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

Dear analysts and investors, a warm welcome from cold Munich to all of you. Thank you for joining us from all over the world today for our BMW Group Virtual Investor and Analyst Event. My name is Veronika Rosler, and I'm heading the IR department. For today, we've picked 2 key topics that play a significant role in our discussions with you on sustainable electromobility and the path to reach climate neutrality. So that's on the one hand, the development of highly innovative battery cells. And on the other hand, the underlying management of critical raw material supply. So it's a pleasure for me to have today 3 experts with us to do deep dives into these topics. I would like to start with Dr. Peter Lamp, the Head of Battery Cell Technology, who will focus on the latest trends in engineering and development of our innovative sales at BMW. And our second presentation is Nadine Phillipp, the Head of Sustainability in the supply chain; and Dr. Simon Jaeger, Head of Raw Material Management and Purchasing, who will give us deep dives and insights into the sustainable material management. So let's start with the first part right away. Peter, thanks for being with us today for the next 55 minutes. After your presentation, we'll have time for Q&A with the audience. And so over to you, Peter.

Thank you very much, Veronika, for the introduction, and hello, everyone, also from my side. I will start with a few slides to give some background information, which might be helpful for the further discussion. So before going into the real cell technology, the first slide should give a few on the overarching strategy, which is, of course, sustainable mobility. So BMW is very much committed to the climate protocol of Paris, but now also Glasgow is the 1.5 Kelvin target. And of course, electric cars play a major role to meet these targets. So our goal is to have about 10 million electric cars on the road until the end of this decade. We have also precisely defined targets to meet CO2 reduction in the use phase, minus 50% between 2019 to 2030 over the whole life cycle, minus 40% and also to increase the amount of recycled materials to be used in a car up to 50%. And this is, let's say, our target to make BMW sustainable. And now jumping to the electric car step by step. So of course, to reach these targets of 10 million electric cars, we need fascinating products that are liked by the customer. I think we have done very good job for the i4 iX, which is now on the road and get good judgments by the different stakeholders. To have these fascinating cars, we have to have the hand on all the relevant components of the carbon, of course, of the drivetrain. That is the reason that BMW is, for example, developing but also in-house producing the drive, the e-motor, the highly integrated eDrive, as we call it, combination of the e-motor, the gearbox, and the power electronics, we have also very deep involvement in the combined charging unit. And for the battery, we have also everything in-house, the development of modules of packs of cooling in the packs of battery management system, and we produce the packs by ourselves. The cell, and this will be the focus of the next few minutes is the key part. And here, we have chosen our strategy to have the maximum competence in there, but the industrialization done by partners. And why we need this deep competence in cell technology is clear. So the cell -- the battery cell dominates the performance, not only of the battery pack, but of the whole car. So energy density is linked to range power. Capability is linked to driving performance, but also to charging time. The cost is essential. So we have to manage this transfer towards electromobility, still keeping our profitability. And this leads us to the cost slide or the figure on the right side. If you look on electric car, about 40% of the total vehicle costs are attributed to the battery pack. And within the battery pack, again, 80% is the cell. And within the cell, 80% of materials. So if you don't understand the materials and also the supply chain of the materials, as we will hear in the second talk, you cannot control either performance nor the cost of the battery and therefore, also the electric car. What have we done in the past over the years? We have continuously increased our competence. So we started 15 years ago, approximately, then we had the first electric cars on the road with the small fleet of MINI E 2008. And then stepwise, we made certain decisions in 2012. We initiated a deep dive project where we look into -- deep into the cell materials and also into the future, which technologies are available not only now but also in 10 years. We further enhanced our possibilities and resources by launching the battery cell competence center. Some of you may have seen that or even been there. And now the recent -- most recent decision was to build up a pilot line that will be started in 2022. We will see a picture of the building soon. And what we are doing there is to have a clear view on the fundamentals of each possible material in the battery cell on the battery-grade materials but also the subcomponents then in the cell from electrodes to the full sale and also production technology that is necessary to bring those new cell concepts into real production. How we are working there? So we have a very good team here, about 200 people working on the cell technology in this R&D. But of course, there are a lot of smart people outside and innovations coming out of universities of institutes, but also on startups and of course, the traditional large companies we are working with along the value chain. Therefore, we have a quite large network. In the meantime, about 300 contacts that we are continuously talking to and more than 40 running projects to really prove certain innovations, whether they make sense in the application of a car and whether there is a way to industrialization. And it's not only the first results in the lab, there needs a lot of work to be done to really see if there's a benefit at the end in the car and whether it can be produced really for competitive costs. As soon as we have identified innovations outside our network, we try to transfer it to our battery competence center. At first, on a small scale, this is what is depicted here as lab. We see how the materials work, how the lifetime is, how the recipes would be to code, for example, electrodes. And then again, if those step is successful, and we see here increase in performance we could deliver at the end to the customer, we transfer it to the prototype cell build. That means that we produce industrial sales. Those, for example, that we have right now in the i4. And this gives the step, and this is the arrow on the bottom linked to the product. So at that point, we fully understand the next-generation product. And we have also identified first, let's say, challenges also in the production processes. But we have not certified that it can be produced, let's say, in a real large-scale production and to add those competencies to the process side, but also to identify and proof process innovations. We are now building up this pilot production in [indiscernible] near Munich. And you see here a small picture of the building, which is already there. We are starting now to bring in the technical equipment of the building, but also the machinery to build then those pilot or the piloting line for the sales. If we go to the next slide. Of course, the cell production is one part of the whole value chain. And in the direction of circularity, you have to deal with the whole certainly from raw materials over the development and production of sales, battery packs, the lifetime in a car, but then also possible second use and especially the recycling to feed materials back. And therefore, also to fulfill the requirement we have set by ourselves for the CO2 footprint of the battery and, of course, also the car because each step in this value chain contributes to that. In the direction of raw materials, we will hear later independent talk on that, where we are acting right now also towards, for example, sales suppliers are that we require and mandate, for example, 100% renewable power used in the cell production. We also have requirements in our next-generation battery cells about using recycled material, like nickel and others, which are main components of, for example, the cathode materials. And of course, we are very intensively going in the direction, establishing business models and partnerships from collecting of batteries after the life disassembling -- going forward towards black mass and then also to metallurgical recovering the relevant materials and feed it back in our value stream. So again, maybe what is changing in our world of batteries. So I try to put here only a short glance, 3 points where there's a difference between future requirements and present requirements. Let's start with the design. So in the past, there have been a traditional way of producing battery packs and integrating this battery pack as an independent component into the cars. In the future, with the increased purpose design platforms also within BMW in the new class, the end car, it will be a higher integration. So to improve and optimize the whole system, we need this higher integration into the cell into the battery pack and the battery pack into the car. And this changes, of course, the requirement to the cells as well. Then a second important point is safety. So we have reached the safety level of electric cars, which are at the same level of combustion engine cars. So at present, there's no issue on that, but we have to maintain this level even with increasing energy density and having more performance materials in the car and also the legislation around will change. So in China, for example, right now, there's regulation that you have to meet a 5-minute time that has to be a lapsed between possible event in the battery pack before it's