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

So ladies and gentlemen, welcome back. Ritu, you joined us last year for the first time at the annual conference. That was just before you officially took over as Senior Vice President for Group Treasury. What have been the highlights of your first year in this role?

Thank you, Max. It's been an extraordinary year. We delivered strong results within our guidance in a challenging environment, and there were a number of other unique events in 2022. We have the full consolidation of BBA. We started our share buyback program, completed about 82% of the first program that was launched. And we saw the launch of the i7, the all-electric Rolls-Royce Spectre, a number of you on this call actually joined us for those events, which are both unique in their segments. Very, very important for our electrification narrative. And finally, we accomplished all this while generating a record free cash flow, putting us in a perfect position to invest in the future.

Excellent. Absolutely, Ritu, it was certainly a challenging yet exciting year, but I think we can be confident about this year. And now ladies and gentlemen, I will leave you in great hands with Ritu for the Q&A. Ritu, the stage is yours, please.

Thank you again, Max. I would now, without further ado, like to welcome back Oliver Zipse and Nicolas Peter on stage with me. Thank you.

The gentlemen have now joined me on stage. Thank you for joining me here. Ladies and gentlemen, as usual, we look forward to your question. Your call will be streamed to us directly in the room. We would therefore encourage you to use video calls so that we can also see you here. Without further ado, we will now hand over to the operator and take the very first question.

Our first question comes from Dorothee Cresswell, BNP Paribas.

I hope you can hear me. My first question is around the earnings dynamics in China. You look to have generated pretty phenomenal profitability there last year despite the challenging operating environment. It now seems like demand is picking up. And you're also taking market share in the BEV segment, which is quite unusual for a Western name. But we also hear that pricing is very, very challenging, and there is talk of a great deal of discounting. So my first question is, is 2022's profitability sustainable into 2023 and also beyond? And why? And then my second question is just around the cash return to shareholders. You've obviously got the 10% buyback authorization. You're nearly done with the first EUR 2 billion program. Should we expect you to launch a follow-on program? And is the EUR 2 billion a good point of orientation for that?

Thank you very much for your question, Dorothee, and for kicking us off today. The first question regarding pricing development in China. I would hand over to Nicolas, please. Nicolas?

Dorothee, first of all, you're absolutely right. Despite the volatility we've seen in '22, in particular in the second quarter in China and in the first quarter, '22 was a good year in -- for BMW in China. And in particular, we have seen contribution per unit developing very strong, and we have seen step-by-step our EV share going up. I think it's worthwhile to mention that the EV market is developing in a different manner in China compared to Europe and U.S., where Europe and U.S. are more top down. China is developing more bottom-up, and we are now launching step after step the next all electric cars in China. We are -- if you remember, our Q3 conference, we are not surprised that the market, in particular in January and February in the first quarter is somewhat more difficult in China, which has, on one hand side, to do with the fact that we've seen at the very beginning of the year, still the impact of the COVID lockdowns in January and beginning of Feb, and we had the Chinese New Year a bit earlier. We are nevertheless optimistic. We are nevertheless optimistic that we will see beginning probably from end Q2 onwards a positive dynamic development in China. So we believe based on our strong portfolio, full availability of long wheel-based X5 pricing discipline, we will have another successful year in China and on top, further grow our all electric business. Maybe Oliver, is there something you would like from your perspective to add to China? Because, of course, it's a very, very important element.

Dorothee, China is a full-scale operation for us. We've a very high local for local production. And by the end of this year, and you mentioned that rightfully that we are gaining market share specifically on the premium BEV segment there. At the end of this year, we will have 11 fully battery electric models in the market. Most of them locally produced, but also imports like, for example, the iX and the i7. So especially in the second half of the year with a new government taking on, and I will be in 2 weeks at the China Development Forum, and then we will see what is happening. You can only judge China if you are in China. But we are cautiously optimistic about the further development of China, especially in the mid and very much so in the long term.

