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

Dear ladies and gentlemen, welcome to the BMW Group China Day. My name is Veronika Rösler, and I am Head of Investor Relations at BMW. The last time we did this, to give you an in-depth insight into our Chinese operations directly from China, was back in 2019. And since then, the world has changed quite unexpectedly and also dramatically. But there's one thing that has not changed for us, and that is our strong and clear commitment to the Chinese region. One proof point for that was the increase in our shareholding in our joint venture with Brilliance, which was completed at the beginning of the year, followed by the full consolidation of the company, but also by the localization of some further exciting and promising products. But now let's take a look at today's comprehensive agenda. Ritu Chandy, Senior Vice President, Finance and Group Treasurer, will take it off with a group strategy update and information on the financial performance. I am very glad that she will be joined by the complete management team of BMW in China. They will give you in-depth insights into our operations in the largest car market of the world, which is also a pacesetter in electrification and digitalization. Jochen Goller, President and CEO of the BMW Region China, will start with that insight from a market perspective. Then Dr. Franz Decker, President and CEO of BMW Brilliance Automotive, will inform you about BBA's excellent operating performance and some sustainability milestones. And last but not least, Jörg Friebel, CFO of the BMW Automotive Finance Company (China), will talk about the current status of our Financial Services business in that region. And that all will be followed by a Q&A session where we -- where the whole management team will answer your questions. And now without further ado, I'm delighted to hand the floor over to Ritu Chandy. Ritu, the stage is yours.

Dear ladies and gentlemen, thank you very much for being with us today. I hope that next year, we're able to do this in a physical format and be able to see each other. It's an opportune time for us to be here today to give you an update on BMW Group and our strategy, also where we stand from a financial performance perspective and an outlook for the remainder of 2022. But more importantly, what you're really here to hear from and see is our leadership in China. We have the pleasure of having our leadership in China share with you the latest developments and the outlook for a very relevant market for the BMW Group. BMW Group was and remains a pioneer of electric mobility. We launched the i3 in 2013. This year, in 2022, we stand absolutely committed to double our share of BEV sales from previous years. I'll talk more to that in the slides to come. But what's very important is the next phase of BMW Group. The Neue Klasse, to be launched in 2025, will define the future of BMW Group not just from an electrification perspective, but also digital interfaces, customer experience and many other things. Let's talk about where we stand today and where we're heading. In the year 2022, we will double our BEV sales from the previous year. Last year, we sold about 104,000 units worldwide, and we are very much on target to more than double those sales this year. In 2023, we will cover 90% of all market segments in relevant markets with battery electric vehicle product offerings. We intend to grow this product offering to cover 100% of all market segments by the year 2030. This is, of course, the year where we also want to achieve 50% of our annual sales with battery electric products. All I can say is, right now, every single person in BMW Group is pulling together to ensure that we're able to overachieve this target for 2030. But it's not just about battery electric products, it's also about how we are delivering this. And here, the Neue Klasse, to be launched in 2025, will define, again, the strategy of BMW Group. It is a dedicated electric architecture. It is where circular first will be the key theme. Again, utilizing a lot of recycling, whether it comes through battery cell materials as well as components within the car, will be a key tenant for the production of the Neue Klasse. And very important is digital. This is a car which will provide a whole new digital interface and experience to customers unparalleled with any other competitive offering. You all heard and read about our announcement of Gen6 battery technology. The focus very much continues to be on energy, integration, safety and sustainability. The newly developed sixth generation of our cylindrical battery cells will bring a huge leap of technology that will increase energy density by more than 20%, improved charging speed by 30%, enhanced range by 30% and, whilst doing all that, ensure that we're able to reduce CO2 emissions by 60%. But of course, to this community, it's also important at what cost, and we're absolutely committed to reducing the overall battery cell cost by 50% with the sixth generation of battery cell technology. We have awarded double-digit billion euros of contracts to key suppliers and partners in China and Europe and will soon be awarding the contracts to our U.S. suppliers as well. CATL and EVE continue to be strong partners for us in China and Europe. We will hear a lot more about the ramp-up of battery electric vehicles and that technology also from Jochen in his slides. But again, it's not just about drivetrains, it is also about the digital experience. And here, with the new BMW Operating System 8, we have displayed a new generation of controls, software and extremely powerful connectivity and data processing. This is going to be rolled out gradually across all vehicle classes, making its debut with the iX, for those of you who are driving the iX, and also featuring in the i4. The new iDrive enables many, many functions such as remote software upgrade. We continue -- BMW continues to be the largest provider of vehicles on the road with the ability to do a remote software upgrade within 20 minutes. It will also be compatible with the BMW Digital Key Plus, a new, convenient and secure way, for instance, of unlocking your cars, starting your