going outside the pack, let's say. But this will be maybe enhanced in the future that it's not 5 minutes, maybe it's 40 minutes. But at the end, the best solution is that there is never any situation that in the case that there is, for example, a thermal runaway of a sale in a battery pack that the whole car is infected by that. So this is, for example, our target here. And then also towards sustainability, we are following this since quite a while, and we are further improving here. But right now, it's not mandatory. So it's our own responsibility to do that. But there are legislations going on in -- especially the -- in the European market with the European Commission to give here also clear values. For example, for CO2 footprint of a battery pack or the amount of recycled materials that have to be used. So there's outside requirements that influence the battery and battery cell development. If we now go a little bit more into the detail of cell technology and chemistry, which is in the cell. I would say in the past decade, the main purpose was to increase the energy density to have a range, which is suitable for the customer where the customer feels comfortable. We can still follow, let's say, present further optimization of the chemistry, which is presently state-of-the-art. That is the dotted line here in the middle of the slide. In the future, this may split into different branches. One is to further increase the energy density. We still will have some applications and cars in our portfolio, which requires even more energy density, more range. This is here the performance path. There are certain ways to reach this. But on the other hand, on maybe the entry or lower cost segment, we have to focus on lower cost. So the range might be even -- yes, in the target right now for those segments. But to reach the overall profitability, we have to reduce costs here. And this is the cost down line given here. And the lower level of this cost down is the so-called LFP material, the lithium iron phosphate, which is quite intensively discussed in the public as well right now. And in the next few slides, I would like to focus more or less on this 3 areas, which are given here. First, on the performance path, how we can reach this. Then on the LFP as an interesting option for low cost. And as a third slide on the all solid state as maybe the future game changer. So let's first start with the performance path and how we can reach further increase of energy density. Here on the left, we see the 2 different active materials, which are relevant in a battery cell: anode material, cathode material. And on both sides, you can optimize the energy density by certain new materials. On the anode material, today, there's the state-of-the-art graphite with a slight transition to having silicon oxide as addition to graphite maybe about 10% to increase then the so-called specific capacity of the material from about 360 to 500 to 600 milliamp. This is an intermediate step, but maybe not the final goal. This second step is then going to the so-called silicon carbon composite. This is a material which has just an enhanced amount of silicon and silicon intrinsically has a higher capacity to store lithium. And this brings us up to about 500 milliamp power per gram. Just to add, this specific capacity of material is just the material property. If you transfer this to an energy density of a cell, you don't find the same factors. So by going from graphite to silicon oxide, you may add 5% to 10% and going to silicon carbon composite, you may add about 20% increase of energy density. On the cathode side, it's still right now focusing on this material system of nickel, manganese, and cobalt, increasing the nickel content, which increases the capacity of the material. We are right now as a state-of-the-art at the 80% and the next step is going beyond the 90% and have here, again, a certain percentage increase in energy density of the cell. There are certain challenges. The materials are nice in the lab, but you have to industrialize it. You have to look on how to optimize the electrodes. You may have a nice material, but it's difficult to produce, for example, compact electrodes with low porosity. So the whole chain from materials to subcomponents like electrodes and the introduction of those electrodes in the cell has to be taken into account. We have here measures on all levels. And all those possibilities have to be used, but every step forward has a risk. So for example, in the cell design, if you add additional active material, you optimize the volume utilization, of course, more expensive cathode material means more cost. If you pack the cell dancer, you go in the direction of maybe higher swelling forces and so on. So every step forward may have some challenges, which have to be faced on some other KPIs of the cell. But that's a clear way forward to also in the second half of this decade, further increase the range of electric cars. If we now switch over to the -- just an additional comment. As mentioned before, we have always these 2 sides: the product concept and then the production processes. And not only the product has to be looked at in the design, but also the accompanying production processes. For example, you can have a nice material but if you try to calendar that in a production process to make a dense electrode, those materials may break. This is shown here in the left picture. On the other hand, also the mechanical properties of such coatings on an electrode substrate foil-like aluminum may lead to certain negative effects like crinkling or come-by effects. That means a curvature of the coated electrode, which does not allow afterwards assembly of the cell. So the competence you have to have as a company, like BMW, has always have to have this 2 hand sites: the product and the process. And for many start-ups that are focusing on the materials and products, that is not yet fully clear. So we see a lot of advantage in bringing our competence also to our partners in this field. Going to LFP, as it's discussed very often. On the left, you see a simple picture of the mainly used nickel manganese cobalt structure right now, you just have to -- from an overall perspective, that's a layered system, so the lithium is in between layers of this oxide and the LFP has a totally different structure. It has more channels, and the lithium is moving in these channels. What you should know is here a few numbers. The LFP has substantially lower specific capacity than the most advanced oxide materials. And in addition, it has a lower potential. That means the cell has a lower voltage. And in total, Therefore, the energy density of LFP cells are much less. The material is quite old. So more than 3 decades. And it's also known because we have introduced that, for example, 2010 in the hybrid cars of BMW as well. And there was not a lot of attention to LFP in the battery electric cars in the past, but there have been some further developments going to larger crystal sizes, having optimized the sale by thinner conducting foils like copper, aluminum, increasing the filling factor, building large cells, which gives them a good filling factor of the battery pack. And those further developments moved LFP packs in the area where it's interesting for automotive use. And this is shown here on the right side. It's what is the watt hours per kilogram or the watt hours per liter that are necessary that it's of interest for electric cars. The lines and the cross, which is shown here is minimum threshold. This, of course, is just here a sketch. This is different for different applications, maybe even different OEMs. So everyone has its own cross here. But the message should be that LFP can address now a certain part of the portfolio, but not the total portfolio. So as soon -- if you -- as you would like to have a reasonable energy density, for example, for large cars with high ranges, it cannot be addressed with LFP. But for, again, entry cars, low-range cars, it's a suitable option at a lower cost. That's the arrow here increasing cost. Therefore, we at BMW are also looking into this field. And now coming to the last slide and remembering the overall road map shown before, where all solid state was on the upper right side. So that might be the next game changer in the future. What is the underlying principle? So you substitute the liquid electrolyte, which has today some challenges due to the fact that it's an organic liquid that can also burn in a so-called thermal event by a solid ionic conductor, which is, let's say, less reactive in that sense. And this is the first change, let's say, if you add this solid electrolyte, you gain a higher intrinsic safety level that makes it easier than to introduce it in a pack, you can reduce the secondary measures to do that. And on the other hand, along with this intrinsic higher intrinsic safety, you could now substitute the graphite or graphite silicon-based anode by a lithium metal anode. That is difficult to slick with electrolyte due to the reactivity and also the safety level. But with solid electrolyte, that gets feasible. And here, you enhance or improve the energy density again substantially. So also [indiscernible] is a way towards higher energy density and maybe also lower cost due to less complex battery packs along with the intrinsic safety. Nevertheless, it's still in an R&D phase. There are a number of challenges that have to be solved. It's possible to build battery packs with also lit-state technology. You can also introduce demonstration cars at a certain point in time, maybe also small series. But at the end, this technology has to enter the market on a broad basis at competitive costs. And there, we see still some years ahead in R&D now to finally prove the concept in the further industrialization stepwise of the materials of cells than of the cars so that we don't see that before the end of this decade. And with that, I'm at the end of my presentation, and I'm looking forward to your questions.