Now Dorothee, your second topic, share buyback. First of all, our first program is still underway. I believe, in a very successful way. We have completed the first program to -- while we are -- as we speak at 82%. And if you ask me today, first, we have to finish program 1. We have still very, based on our strong cash flow, strong liquidity. We have a very strong cash position, liquidity position. We will continue on one hand side to invest, in particular in the development of all electric cars. Battery module production is another important element. So we will slightly grow CapEx. Nevertheless, we have, from today's perspective, definitely the room to continue our share buyback program. So far, the experience with the size of -- we've been a little bit faster than initially anticipated. If you remember, our deadline was to say what we will finish at EUR 2 billion end of this year. We will most likely be, well, 6 to 5 months faster. So I believe it's a good indication. Nothing decided yet, but we are really happy with the size. Maybe taking into account the share price development, speed could be a little bit lower because it's, of course, an important element to factor in. But from today's perspective, there is no reason why we would not continue.

Thank you, gentlemen, and we would be ready for the next question, please.

The next question is from Daniel Roeska at Bernstein.

First, on the BEV margin, you're ramping up BEV penetration again in '23. Could you elaborate how much of a margin headwind the increase in BEV penetration was last year in '22 and what you're expecting in '23? And then maybe further out in the decade, do you think it's actually possible to get to margin parity or cost parity, even more importantly between ICE and BEV models. The second part of the question would be on the [ DN ], the panoramic vision in Neue Klasse, which we've now seen, I'd say, a couple of times. The question here would be, why do you think this technological approach is superior to, I would call it, a screen-based approach, right? So not maximizing the screen, but using the augmented vision that you're using. And could you share some more insights on the potential technological partnerships, both on the hardware and software side required to bring that to reality?

Thank you very much, Daniel. We'll start with the first question regarding development of battery electric vehicles, the margin headwind in 2022 versus a development in 2023 and most likely parity discussion, which I would hand over to you, Nicolas, please.

Daniel, well, you have to look at BEV margins from 2 angles. Of course, on one hand side, and this is no surprise, is the margin of an all-electric car exactly on the same level as in comparable car with an internal combustion engine, of course, not. On the other hand side, if you would look at our own planning, 12, 24 months ago, we are surprised in a very positive way, which means our BEV margins are higher than we've planned ourselves. So that's, I believe, a very, very strong basis. Now what is part, of course, of our business model that this effect, and this is why we can despite a growing share of all electric cars, Oliver in his speech said, well, we will go up to 15% in '23, which would indicate we will end up somewhere close to 400,000 cars. We still stick to our margin corridor of 8% to 10%. And if you adjust by the PPA, we would be even 1% higher, which is, on one hand side, an indication that our business model is extremely robust that BEVs are developing better than we've anticipated. And we plan, of course, with Neue Klasse, this was also one of the questions of -- in our media around a couple of minutes ago. We plan with Neue Klasse to be on a car level on cost parity, which means -- and this is exactly one of the reasons why we've developed Neue Klasse to not only to optimize the drivetrain. Drivetrain optimization means cost down by approximately 50% with the generation 6 compared to generation 5, 30% more range, 20% more density in the battery cell. So that's definitely a very important step. But at the same time, we optimize the cost level of the whole car, and this is why we are confident that with the Neue Klasse, we will be if you compare it with ICE car to an all-electric car, we will be on margin parity.

And Neue Klasse, of course, makes another step, Nicolas, with the panoramic display that you referenced, Daniel. And I would hand it over to Oliver, please, Oliver, to describe our partnership strategy and the reason for the approach.

Yes. Hello, Daniel, also from my side. We have 20 years experience with head-up displays. And that came actually from the airplane industry into the car. Now what you see very much in our industry is that driver distraction becomes a dominant problem. And with the next level of our panoramic view or panoramic vision display we have here, we want to have the control of the driver to be in the heart of our product development, eyes on the road and hands on the wheel. And if you look at our user interface today, you have a head-up display, you have a cockpit display and you have a touch screen. You will still in future, even with the BMW panoramic vision, you still will have the opportunity to touch, which is close to the driver, but there will be a new combination of these displays. And the forefront, the biggest change you will see in the new version of the screen head-up display. Your second question, how do we do that? Do we need partners to do that? We are always the system integrator. We're always the system integrator. And we have many partners for the displays for the software, from external services. And we will tell you more about it when we showed that our next concept vehicle for the Neue Klasse and this year in the IAA here in Munich, and then we can also talk about our partner approach.