car and, of course, also having your Apple iPhone not even be accessed and still having access to the car. The new generation of BMW iDrive also offers new opportunities for us to seamlessly integrate with different apps, incorporating customer habits and preferences and integrating third-party apps seamlessly, which are relevant to the customer. And you'll see more of this in the slides from both Jochen and Franz in terms of what has been possible for the Chinese customer for their experience within the car to seamlessly integrate apps that are relevant for China. These are all some of the innovations that you have to look forward to, and there's still more to come. I wanted to take a moment and give you an update on where we stand as a group from a financial perspective and also talk about our outlook for 2022. If we look at our overall sales position, you see a well-balanced sales position as at first half of the year with a very balanced regional allocation of products and sales performance. Of course, the performance in China was impacted through COVID lockdowns. But as you can see, despite those obstacles, China remains and continues to remain and will remain a very important market for BMW Group. If we talk about the BEV volume we discussed earlier, we are, again, ramping up our BEV product availability across the globe. And even in the months of July and August saw a very strong demand for these products and are very well on track to double that BEV volume for 2022. Talking about the financial numbers. In the first half of the year, global retail sales decreased by 13.4%, and this was mainly due to production restrictions and bottlenecks in supply chains, of course, COVID lockdowns in China as well. Despite this, we sold 1.6 million vehicles and were still able to expand our leading position in the global premium segment in the first half of the year. Strong new car pricing and used car pricing, a strong product mix, of course, benefited a substantial improvement in our EBIT result. But this was also achieved with a very strong growth of xEVs, our overall electrified offerings. We were at 110% year-over-year growth when it comes to battery electric vehicles in the first half of the year. And this is definitely the trend that's continued also in July and August. As at 30th of June, we delivered 76,000 fully electric vehicles to customers, more than double in the period -- same period last year. The EBIT margin as at end of June stood at 8.5%. You also are very well aware that we fully consolidated BMW Brilliance Automotive, our China joint venture, earlier this year. If we exclude the consolidation effects that are reflected in that result, our EBIT margin for the auto sector as at first half 2022 stood at 12.6%. This reflects the strength of our core segment in the first half of the year despite difficult business conditions and unpredictable supply chain constraints. Thanks to this very strong operating performance, strong price positioning, the segment's free cash flow for the second quarter was EUR 3 billion; and for the first half of the year, it reached EUR 7.8 billion. Looking ahead at the Automotive segment, we expect solid sales growth in the second half of the year compared to the same period in 2021. We expect our EBIT margin in the Automotive segment to be in a range of 7% to 9%, and that includes -- that guidance includes the BBA consolidation effects. We're now aiming for a free cash flow number of at least EUR 10 billion in the Automotive segment given the steeper ramp-up of electromobility and volatile supply constraints. We will continue our strong shareholder return story and continue to accelerate our share buyback program and, of course, our dividend policy. Now I guess the moment we've all been waiting for. Before I hand over to Jochen Goller in China, I wanted to take a moment to reflect on our CEO's recent statement that he made participating in the new electric vehicle conference in China. It's -- and I quote Oliver Zipse, "BMW is a global company, but we can say that strategically most important market outside of Germany is China. And this goes way beyond just sheer volume and just market sales. Moving firmly towards electrification, digitization and sustainability, China is definitely the pacesetter. It is the pacesetter in these fields, and what moves China today will move the world tomorrow." And this is something that we very much focus on when it comes to R&D, our developing pace of R&D in China. We will also hear from Jochen about being a leader of digitization with our BMW app developed locally in China through our R&D hub and through partners in China. We will hear from Franz Decker regarding the BMW iFACTORY. It's the first factory that was launched completely virtually for BMW Group and sets some new standards for all factories going forward. And definitely not -- last but definitely not least, very important is our strong partnerships in China, which will also be really leading the trend when it comes to all things digital and sustainable. Of course, we are very happy to have you here today also participating and understanding in our growth in China. But what's important is the diversification that we've achieved from a financial perspective in China. Given the growth of the Chinese portfolio and our funding needs in China, we have continued to expand our financial instruments. Starting with the financial bond, we diversified further into the Panda bond. We also then, of course, registered BMW China Holding B.V. as an issuer in Chinese markets and grew the securitization access for our funding needs. When we started this journey in 2016, we also had roughly about EUR 10 billion of foreign exchange exposure in China. That's more than doubled today. And for that, we are very grateful to have various partners providing us access to different instruments and ensuring that we are able to also be relevant players in financial markets in China. Without further ado, ladies and gentlemen, I have the pleasure of handing over to Jochen Goller, Senior Vice President for China. And we will hear from Jochen on the ground on everything that makes and shakes BMW Group today. Thank you very much.