Peter, many thanks for that deep dive into battery cell technology. Before we open the Q&A session, I would like to remind you of some technical instructions. [Operator Instructions] And please be aware that there is a slight delay between the streaming and the telephone line. And now, operator, over to you.

[Operator Instructions] And the first question is from Tom Narayan, RBC.

Tom Narayan, RBC. And thank you for holding this very important event. Once again, BMW showcases why they have the best IR team. Dr. Lamp, one of your large peers in Germany tells us that they are not only doing the pack but also building the cells themselves, albeit with partners, while others perhaps like yourselves are sourcing cells from partners. And this begs the question of what happens if there are supply bottlenecks on battery cells? And if it's coming from raw materials, then I know everybody is affected. But maybe could you give us some more color on those supply contracts you have with the partners on securing cell capacity and how you work with them? And then secondly, on LFP, just understanding how LFP works with -- specifically with BMW, given their low energy density. We've heard that they make sense for kind of maybe more volume brands and particularly in China, but just understanding where LFP might work and where it might not.

Yes. Good. So let's start with the first part of the question, the supply situation, or the business models around that. So you know that in the past, we have followed the strategy that we want to have the full competence to also discuss with our suppliers what is the right technology in each generation of our batteries and cars. Up to now, this proved to be quite successful, and we are at present, continuing this business model. And there have been a number of announcements in the past about our sourcing risk partners, whether it's CATL or Northvolt. And we continue this also for the next generation. And those contracts are really, let's say, covering a reasonable period of time, which makes sure that we have secured the needs we have for, I would say, this decade. And of course, we are not only discussing with our sales suppliers on the sales supply, but we have this deep dive also in the direction of raw materials and are doing here additional steps will be explained in the second talk. So it's necessary to have the full value chain under control. I would say this is the most important point, whether you see it as necessary to go into the direction of a joint venture with a partner or to do your in-house production to secure this supply. This may be answered differently by each OEM or each partner and it may also change over time. So we are still in a very emerging and fast-growing market and things are changing. Technology is changing. The importance of sales suppliers is changing. So we are able to react whenever it's necessary and the basis to be able to react is the competence. And up to now, as I said, we feel quite comfortable in our situation with our present business model. And regarding LFP, to come to the second question, as mentioned, for sure, LFP will not be suitable for a 7 Series or even a 5 series. But it might be reasonable, for example, a 1 Series entry model maybe not over the whole different kind of offers within 1 model. So it has to be carefully checked for which individual product line and for which individual car model, it makes sense or not. But for sure, it's more on the lower side, though the smaller car and within those with maybe the entry positions. But there is room also in the BMW portfolio.

Would it work more perhaps for particular geographies like China, for example?

Of course, it depends on the customer demands, and we see China as one of the most critical markets towards costs. But we believe that the wish to have also an entry position for an electric car, like for the combustion engine, we have the 116 , for example, this might be also relevant in Europe. So I don't believe that LFP will only be restricted to China.

The next question is from Patrick Hummel, UBS.

It's Patrick from UBS. Peter, I would have also a couple of questions for you. The first one, can you comment how big you think the cost advantage of LFP is in euros per kilowatt hour or dollars per kilowatt hour over the state-of-the-art chemistry? Are we talking here about $10, $15, or potentially even more? And the b part of that question is, do you think the rise of LFP is also just due to the fact that there is an emerging bottleneck on some raw materials and some capacities and that it's just about having enough supply at all in a rapidly growing EV market? And my second part of the question is, can you elaborate a little bit more about the changing requirements to battery cells when it comes to the integration into Neue Klasse. I was under the impression that BMW is not necessarily thinking very revolutionary about the architecture design as far as the cell to pack and pack to vehicle integration is concerned. So your comments suggest that there are quite some changes coming. And I'm just wondering if you can share a little more what you are going to do here? Are you going to stick to the prismatic form factor? Are the prismatic cells going directly into the vehicles body without putting them into a module or a pack? What's the engineering plans behind it?

Yes. Okay. So understood. I would start with the maybe middle question or the second one, emerging bottleneck. Everything I know and I see and get also as a feedback, this introduction or coverage for a certain market segment was LFP is really driven by cost and not by some bottlenecks of raw materials. And I'm strongly convinced on that. Because also in the long term, for example, for nickel and maybe still cobalt in a lower amount, the availability of the material should not be the problem. So we focus very strictly also on recycling. This will not have a major impact in this decade. But 2030 onwards was then having a number of batteries coming back from the market, the amount of nickel coming from the recycling path has to increase. And therefore, there has to be a circular economy where then the raw materials are not a bottleneck. And right now, we don't see it anyway. So answer...

Manufacturing level, neither because obviously, there's a lot of LFP cell capacity in China. But that's not a driver either, you think?

Not a driver either because the portfolio of partners of sales suppliers we would choose is more linked to quality we expect. So this portfolio does not change really between NMC and LFP. And in case that there are certain cell suppliers or cell manufacturers in China that have focused on LFP in the recent years and maybe on the 50 downwards in China, they might anyway, not be eligible for BMW. So we don't see that this broadens the supply chain for us, maybe for others, but not for us. And regarding the costs, so there is a substantial cost advantage, which is at least a double-digit number, maybe on the lower end, but would not be able to give a direct euro per kilowatt hour. Typically, we don't do that but it's worth to go for, let's say. And then changing requirements and Neue Klasse, we are, I would say, nearly done with our design of the new generation and there will be communication coming up. So you may have to wait still a few weeks to get deeper insight how revolutionary our new design is.

The next question is from Stephen Reitman from Societe Generale.

Yes. My question really about benchmarking. Some competitors or new competitors have been quite vocal about the advances they're making in terms of chemistries and other things we share leading to reductions in battery costs. How do you think you're able to benchmark how much visibility do you have on developments of competitors and what you are achieving? Do you feel that anyone has a strong advantage final tablet designs or other kind of things that will lead to a significant sort of advantage for some manufacturers for some OEMs over the next few years?

Yes. Thank you for the question because that's exactly my mission and task within BMW to make sure that we don't miss any of those possibilities to have advantages. And I believe that we are in a good position, knowing very well which developments are going on and benchmarking, let's say, the competitors in terms of OEMs is one thing, and we are looking into that, of course, as well. But we have even a many year earlier front-loading because we are intensively working together with material developments, for example, in all fields from universities start up to a material supplier like in Europe, SFUmicore, but also in Asia, Earspring in China, for example. So that we get also materials in-house at BMW to check what is the performance, what is the maturity, what is the present lifetime? When do we expect that this is in the market? So we have cell concepts, tested and proven inside BMW even before we get this offered by the cell supplier, for example. So we have, let's say, the basis to be able to challenge the cell supplier, but also to reflect on what we get from their competitors. And from what I can see, I'm convinced that we are still on the forefront with what we are doing. It's on materials, but also on cell design. You mentioned a certain phrases like tablets design, which is especially for cylindrical cells. So we are fully aware of that and have tested also those. So independent, what we will use in the next generation, we are able in our competence center to build all different cell technologies and to check what are benefits in the one or the other direction.