Daniel, maybe to add one additional element to your first part of the question. Of course, you've asked specifically as well impact in '23 because we are significantly growing our all-electric business. And here, you have to take into account. And this is why -- exactly why we are confident to stick to our strategic margin corridor that with our GKL offensive, with the offensive at the top end of our segment 7 series as the new X7, which is doing extremely well. XM coming later, what I've said all year availability of X5 long, which gives additional production capacity for Spartanburg and for other markets. All those cars are positioned in the high-margin area. And of course, this is offsetting some of the -- I would have not call them negative effects because those cars are still very positive and much more positive than we've saw it. But all those 2 elements together lead us to 8% to 10%.

Thank you very much. And Neue Klasse is the next step at the IAA is what I heard. With that, we would be ready for the next question, please.

Our next question is from Tim Rokossa at Deutsche Bank.

It's Tim from Deutsche Bank. And well done for today. I think investors cannot ask for much more. We've argued many times on this call about your strategic direction. Now you think more about high-end models, cash return, the free cash flow. And also you move straight into Q&A, which we think is really great and much appreciated. I have 2 questions, please. The first one is strategically, very early, you were very early in adopting a very globally balanced footprint with very, very production. Now we see the entire industry spending a lot more CapEx in the U.S. market for all the right regions probably. But the fear is obviously that this industry never really finds an investment peak and we'll always continue to find something to spend money on. Usually, Nicolas, you would answer the question on CapEx. But maybe Oliver, when we think about this strategically, do you feel you still have any holes in your global production network? Do you post 2025 still have to invest a lot more money incrementally in the U.S.? Do you have to go to the ASEAN countries, India, do something on new technologies? Or can we really believe for good that in the next 2, 3 years, we're going to see the investment peak in this industry spending and that it not only continues to go up and up? And then secondly, Nicolas, I'd like to come back to Dorothee's initial questions. I think that's actually pretty favorable for your stock. You seem to like how the cash return program through the buybacks is actually working out. Why wouldn't you just say that cash returns in the form of buybacks when you have access to the liquidity, which you seem to generate and are quite confident on are going to be a regular part of your cash return strategy going forward from here beyond the allowance that you already have right now?

Thank you very much, Tim, and we appreciate the feedback as well. Starting first with Oliver, with regards to a balanced footprint, local-for-local approach that you mentioned, Oliver. And what does that mean for upcoming investment plans? Thank you.

Well, Tim, thank you for asking these questions. And you rightfully observed that we have taken that balanced global approach for a very long time. Our plant in Spartanburg is not only our largest plant, but also the root cause that we are the largest exporter of cars by value from the United States into the rest of the world. CapEx, you will always spend for 2 reasons: technological advance, new cars and also for capacity expansion. And we do both at the same time because we think with our technology opened approach, we have the best fundament for growth as well. Because we are playing, of course, the North American market. We play the European market. With whatever regulation will come here, we will be prepared. Of course, we invested heavily into the Chinese market. And now comes up a fourth pillar we call that, which are exactly these markets you're talking about, Southeast Asia, India, where we just decided on a new strategy that we not only look at the 3 biggest markets today, but where is the largest growth. And these are not only one market. This is a multitude of markets with very high potential. Specifically, going in the upper segment, just like Nicolas just said, we have a very strong product lineup, where CapEx lies already behind us with the 7 series, with 4 drivetrains. We have the XM. We have facelifts of the X5 and the X6 and the X7. So there is growth potential. And at the same time, of course, we have invested, which is already behind us, into an architecture which can do all drivetrains, and that is not something where we neglect the customer. It's the other way around. We worked on our ability to have architectures, we can do all drivetrains. And that gives us, I think, a very good growth perspective as well. And again, to summarize, besides the 3 pillars we have today, which were rightfully mentioned, we look very much into the fourth pillar, which is ramping up now.

Thank you very much. And I think in relation to that, Nicolas, the second question, free cash flow generated, CapEx, of course, but also buyback as a regular part of our shareholder return.

