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

Good afternoon, ladies and gentlemen. I would like to welcome you all to our telephone conference for the first quarter results. With us today are Oliver Zipse, Chairman of the Board of Management; and Nicolas Peter, our CFO. First, Nicolas Peter will take you through our financial results. Oliver Zipse will give then a general business update for the BMW Group. Afterwards, we will have time for a Q&A session. Nicolas, it's your turn. Please go ahead.

Thanks a lot, Max. Good afternoon, ladies and gentlemen. As expected, the BMW Group started 2023 with a solid performance. Group earnings came in at around EUR 5.1 billion with a group EBT margin of 13.9%. After the first 3 months of the year, the Automotive segment delivered an EBIT margin of 12.1%. We achieved this in the face of persistently volatile conditions. The geopolitical and macroeconomic situation remains tense. Inflation and interest rates remain at a high level in many markets. The same applies to material and commodity prices. Sales of our all-electric vehicles increased dynamically in the first 3 months of the year. Just under 65,000 units were sold, an increase of over 83% compared to the same quarter of the previous year. BEV sales at the BMW brand saw growth of 112%. Overall, all-electric vehicles accounted for 11% of customer deliveries. Sales momentum also came from the market launch of vehicles in the upper price segment, including, for example, the BMW i7. The BMW Group's total vehicle sales for the first quarter were down slightly on the previous year, with just over 588,000 vehicles sold. While the U.S. market posted significant growth, we saw a moderate decrease in deliveries in China, where the aftereffect of the coronavirus wave at the beginning of the year were being felt. Europe remained stable overall. In the first quarter of 2023, the operating result of our Chinese joint venture, BBA, was integrated fully into the Automotive segment's income statement. In the previous year, BBA was only fully consolidated from 11 February. The Automotive segment EBIT for 2022 and 2023, therefore, include consolidation effects of differing amounts. The previous year's financial results also reflected the high onetime effect from the full consolidation of BBA. So quarterly results are, therefore, not directly comparable. Ladies and gentlemen, let's start with a look at the group's earnings performance. Revenues reached just over EUR 36.9 billion with a cost of sales of around EUR 29.1 billion. A key factor in this year-on-year increases of 18.3% and 13.5%, respectively, is the full integration of BBA's operating business in 2023. The Automotive segment also benefited from positive pricing and mix effects. The group financial result for the first 3 months was slightly negative at minus EUR 246 million. This represents a significant decrease of just over EUR 9.1 billion compared to the previous year. The main factor here is a onetime revaluation effect of around EUR 7.7 billion from the fair market valuation of BBA equity interests in 2022. In the first 6 weeks of last year, BBA also still contributed approximately EUR 300 million to the equity result. In 2023, earnings were no longer included in the equity result. In the Other Entities segment, the fair market value of interest rate hedging transactions declined slightly in the first quarter of 2023. In the prior year quarter, interest rate hedges had developed positively due to the sharp increase in interest rates. The difference in earnings from the previous year was about EUR 700 million. At the end of the first quarter, group earnings totaled just over EUR 5.1 billion. The group EBITDA margin of 13.9% was significantly above our strategic target of at least 10%. Ladies and gentlemen, our strong financial position lays the foundation for the transformation of the BMW Group. We continue to invest in new models and structures with a clear focus on topics for the future: electrification, digitalization and automated driving. Research and development expenditure was significantly higher than the previous year at just under EUR 1.6 billion. Our R&D ratio of 4.2% according to the German Commercial Code, was within our long-term target range of 4% to 5%. We are funding investments from our operational cash flow. Capital expenditure was about EUR 200 million higher than the comparable figure for 2022 at just under EUR 1.3 billion. Due to higher revenues, the CapEx ratio was on par with the previous year at 3.6%. We expect the ratio for the full year to be around 6%. Let's move on to the Automotive segment. EBIT margin for the first quarter came in at 12.1%. Earnings before financial results exceeded the previous year's EBIT by around 60% at just under EUR 3.8 billion. Full integration of BBA's operating result increased both the segment's first quarter revenues and its cost of sales. With regard to BBA, segment earnings for the first quarter of 2022 were impacted by depreciation and amortization from the purchase price allocation and the elimination of interim profits in connection with intra-group deliveries totaling around EUR 1.2 billion. In the first quarter of this year, depreciation and amortization from the purchase price allocation