And do you feel that the cost reductions that you talked about in the industry, you could achieve these kind of things as well. I think we talked was about over 50% reduction.

Yes. I believe that some announcement information you can find in the press by whomever might be a little bit positive. Of course, you have to market your way to go. There will be substantial cost reductions possible still beyond we have achieved now, but many of those cost reductions are already realized in our present negotiations, for example, with sales suppliers for the next generation. So it's always relevant to ask what is the reference value where you refer the cost reduction too. If it's something which is in the past, you can easily state this 50%. If you say how much is possible, for example, referred to our last nomination, it might be less. In principle, every measure, which was communicated by other OEMs, and there have been a numerous number of battery days. Technically, everything is reasonable and goes in the same direction. We are thinking the numbers are very difficult to give you a clear interpretation.

And the next question is from [indiscernible].

I have actually 2 questions, if I may. The first one is, could you share with us your today carbon footprint of your battery, so where we are now as a starting point? And then secondly, very, very keen, and very happy to hear that you will switch on 100% renewable energy. Does this include your cathode material? And would you also be able to share with us your challenges as we see with supplying the cathode material or anything else from Asia in a CO2-neutral footprint? That would be very helpful.

Yes. So at first, I could not give you right now, I think, a detailed number maybe that is something which goes in the direction of our communication together with the next communication, how we proceed with our battery technology, we could include that. But you are fully right. So the CO2 footprint is not only determined by how much energy you put into the battery cell production. So we have also intensive discussions with our downstream suppliers or value chain on how to optimize the sensitization, for example, of even precursors and then active materials. We see on the market that different companies are really coming up with innovative approaches of -- yes, producing, for example, precursors with a much lower CO2 footprint. Of course, it's always using renewable energy, but it's also how the processes are done how much temperature is needed and so on. So we are quite optimistic that we can really substantially reduce the CO2 footprint. And we have targets. So we have numbers in kilogram CO2 per battery, which is broken down from the car. So we have clear CO2 targets for the car. And this then goes down to the battery pack. And we have this also stepwise. We have a clear target for 2025 and for 2030. And again, I can't tell you the numbers right now.

Okay. Maybe just a follow-up. Some of your competitors are mentioning we are currently around 100 to 150 kilograms per kilowatt hour. Is this a fair you can go with that you can confirm?

Maybe today, but we have to be much lower in the future.

The next question is from Harald Hendrikse, Morgan Stanley.

Yes, morning. Thank you so much for hosting the call. I was just interested in the comment you were making regarding the fact that you might have different cells in the same car, but different variants of the same car. You're mentioning the 1 series there. Now I'm just wondering what that means. Does that mean that the cells in any pack are wholly interchangeable? Secondly, what does that mean for costs for those packs and the development costs and stuff? And does that mean that the packs are going to be completely modular both in the model series and maybe across model series? And then lastly, if they do become that modular, does it make sense to make them interchangeable with other manufacturers, i.e., partnering on the modularity of those packs? Or is the cell chemistry going to be too differentiated?

Okay. So first, it's a very important point that you make. So we always have the problem to optimize the full portfolio and our battery system, I would say, standardized building blocks. And right now, I see that it's not, let's say, possible to have one fits all. And that is also feedback I get from other OEMs despite maybe some other announcements. So you need to have at least a certain number of variants. You have to try to reduce that to a minimum, but it will not be one. But you have to make sure that the integration of the battery pack is the same. So as I said, if we have 1 model, maybe with 2 different ranges, so 2 different battery packs with different energy content, this has to be interchangeable. I think with chemistries, we can deal, that's not the problem. Maybe the more tricky thing beyond handling this variance is then how to distribute this among your suppliers. So therefore, it's a multi-direction optimization, I would say. And this is not so easy. And of course, I'm, again, convinced that every OEM comes to another solution. It's just a matter of volume of position of the cars if it's more on the premium side or not. But everyone has to do the same job. And the one fits all idea, lessons learned at least from my side personally over more than 10 years being in this field will not work. Despite the fact you have only a very small product portfolio, then maybe.

Yes. Okay. And sorry, can you just talk quickly about the cooling system that you need? I mean, presumably, the sort of the complexity of the cooling system for an LFP battery is also very different for the cooling system that you might have for lithium-ion. Would that be right? Or would you be -- for cost reasons, you would probably use the same?

I don't think that it's so difficult because at the end, the inner resistance of those cells are different, that's true. But you still have, let's say, a waste heat production, which is not so totally different. So the cooling system principally works in a similar way, you may not use the same cooler. So even by different sizes for different cars, you have variants in the cooler as well. But there is no substantial technology change between NMC and LFP on this side.

And the next question is from Tim Rokossa, Deutsche Bank.

I have 3, please. The first one is really -- can you help us to understand how unique a given cell that you put into your vehicles is to you? And how much of the work comes from you and the cell manufacturer? Could you take your work and go to a different manufacturer eventually? Secondly, should raw materials become a lot more expensive given the share of materials of total costs. How much leeway do you have to reduce costs further? And what are the most important steps in the production process that you can tweak on? And then finally, I'm not sure if you are the right guy to ask your question, but now you are on as the expert. The CATL facility in Tuttlingen, there's obviously some delay there. You are, by far, the largest customer initially. Does this put any risk to your availability of battery cells?

Good. So let's start with the first question. I would say that it's unique in the sense that it's already unique by the specification. So each OEM has slightly different specifications. We know from discussions with our cell suppliers that typically, the requirements set by BMW are the most challenging. That is maybe our tradition that we are always driving the technology to the best or to the maximum. And the requirements that we set are already based by the results that we got in our competence center. So there is a lot of BMW competence even in these requirements. And then based on these requirements, we discuss with the cell suppliers what are the technical solutions to meet these requirements. And again, here, the competence we had acquired by showing that this works in our environment helps to come very soon to a solution together with the sales supplier, which is then, yes, accepted by both sides. Because at the end, you have to agree, you have to have a handshake. This is what we produce, and this is what we like to have. So I can't tell you how much percentage, but it's an iterative process between the competence we have and the competence the cell supplier has. And therefore, my statement is that there is a big portion of BMW in there. And then the rise of the battery raw material costs and how we handle this, I would postpone this question to the next session where we especially focus on the raw materials, just personally, there is a risk, of course, because the demand is rising. So therefore, there's a possibility that raw material costs increase, we can leverage this to maybe a certain extent, being more effective using this. But at the end, it of course, influences immediately also the cell costs. And the third point was I have to ask again. CATL and effort, Yes. So I would say we know the present status and we can deal with that. Of course, we are in daily discussions with any supplier about the status of the projects. It might be just an indication that localization in Europe might be a little bit different than doubling a line in China. This is what we have expected and maybe some sales suppliers going now to Europe experienced this. And yes, maybe you're right what you're saying that there might be difficulties in building this up, but it's not at present a difficulty for us.

Great. If I can just follow up on the first question. How quickly can you change your battery supplier? Are you locked in for the life cycle of the vehicle like you usually are? Or can you even change in between?

We have typically the strategy to have not only 1 but at least 2 or 3 cell suppliers. So there is a certain flexibility to change supplier completely, which was not qualified before it's not so easy because you need a certain lead time to qualify the product. So it cannot be done from 1 day to the other. It would need a substantial lead time.