Maybe 1 or 2 comments on CapEx, Tim. If you look -- and this is what we've said in our speeches today, this year, you will see CapEx being in the, for us, relatively high area of 5.5% to 6%. But we believe that's still very, very reasonable, in particular if you take into account that we are investing more than 2/3 of those investments going in, in future technologies. We can't speak for the industry when will the investment peak be reached. We believe we have a very, very good plan. So '23, maybe '24 on a similar level, and then we will go back to 5%. And as outlined, major investments going in particular, in the electrification of the -- of our business, we've announced EUR 1.7 billion in Spartanburg. We are investing in a battery module production nearby Munich. So those are some cornerstones of our strategy moving forward. Well, we believe definitely cash return, share buyback program is a very good way to balance a good element of an additional mix to balance our capital market strategy. We have executed, as I said, faster than -- much faster than initially sort the first 82%. Initial plan was to finish year-end with Program 1. This will be definitely faster. I've already indicated that also in many, many talks with you and the colleagues that it's very likely that we will continue to run such a program. Now we are at 3%, a little bit more than 3%. We have an authorization of 10%. So there's still some way to go. We have still some room to maneuver, and we will take the next decisions when we are closer to the limit of the authorization we've already got. But you know the company. As a company, it's a very long-term oriented company. We develop things not to do one thing in one year and then do something completely different the next year, so that's part of our plan moving forward.

Thank you very much, Nicolas. I think that definitely clarifies the share buyback question. We're ready for the next question, please.

Our next question is from Patrick Hummel at UBS.

I hope you can hear me. My first question, it's probably one for Oliver. I want to understand how you conceptually think about taking cost out in your bets with Neue Klasse. I mean there's a lot of fresh technology coming into the vehicle. And it's going to be an appealing product to the customer, but there are other competitors out there that are really super aggressive in reducing costs in absolute terms on next-generation BEVs. So your road map to margin parity versus ICE, that sounds promising. But we don't know what the price of the product is, and it depends on external factors as well. So I'd like to understand when you're planning Neue Klasse, how much of an absolute cost focus do you have? And can you give us a feel, are we talking about really step change in cost per unit? Or is it all just about scaling up a new platform that will bring the savings? Just how you balance that, try to better understand that. And the second question is probably more for Nicolas. I understand you're guiding for flattish price mix this year, but your high-end luxury is growing a lot. You say mid-double digits, sounds like 50% or so year-over-year. Is the offset on the negative side that results in a flat price/mix impact on EBIT just the BEV, which suggests it's still very dilutive? Or have you just generally taken a more cautious view on pricing this year?

Thank you very much, Patrick. We'll start with the first question on Neue Klasse, specifically, again, the strategy and the approach, followed by the cost focus also of Neue Klasse with Nicolas. But over to you, Oliver.

Yes, Patrick, thank you for that question. I think if you think others are super aggressive, then we are super, super aggressive because the Neue Klasse is not so far away. And we're adamantly that we will reduce 50% cost reduction, which is extremely important to ramp up electromobility. If you're not able to do that, you shouldn't ramp up anything. And that -- how we do that consists of various elements. First of all, you have to understand the chemistry, which are inside yourself. And that is what we do with almost 300 people since a couple of years not only since we started with the i3. So we have an in-depth knowledge how to reduce cost because 80% of the cost structure of a battery module is raw materials. And you have to bring the raw materials down and, at the same time, of course, to increase performance of the battery module. On the second hand, you will always have economies of scale. And as we said, we ramp up the Neue Klasse in '25. We start in Debrecen, then come to Munich and go to China then go to San Luis Potosi. So there will be an immediate ramp up, which gives us the necessary economies of scale to stay profitable in that segment. And also on the approach, how do we source the batteries. We have a competitive approach. As we always said, it does -- at this phase of industrial development, it does not make sense to invest in-house. We do the [ high voltage ] the actual complete battery model. That's an in-house thing. That's, as Nicolas said, that is what we invested ourselves. The cell, the round cell itself, we will have various suppliers. That means you will always have a competitive element in your supply chains. We don't rely only on ourselves. I think this is -- you will have a huge lock-in effect, especially if the technology advances quickly, you will also have to see these advances in the worldwide supply chain, which is rapidly growing up. And I think there are enough -- very competitive players out there. So we will have not only one. We will have various suppliers to do that ramp-up. And in playing together the economies of scale, understanding technology and a competitive supplier base, I think that is the main levers we have to come to that minus 50% cost reduction. And as it looks now, that is achievable.

