, battery prices going up, is there any perspective for BMW to make margins in the teens for the battery electric cars if Tesla is so much ahead? And the second question is a little bit more near term, and maybe that's for Nicolas. I'm just thinking about the margins going into 2022, and I'm not asking for any specific guidance. But bearing in mind the EV share will be growing year-over-year, we'll probably see still some commodity headwinds in the first half and at the same time, some volume growth, which will be a tailwind, is there anything on the positive side for a further margin expansion? And I leave the consolidation of the China joint venture aside, that's a simple accounting thing. But really in terms of the underlying margins going into next year, is there any significant additional tailwind we should be aware of?

Thank you very much, Patrick. Then we start with Oliver and then Nicolas. Yes, Oliver, please?

Patrick, good question. I don't see that big difference between this performance of BMW and its competitors. If you look at the whole year performance, we're equally growing by 10,000 or 20,000 vehicles. We address -- and that's maybe a thing we should also consider, we are addressing the whole world market with 5 drivetrains. Other competitors look only and they address only 1 fast-growing market segment. Of course, that is working currently very well. But as we see the marketplace with some 90 million vehicles, even if pure EVs grow faster, and they will grow faster for the next decade, surely. But we consider it as a competitive advantage to be able to address the whole world market in all regions and all markets in the world. So that is for all. And I think our results year-to-date, I don't see that big difference you were talking about. In terms of profitability over the year, that's I think quite comparable. And we don't have a strategy to go away from our path of a very good transaction price control, and we also want to grow our market share.

Patrick, I think if we focus on '22 and you rightly said this is not a point in time to give a precise guidance for the full year, but as we speak today, we will -- we see some headwinds from commodity prices. We definitely -- thanks to our, as always, positive and more challenging side, our demand in terms of all electric cars is extremely high. Oliver mentioned this morning that we will grow by 100% in '22 compared to 2021. So those are the, what I would call, the major headwinds we are expecting. On the tailwind side, we have probably from today's perspective some positive effects from FX. So raw material plus FX will not be as negative if you compare to. If you look only from a raw material perspective, we expect, of course, as we achieved in the last year some positive effects from our performance program to be delivered. And you rightly said that we are planning to grow further in a very profitable way. And this is what I've already mentioned a couple of minutes ago. We have a clear plan to -- you even call it the master plan, region by region how we want, at the same time, to maintain an high level of profitability per unit, while at the same time, exploit the market potential in an even better way. So this is making us confident that even if it's too early to give a guidance that '22 will be another good year for the BMW Group.

The next question is from José Asumendi, JPMorgan.

José from JPMorgan. A couple of questions, please. Oliver, can you comment please on the merits of giga casting, if you think this could be an opportunity for you, specifically in the compact segment. And then second, in terms of over-the-air updates, I'd love to hear your thoughts on a 3-, 4-year view, some maybe practical examples of what you think you can invoice on these over-the-air updates going forward, maybe the -- within our Class series. And Dr. Peter, one question, please, for you on Financial Services. I'm just -- I'm looking at your earnings and they are amazing, to say the least. And I think this applies also to the whole industry. So it's not just a question on BMW, it relates to the industry, and I'd love to get your expertise here in the business. As you look at the next sort of 2, 3 years, are we entering a phase where Financial Services is going to be generating lower returns? And I'm just a little bit conscious of this mix between Financial Services and the industrial business where maybe we're going to have a shortfall in Financial Services or a normalization in earnings in the next 3 years and an improvement in industrial business. And I'd love to get your thoughts because I don't think -- we've never seen this cycle going back 15 years where Financial Services makes twice the money versus the previous cycle. And now we're probably entering this phase of a slowdown. Are we entering a phase of slowdown? Or am I wrong? Are there any other levers you can pull to maintain the profitability?

José, could you repeat your first question? We don't understand it fully. Do you speak about the giga factory? Or -- what was your question, your first question?

Giga casting. So basically, whether you see an opportunity...

What do you mean with giga casting?

So...

What giga castings?

Casting, with [ K ]. So were you...

Casting?

Casting. Were you able to basically cast larger components within the body and wide or the structure of the vehicle allowing you to save fixed cost investments in robot assembly, et cetera?

Okay.

Yes.

Yes. Yes. Yes. We understand giga casting. Yes. Yes. Yes. Okay. Yes. So...

I'll take it.

So we start with Oliver. Yes.

Yes. We wouldn't call that giga casting. It's a normal casting process like you can use in our vehicles. For us, there is no economic reason to have very large integrated parts in these vehicles. As you know, our lightweight bodies also contain casting components. But to increase them to a very large extent has substantial remedies, which we don't want, especially repairability costs, we consider them as too expensive. And the partially lower manufacturing cost is overcompensated by casting costs. So this is not in that very large component a strategy, we will not do that. We see much more efficient ways to build a car body.