Okay. And now it's already time to conclude our first part. Thank you for the challenging questions and hopefully helpful discussion. We'll take a little break now before we continue our program then with Nadine Phillipp and Simon Jaeger and we'll be back at 11 CET. For those of you who have joined us via telephone or live stream, you can just stay on the line until we continue. Thank you. [Break]

Ladies and gentlemen, welcome back. After the inspiring discussion with Dr. Lamp on the battery cell technology, let's now shift gears to procurement. I'm delighted to have Nadine Phillipp, the Head of Sustainability in the supply chain; and Dr. Simon Jaeger, who heads the raw material management in purchasing joining us for another session of presentation and Q&A. Nadine and Simon, thank you very much for being here with us today. I'd suggest that we directly dive into your topics and the stage is yours.

Thank you. Yes, indeed, we are delighted to change exchange information or insights into a sustainable raw material management at BMW. As we already saw in the discussion -- in the previous discussion, the topic raw material is a topic which is very important. In particular, since we are living in a time where we have a huge technology change, which really impact directly the raw material and the raw material market in general. So there are a few challenges. So challenges are with regards to the environmental, social and governance requirements and for sure also with regards to the need to protect the climate, meaning that we have to look very deeply into the CO2 reduction and how much we can reduce the CO2 or emission in general within the raw material value chain in particular. That's also something BMW has committed and is going to have a very, very strong focus because we want to ensure that we have the most sustainable supply chain and as such, I think one important role also for topic secondary material circularity to use this material. And their new concepts have to be developed and executed also in order to mitigate the overall risk and associated risk as such. Looking to the material supply and demand, there is a competition for strategic raw material. And we have currently a situation where there is a huge demand or a high expected demand in the future. And on the other side, maybe some constraints with regard to certain supplies in certain regions in particular, if you look to sustainable sources as such. And of course, a topic which has already been mentioned, the high volatility is something which needs to be addressed. And that's something which we within our approach have tackled. So we look as -- in our approach with different perspectives. So we really have an integrated approach at BMW, meaning that procurement or raw material management is not only the classical traditional procurement. You just look at the material. Now you really have to look at the whole from a different perspective in this to answer the question and to solve this issue. And that was the flavor you got in the discussion before that for sure, the production development, the development and know-how, the experience we get with regards to the material is very important. And this is always an interplay then between what we do in procurement and what we do in our sale and development department. And this is really very important, this interaction. And from the beginning, really, when we entered into the battery market to secure our supply, that's something we very much focused to put all the people together and to work this out the best way. As such, for example, we always integrated also our colleagues from finance, in the finance department in order to solve solutions, how to mitigate the risk also for battery raw materials as such. And something which is very important is for sure the sustainability as such, and this was always an integrated part as we look in the past, but it's now -- sorry, it's now even more integrated as such that we are working very closely together, both in procurement. And that's why we also both sit here together, how to tackle is the best to use the synergies. And that's why within the procurement, we have sustainability and raw material management, and we both look really very deep into the supply chain regarding all these challenges we just mentioned. And now I would like to hand over to you.

Yes, I'm taking it from there. So I'm glad to speak to you today. And as Simon just mentioned about our close collaboration here regarding raw material management and procurement and sustainability, this has basically 2 reasons because if we look at our sustainability strategy, which came into like the very focus of our company last year, we're looking at CO2 reduction on the one hand and if you're looking into the potentials there. So where is the most and the highest potential for CO2 reduction, you will quickly be at raw materials, in the extraction in the processing of raw materials there. And if you look and evaluate risks, you also come quickly to the raw materials. And this is why it's very important that we work very closely together there. And that we, yes, do the safeguarding of our raw materials from various aspects. So Simon will talk a little bit about like supply and also, of course, the cost aspect and price aspect. And I would like to take it from here and take you a little bit into what we're doing from the sustainability perspective in order to secure sustainable supply chains. And on this page and I know it's a crowded page, but there are basically a few messages I want you to take with you from that page. So we have a good, a very profound and sound history in sustainability at BMW. That's firstly important. And you see on the left hand here, the core elements, which are also now part of the Supply Chain Due Diligence Act upcoming first of January in 2023 and you see the core elements. And on the right hand, you see basically the instruments we have in place at BMW, and we have them in place for many years. So we have a good basis to start off. We will intensify our activities and instruments, of course, but we have this basis where we can take it also as a good point to even intensify and do more. And this is why we also aim for a leadership because I think the compliance aspect, we are settled for that, and we will -- we won't have to set it up quite from the scratch. But we want to take leadership. Simon mentioned it before, we want to have the most sustainable supply chain. And a second very important message here on the chart, if you see the purchasing process or procurement process on top, it's an integral part of our procurement processes. And it's not sustainability as an add-on. No, we have to integrate it, and we did already integrate it into our normal everyday processes. So a few points or instruments I would like to point out, I will talk a little bit about the risk filter later, but our sustainability questionnaire is a very important instrument here. So meaning that every direct supplier to the BMW Group has to do the self-assessment, and the sustainability questionnaire is a questionnaire we developed together with other OEMs in the initiative drive sustainability. So it's an OEM overarching instrument with very high requirements on sustainability, and it's an initiative where we can also go towards the supplier together. That's very important also in terms of the acceptance of the suppliers. And there's 2 aspects in it, so 2 ISO certifications, basically, the supplier also has to fulfill. It's not only a questionnaire. But we ask him for have certain also measures in place and to ISO certificates regarding environmental protection and also labor protection. So that is an important element, and we monitor that. And as you can see, the process is quite a long process, and it's also about developing our suppliers. It's not about only assessing, but it is to develop our suppliers to the point from early stage when we do our strategies to nomination and then to the start of production in order to make them fulfill our high sustainability requirements. Second aspect or a very important instrument are our audits and on-site assessments we perform. And there, it is really a risk-based approach, and I will show that on the next slide. So we do our own assessments, meaning like our own employees going out to the suppliers and assess, therefore, for sustainability risks. But it's also an external program where we have set up a company with the Responsible Business Alliance, and they also audit suppliers for us, but according to our requirements. So those are 2 basically tools or instruments already in place, already up and running, and we intensify, of course, the audit program and will also intensify the other efforts here. A big topic is reporting. So we have an integrated report, and we integrated our annually sustainability report into the BMW integrated report. And this also shows how important it is for the company and on what level we take the responsibility here and how important sustainability is. Last point, the grievance mechanism. It's also about opening up, getting more information about potential threats to human rights to working conditions and so forth. We also open up there, and we'll follow up on that. And I just mentioned about like how important sustainability is for the company. And yes, the second pillar here is integrating sustainability targets into the overall target system of our company. And I think you maybe have read it already. It's really tied to the compensation of our Board of Management and also executive management here. And so we really measure the targets. We set ourselves every year, and this has an impact then on the compensation. And so for example, also in the supply chain, we just saw the instruments we have in place. We have concrete -- have set ourselves concrete targets there. Also for CO2, by the way, we just had it in the report of Dr. Lamp beforehand that all goes in and that has a major impact. And you see the quote of our CEO here. We don't just do sustainability at BMW; we are making BMW sustainable. And I think that proves also our way here. Quickly talking about the risk assessment. The whole sustainability topic, of course, is also a risk-based approach. And besides the sustainability questionnaire, we do perform with every supplier, we also look deeper into risk. And therefore, we look at, of course, the location of a supplier. Is the location risk may be a high risk? And also, what does the supplier supply for us, like the commodity risk. And those aspects then calculate for an overall risk assessment, and then we take the relevant measures, as I just mentioned, for example, go and have an on-site assessment or an audit performed and look at the topics, human rights and the working conditions, labor protection, environmental issues and really take a look there on site, how the performance is. And if there are findings, and it's very important, to also develop a measure plan together with our supplier and bringing to be sustainable. And as you can see here on a map, I don't want to go into too much detail, but we are also transparent about it. You can see here our supplier locations, which will deliver the -- or supply the BMW Group with parts in 2023. And you can see there is still also a few -- or some of the suppliers are also marked red. This means here, we are currently working on implementing the right measures in order to make sure that by the start of the production, all measures are in place and all findings or all -- yes, to dos are done by then. That's also a big role for buyer. So we're working together, of course, closely with the buyers and the suppliers because there, you have the biggest lever, and you have the biggest chance also to have success here. And now I would like to give you 2 examples. It was now a little bit overall about due diligence, what we're doing, what we have in place. And what you can see here is now an example for raw material and how deep we go into critical raw materials also from a sustainability side. And I want to give you the example of natural rubber and that's a critical raw material. We have been looking in for a few years now. We are also a founding member of the so-called GPS and are the global platform for sustainable natural rubber, where we work closely together in the meantime, also with other OEMs, but also -- and that's the most important thing with the industry, with the tire industry. And we also managed to have since 2019, our suppliers, first-tier suppliers in there, meaning all tire suppliers working there on the initiative, working on standards working on reporting requirements, working on certifications. And in the meantime, really old suppliers or first tire suppliers of BMW are now members. And there are 2 specialties or 2 things to mention with natural rubber besides this work. We also engage in on-the-ground project. We just started last month. It's a project together with Pirelli and also with -- so one of our tire suppliers with the NGO Bird Life, where we help and support the small holders in Indonesia, meaning farmers -- natural rubber farmers to be more efficient to, of course, be more sustainable against deforestation, pro women; and we support there a lot of community work. And it's very important for us to also look there at the biodiversity aspect. So it's really around projects, many targets and we really engage there on site. And at the ER, I don't know if some of you have followed it, we had the first FSC certified tire on our X5 plug-in hybrids. So that was really a milestone. That project or that work took nearly 5 years because you have to understand that this means from the small holder to the actual tire production and tire on the car. We have all stages certified and they are found sustainable and that was a major, major step in that natural rubber aspect. Enough of natural rubber. And I think that's then also the bridge to Simon talking a little bit more about battery raw materials. The second part is lithium or second example here. And also with lithium, we have a profound program here. So first to mention, and I think that's very also commonly known that we directly supply lithium and provide it to our battery cell manufacturers and basically from 2 suppliers that's Ganfeng in Australia, and that's Livent, who provides lithium from -- or extracts lithium from Argentina. And with regards to these lithium extraction methods, we also have a study running together with 2 universities to compare a little bit also the impact of lithium extraction and processing on the environment, mainly on the water resources. And so it's a really interesting project, and we want to get the results out of it and also see how we can even promote more sustainable extraction methods there. And I think that leads over to the last point on that slide to our investment. BMW iVentures invested into Lilac solutions, and Lilac Solutions is a start-up who has patented a very innovative method of lithium extraction by iron converting. And there, you can see that we, as BMW also look and try to speed up and support their innovation and different techniques not saying that is the only one, which is going to be -- what's going to be successful in the future. But we really want to drive that. And yes, then I would like to hand over to Simon, and I hope I didn't take too much time.