resulted in an expense of around EUR 400 million. Excluding the BBA consolidation effects, the EBIT margin would be 13.2%. In the first 3 months of the year, we continued to see robust pricing for our products. The product mix also developed positively, especially in the upper segments with products such as the new 7 Series, the updated X7, the XM and, of course, the Rolls-Royce family. Higher material and commodity prices, an increase in research and development spending and a higher percentage of all electric vehicles also pushed up the cost of sales. In the first quarter, we were able to compensate for these cost increases with strong pricing and an improved product mix. Free cash flow in the Automotive segment for the year to the end of March totaled just under EUR 2 billion despite the seasonal increase of inventory levels. We are, therefore, on track to achieve our targeted free cash flow of around EUR 7 billion for the full year. By mid-2023, BMW AG will finalize its current share buyback program of EUR 2 billion, which was launched in July 2022. The company's strong operating performance is the basis of continuing our share buyback activities. As announced yesterday, the Board of Management had therefore decided on a second share buyback program as part of the authorization granted by the 2022 Annual General Meeting. This program amounts to another EUR 2 billion. It will start after the end of the first program and will be completed by December 31, 2025 at the latest. Let's turn now to the Financial Services segment. In the financing and leasing business with retail customers, the volume of new business decreased by 14%. This was mainly due to price increases stemming from higher interest rates and intense competition in the financial services sector. However, price developments and an improved product mix in the Automotive business had a positive impact, resulting in a higher average financing volume per vehicle. Segment earnings before tax totaled EUR 945 million. This moderate year-on-year decrease of 6.2% is mainly due to higher refinancing costs. Income from the resale of end-of-lease vehicles remains consistently high, and the risk situation is stable. The credit loss ratio is still at a very low rate of 1 -- 0.13%. The Motorcycles segment also got off to a successful start in 2023. In the first 3 months of its centenary year, the BMW Motorrad brand grew its sales by 1.1% year-on-year, delivering its best-ever first quarter sales result with around 48,000 units sold. This impressive performance is underpinned by an attractive product lineup. At the end of the first quarter, the segment's operating earnings totaled EUR 154 million with an EBIT margin of 16.5%. Ladies and gentlemen, in the first quarter of 2023, the BMW Group's business developed positively despite the volatile business environment. We continue to benefit from stable pricing in new and preowned car markets. However, we do expect the competitive environment and preowned car markets to gradually normalize through 2023. There is still some uncertainty around stabilization in the Chinese market, which is an underlying assumption for our outlook. After a good start to 2023, as forecast, we expect the full year to progress in line with our outlook. Therefore, our guidance remains unchanged. This assumes that geopolitical and economic conditions do not deteriorate significantly. Group earnings before tax will decrease significantly without a tailwind from the revaluation of previously held equity interests in BBA. In the Automotive segment, we are planning for a slight increase in deliveries overall. The all-electric share of total vehicle deliveries is projected to increase significantly. The EBIT margin in the Automotive segment should be within the range of 8% to 10% and with a segment ROCE of between 15% and 20%. In the Motorcycles segment, we anticipate a slight increase in deliveries with an EBIT margin of 8% to 10% and the ROCE of 21% to 26%. In the Financial Services segment, return on equity should be between 14% and 17%. The size of the workforce and the share of women in management positions are forecast to increase slightly. Once again, this year, we are targeting a slight reduction in CO2 emissions in the new vehicle fleet as well as in CO2 emissions per vehicle produced. The macroeconomic situation remains difficult and the geopolitical environment is volatile. Our guidance does not factor in the possibility of a deep recession in key sales markets or further escalation of the war between Russia and Ukraine. Ladies and gentlemen, the BMW Group strategy remains robust, even in highly volatile times. It is well balanced and focused on the long term. With the positive effects of a strong operating performance, we continue to make targeted investments in the future competitiveness of our company. Even during the transition to emission free mobility, the BMW Group will continue on its road to success. We are determined to stay the course, proceeding at the same time with prudence and flexibility, knowing that we can rely on our attractive product portfolio. We remain on track to meet our goals for the year in a volatile business environment and are looking forward to the rest of 2023 with confidence. Thank you.