José, talking about our FinCo business, Financial Services, you're absolutely right, our results in '21 are extremely strong. And this has, of course, to do with a couple of effects. On one hand side, we have -- thanks to our very strong rating, second best in the industry, best of all European OEMs, we have, also relatively to our peers, low refinancing costs. We have -- if you look at our credit management, and I've already addressed residual value risk, we have still a very -- also from a historical perspective, a strong performance in terms of credit risk. And I've already addressed the topic of residual value, the development. Is this a new normal, what we experience today? Most likely not. But am I optimistic that we will be able to stick to our long-term strategic targets? Definitely, yes. And we have developed plans together between our sales organization and our financial services organization and the dealer organization in the most important markets to implement an strategy which will support strong pricing. And based on this strong pricing, strong residual values also in the future, that's clearly an ambition we have and something we have developed and are implementing market by market.

Your next question is from Henning Cosman, HSBC.

Oliver, I really like what you said about the technological changes and opportunity for sustainable business model. I think José asked it just now as well. But could you maybe update us on the over-the-air revenue and EBIT opportunity? Are there some target years that you could share in the EBIT pool that you expect for yourselves? And maybe we can also talk about your 3 million unit target in 2030 and the way that you're looking to generate your EBIT. Do you still envisage that you're in the same or more EBIT vehicle in the Automotive segment? Or could you talk about whether you may be prepared to take a little bit less at the point of sale initially, but then take more of a subscription or on-demand service sales later on in the life cycle? And if I can squeeze a third, maybe you can just update us if you're still planning to give us more details about the China JV consolidation. I believe Nicolas had indicated that we could have an event like this in December. Are you still planning on doing this? And if so, when would that be?

Yes. Thank you very much, Henning. We start with Oliver and then Nicolas. Yes?

Yes. Henning, thank you very much. This is a really important question because the over-the-air update capability opens new business opportunities not only in terms of revenue, but serving our customers, quality updates, updates over a life cycle of 7 years and, of course, creating revenue. What we already announced, and that is quite solid that for the whole digital realm of what is in the vehicle, including that, that is already provided with the customers at the point of sale plus the revenue we get from over-the-air update, we intend to make a EUR 5 billion revenue in that. And it's quite difficult to say what is what. But that whole over-the-air update capability creates a new opportunity which is really important to us, and that is what we really want to expand. The second question was regarding, if I understood you right, the 3 million car target we have. The current year even gives us more confidence that is an achievable targets specifically because we have the technological capability: let's talk about EU 7, let's talk about expansion of EVs, let's talk 5 drivetrains we offer and being a global company. So we are quite confident -- without risking our cost of retail quality we achieved, we are confident that we can reach that.

Henning, from...

Sorry, if I can just clarify, Oliver, if you don't mind, it was more about -- less about the 3 million unit target itself, but more about the EBIT per unit. Are you envisaging to make the same or more EBIT per unit in 2030 and the digital revenue opportunity or EBIT opportunity come on top of that? Or could you envisage to take less EBIT per unit eventually because you'd be more confident to take more over the lifetime of the vehicle? So GM, for example, they have suggested that at the Capital Market Day that they would be quite aggressive to put a large fleet in the marketplace and have a larger revenue opportunity down the line.

Henning, from our perspective, to be very straightforward, this is a little bit theoretical. We are in '21. How exactly this will develop until 2030, to be honest, I believe nobody knows exactly to which share the one or the other will prevail. What is important and this is where the BMW Group is in the lead, we have the highest number of cars already today in the market, which can be updated over the year. We have the first not only pilots, it's already the business has started. And the number one challenge the whole industry is facing, and we are confident that we are able to manage this transformation is to stick to our 8% to 10% target despite all the headwinds we have from transformation, in particular, electrification of the industry. And I think so far, '21 is a good example because we've grown also this year our EV and plug-in hybrid chain in a quite impressive way. We are planning even more if you look until '25, and this is our #1 target. And if a customer prefers to buy an option, he will be able to buy the option when he buys a car. And if he prefers to go more for over-the-update solution later in the life cycle, he will be -- and he's already in some areas able to do it as we as we speak. Coming to your second point, China joint venture, our BBA road map is unchanged, and we are really on course with taking all technical steps which are required to effect a transfer of the additional interest in BBA's equity early next year as planned. And as a result, BBA will be fully consolidated into the BMW Group financial statement. And we will decide in the coming weeks what exactly is the appropriate timing later this year, earlier next year to have such a more in-depth analysis together with you. If you have a very, very specific question, of course, we are -- I think we are more than happy to discuss this in the coming weeks, just call us.

So ladies and gentlemen, it is 3:00, but we have time for two additional questions. So we'd like to start with the first additional question.

The next question is from Philippe Houchois, Jefferies.