Good afternoon, ladies and gentlemen. Welcome to BMW Group Region China. In the following 15 to 20 minutes, I would like to give you an overview on macroeconomics, on the recent development of the car industry, the BMW Group China strategy and some important pillars. And so let's get straight into the topics. I think you're well aware about the impact of the recent COVID outbreaks are having on China. And even though the cases are now declining but overall, of course, the restrictions remain, and that has a significant impact, of course, on the consumer confidence. As we can see, quite a big drop, especially, I would say, in quarter 2. However, the good news is we see some positive signs, some recovery, and this is also visible in the automotive industry, which I will show you later on. So all in all, I think we have hopefully bottomed out the disconfidence and are now really, really seeing consumers coming back to the retail business. When it comes to the car market, it's almost like a rollercoaster ride. But it's important that there are various factors contributing to this because, on the one side, you, of course, have COVID-related closures of dealerships and logistical issues, but you also have chip and component shortages. So it's not so easy to attribute certain effects to individual, I would say, implications. So when you look at it, last year, quarter 1 2021 started very, very strong and then finished quite low, and you can see this. And obviously, this year, the big impact came especially between February and May, the lockdown in Shanghai, logistic issues, short supply on critical components and chips. And that was affecting the whole industry, as you can see, whether it's premium or the total market. The good news is, however, and you can see this, that starting from June, July, especially in quarter 3 now, we see the growth coming back. Of course, you have quite a low base from last year, but we hope this to continue. And when you look at the moment, the total market is just about slightly negative, premium minus 10% year-to-date August. And we believe that in the next 3 to 4 months, the market will catch up. And we forecast both the passenger market as well as the premium market to be slightly above of last year, which I think is a good recovery basis. Where is the growth coming from? And where is the market going? I mean we've spoken a long time about the transformation of the automotive industry. And it's fair to say, in China, this transformation has arrived. When you look at the breakdown of the sales, you will see that the internal combustion sales, so ICE sales, actually, has declined. And we believe that probably the peak of the ICE sales will be -- will have been last year or around this year, whereas the big growth comes from the fully electric sales. You can see the growth rates, roughly around 100%. And that is true not only for the premium segment, it's also especially in the base segment, yes? You have players like BYD, for example, meanwhile outselling Tesla in China. So year-to-date, the penetration is around 23%, 24% of total sales. We believe probably the year will finish at maybe 25% and then will continuously rise over the next years. Yes, so it's fair to say that the transformation towards electromobility in China has happened. As for BMW, we had a very good year last year. Last year, I think we were less affected and impacted from the chip and component issues, which were hitting other OEMs much harder. That's why we have had a very, very strong quarter 3 last year. And of course, we have to now perform against that high quarter. And nevertheless, I think after also facing a plant shutdown in Shenyang, for example, in February, and chip and component issues like everyone else, we are now on the recovery part. We're expecting a very, very strong September. And especially, what is really, really promising is our BEV volume is growing very, very strongly. And this is, of course, related to the rollout of our BEV models, which we will have now available locally and imported. What we've done over the last years, we've revised our China strategy. And we're using the mission At Home in China, yes, because when you look at our footprint, you look at the amount of our employees, and Franz Decker will talk about that later on, of course, we're At Home in China. And to really, really, I think, perform in the market and to become at home, most important ingredients are trust. Of course, in China, breakthrough innovations and now also sustainability is getting more and more important. And for a premium brand like BMW, absolutely desirability. So these are the pillars. And of course, when you talk about the big-ticket items, it is, as you expect, electrification; digitalization; sustainability in many aspects, whether it's plant, supply chain, dealerships; and contribution to society because in China, as a successful company, it's extremely important that you give something back and support society in all aspects. When it comes to electrification, I mentioned that before, we are now in the full swing of our electromobility rollout. We have 2 locally produced cars: our iX3 and the i3, and they are perceived and received very, very well. So we really hope now for a very strong ramp-up once supply is fully available. iX3, by the way, is also extremely successful abroad, for example, in Europe, and that is really great to see. So I think the shipments from China and made in China is fully accepted outside China as well. In terms of import, we've got our flagship, of course, i7 in our [ cluster ] rooms perfectly, perfectly welcomed and perceived. The car will come to the market by the end of the year. i4, of course, as an import is a rather small volume. And then next year, with the iX1 and some more and more cars, I think we are really then in full swing and are able to leverage the very, very strong BEV sales trends, which I did show you in the beginning of the presentation. Very important related to electromobility is, of course, charging. And we have 4 pillars, 4 strategic pillars. One thing is private charging where, basically, if you buy a BMW BEV, you can get your Wallbox, and quite some customers are using that. Public charging, we've got now around 400,000 public charging pillars in our ecosystem. Branded charging, so we're going to certain designated locations and building our BMW branded charging. And of course, the app digital service, meaning that you holistically and very seamlessly through the BMW app can access all of that. So we're building up a seamless charging network. And as you know, at the same time, of course, the China government is massively ramping up charging facilities as well. So we believe that in a few years, the topic of charging won't be a concern for a BEV customer. At the same time, a circular economy is extremely important. And what we want to be is we want to be the leader in circular economy. We've just signed a dealership with Huayu, where we are going to recycle our high-voltage battery packs and we want to create a closed-loop recycling. It's -- on the one side, of course, raw materials are rare and you are able to extract and reuse; and on the other side, of course, you are reducing the footprint of your cars. So we are quite confident that this business will significantly grow over the next years. After electrification, sustainability, talking about digital. I think I don't have to explain to you that most Chinese are digital natives to an extent, which we can hardly imagine in Europe. And after the relaunch of our BMW app, we are seeing tremendous success. You can see here, we have now around 6.4 million users of our BMW app. Actually, in fact, since about 2 years, almost every BMW customer who takes ownership of a BMW is registering in the app and is using the app. And that's, of course, a fantastic tool for us also to get in contact and to have the right touch point with the customers. The same, by the way, is true for MINI. We started a little bit later, but also here, the numbers are really, really going up nicely and very encouraging for the team. You see here the App Store rating of 4.9. So at the moment, we're a leader in the industry in terms of the app user, and we are also the leader in terms of the app feedback in the app stores. So that's really, really great. And of course, we want to continue this trend. In terms of the retail network, it's very important that they are part of our strategy and are part, for example, also of our sustainability approach. And our CEO, Mr. Zipse, said it very clearly that the greenest BMW should come from -- the greenest car should come from BMW, and the retail network has to play a part in this. So we are currently introducing a Green Star Lighthouse project. You can see here, by the end of this year, we want to have around 50 dealers being included and then until around 2025 for all of our 600 dealers. We have very clear criteria in terms of green environment, in terms of sourcing of power, in terms of the way they operate, but also CSR and sustainability and CSR engagement. So it's a holistic package. It was very, very well received by our dealers. We have actually more applications than we can handle at the moment. And I think that's probably we're the first OEM to have such kind of initiative in this market. In terms of our footprint investment, and Dr. Decker will show you later, of course, some big investments and footprint expansions in Shenyang, we have continuously done this over the years. So I mean this year was a very specific year because of -- we opened our extension in Plant Dadong, launched the first iFACTORY in -- which is called Plant Lydia. But also on the MINI side, we're well on track. You know about our joint venture with Great Wall in Zhangjiagang, and this facility is ready. The product development is well on the way, and we are very confident for a launch next year. So all in all, continuous investment into facilities, into our R&D footprint, into digital. And we will continue doing this because we believe the long-term perspective of China and the underlying fundamentals have not changed. Yes, it's challenging times and there are multiple aspects from economy and from COVID and component and chip and geopolitics, but we believe that the long term, the potential of China is still there and especially that the premium segment with upgrading will offer big opportunities for a company like BMW also in the years to come. Let me conclude with a more kind of a bigger picture. Our CEO, Mr. Zipse, has delivered a keynote speech recently at the World NEV Conference, which was very, very well received. And I think it's very clear, as BMW, we have some very clear positions. We believe we need more cooperation, not less. We need a certain technology openness because no one really knows exactly what is going to happen. We have one aim, Paris Climate Change Agreement, and we want to reduce CO2. But which technology to apply exactly? No one knows at this point of time. And I think we really, really need to pursue a certain technology openness. And on the last topic, of course, related to China, I mean China is a hyperscaler. When you look at quite some technology, China is clearly leading and we're going to leverage this for our success in China, but also to contribute to BMW Group's success worldwide. And with this, thank you very much for your kind attention, and I'm very, very happy to talk to you later in person. Thank you very much.