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

Ladies and gentlemen, the BMW Group has a strong global footprint. It serves as a local partner in individual regions of the world contributing positively to industrial economic value in all. We currently have production sites at 31 locations on 5 continents. We also have recently research and development centers in 17 countries, not to mention 41 sales and marketing and financial services locations across the globe. This is how we make sure specific trends, technological innovations and the different needs of customers in the regions are incorporated in our products and their development. To achieve this, we enter into targeted, strategic collaborations with strong and innovative local tech players. Our environment remains highly volatile and will likely continue to be shaped by unforeseeable circumstances. Many experts assume that the major economic areas are likely to drift further apart, both from a political and technological perspective and also with regard to regulations. That is why it is so important for us to seize opportunities that will always present themselves at short notice in markets around the world. And at the same time, our strategic thinking, our actions and our decision-making are always looking forward with a clear long-term focus. Our goal is for the BMW Group to maintain its profitable growth and always be in a position to make appropriate investments in our future. In keeping with this logic, we are charting our own course for the future step by step, with our rolling strategic approach and long-range corporate planning. And on the other hand, our strength lies in the consistently with which we pursue our strategy. On the other hand, it comes from the flexibility and speed with which we tackle sudden changes. Once again, we have ambitious plans for the current financial year. After the first 3 months, we are on track to meet our goals for the full year, and that holds true, by the way, also for the first 4 months. As Nicolas Peter explained, the financial results for the first quarter of 2022 and the first quarter of 2023 are not directly comparable due to the onetime effect from the full consolidation of our BBA joint venture in 2022. At the same time, our product lineup is younger, broader and more attractive than ever across all brands, all segments and all drive technologies with outstanding vehicles that we have recently launched or will be released onto the market in the very near future. We are exploiting potential everywhere and experiencing a noticeable tailwind. As you know, we expect group deliveries to be slightly higher than this year compared to 2022, as we continue to build on our solid incoming orders. This applies equally, and that is a particular quality to our all-electric models and to our conventionally powered vehicles. This proves once again that our long-term product strategy, including ramping up BEVs in the line with demand is delivering results. Through our balanced positioning in the world regions, we can compensate for regional market fluctuations just as, for example, a certain market weakness in China can currently be offset by a stronger performance in the United States of America. The same is true of our broad technology [ approach ]. This enables us to meet different demands in markets while accounting for the varying speeds at which they are creating the necessary infrastructure for e-mobility. We have remained true to our conviction that all types of drivetrain must make a positive contribution to reducing CO2 emissions. This is particularly relevant in the short and medium term. Our BEV deliveries grew strongly in Q1 across all 4 major regions, Europe, Asia, the Americas and the rest of the world. BEV sales for the BMW brand alone grew by 112% on average. All regions contributed to this development. In April, the BMW brand continued this trend by doubling BEV sales yet again. Our global balance in BEV growth fits perfectly with our local-for-local approach to our worldwide manufacturing activities, R&D and our BEV production. Together, all of these factors increase our resilience as a global company. Now we are expanding this even more by adding an additional component, local manufacturing of high-voltage batteries. This has already been established for current electric models at our facilities in Germany and China. In the next step, we are adding further capacity for a sixth generation of our battery technology, for example, in Woodruff for our United States plant in Spartanburg; and in Debrecen, for our future plant in Hungary as well as in San Luis Potosí in Mexico. Now what will be the key success factors for us this year? First, our diverse range of products with a clear focus on ramping up e-mobility. Second, digitalization of our products and of the company. And third, on-point preparation for the Neue Klasse. Let's first start with the first point. Regional differences in demand for alternative drive technologies are becoming increasingly evident. I experienced this for myself just recently. In April, I visited the Japanese market and the Shanghai Auto Show. In Japan, for example, hybrids and efficient combustion-engine vehicles are especially popular with customers. There is also a lot of interest in hydrogen as an alternative method of propulsion. It was, therefore, not surprising that the BMW iX5 Hydrogen from our global pilot fleet was welcome with open arms. Demand for pure battery-electric vehicles, on the other hand, is developing steadily but slowly in Japan and remains at a low level. On the other hand, you have China, where BEV demand is growing rapidly. Today, China is already the biggest growth driver for e-mobility. For the first time, BMW presented only electrified models at the Auto Shanghai Motor Show. These included the i7 M70 xDrive the XM Label Red as a plug-in hybrid and the iX1 long-wheelbase version which we built in China for China. It is no secret that China's BEV market is highly competitive and equally among both established and new players. Several manufacturers are currently lowering prices, in some cases substantially to gain market share. At the BMW Group, we have a strong position in China. In the first quarter of 2023, we sold significantly more BEVs there than our established competitors and also more than many new manufacturers. By the end [ of the year, the BMW Group will ] already offer 11 electric models in China across all our brands. And with our BEVs, we are exclusively targeting