Patrick, so you've asked on -- at the end of the day, you've asked, well, what are the headwinds and what are the tailwinds we are facing compared to last year in '23. And maybe to start with the headwinds, one you've already mentioned, definitely, an increase at today's contribution points of all-electric cars is a headwind, no doubt. And this is why this investment Oliver just outlined in Neue Klasse is so important and so relevant. If you look at further headwinds, we have definitely the combination of raw material and currency. This is probably in the mid- to higher 3-digit area, and we might have a risk of additional material cost headwinds additionally to the EUR 2.4 billion we've already absorbed last year. On the other hand side, and this is definitely indicating the quality of our portfolio and the strength of the existing lineup. We have a significant positive impact from the GKL cars. X5 will play an important role, as I said, with more availability from Spartanburg, and you can probably relatively precisely calculate the profitability of those products. Ongoing high demand. Very low discount levels if you look at the recent auto data numbers coming from the U.S. So still, the discount level is very, very low. We continue to see remarketing of off-lease vehicles being a very positive element. We continue to see -- despite a slight increase in our credit risk assumption, we continue to see in the first 2 months very strong credit risk development -- positive development. So all those other elements make us confident that we are in a position to go back to our strategic margin corridor of 8% to 10%. And as I said, if you integrate the PPA effect, we would even be approximately 1% higher.

So there is no change in how you think about pricing overall this year?

Pricing, if you look at the start of the year, very confident in U.S. Good -- really good start. If you look at Europe, I see somewhat mixed picture. Mixed picture means that we see more pressure, in particular in Germany and U.K. But definitely we have a very, very strong focus on pricing, and supply follows demand. And important element, in particular in Germany and U.K., is that we have still a very strong order bank against which we can deliver. So we will see a stable development. This is exactly the background of our assumption, that it will be stable. China, I've already outlined. And then we see other markets developing in a more positive way. Korea, good momentum. Japan, a good momentum. And in Europe, interestingly, I've mentioned the 2 markets being more on the difficult side. But we have with a French market, with the Italian market, with the Eastern European markets, which continue to be very, very stable and contribute in a positive way to the development of our profitability.

Thank you very much. We'd be ready for the next question, please.

Our next question is from Jose Asumendi of JPMorgan.

Jose Asumendi from JPMorgan. And just a couple of questions, please. Nicolas, you mentioned already a few times during the press call and today that the profitability of electric cars is coming better than expected. So I'd love to understand a bit better what specifically or can you give us some insights as to why the profitability of the electric car is coming better than expectations versus the initial planning. And then as we think about Neue Klasse, and Oliver has been pointing out this 50% reduction in cost, will this bring the gross margin of BEV in line with ICE by 2025? Is this how we should be thinking about it? And then second question, please, for Oliver. Can you speak a little bit more, please, around the strategy in China? I mean, so far, you're doing, I think, an excellent job, you're selling -- your monthly sales on BEV are actually ahead of your competitors. You're clearly going to double capacity in one of your plants in Shenyang and [ Nanjing ] in the next 3 years. So there's a lot going on in China. And I think it deserves probably another hour of discussion. But can you talk a little bit around strategy? And also are you happy around the net transaction prices you're currently achieving on batter-electric vehicles in the Chinese region?

Thank you very much, Jose. We'll start off first with profitability of battery-electric vehicles expectations, and then answer the question on margin parity and Neue Klasse with Nicolas. Thank you, Nicolas.

Well, Jose, first of all, good to see you. Well, why? One of the reasons definitely is that the cars are great, that the cars are really in line with what customers expect. We've just launched not only the i7. But we've launched, which is from -- and volume development, a very important product as a new X1 with the iX1. And the iX1 has not only outstanding feedback in media, but also has a very, very strong in incoming orders. So that's definitely the product, the quality, the substance of the product is one element. The second element is, of course, our -- what we internally call granular performance management that we are really very precise in the way we steam demand and supply. And this is not just supporting the profitability of ICE cars, but it's also supporting the profitability of all-electric cars. The positive element, in particular with our all-electric car development, is that this is not just an effect in one market. We see a positive development, as you've referred to, in China. We've seen a positive development of curse in Europe, but also in the U.S. Your second question, which is related to the 50% reduction in cost, and this is only related to, of course, to the battery, in particular to the cell, which is a key component even more in an all-electric car and combustion engineering -- combustion car because it accounts for more than 40% of the total cost of the car. And this is why, what Oliver just has outlined. This is why this is so important and so relevant. But the reduction, we are not stopping there. We have, for example, in a quite substantial and smart way, without reducing from a consumer perspective the attractiveness of the product, we have significantly reduced complexity of the car. Complexity of the car has not only an advantage from a consumer perspective, but it also has an advantage from an engineering perspective if you think about, for example, the layout of our plant -- in our new plant in Hungary. So it has positive effects in those areas as well. And this is why all those elements together will, at the end of the day, lead to a contribution margin, which is on par with ICE cars.