Dear honorable guests, it's my great pleasure to join this event, and it's a pity it can't be in person. Let's hope we can meet face to face next time. As this is my first time joining this event as the CEO of BMW Brilliance, allow me to briefly introduce myself. I've been with the BMW Group for 25 years with positions within production, finance, purchasing and sales divisions. I joined BBA in 2016, first, responsible for production strategy and logistics; and then from January 2020, I took over the responsibility for technology and manufacturing in the BBA Board of Management. And now it's indeed a great honor and privilege to be responsible for one of the most successful joint ventures here in China. And I'm looking forward to shape the future of the automotive industry together with our stakeholders and partners. Today, I will share the latest achievements and the current business status of BBA and then provide an outlook on our future and how we fit into the big BMW picture here in China. But first, let me give you an update on our shareholder situation. At the beginning of the year, BMW Group increased its equity share to 75% with Brilliance Group now holding 25% of BBA. And at the same time, the BBA joint venture contract was extended to 2040. Hence, we still have a partnership of 2 shareholders: BMW Group and Brilliance Group. For BBA, there is no big change. We remain and act as an independent legal company. We are financially independent from our shareholders. The equity change did affect a change amongst the BBA Board of Directors. Dr. Peter for the BMW Group is now the Chairman of the BBA Board of Directors, and Mr. Wu is the Vice Chairman. These are my legal superiors. Our 2 shareholders have an aligned vision, and BMW Brilliance remains committed to profitable growth through high quality and sustainable development. As you know, Shenyang is the home of BBA where we have established the largest production base in the BMW Group network and formed a deep and successful cooperation with the city. Here, we produce BMW cars, engines and high-voltage batteries and carry out testing and development work. Our vehicle manufacturing site and our R&D center underwent major extensions this year to prepare us for the future. So overall investment of BBA has risen to RMB 83 billion since 2010. China is also the home to the largest BMW R&D and innovation network outside of Germany with 4 main locations: Beijing, Shanghai, Shenyang, Nanjing. Our local R&D and innovation teams are working impressively on core areas such as digitalization and connectivity to ensure our products and services meet the needs of our local customers. Our strategy of In China, For China product localization has proved very successful. At its approach, we will continue going forward. At BBA, we are steadily increasing our local product portfolio. Our newest BBA models, the long wheelbase BMW X5 and the fully electric i3, were both tailor-made for premium customers in China with the majority of the materials and parts sourced locally. This is what we mean when we say BMW At Home in China. We are creating value for the customer, local society and the industry for mutual growth. Last year was a very fruitful one for BMW in China. We outperformed our competitors, achieved a record high sales volume and finished #1 in the premium automobile segment in China. And BMW Brilliance was a major contributor to this success. Our production volume reached an all-time high of 701,000 units in 2021, making BBA, for the first time, the largest producer of premium cars in China. And we grew our production footprint. We are also creating new jobs. In fact, within the last 4 years, we have created more than 6,000 high-quality jobs at BBA alone. And this high performance was reflected in exceptional financial results in 2021. BBA delivered a record high revenue of RMB 214 billion, which represented an increase of almost 12% in comparison to 2020. To put this in perspective, revenue of RMB 214 billion would put BBA among 1 of the top 20 biggest listed companies in Germany. The increase in our profit before tax was even more dramatic, increasing by 36% to a record of RMB 36.2 billion. Our profitability last year and over recent years is underpinned by our effective business operation based on high efficiency and continuous improvement. This is enabling us to reduce our costs, improve our margins and boost our productivity year after year. BMW Brilliance continues to be a high-performance and profitable business. Since we are already deep into the second half of 2022, I can tell you that we are on track for another record-breaking performance this year. Against all odds, we have continued to deliver at the highest quality while also preparing for the future by expanding our production base, and this is despite operating in an extremely volatile, complex and challenging environment. The pandemic with lockdowns in different regions has affected dealers and production at both BBA and within our supplier network. The semiconductor shortage remains a serious ongoing industry challenge. Our robust supply chain has helped us shield us from the worst of the crisis. And we continue to see rising raw material prices, energy security challenges, geopolitical impact and the effects of climate change. All of these factors are leading to uncertainty and global economic headwinds, including here in China. Despite the volatility, we've continued to perform well. And this has only been possible thanks to our close collaboration and strong relationship with the government, our suppliers and dealers and all of our business partners, including our financial partners. Trusted business relationships provide us with the confidence and security to respond to critical external factors with speed and decisiveness. Our strength comes from this mutual understanding and end-to-end transparency and the willingness to take calculated risks. Of course, many of these challenges are not new this year. This makes it even more impressive that we have been able to successfully deliver all of our major structure and vehicle projects. This year, we opened our Tiexi extension, the Plant Lydia, which, at RMB 15 billion, is the biggest single investment project in the history of BMW in China. Here, we are already producing our full electric BMW i3. We also opened our Plant Dadong extension where the whole new BMW X5 is being built. These milestone achievements in such a complex environment are a testament to the resilience and excellence of our team in China and the global network. Our BBA investments decisions are essential to our plan for future growth, and we are proud that we are able to cover them exclusively from our own cash flow. These expansions are building up our BMW Group strength globally and preparing us for future mobility. Our new production strategy, the BMW iFACTORY, is our master plan for future production. It shows of how we are further extending our leadership in efficient and high-quality automotive manufacturing. As the newest facilities in the BMW Group network, Plant Lydia and our Dadong extension are the best examples of how we implement the BMW iFACTORY. The BMW iFACTORY is based on our manufacturing principles of lean, green and digital with a clear focus on high flexibility, high efficiency, developing existing processes and empowering our people. Only with excellent people and their excellent craftsmanship can we produce world-leading quality BMW cars. The iFACTORY is one key part of our answer to the transforming automotive industry. At BMW, we are preparing for 3 main industry trends: electrification, digitalization and sustainability. We are accelerating our e-mobility strategy globally and especially here in China. By 2030, we expect at least half of BMW sales in China to be all electric models. At the same time, we continue to offer a choice of efficient drivetrains in the short and midterm, and this is in line with the expectations of our customers and supports our profitability as we transform. Here in China, customer expectations on car digitalization and connectivity are higher than anywhere else in the world. We are focused on meeting their needs by our local innovation network. We are also increasingly digitalizing our production and operations. Our plants are world leading in this regard. In fact, Plant Lydia was the first BMW plant worldwide to be fully planned and simulated in the virtual world from the start, resulting in a 6 months time saving from construction to access. At BMW Brilliance, we are committed to building a high-quality organization that contributes positively to society and to respect the environment. Sustainability is central to this, not because of government or our customer expectation, but because it's the right thing to do. We truly believe there can be no premium without sustainability. In fact, sustainability has been on the top of the BMW corporate agenda for many years. For us, it isn't just about producing and selling NEVs. It's much more complex than that. BMW takes a 360-degree approach that incorporates the entire value chain, raw material sourcing, supply chain, production, vehicle use phase and recycling. At BBA, we've made big progress in recent years, and our audited numbers show our success. Our production base is already powered by 100% renewable electricity. And in 2021, we were the largest purchaser of green power in China. At the same time, we've built up 290,000 square meters of solar panel across the Shenyang production base. By the end of this year, these solar panels will be generating 60,000 megawatt hours of CO2-free electricity per year, saving around 45,000 tons of CO2 emissions annually. We also apply latest energy-saving technologies and are accelerating circularity. We have cut our production CO2 emission by 85% per vehicle since 2016. And we will reduce processed water consumption in our Dadong plant to 0 this year. In our press shops, our closed-loop system returned 70,000 tons of steel and 10,000 tons of aluminum last year alone. Our latest achievements include our new partnerships with [ Hougang ] to build a green steel supply chain and with Huayu to create a closed loop for our high-voltage batteries, which alone will save scarce raw material and reduce carbon emissions from extractions by 70%. And importantly, we prove our sustainability results in our audited sustainability report, which we have published annually over the last 9 years. Ladies and gentlemen, let me summarize. At BMW, we are very confident in the long-term outlook in China. With our clear approach towards green transformation, we also guarantee BMW's sustainable success. BMW Brilliance will continue to invest in new products, structures and capacities, and we will do this while remaining focused on sound financial and business management. This means taking advantage of our excellent lean cost structure on fixed and variable costs; continuously driving productivity gains and profitable growth; utilizing our strong cash flow position to make strategic investments; keeping flexible so we can seize new market opportunities even in volatile times; focusing on green transformation with our belief there is no premium without sustainability; and remaining clear in our commitment to inspire our customers with the highest quality standards. I'm looking forward to shape a successful future together. Thank you.