Okay. Then we go to the value chain, again, to the battery raw material, maybe in particular, BMW really secured the whole value chain. And I think that makes it very unique as such, also with regards to the competitors. Why is that the case? The case is that we really are buying and sourcing the material, which are critical for the future development here as such. And this helps us to secure environmental, social and governance standards but also gives us insight in order to promote new approaches to use circular economy here, too. And I think that's really special because at present the market gives us the expertise also in order to how to deal in the market, how to get the material, how to do the logistics. Also be present exactly all the locations and things, we are really very proud of is also that we work here very closely with the sustainability, again. Cobalt was one issue we tackled together. And there has been a lot of groundwork in parallel from sustainability team and also from our side, from the procurement, how to hedge the cobalt exposure as such. Again, as also for this topic very important to work here together in this integrated approach. Maybe due to the time, I would, in particular, focus here was on the finance part. The price risk is also a typical topic here, and we engage really in the hedging of price risk for battery raw material, such as nickel and cobalt. And we did this from an early stage on because we really could enter in this joint task very early on. And that's why I think that was also just one success story to see how we can work together and improve here. Again, also partnerships are also very important. Looking to the procurement, as always for -- we also work very close with our first year as a partner in securing supply. But nevertheless, I think it is really more across and along the value chain, find the right partner in order to optimize this overall risk approach. Maybe just a few words how we also access the risk. I mean, in general, we look to all the raw material risks we have within BMW portfolio. We do the right analysis to find the characteristic in each of the value chain and see where might be potential bottlenecks, how can we deal with the best way with this. We have plenty of different instruments. There's a huge range of instruments available. There's not one size fits all. So it's always really the instruments we are choosing are exactly depending on the risk assessment and where we see the need to take action and to what extent we really need to take responsibility also in order to improve this. And I think very important is also really this process, understanding all the value chain. And this really helps us since we are really sourcing the material, and it's I think really the best way to be in the value chain itself. You see here on the next page a few pictures as already mentioned and I think also well known by your community that we sourced cobalt and lithium from Australia and Morocco and lithium from Argentina and Australia again. And I think that was really a very important approach also to improve here and secure the supply for the battery raw materials. And I think this is really very important. In addition, I also want to mention the fact that I think the technology leadership is very important here in order to do the hedging or the risk mitigation of commodity risks. To give you one example, I think the rare earth is also -- the substitution of rare earth as such is a very important topic and also makes BMW very unique in this approach. We saw that there is a critical raw material. We need to tackle this, and our colleagues from development really entered into this early on and try to develop new technologies as such. So it's really an interplay here to look at this exactly. And for sure, I think we already mentioned that at the beginning that the secondary material is a key focus also going forward in the future to secure the secondary material for the different raw materials to increase already existing quotas we have and shares we already have. It's not only for battery raw materials. It also applies for alumina and all other important levers here. I think that's again a joint task between sustainability purchasing and again, also from our team from development and to see what material to use best as such in the product and product design. So I think also with regards to the expertise we can use here, BMW is very unique. And I think this footprint across the value chain really helps us to mitigate the risk in this area. Okay. Then I think we are a little bit on time. And we can -- looking forward for your question and answers.

Thank you, Nadine, Simon for sharing already so many details on the supply chain management, and we will now go on with Q&A. I think the operator will just remind you of some technical details. Operator, over to you.

[Operator Instructions] And the first question is from Patrick Hummel, UBS.