the upper premium and luxury segments. Also, in China and in the current context, we benefit from our broad technological approach. The comparison of the car markets in Japan and China illustrates clearly the extent to which automotive manufacturers face varied market requirements during their transformation. We are targeting profitable growth with all-drive technologies and in all segments and, therefore, leveraging earnings potential. The upper premium and luxury segments are a good example of this. Growth in this segment will get a major boost this year from new BMW models, the 7 Series and the XM as well as the X7 model update, not even to mention the Rolls-Royce model family. We are currently releasing X5 and X6 updates on the markets including the particularly successful long wheelbase version of the X5 in China. And let's not forget the popular and in-demand models from BMW M. Over the coming months, we will release the model updates for the X5 M and the X6 M. Many fans are also looking forward to the M3 Touring that was just released onto the market. It was recently named Dream Car of 2023 by Autocar Awards. And that's not the end. The M2 Coupe is already ready to hit the road. With our strong portfolio, we are targeting growth in the mid-double-digit percentage range in the upper premium and luxury segments this year. And we were aiming even higher with our fully electric vehicles and planning for high double-digit growth. Over the year, the BEVs are expected to account for 15% of our global deliveries. This will be another big leap and the highest absolute increase we have targeted so far. Key models, in particular, will drive our sales, including at BMW, the BMW i4 Sport Coupé, the iX, the iX3 and the new i7 and the new iX1. And at MINI, the Cooper SE. And we will keep up the pace with additional new products, the new BMW 5 Series and new BMW X2 will be released onto the market towards the end of the year, including the i5 and the iX2 BEV variants. The BMW Group will then has at least 1 all-electric model in all its main model ranges on the roads. We recently conducted intensive testing of the i5 under the most difficult conditions, including extremely low temperatures. It also impressed media representatives at our recent prelaunch test drive events as the very positive coverage demonstrates. And the bottom line is the BMW 5 Series is the top business sedan with all drivetrains, conventional just as well as fully electric. Our BEV road map is precisely defined. By 2024, at least 1 in 5 of the BMW Group's new vehicles should be a BEV. By 2025, it will be 1 in 4; and in 2026, 1 in 3. This is another reason why we are in a better position with our targeted BEV ramp-up than our key competitors. As a company, we remain innovative. In the field, for example, of battery technology, we are in the top 3 for patent applications in Germany. There are only 2 battery specialists from Korea and China ahead of us last year. And with that, let's move on to the second topic. Digitalization is the most dynamic field in the mobility of tomorrow. That is why we are making BMW digital because digital products and features can only be created in an organization that use digitalization holistically as an opportunity. The know-how we have in our team is crucial in this respect. That is why we have launched the biggest individual training program in the history of our company for key areas of digitalization. The digital boost, as we call it, will create the knowledge and tools we need to identify and implement digital potential in every area of responsibility. Let me give you 3 examples to show how we are implementing this knowledge to create a seamless digital experience of mobility that benefits our customers. First, in the new BMW 5 Series, customers will experience automated driving in a new dimension. It is equipped with the Highway Assistant, which continuously performs distance control and steering tasks. For the first time, the vehicle changes lanes using eye activation, an absolute world's first. Customers will not find such a comparable overall package anywhere else. Second, our Digital Key Plus. The digital vehicle key is no longer just available for Apple devices. Customers can now also use their Android smartphone to unlock and start their BMW. This is made possible by ultra-wideband technology that guarantees maximum security. You don't even have to take your phone out of the pocket. And third, our [indiscernible] multimedia offering in the new BMW 7 Series. Earlier this year, we launched a pilot program that makes selected live Bundesliga games available in certain models. We're now expanding this option. In the new 7 series, the theater screen transforms the rear compartment into an exclusive seat in the stadium. And this brings me to my third and final point. Alongside our current product lineup, we are also gearing up for the next big breakthrough in innovation. 2023 and 2024 will be the decisive phase of our preparation for the Neue Klasse. It will bring added momentum to our sales of all electric vehicles from 2025 onwards. We plan to release at least 6 models in this entirely new BMW model generation onto the market in the first 24 months after the start of production. We are deliberately starting out in high-volume segments with the Sports Activity Vehicle and a sedan in the 3 Series segment. The Neue Klasse embodies all 3 pillars of future mobility. It is entirely geared towards digitalization and sustainability and also fully electric. Our BMW i Vision Circular from 2021, and this year's BMW i Vision Dee show the direction of our thinking. In just a few months, at the IAA Mobility, we will be sharing how the topics of digital, circular and electric complement each other to form a totally new and coherent overall concept. Ladies and gentlemen, as you can see during the current financial year, we are once again taking a 2-pronged approach. Internally, we are focusing on our operational excellence. Across all brands and all segments, we are offering our customers a new, modern, technologically diverse and innovative range of products. At the same time, we are systematically investing in our future and aligning the entire company for the launch of the Neue Klasse. The BMW Group remains focused on delivering its profitable growth and holding its successful course. For us, that means an EBIT margin in the Automotive segment with our target range of 8% to 10% even during the transformation towards e-mobility. Thank you very much.