Dear ladies and gentlemen, a warm welcome also from my side. Please allow me to conclude our circle and presentation now by presenting you the Financial Services part. You might wonder how is Financial Services embedded in the BMW Group. What is the contribution from Financial Services to the BMW Group? Last year, Financial Services contributed nearly 25% of the result while contributing nearly EUR 3.8 billion result. Nearly every second sold BMW was also financed by BMW, meaning that we achieved a penetration rate of 50%. The new business volume achieved EUR 63.4 billion volume. How is Financial Services integrated in China? As you already heard from Franz Decker earlier, we have 2 legal entities in China: one is BMW Automotive Finance, a joint venture by BBA and the BMW Group; and the other one is Herald Leasing International Leasing, which is also a joint venture by BMW Group and BBA. What does our product offer? What is the range that we offer? Our product offer ranges from pure loan to an integrated offer. So you can see we finance dealers, we finance customers, we finance BMW, MINI, Rolls-Royce, all of the brands, BMW Motorrad. Everything is financed by us, and our products can cover the dealer stock as well as any customer request. Important here is to mention that this all is integrated in a digital customer journey. And also internally, our processes are as much as possible digitalized and automatized. Based on this, we achieved a result last year that our portfolio achieved RMB 95 billion on the retail side and RMB 16 billion on the commercial funding side, RMB 17 billion from Herald Leasing. So in total, nearly RMB 130 billion portfolio that we manage. As you can see, in the last years, our growth has -- we have enjoyed a very good, stable and healthy growth with results achieving up to RMB 3 billion for AFC and nearly RMB 0.5 billion for Herald Leasing. This result is -- this growth also translates into profitable results, as you can see. We only highlighted 2017 and 2019, some special effects that we highlighted with the dotted boxes on the slide. But you can see it's been a stable and progressive growth. And also for this year, we expect that the result will be even higher than the last year. One reason for our healthy results is that we're always working on process optimization and process efficiency. You can see that our cost per contract, especially on Herald Leasing side, has consistently and strongly improved over the last years, and our overall level is on a very good level. Also, one of the reasons for that is that we work on auto decisions. For example, you can see that our auto decision rates has increased to over 75%, where the decision is made automatically without any manual interference by any staff. Another reason for our profitable results is that we have a very balanced and mature risk management, and that is resulting then in a very healthy customer portfolio. You can see that our delinquency rate, of course, shows some ups and downs as every portfolio has done, especially in the last 2 years, 3 years with the COVID impacts. But overall, our results are extremely healthy, especially comparing also to financial services companies outside of China, but also comparing, for example, to banks and commercial banks. What sets us apart is our level of digitalization. I show you here some examples for our efficiency inside our company, but also towards the customer. On the left side, you can see we have already more than 100 RPAs in use where we have automatization processes. We use AI technologies for chat bots and for voice bots with the customers. We have optical character recognition to automatize the processing of documents. And with that, we are building a future-proof business and infrastructure. On the other hand, for the customers, we have a e-finance process where you can apply for a loan on your mobile phone and run the full process from the beginning until the end completely on your mobile phone. We have a credit precheck for customers who want to verify whether they are able to get a credit. We have a 24/7 online services. And with that, we have a multichannel, unique customer idea. This also is a strength because it is fully integrated into the whole BMW ecosystem. The My BMW App that Jochen mentioned earlier is fully -- Financial Services is fully integrated into that app. So you can do your -- while you are on that app, you can automatically jump into a Financial Services offer and start the whole process there. You can do it online, you can do it on WeChat. Any channel you have, Financial Services is fully integrated into that. But not only efficient and digital processes is relevant as a fully regulated company, of course, we also have to be compliant and have to have reliable processes. So our foundation is that we have a sound and prudent governance and risk management. We can highlight maybe some points here. For example, the -- of course, we have customer protection. We have data protection, which we have taken very seriously. But on the other hand, of course, data is also used to have a data-driven business. And we, of course, take care of fraud. To avoid fraud, we have several measures in place. Summarizing, we can say that we are clearly focused and have a clear strategy. We are fully integrated into the BMW ecosystem. We have a premium customer profile. We proactively embrace new technologies. You've seen it in our cars. You've seen it in our factories, and we do the same in Financial Services. We are, of course, driven by a clear corporate governance. And we, of course, also are using the ESG model as any modern company would do. That will be all from my side. We will now shortly show you a video of the new i3. And after that, I'll see you at the Q&A session. Thank you. [Presentation]