Yes. It's Patrick again. I have 2 questions, please. The first one is regarding the procured volumes for battery materials. When we listen to your boss, Oliver reemphasizes all the time, we don't know what the powertrain mix will be in 5 or 10 years from now, and BMW wants to stay technology open. I'm just wondering, as a purchasing manager for the key raw materials that are the biggest chunk in value in an electric car and in commodities that are potentially getting tighter as the EV demand curve gets deeper, how do you handle that uncertainty on the volume side? What flexibility do you have in these contracts? I would assume if the EV curve, the demand curve is getting very, very steep, you would have to get back to the market and procure additional volumes, which by then might be very, very difficult because everybody else might be buying these raw materials as well. And the lead times for new capacity are obviously pretty significant. So if you can just shed some light on how you deal with that volume uncertainty and how well you are prepared in case volumes are increasing faster? And my second question, very simply, if you could just give us an idea, the key battery raw materials, these key commodities what percentage of the overall market for each of these commodities does meet your sustainability criteria?

Okay. I think we'll start maybe with the first question. You want to answer that area?

Yes, with regards to the first question, volume flexibility. I think I can't go in exactly in the details of our long-term contracts are structured, but we do have flexibility in the volumes. And I think what makes BMW also very specific is here as such, we have a very good relationship here with our supplier as such. And so we have, first of all, a very long period, which covers a lot of volume. And I think in the long run, I think always -- I mean you need maybe to add a new supplier as such. But I think with our respect, we secured exactly the volume we need, and we don't see there any kind of criticality not to get the material if there is any shift as such. We do have flexibility in our procurement volume. And I think also the fact that we worked from the beginning with our suppliers helps us a lot that we really want to have a strong and long-term relationship which helps us both in both direction. And there's a lot of things also taken into consideration as such, again, also our network helps a lot with the expertise coming from different side, why I think it's always a very strong relationship with BMW. So yes, I think you're right, as such, volume flexibility is always something we have to look at. But I think we are -- we will be able to manage that within our existing framework as such. Yes, with regards to key battery raw materials and to what extent they are -- meet our sustainability requirements, it's really in particular, if look to the overall market, you really need to look to the different raw materials. Again, I think that would take a little bit longer time as such, I think, as you know, you're into this. Maybe is it cobalt or lithium or I don't know, I mean, yes.

Yes. Nickel, Cobalt, lithium, manganese, maybe those 4?

Yes.

I mean I can maybe say something about the sustainability aspect for example, like, if you look at cobalt, that's also one of the materials, we straight away by ourselves so that we know the sources. So in order to provide it to our battery cell manufacturers. And secondly, also just manganese, you mentioned, so there is a lot of like research going on also with us, and you might have read also that we, yes, put out a moratorium about deep-sea mining because we know there is a lot of technology going on and a lot of like also new companies, shoot up and we have a close look there. And also have a close look at the developments there and yes, in order to secure sustainability.

Again, I mean the core of my question is, are you -- your ESG standards so strict relative to the rest of the industry that for you, as a company, a smaller part of these commodity markets is accessible or acceptable than for another OEM, let's say, a global OEM. Are you -- do you feel like you're much stricter here and you're more limiting yourself in terms of the materials you can actually buy?

So I think I don't think we would take such a statement there in comparison to others. That's always a little bit speculative. So we trust that the activities we do, we are on the right path there, and we have a very, very high standard, but I don't want to compare it to others.

And I think as you pointed out, you're also kind of developing new sources and suppliers.

Of course, yes.

So I think that also contributes to then further increasing the number or the percentage and pushing it further.

And the next question is from Tom Narayan, RBC.

Tom Narayan, RBC. Dr. Jaeger, so you are securing lithium. It sounds like directly, in some cases, from mines. I think you said Livent in Argentina. But what about metals like nickel and cobalt, where we're seeing prices spiking already. I know I think you said you're hedging cobalt, but maybe you could just comment some more on how you're sourcing these metals. To what extent are you just -- are you relying on the cell partners to handle this? What things can you do here to secure this capacity, especially with the pricing we're seeing in these metals moving the way they are.

Yes. Thanks for your question, Tom. Yes, with regards to Cobalt, so we also do buy and source Cobalt as such. So we do have direct access also to Cobalt again, from Australia and Morocco, we are sourcing cobalt, and that was one of the initiative, in particular, looking again to a sustainable cobalt as such. And okay with regards to nickel, I think nickel is something, as all of the other raw materials, which we're currently not sourcing, we always have to look and monitor and evaluate, reevaluate it the different development and in particular, with regards to the changes also of the demand. I think nickel is also something we are currently not sourcing. Here, we work very closely together with our tier suppliers. And we also have to say that we have here a very strong engagement with regards to secondary or recycled material within our contracts. So -- and that's something which here is important for us because I think exactly this recycled material helps us also to improve CO2 as such. So -- but again, we always do a regular risk assessment of the different supply chains. And we are very much in talk with all of the companies across the line from really mining companies from all over the place. So it's really -- we do -- we are on the heart. We know what's going on there, but it's just a question, what's the best way to secure you the supply? And currently, we say it's the best way how we do it with our partners in the supply chain.

And if I may, just to follow up on the pricing. If you -- the contracts that you guys do have on, let's say, nickel and cobalt, what -- is it based on spot rates? Are they contracted out of big pricing? I'm just wondering if you look at the price of nickel, how it's spiking, when you get to a point where cost per kilowatt hour on the battery just goes berserk for lack of better word. Do you have a control over that pricing? And if it gets to a certain point, do you just -- can you switch to perhaps more LFP and would that void your existing contract? I'm just trying to understand how the contracts work with the raw material suppliers.

Yes, again, with regards to the contracts, I can't disclose too much. But on the other side, with nickel and cobalt, I already mentioned that we do hedge our commodity price risk as such. So we do have long-term approach, how we secure here and mitigate the risk on a systematic basis. So we already knew -- are using hedging instruments here as such for securing the -- or to reduce the volatility, which might arise here with regards to cobalt and nickel.

Next question is from [indiscernible]

I have a couple of questions. First of all, I'm just curious what is your current oversight of indirect suppliers, I think in your presentation, but also disclosure, I think it covers quite well on to direct suppliers, whether you think there could be material coverage that still need to be done in the indirect supply chain? My second question is, in terms of your current status, have you considered disclosing, for example, certification status or even setting targets or certification status on specific [indiscernible] minerals or even disclosing details on creating mechanisms on noncompliance, for example, what are the topics, whether it's on human rights, on environmental issues?

I think these are questions for Nadine.

Yes, I'm happy to take. But I just wanted to ask you to be a little bit more precise what you mean with indirect suppliers. You mean in the [indiscernible]? Or I think like the other possibility would be like an indirect goods? I take it as [indiscernible]

Yes. So [indiscernible] Okay, let's say, cobalt, you don't directly source them.