Thank you very much, Nicolas. And then to your next question, Jose, strategy, China, but also the development of our BEV portfolio in China. Oliver?

Well, Jose, you rightfully said, China is a very special market. And let me describe what we actually do there. we know 2 things. First of all, the biggest growth in the NEF development, that means the BEV cars in China comes from the bottom of the market segment, very, very strong growth in the markets, below RMB 200,000, RMB 250,000, very strong growth. If you look in the upper segments, above RMB 350,000. The growth is very comparable to the rest of the world. Of course, China is the biggest market. They will always have the highest numbers. But in percentage it's quite comparable to the rest of the world. So the revolution in China is in the lowest market segments. That's the first observation. The second observation is the average age of our customers is much younger. They're in the mid-30s. And of course, they have different requirements, and that is why respond with some very specific things. We have more than 2,000 people already now working in our R&D departments in Beijing, in Shanghai, in Shenyang, in Nanjing. There was a big, big effort to localize also our digital and our battery technology in China for China. And even more so, a lot of things are coming out of China for the rest of the world. I think this is very important to understand. And having 11 battery-only cars at the end of this year in the market is also indicative how serious we take it with the BEV development there. And one last comment. I think the world starts to understand what BMW is doing with their -- on the one side, technology open approach. And on the other side, we have a very, very strong push on the base of these architectures on the BEV side. And this gives us a lot of efficiencies in our own processes and at the end, a big market opportunity, and that works in China as well as in Europe. And I think the world starts to understand what we actually do here.

Maybe you're interested to because you rightly said net transaction prices for all-electric cars in China. So if you look at our price position and our price -- net price position in China overall, also the 2 first months of the year are confirming that we have a very, very strong position, ongoing strong position in China, so BEV and ICE combined. If you take into account when I was answering Dorothee's question what I've said earlier, the market in China is developing in direction of all-electric cars from a different position compared to Europe and the U.S. Europe and U.S. is top down, and China is bottom up. So if you look at our price position, we still have -- and we will stick to it. We have a very high gross price position in the Chinese market with our products. This is exactly where premium cars should be positioned. And of course, coming from such a position, you can have the one or the other comment in media that which is reflected that the one or the other dealer, they are independent entrepreneurs is giving also from our perspective, too high discounts, in particular on all-electric cars. But this is unfortunately something which we can always experience in our business model. And this is why it's so important to us that we have now introduced in China in a successful way with a mini brand, the agency model. So it's already up and running for the mini brand since 1st of March. Very successful start. System is running well. Agents, which are our former dealers, really like as a system, and we are on track to implement a similar system in Europe in the next 2.5 years.

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

Our next question is from Tom Narayan at RBC.

Thanks for doing this platform for the Q&A. I think your peers could learn a lot from it, a lot more egalitarian. I wanted to follow up on the pricing point first. It sounds like you were saying that Europe could actually be tougher on pricing in '23 versus the U.S., which is kind of the opposite of, I think, what a lot of folks are thinking. In Europe, you already have incentives fairly high. You already have a fleet base, corporate car, which should support higher pricing, you would think, versus the U.S. So I'd love to hear a little more on that why pricing may be tougher in Europe. And specifically, you mentioned Germany. And then a second question on software. One of your German premium OEMs peers did a large event, where they touted their Level 2+ and Level 3 offerings, noting that they're the only OEM that has Level 3 capability, although it's some limited fashion. Just love to hear your points on where you guys are on Level 3 and when you guys may get legal approval maybe in Germany first or in other areas. And also when we looked at their financial guidance for this, for the software applications, it wasn't really that big, to be quite honest. It didn't seem like software was a huge financial contributor, but rather more of a product enhancer, and led me to think that in the future as some of these ADAS functionality becomes regulated, just like airbags and seatbelts were, so Level 2+ functions become regulated, perhaps the pricing that you could charge to consumers or buyers of your car come down. Maybe it makes sense to outsource a lot of this functionality to others, maybe like an ActiveE or a Mobileye. I'd just love to hear your thoughts on ADAS functionality as a financial return for your business.

Thank you very much, Tom, and thank you again for the feedback. We'll start with the pricing question with Nicolas. Why do we believe European pricing is tougher than that of U.S.? Thank you, Nicolas.