A big thank you to the whole management team for those detailed presentations. And I'm really glad to have so many of you joining us virtually today.

Now let's change gears and move on to your questions in our Q&A session. [Operator Instructions] And let's kick it off now with the first question, a question which comes from José Asumendi, and the question is -- from JPMorgan. And the question is, can you please discuss the key levers to reduce the cost of the battery? And by which year do you expect to hit cost parity with ICE, please? I think that's a question for Ritu.

Thank you very much, Veronika. And a very warm good morning, although it's not warm here in Munich, but a warm good morning to all of you joining us today. I really would like to start off by saying that it would have been fantastic to have this event in person on the ground in China, but we are, of course, making the best of the situation we have. Really, again, a big thank you to the leadership team for being here with us today. You've seen the presentations, and they're all ready to go and answer any questions you may have. Starting with José's question. Thank you, José. And I'm really glad to receive this question because Gen6 battery development for BMW Group is truly setting the tone for our future electrification strategy. I'd like to just mention a few key parameters, and I know you've heard this before, but I think it's that important. With the change, the cylindrical cell format, we will achieve a 30% reduction in charging time. We will receive a 30% increase in range, 60% reduction in CO2 emissions, 20% increase in energy density and now, the factor that you really care about and most of you care about, a 50% reduction in costs. And there are several factors, of course, the biggest being it refers to a cost reduction in the entire battery pack. And this starts with the battery module assembly, which, given the cylindrical format, will no longer be required. Furthermore, there will also be differences in terms of the chemistry going inside the batteries, such as reduction of cobalt. The combination of these 2 factors is what enables us to achieve the 50% reduction in costs. And we are very much committed, as announced prior, to achieve parity when it comes to the contribution margin of our BEV vehicles, with our ICE vehicles, with the Neue Klasse in 2025, notwithstanding the tailwinds of the current pricing dynamic that has brought those actual differentials closer together. So with that, I think we'd be ready for the next question.

And the next question also is from José and the question is, can you discuss, please, your key BEV product launches in China? What is your current BEV market share in China? And how do you plan to take more market share in the coming quarters? And I think, Jochen, that's one for you.

Yes. Well, thank you very much, José. And I would really love to discuss those topics with you in person. Hopefully, next year, we can do it. I mean, as you know, BMW is in the midst of a huge BEV vehicle offensive. I mean we are currently having a mixture of imported cars and locally produced cars, namely this year, especially our i3, our new 3 Series BEV, which is produced now since June. iX3, as a local car, very, very successful. And of course, this is accompanied by iX, i4 and probably by the end of the year, our flagship i7. Now next year, we will be welcoming the new iX1. And then, of course, every year, we're going to increase the amount of models. And what we are aiming for is to have a very convincing BEV offer in every segment we are operating under. So it doesn't mean we copy every model, and we basically offer for every BMW model. But for every critical segment, whether it's in UKL, KKL, MKL, this is our segmentation, whether it's in the SUV or sedan. So therefore, you will see a very, very significant increase. And of course, then as of 2025, we will be rolling out our Neue Klasse models in worldwide and in China. When you talk about the BEV share, I think, first of all, we have a rapid growth. Even though our relative market share is very small at the moment simply because we only are launching our volume models now in the beginning of the -- respectively, now in the second half of the year, so therefore, our aim is to more than double our BEV sales in China against last year and then from there rapidly growing. To give you a perspective, at the moment, I would say the BEV share in China, total market is probably around something like 78 -- 77%, 78%. So there -- sorry, 20 -- 22% to 24%, meaning we still have a huge share of ICE cars. And that's basically why our strategy, I think, is very successful. We are leveraging a very large-scale ICE market at the moment with our BMW models, whilst at the same time ramping up and increasing our BEV portfolio so that once the market is accelerating, and we expect that from 2025 onwards, it will really accelerate heavily. We can tap into both markets. So to answer the question, we are basically now rolling out our models. The big growth, as always, will come from locally produced cars, which is the same, by the way, on ICE. And we're very convinced that we can be as successful in the BEV market as we are currently in the premium combustion engine market.

Thank you, Jochen. And I think this is a bit of a follow-up by Philip Molloy, Amundi, are you exporting the i3 to Europe? Or did I misunderstand the comment? I think, Franz, you know that probably?

No, I mean, first of all, as I said, we have in China, at the moment, 2 locally produced cars. The iX3, by the way, is exclusively produced at BBA for China and for the whole world. So our iX3 is indeed sold worldwide. And by the way, when you read the Auto Motor und Sport, that's the bible of the German car magazine, the testing reports are excellent. So feedback on iX3 is we actually -- in a way, we are fighting with our European colleagues for iX3 production fronts. The i3, it's a long-wheelbase BMW 3 Series sedan, which we sell in China, the worldwide offer comparably is the i4. So our i4 car is basically the world of us, so to speak. We also sell the i4 as an imported car in China, which, of course, because of import and pricing, it's a rather smaller volume. But our volume model is the i3 long-wheelbase, which is the 3 Series BEV sedan. We don't export that car.

All right. Thank you. Next question from an analyst or investor is, how sustainable are the record margin levels at BBA -- oh, sorry, it's currently delivering? And what kind of tailwinds do you expect to see for your regional profitability in the coming years? That's probably one for Jochen?