Yes, of course. And I think, like -- I mean -- and you probably all know about this, like this is actually a major challenge here about the transparency of the whole supply chain. It's currently, we also have a lot of efforts where we do projects in critical supply chains. We really dive deep into when we're just looking at our project for natural rubber. This is one example where it goes to thousands -- down to thousands of small holders there from the tire supplier. So this is really one of the main challenges there. And we are currently also working, of course, on like, yes, IT platforms where we can like get more information from, but this is really also the topic that our Tier 1 suppliers not always know how deep it goes down, who is in the whole supply chain, and this is for me and an industry problem also. And yes, we tackle that also in -- I don't know if you heard about Catena [indiscernible] so work together with other OEMs with suppliers, and we need our Tier 1 suppliers for that in order to come closer to the NTA chain because it's a huge effort to follow on all those chains. And so yes, we are working on it, and we're working hardly on it, and we have also like very good results and -- but this is still one topic we have to go together forward with initiatives in order to get even more transparency. And second part of your question, of course, certifications do play a major role. We as BMW also ask our suppliers or require our suppliers more and more to go into the EMA certification standard as one example. But also other certifications, maybe more raw material specific and that is also the way forward where we do see standards, then they have to, of course, meet our high expectations and high requirements. So we do not accept every standard or every certification, and that's fine. But we're also developing standards there. And of course, that's more and more the way forward in order to broaden them. And as mentioned before, FSC is one example. You have to scale it, of course. But they have to meet our standards. And in terms of disclosure, like making it like official or publish it somewhere, our activities, first of all, go into the integrated BMW report, as I mentioned. But of course, we don't have hundreds of pages in order to explain what we are doing. Also, Internet is one platform we publish and upcoming, of course, the legislation, the German one. So there will be a requirement for transparency and also disclosure to the authorities there. Hope that answers your 2 questions.

Yes. I guess also in terms of the target setting, so there's one on disclosure. Is that your ambition to say aim for a certain percentage of your supplies being certified by a certain time?

Yes, that is, of course, one of the targets, not the only one, of course. Also looking into the topic of -- we just mentioned it before, I discussed it before, the circularity in the first presentation, that's also things when I do have like a certain quota of secondary material, and I know the source, I know where it's coming from, then I don't have to secure it in terms of environmental and social aspects. So also those quotas will help at a certain point for us to see how much percentage there is already secured, safeguarded, however you want to call it. And so certification is one. And of course, the topic of secondary material.

And the next question is from George Galliers-Pratt, Goldman Sachs.

Very interesting sessions. I wanted to go back to LFP, which obviously we discussed during Peter's presentation. Obviously, there are less valuable materials in the LFP technology, and as a result, potentially much less economic incentive to recycle LFP cells. How do you think about the recycling of LFP cells and the economics of that? And actually, if the economics on LFP recycling is a large negative, does that get fed back into the front system where LFP might be being considered as a low-cost technology and therefore, a more profitable one.

Yes. Yes, I think it's a good question. To be honest, I mean, that's something I think, in general, if you are right, I think the -- at least the current situation, the metals are not as expensive as for the other cathode material as such. And that's why if you make the evaluation of overall that needs to be taken into account is also done, but it's not my expertise exactly. Like to what extent this will have flow -- a backflow as such. But nevertheless, I think we are aware of that, and we are looking and evaluating then the different impacts on recycling, too.

[Operator Instructions] And the next question is from Tim Rokossa, Deutsche Bank.

It's Tim from Deutsche Bank. I have 3 questions, please. The first one is to you, Simon, and that is how flexible are you really? I mean, to a large degree, battery cell capacity doesn't exist here at some mines, so it needs to be started. If everyone keeps the flexibility, do you not run the risk that people just don't build that capacity because they don't really believe you and everyone wants to keep the flexibility, including them? Secondly, when we think about the raw material price increases, you already understand that this is a big topic for us. You guys give us an understanding of how much of your FX risk you hedge going forward? Why don't you do the same for raw materials given how important this will be? And then lastly, Nadine, when we think about your discussion with the regulators, will there be a point where sourcing everything sustainable actually becomes a real advantage when it comes to subsidies by the state, for example.

I think let's start with the flexibility, Simon.

Yes. With regards to maybe if you can elaborate again a little bit where you're coming from with regards to the flexibility, sorry?

I feel a bit that the problem is that everyone in the supply chain wants to keep as much flexibility as possible. It's true for you, that's true for your competitors as it's true for all of your supplies. But how much flexibility is there really? Or is it just not an assumption that you have without really getting it?

No. I mean then at the end, we also have certain commitments. That's right. I mean, that's why we do have long-term agreements and the common understanding how to deal with this. It's not that it is a contract with -- from 0 to 100% or such. So there is a certain commitment with regards to this. But it's enough flexibility to cope with the changes we foresee. And again, I think it's also very important that what I've mentioned before, that it's really that we work here on a close basis together. And if you want to have a long-term relationship, you really try to figure out how to do the [indiscernible] in best way in such an environment. To give you an example, we also purchase, for example, precious metals, and everyone knows that there was a huge price increase because everyone was saying the market is so tight. Even in this kind of tight market, we always had no issues with regards to the supply because we have long-term relationship already in this kind of value chain. So I think yes, it also has to do with trust and to see how things are developing. But that's something I think we, as BMW, are very strong and to manage this. So again, I think that's -- yes, I think that will be manageable. With regard to -- if we disclose hedging results from commodities, that's something which I can't do it now. I think you usually have the general information settings where you get information about some of the states, what we are doing and also where we are with regards to this. But at least, you can imagine that it's hard already that we start to hedge quite early. And then maybe...

Discussion with regulators on sourcing that's maybe for Nadine.

Probably, yes. I mean -- and that's also a very good question there. I mean we, as BMW, we have been supporting also the German supply chain due diligence act, although it adds, of course, a lot of pressure to the industry, and it forces the industry into a very clear direction, but also like it's a new thing. But as we said, and I hope I could make that clear that we followed the core elements beforehand. And such, we see it like as a good thing to have now a law in place and move others towards it. Nevertheless, of course, you're talking about like the topic of, yes, sourcing narrows down, for example, also supplier network and bigger circles. And of course, it's a cost topic there. But I think we truly believe that sustainability, that's our responsibility and also just the responsibility of our suppliers to move forward there, and we can move something. And on the other hand, like a law also maybe provides the relevant penalties there, which you also can take into account in your calculations internally. So I mean we are a lot in discussions in the end, and we are also like, of course, together with the whole industry discussing what does it mean for us, how what does really have to be in place, and what are the right measures to take overall? But yes, we know that we are on a very good way there. And so we will take also the next step and it will, from my perspective, also regulate itself a little bit there because it's becoming more and more important. It's becoming more and more important for all the customers, our customers and for our suppliers also with the other OEMs. So yes. I hope that answers your question or gives my insight on it.

Yes. And we would have a bit of time for another question. So I'd like to invite you, please don't hesitate as we have the experts here on stage. Okay. But I think maybe we've seen that we had a lot of interesting details, obviously, for the audience on also the second-round table on the supply chain -- the sustainability in the supply chain. Thank you very much for being here today with us for taking the time. And to all of you who are following us, we're getting to the end of today's event virtual event. And if you want to take a look at the slides, please go to the BMW Group website to the Investor Relations page. And you will find the slides there right now. Also later on, you will find an on-demand replay so that you can follow the discussions again. And with that, yes, I'm looking forward to meeting you again next time, be it online or in person. I wish you a nice day, a good weekend and stay safe.