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

[Operator Instructions] Our first question will come from Dorothee Cresswell from Exane.

Okay. I hope you can hear me. Can you hear you all right?

Yes, we can hear you. Yes.

Perfect. I have 2, if I may, one around the upper-end vehicle sales and the second around China. So I wondered whether -- just speaking about fiscal year 2023, you could tell us whether the tailwind from new product momentum and growth in that upper end of the range will more than offset the headwind from a rising BEV mix. And then looking a little bit further out, is there a midterm plan to grow the sales contribution of the upper-end vehicles to a certain proportion of the overall volume? And then turning to China, you outlined that it's noticeable that you're managing to take BEV share in China to a greater extent than your incumbent peers. But can I just ask at what stage do you think that your BEV market share in China can draw level with your ICE market share? And is that something that you think can happen perhaps by the middle of the decade because obviously, you still have a fair amount of BEV products in the pipeline? And then just to finish, of course, I should say, Dr. Peter, thank you so much for our very many insightful discussions over the last few years. And my very best wishes for your next chapter.

Thank you, Dorothee. We start with our Chairman, Oliver Zipse and then Nicolas. Okay. Oliver, please.

Thank you for your question. Best regards from Munich. Let me start with your China question first. The best market, of course, in relative terms is having this growth market momentum. This is market-driven, but this is also by offer-driven. By the end of this year, we will have 11 fully electrified products from the BMW Group in the Chinese market. So we believe in a strong market push. And by the way, whilst we were still down from the previous -- after March -- after April, we are already up 4% in the Chinese market. So we are regaining momentum with a strong push from the product side. So with that said, when exactly is the BEV share of our market offerings at exactly the same volume as the ICE models? I don't know. I cannot tell you, but it will be, first of all, sooner than later. And of course, it will be in this decade and the rest of the market will show. We will have BEV models in every segment, from mini all the way up to Rolls-Royce and in every segment of BMW. And then we will see what the market is, that we are ready to follow the market wherever it moves. And of course, as we always said, the market conditions will depend on infrastructure, on the availability of raw materials and at the end, most importantly, to final customer taste. But again, we started very successful in this year and the rest we will see.