Or maybe, Franz, do you want to comment on your successful profit?

Yes. I mean we've seen it since the presentation before, '21 was a record year for us. At the moment, we are on a good way to even get a better '22 even though we have a lot of headwinds actually at the moment in terms of global supply chains, local lockdowns and all the topics which are operationally interrupting our business. But I think we have proven that we can deal with such matters and that we can, nevertheless, deliver to our customers. So we are quite confident for this year as well in terms of delivering on our results.

Maybe let me add to that, Franz. I think when you look at the profitability, profitability is, on one side, related to product strength. I think it is related to the digitization of our customer funnel because you can take some cost of sales out of the business. And of course, it's in terms of the transaction prices. And here, to be fair, I think we had some tailwinds because of there was a short of supply. So to be fair, some of the strong results are also basically caused by, I would say, a drop in supply. And our joint target is now in a market where probably supply and demand are coming closer together to make sure that our strong transaction prices remain, whilst at the same time, we really, really have a very strict cost discipline. And I think BMW Group is known for that, but believe me, we in China are at least on the same level.

You have seen the fixed cost development, I've shown earlier in my charts. And rest assured, our fixed cost targets for the next years are at least as challenging as it has been in the last years.

Okay. So next one is a question from Patrick Hummel, UBS. Patrick would like to know, BMW's share in the China NEV market is well below your overall China premium market share. The local BEV competitors are growing faster with strong premium products and top-notch connectivity. Isn't that clearly pointing to a significant loss of market share in the years ahead?

Yes, I think I answered that. At the end of the day, a segment share -- or market share is related to your product portfolio, right? So what we did, of course, is we rolled out in the beginning mainly import volumes, import BEVs, which, of course, have a low -- kind of a low volume. And now starting especially this year with our iX3, with the i3 next year, iX and then every car, whether it's a 5 Series or any other local car we have, will be also available as a convincing BEV model. So yes, if you look at the status today, absolutely right, we're very, very strong in the ICE segment. I mean we are the premium leader in the ICE combustion end, but we are clearly not where we want to be. But that is clearly offer-driven, yes? And so therefore, we're very convinced that with the expansion of our portfolio, we can basically steadily increase our segment share also in the BEV market. And then, as we mentioned earlier, of course, the big next milestone will be in the year 2025 when we are going to launch our Neue Klasse in worldwide as well as in China. And we're very confident we can repeat the success which we have in the ICE world, also in the BEV segment. But your observation is right, for the reasons I outlined, at the moment, we're clearly not where we want to be, but I'm convinced that we get where we want to be.

And Jochen, Patrick is also asking about the margins ongoing given this highly competitive landscape.

Well, I think on the margins, 2 things. First of all, what you see is, in fact, pricing increases for the BEVs, yes? So because, of course, raw materials and some cost pressure actually over the last years, everyone, including Tesla, including NIO, including some other competitors, have increased the prices, yes? So therefore, I think -- and the market is absorbing this. At the same time, Ritu outlined that we work, of course, on cost efficiencies. We work on -- I mean the biggest cost block of BEV is obviously the battery. We take out cost out of our distribution system, efficiency. So I think our ambition is very clear that we are realizing the same margins with the BEVs as we're realizing with the ICE. And at the end of the day, I think BMW was able to realize very, very good transaction prices in the ICE market. And I would see no reason why we cannot do this in the BEV market. And as I said, actually, in fact, China -- a lot of China OEMs are increasing prices and are forwarding these additional costs to the customers.

Thank you, Jochen. Now shifting gears a bit. Stephen Reitman from Societe Generale asks, can you accurately benchmark your China plans against other Chinese OEMs and against Tesla Shanghai?

Benchmarking of plants is always a difficult problem because obviously, you produce different products. And production is very much dependent on the product you are producing. So if you ask on a process-by-process level, you can do that, but it's rather meaningless because it is just describing whether you are good in a single process. And at the end of the day, obviously, overall cost and overall efficiency and overall quality, overall flexibility, overall other results come together in the plant. So if you ask me, where are you with comparable products in comparable plants within China, I'm very confident that we will win most of these benchmarks, if not all of them. If you compare us to a company which is producing one product without any variance in one plant, then on pure labor efficiency, you will get an advantage for the one-product company. If you look at other parameters like flexibility, if you look like capacity utilization in the long run, if you look like it's a question of, are you capable of delivering to the customer demand at the moment in time, and I would say you get a different story already. But as I said, I think there are companies also, no question, who have a solution found for their production program. And from our point of view, it's not just about labor productivity. It's much more also about quality, about efficiency, about sustainable solutions and about solutions where you use the craftmanship of your associates.

Franz, very much linked to that is the question, how do your working practices such as shift patterns compare to those of Tesla, which is achieving remarkable monthly production figures? Probably very similar.

Obviously, shift patterns, I mean, there are not so many possible shift patterns at the end of the day. So yes, we have a 6-day operation as well. Yes, we don't do a 3-shift operation at the moment for most of our technologies because it's not the most efficient way to run it. And we have extended 2 shift models, which are more or less covering the same utilization time. So shift patterns, I think it's not a real discussion, to be honest, in terms of the question of how efficient is your plant. And nevertheless, if you look at the productivity gains you see with Tesla for their product and their situation and so on, I would say, yes, they achieved a significant improvement compared to the beginning. But I would also say that their launch phase probably was not as successful as we would have called for.

Okay. Thank you. Now we're moving to Tim Rokossa's question from Deutsche Bank. I would like to know, do you see new NEV OEMs in China taking a dominant position in the Chinese premium market for longer? Or will this largely remain an oligopoly in your view? Jochen, I think you talked about that.