I wanted to go into the topic of direct selling. I think BMW was early in experimenting direct selling in South Africa. More recently, we've heard more from your competitors, Volkswagen and -- or Mercedes about the topic. And I just wanted to get a refresher on where you -- how you see the industry evolving in terms of replacing the agency model with more direct selling, what the time frame would be and what your ambitions are. And if I can follow up on to that and thinking about your business model where you sell more directly, relying less on dealers. When I look at your group balance sheet today, you've got some inventory on your industrial balance sheet, but a lot of inventory financed for dealers through the dealer receivables. Am I being too optimistic in thinking that in a world of direct selling, you could potentially have better margins but also you could have a significantly smaller balance sheet if I look at the total size of your balance sheet, not OpCo and FinCo combined? Or am I being too optimistic?

Okay. Thank you very much. Nicolas, please start.

Philippe, first of all, maybe some comments regarding the direct sales model in South Africa. We've kicked off this pilot project back in 2019. And it's running very, very successfully. And it not only has improved our business case, but also our -- they are not dealer and agent business case. So both are benefiting. And this is why we are motivated to roll this out as this concept in other markets and regions. And if you look from a geographical perspective, of course, Europe might be the most relevant region to implement such a system. But it will not be -- to be very clear, it will not be black and white because we believe in retail. In particular, in Europe, it will continue to be a multichannel business. You have -- already today, you have markets like the U.K. or like the Netherlands where you have a high share already today of between 40% and 50% of direct sales or take a market like Austria, this has to do with the relevance of corporate and fleet business. What is I believe even more relevant and important is to further enhance and develop your digital capabilities. And this is something we are doing in a very, very systematic way by enhancing our and our dealer partners' web page. So this is the further development of the retail business in terms of digitalization plays a key role in our strategy moving forward. Your analysis is, in a certain way, right regarding your second topic. We see it already this year. We've managed inventories in a very systematic and I believe a good and strong manner, which resulted in a situation where if you look at the share of -- and the amount financed in our FinCo business with our dealer partners, it went down. It went down because there's simply less stock in the dealer organization. And this, by the way, helped to improve profitability as well in the FinCo business because if you look at financing customers, leasing and financing dealers, the less profitable one of the 3 pillars is the dealer financing. So as we continue to believe that low inventories is something we should aim for, we will definitely try to -- in '22 and beyond to further enhance and improve this approach. And this means our already strong balance sheet could even become stronger.

Good. Thank you very much, Philippe. And now we come to our last question.

The last question is from Tim Rokossa, Deutsche Bank.

Yes. I'd like to follow up on something you said earlier, Nicolas. And I have to say, I mean we know each other now for quite a while. And you sound almost bullish on 2022 by your own standards at this time or out of the year. So if you are so confident and you're also very confident on cash flow, as you just answered to Arndt's question, would you rule out the further cash returns to shareholders beyond just in any way, already very juicy dividend that is to be expected? And then secondly, Oliver, I'd like to follow up on something that you said earlier because I received quite a few irritated remarks to that from investors. There clearly is a big difference in the performance between BMW and Tesla. And you probably referenced someone else when you said there isn't really such a big difference. That's true for margins as it is for deliveries. Coming back to Patrick's question, do you have something like a master plan to address this? Or do you see the stock price reaction like we observed over the last few days as just capital market madness and tend to ignore it?

Good. We start with Nicolas and then the Tesla master plan and it's the right question from our German. Okay, Nicolas.

In as -- I guess you already imagined what I will answer. We will -- as I said earlier, we will stick to our dividend policy, 30% to 40% to be paid out. And if something different would be decided, we would, of course, inform you immediately. But that's not as we speak on our agenda yet. We have some operational topics to be addressed in the coming weeks and moving into '22, but we are aware that we have a very strong balance sheet.

Tim, regarding your question, I think there's a capital market perspective, and I can only simply say -- and you all know that there is no way to copy Tesla's plan or what is happening in the capital market. You mentioned that in your analyses and so on. I can only tell you the BMW master plan. And we have said so a couple of times, we are rapidly increasing our BEV share. This year, more than 100% compared to the previous year. Next year, again, more than 100%. 50% every year until 2025. And that will lead to over 50% BEV share worldwide in our product portfolio industry. In Europe, that could be more than 50%, of course. What is our strength here? The strength is that with our product setup, we are covering 100% of the market. And I think that will come over time as a strength. Despite the fact that some competitors might grow quicker percentage-wise, they might also do so with fewer derivatives. But I -- we consider it a strength to have the full marketplace under control, and there is no amendment to our current strategy because as this year shows, we are on the right track on conditions we can control.

Good. Thank you very much, Nicolas. Thank you very much, Oliver. Ladies and gentlemen, thank you very much for joining us today. We wish you a pleasant day from Munich and please stay healthy. Bye-bye and [Foreign Language].