Well, maybe, Tom, first of all, I didn't say Europe in general. What I've said is the following. First of all, we have, in Europe, still a very strong order bank in all major markets, in particular also, as I said, in Germany and in the U.K. So we will be in a position to deliver, to supply against this strong order bank. But what we can see on the other hand side, and we've already communicated and detailed this in our Q3 call last -- early November that we see a softening in demand, in particular in the 2 major European markets. Whilst markets like France, Italy and Eastern European markets are much more stable. Having said this, we have -- and this is why we are optimistic in terms of -- to maintain a solid price position. We are very precise in managing supply and demand. And this is exactly why looking at if -- and I know you look as we do in a very, very systematic way at the U.S. data. And I guess you would agree that also after the first 2 months, on one hand side, our inventory level is on a really very, very good level. And the second element that if you look into the different car lines, that discount pricing remains strong. And taking into account that we have, in particular in the U.S., more supply for all of our SUV type of cars, which are still in very high demand coming from Spartanburg. This is why we are -- I would say, in particular for the U.S., very confident. And this on top comes the ongoing -- in the first 2 months, ongoing strong remarketing we see in the U.S. market.

And now moving to your next question, Tom, specifically on ADAS, Level 2+ and Level 3 availability and our partnership approach. Over to you, Oliver.

Well, there seems to be a strange competition about who has which level in which country and so on. The main question is, what's in for the customer? How reliably do the system works in customers' hands? Does the automotive OEM actually deliver the car to the customers? And finally, at which kind of speeds do these -- does the ADAS offering work? And you will see BMW always finding a solution where, first, the customer profits, that he uses and that he pays for it. You asked about the profitability. You will not see an offer from BMW where we just do it out of competence reasons, but there must be a use case for the customer. And we think that higher speeds at about 120 or 130 kilometers, first of all -- second, hands-free and independent of what kind of level you attach to is a very serious customer offers. And look at the next couple of weeks and months what we will offer here. Talking about partnering strategy, we're on the road to the Neue Klasse as we said. And we are partnering in the ADAS field with Qualcomm, and it's not a normal supplier relationship. It's a cooperation. We bring in IP, which we developed for more than 20 years in that field, and Qualcomm brings its own competencies in. So it's a very new approach how to make the next level here. And again, the Neue Klasse is only 2 years away.

Thank you very much, Oliver. And I heard that again, IAA next step towards Neue Klasse, software, ADAS. Let's see what's in. We have time for one more question, please. Thank you.

Our last question is from Stephen Reitman at Societe Generale.

Yes. Two questions, please. First of all, on China. The -- you already export the iX3 from China to Europe. Given what we've seen maybe -- almost been happen with the iX3 in China, do you think there may be a case for making -- having more flexibility in terms of being able to export some of your BEVs from China to Europe where clearly, there is a very strong demand and pricing is stronger at the moment? As we've seen, for example, Tesla do with its Model 3, Model Y. The second question again is about the Neue Klasse. Clearly, you've laid out how you're going to roll out the production of the Neue Klasse. And I was wondering, it's quite easy to understand, obviously, that you have a low-cost manufacturing in Hungary and in Mexico. But obviously, German costs are significantly higher. So I was wondering if you could share with us maybe are there any production advances that you're making with Neue Klasse in terms of where you produce cars that is different from how you're producing your conventional cars at the moment that is leading to this cost improvements as well, much in the same way that we and other manufacturers talking about change in manufacturing that will lead them to make significant cuts in their own cost of manufacturing.

Thank you very much, Stephen. We will start with your first question regarding the export of battery electric vehicles from China to Europe with Nicolas, after which we will hand over to Oliver regarding Neue Klasse.

Stephen, I have just looked into -- very precisely into the numbers regarding the iX3 to be very precise. So you're absolutely right. The iX3 continues to sell very well, and this is exactly why we are growing production. We are increasing production in China, and the car is selling well in China, in Asia and in Europe. To give you an indication of our order bank, without disclosing too precisely, I have them in front of me, but too precisely the numbers, we are very close to autumn this year with the order bank we have for the iX3 despite an increased production. So we are very confident that we will -- the iX3 will continue to contribute in a very positive way to the increase of our overall BEV sales and to achieve the ambition and the target which Oliver has outlined, 15% of our global sales being all electric.