I think, first of all, obviously, there are not so many premium new Chinese players in the market, let's face it, yes? Most of the BEV players and NEV players in China actually go in at a very low price and are what we call base segment. There are only maybe 1 or 2 who really, really are targeting the premium segment. Everyone else is basically going in into base, even though probably quite a lot of companies call themselves premium. There are some successful OEMs and new OEMs. And to be fair, we have to really also applaud them because, I mean, these days, when you go into a market establishing an OEM and so on and so forth, it's a big risk. And I believe, of course, some of them will make it. You will also see some of them disappearing, by the way, in a similar way as over the last years. There are -- yes, when you talk about Qoros and Byton and whatsoever, there are already some no longer on the market. So there will be probably some who will make it. The premium segment is a very difficult segment to be successful in the long term. And so therefore, we are very confident given, I think, our strength, given the fact that we are now in the midst of probably the biggest model offensive BMW Group has ever seen, especially on the BEV segment, given our Neue Klasse, given the fact that we focus on digital first and electric first and circular first, we will be extremely competitive. And our aim is to secure the same segment share in the future as we have in the premium segment today, and probably some of our competitors in the future will look differently than they look today. So in a nutshell, I think some will make it into the segment, but that doesn't mean BMW would be less successful. Because I've been in Munich in July for the first time after almost 2 years, and I have to say I was extremely convinced about what I saw is coming in the next years. And I would suggest that no one is counting us out too easily.

Okay. Jochen, Tim would also like to know, when do you expect to reach a market share in BEVs that is comparable to ICE today? And if you expect that, that is mainly cannibalizing ICEs? Or do you see us conquering new customers?

I mean, first of all, I think when you look at the long-term perspective, we still see a certain market growth overall. So the cake is getting bigger. And I referred earlier, for example, to mobilization rate, so mobility rate at the end of the day, in Europe -- in U.S., you have 800 -- I think 880 cars per 1,000 people. You have, in Germany and Europe, you have anywhere around 600, 650 cars per 1,000. And in China, meanwhile, you have maybe 300, 320. So there is still a big need for mobility, number one. Number two is you have a middle class of, depending on how you define it, anywhere between 180 million and 250 million people probably who are -- who can afford a car, for example, BMW. And that is, by the way, bigger than the comparable segment you have in Europe. So first of all, I think you will see the car sales increasing because I think this year and last year, there were some very special effects, which we believe will clearly not be projected into the future. So the cake is growing. Of course, you have more OEMs coming in, and that means it will be harder. But as I said, we have clearly not the intention to give up segment or market share. When you talk about how the BEV segment is developing, well, honestly, I don't know whether the -- we call a tipping point of 50% ICE and 50% BEV sales, whether that is happening in China in '26, in '27 and '28, we don't know. All what we can do is be ready. And that's why, for example, Dr. Decker in his plant, we can produce in the new plant in Lydia, 100% battery electric vehicles if the market demands 100%. At the same time, we have our ICE combustion engine. That's why I think BMW's strategy is, if I may say, is not always fully understood. Because at the end of the day, if you have -- even if you have in 2026, 50% BEV, you have in 2026, 50% non-BEV, and we are playing in both markets, we have a very convincing, very strong offer in the ICE world. And we will have, by then, in every segment, in every concept, whether it's sedan or SUV, a very convincing offer in the BEV segment. And if the market flips earlier, we will be prepared. And therefore, I think that's the flexibility and what Mr. Zipse calls technology openness, yes, and it's always important. Technology openness doesn't mean we are late on BEV or we are not basically investing enough on BEV, no. Technology openness means, at the moment, the market has various technologies. We're able to serve it. And to answer the question, clearly, I would say once we have the full availability of our BEVs and once we have a BEV in every model and in every concept segment, of course, it's our ambition to have a similar segment share as we have today in the ICE market.

Right. Thank you. Moving away a bit from electrification, Dorothee Cresswell from Exane asks, could you tell us about some of the specific in-vehicle features BMW is bringing to market that allow you to meet Chinese customers' higher expectations on digitalization and connectivity?

Yes. I mean, first of all, I have to say that we have, since quite some years, a very close collaboration with Munich. And as you might know, we have the biggest R&D center outside Munich, outside -- our headquarter is actually in China. And we've got, in total, 4 hubs, meanwhile. So we've got our R&D hub in Shenyang, which is mainly is electromobility and industrialization. We have a big hub in Shanghai, which is digital in-car features connectivity. We've got an R&D center in Beijing. And in Nanjing now, we have actually 2 companies and 1 is focusing on connected car features and the other one is very much focusing on business IT and towards SIP. So we have all the ingredients here. And when you talk about specific features, for example, our My BMW App, which we've launched in China and which has now close to 7 million users, is actually customized for China. You have community features in, customers can exchange. There's a totally different behavior within the app you have in China, for example, than you have in Europe. That's something we customize, we programmed and designed here. When you talk about a special -- for example, in the upcoming operating systems, our Operating System 8, you have our interactive personal assistant, IPA, which is designed here, you have a different visualization. So we have on the digital world, a lot of features on top, by the way, for example, seating comfort, yes, where we spend our money because in China, people have a certain taste. They want a certain comfort, whereas maybe in other markets like Germany, more stiff riding feeling is appreciated. People in China want to sit very comfortable. And on top, last but not least, let's face it, our long-wheelbase strategy, as you know, yes? We have an iX3 long-wheelbase -- sorry, an i3 long-wheelbase. Giving you an example about successful product launches, we launched in, when was that, in March, our X5 long-wheelbase. I think it was in March. And that car is customized perfectly for China. So it's a global success story, X5. But we took it, we extended it. The feature equipment level is unprecedented, and we are now close to 8,000 units of X5 sales locally produced in China, yes? So in a nutshell, I think, hopefully, one time, you can come to China. We would love to take you to some of our R&D centers to show to you that we are very well aware about the customer needs, and I think we serve them quite well.

Excellent. Horst Schneider, Bank of America, asked a couple of questions. I think a couple of them we've picked up already, but one is, when you talk about a new record year in 2022, this also refers to profitability?

If you take it on BBA level and, obviously, we're normally not talking about the single joint venture results, yes, but I talked about BBA level and also on profits.

And are there any long-term targets you can share on the China business overall in terms of unit sales profitability? I think we touched on unit sales in terms of market share. So I mean I think...