Thank you, Oliver. Nicolas?

That was really good to hear, and thank you for your very kind personal remark. Maybe let's start with all-electric sales because you can look from 2 perspectives. One is to say, well, that's a margin dilution, and I would come to it. But we have to say we are very pleased that our all-electric cars are performing extremely well in all 3 major regions. We are very confident, from the level we've seen last year close to 10% penetration of all-electric sales in '22 to grow our all-electric business to 15% in the course of the year, and this is backed by really good, strong incoming orders also, in particular, for the very recently launched iX1 and i7. And you might have -- that the first feedbacks from the media, from journalists regarding the i5 was extremely -- really extremely positive. So we are confident to achieve this target. Second comment is contribution is better for the all-electric cars than we anticipated 2 or -- 2 to 3 years ago. So I would say the glass is half full, half empty. And we are very, very confident to be -- definitely also after the first strong quarter this year, to be on track to achieve our guidance of 8% to 10%. And this is, of course, backed by the strong performance in the upper part of the segment. We will plus/minus double our 7 Series sales in '23 compared to '22, even before having the full year effect of -- as a volume model in China on the 7 Series, the X7, which got a facelift a couple of months ago, is performing very well. XM just launched. Rolls-Royce, well on track and not to talk about the M model. So we are -- based on this, we are really confident to deliver in line with our guidance. And to be very, very clear, I would -- it's too early because we are only 4 months into the year, but I would not be surprised if we would be -- end up in the upper part of our guidance corridor.

Our next question will come from George Galliers from Goldman Sachs.

And similarly, I pass on my very best wishes to Dr. Peter and do hope we can remain in touch. I actually wanted to talk about 2 similar areas to Dorothee but actually slightly different questions. Obviously, in the interim report, you do talk about competition in the Chinese auto market becoming more intense. When we consider BMW's portfolio, are you seeing the competition across your portfolio or only on certain vehicles such as compact cars? And how large a risk do you see from Chinese competition also becoming more prevalent in other regions such as Europe? The second question I had was also on the upper end vehicles. I believe it's more than 12 months now since you purchased ALPINA, a brand with enormous appeal to car and driving enthusiasts, arguably the ultimate Q Car. But there's no mention of the brand on your product, Slide 8. And to date, I think the communication around the intent that ALPINA has been limited. Maybe this call isn't the right forum, but does ALPINA play any role in the double-digit percent growth do you expect for the upper segment this year? And can you give us any insight into when we might get to hear more about your plans for ALPINA and its future role within the BMW Group?

Thank you very much, George. Please, Oliver.

George, thank you for your questions. What we see in China is -- and I think that is very important to discover, market segments are more alive than ever. Now I'm talking about car sizes, UKL segment, MKL segment, GKL segment, and the premium segment. The fastest growth in the Chinese market is in the base segment. Unlike here in the Western world, it's exactly the other way around. The biggest growth, this starts from the base segment. And of course, through that development, there's a lot of competition underway. That does not mean that the premium segment is the segment which is attacked firstly. And in our case, we are a strong premium segment player with most of the cars more expensive than CNY 350,000 in the Chinese -- going well over CNY 1 million. That is very solid. And in that segment where -- which is still very much alive and very solid, the competition is not as challenged than in the base segment. I think that's very important to know. With that competencies which are built up in that market, of course, there will be a global footprint, increasing global footprint of Chinese manufacturers. And that is at a starting point. And I cannot tell you what the development will be. Conquering new markets is always a difficult task, and it takes not years, it takes decades. As you can see, with us in the American market, that shouldn't take more than 25 years with local manufacturing footprints and so on. And we took more than 20 years to develop our market position in the Chinese market. And the same holds true for any new competitor trying to hold foot in the European market. So that is to see. And of course, we see what is going on in the world, and we are not ignoring it. And the rest we will see how, at the end of the day, customers will behave. To your second question, ALPINA. ALPINA has a 50-year old tradition and a super strong market value. And after making that acquisition we, of course, sat down closely, how do we preserve that market? And that, of course, will never be a high-volume segment. And in 2026, we will offer products branded ALPINA. And that, of course, will build on that manufacturing and product competence brand history that [ premise ]. And we just look to get this just this week. We looked at the cars, and I can only say I'm very excited and I'm very happy how our plans to further develop the ALPINA brand further. And the rest, we will -- you have to be surprised then when it comes to the market.