Well, coming to your question about the Neue Klasse. What will happen, and it actually started today, that our production is being transformed into I factories. And in the I factory and the name itself stands for intelligence. And it's not only about labor costs. That's one element. But even more so, high productivity is more depending on how do you handle complexity, how are you able -- all the advances in the artificial intelligence arena, how well you can connect them and use them in your production system. That's the key. And with the I factories, which will, of course, start in Debrecen because this is always a gift, you have a greenfield and you do everything from scratch. But we will transform the other plants very quickly, not only to being fully electric, but we will transform them also in terms of the ability to use artificial intelligence. And if you're able to do that, you can even have high complexity very efficiently and you become more and more independent of the actual labor cost. Because at the same time, we have increasing labor costs in these countries. And they -- of course, they advance rapidly. And we will also -- wherever you are in this world, you will have to counter with that highly qualified personnel will be a scarce resource. That means the ability to use automated features in the factories, artificial intelligence becomes the main ingredient of your cost position. And I think with our broad with the I factories, we will have a very competitive stance here.

Thank you very much, Oliver. Thank you very much, Nicolas. Dear ladies and gentlemen, thank you very much for your questions and that great engaging dialogue. Max, I'd like to hand over back to you now.

So thank you very much, Ritu. By the way, excellent job. Thank you. I clap my hands. Thank you very much. Ladies and gentlemen, before we go, we have one final very important topic. As you have heard, this is a very special annual conference because, Nicolas, it is your last annual conference with the BMW Group. You are still with us for a few more weeks. But today, we have you here with us in person, and we didn't want to miss the opportunity to say a few words. 32 years ago, you joined the BMW Group. For the last 6 years, you have been our CFO, and not just any CFO, but someone who brings a strong, strategic perspective and an international outlook. You have been a steady presence on our Management Board and provided clear direction. This was true, especially during the last few years. Together with Oliver, you have been a real dream team. Furthermore, you have been an excellent ambassador for the company. Our guests on this call can best judge that. For me, you are, I would say in German, a really [Foreign Language], a really cool authentic guy. Of course, you will still be with us for our Q1 telephone conference and the Annual General Meeting in May. Though this is not a final farewell. But for now, I can simply say thank you, Nicolas.

Well, thank you, Max, for your very, very kind words. Absolutely right, I've joined 32 years ago, BMW, 1st of April '91. By the way, exactly the same date that we've -- you're a little bit younger than I, but we've joined the same day. And Oliver, I'm -- I don't know whether we've been a dream team, but we really worked extremely well together. I'm very, very thankful also for your trust. This was really outstanding. And I'm in particular happy that the BMW Group is in such a strong position. We have a very solid foundation. We have a clear strategy moving forward. And for me, the best example of our strategy and the power of our strategy is our BEV ramp-up. You've mentioned what I believe are impressive numbers, and this combined with a strong rating, this combined with the ability to deliver against our high-margin targets to generate free cash flow. And the basis of this company has always been a very, very strong teamwork between all the different -- not only Board members, but within the whole management team. And this is why I really enjoyed, I can say, every single day. So a big, big thank you for the last -- in particular for the last couple of years. And well, all the best. I'm very optimistic that on this very good foundation and the company has chosen what I believe is a very good successor in my role and dear colleagues. I look very much forward to see you, first, I believe, in Frankfurt in the next couple of weeks, in London, in Boston, in New York. So see you very soon, and thanks a lot.

But please hand over to Oliver to one sentence.

Yes. Just one sentence because we have some visitors here. It was not always so easy to explain what BMW does. Our business is very complex. And I'm very, very grateful to have had a strategic CFO, as it was said before, who could understand the peculiarities to have a strong budget control, and you don't know how tough it was in our monthly budget control meetings, but at the same time, to be strategic and have the right feeling where we have to invest. And now you see that -- you saw beginning in the last part of last year and specifically this year that this is blossoming. We have strong BEV growth. And that, of course, is a result of a strategic CFO, and I must thank you. For 32 years, working together. We actually really started on the same day, and you're still here. But then after our shareholder meeting, our general meeting, we will dearly miss you. Thank you for everything.

Thank you very much, Oliver. And thank you very much, ladies and gentlemen. I think it was a real honor for us today. Thank you, Ritu. Thank you, Nicolas. Thank you, Oliver. And thank you to all of us. Thank you very much, and bye-bye from the BMW world. Bye-bye.