Our next question comes from José Asumendi from JPMorgan.

Nicolas, also in thank you for all the great dialogue over the past years and the strong collaboration. We already had the opportunity to exchange a few weeks ago. But again, thank you from my side. Maybe a few topics, just simply on CapEx. If you can maybe provide a bit more context about the CapEx ratio in 2023. Especially in the first quarter, we're starting to see a substantial increase in CapEx on a year-on-year basis. Can you maybe provide additional color with regards to the proportion that goes into BEV or into ICE and how much of the increase we're seeing now, which is actually -- is substantial. This is related to China. Very well balanced, by the way, on the macro with depreciation, but a bit more color as to where the absolute CapEx is going in '23. Second, if you could please provide a little bit more -- maybe guidance with regards to the work you're doing to improve the cost competitiveness of BEVs and achieve this parity between ICE and BEV in the coming years will be appreciated. And for Oliver, I would love to hear a bit more around the battery technology. You mentioned in your remarks that you are top 3 in terms of patents for battery registrations in Germany, I believe. Can you provide a bit more color what do you mean with these statements? How far -- how competitive is BMW on battery technology? And what do these battery applications mean at the end of the day?

Okay. Thank you very much, José. We start with Nicolas and then Oliver. Nicolas?

José, maybe to start with the topic of CapEx in '23 we are mainly investing, on one hand side, in battery module production. You might have read that we are kicking off also here in Bavaria between our plants of Regensburg, Dingolfing and Munich and new production site. We are investing in the ramp-up of our plant in Hungary, in Debrecen. This is a plant where we will kick off Neue Klasse on the all-electric platform from '25 onwards. And at the same time, we've announced a couple of months ago that we will -- we are investing, in particular, in the U.S. environment as well in order to prepare Spartanburg from all-electric cars with, on one hand side, an investment of USD 1.7 billion in the plant itself and in battery module production as well as slight -- a little bit outside of the plant. At the same time, we are ramping up with a partner, Envision in South Carolina, in battery module production itself. So it's definitely very, very much focused on the EV ramp-up. And this is, of course, backed again, as I've mentioned already, by the strong demand we see for our all-electric cars. Cost competitiveness, I'd rather talk about contribution at parity. Contribution parity is definitely the ambition, the goal we have set ourselves for Neue Klasse. So by '25, '26, we want to be on contribution parity. And of course, costs play an important role. And this is exactly one of the reasons why we invest in the sixth generation of battery cells. The objective is to have a significant -- around 50% cost reduction with the sixth generation, which, of course, will contribute to contribution parity.

Oliver?

Well, let me talk a little about wider what the electric drivetrain does for us. When we look at the electric drivetrain, we, of course, look at the cell, and I will come to your question in a minute. But we also have to look at the high-voltage batteries, which is so the assembly of all the cells into one large battery. We have to look at the drivetrain technology, including the transmission and then, of course, most importantly, how is all that integrated into a fully functional vehicle. Besides the cell, we're manufacturing all the other steps for ourselves. So we have a very, very high vertical integration of all elements of the drivetrain. Now you might ask of us, why don't you do the cell all by yourself? And as we have announced already, we are in the development of the sixth generation of our battery cell. That's also why we have that very high amount of cell patents. So the next cell technology will be cylindrical and has a diameter of 46 millimeters. And that will be at the point of market entry, the benchmark of that technology. Do we need to have a very high manufacturing footprint to do that? No, you don't because there is ample global competition with that technology. There are a multitude of local players and we will distribute this with our R&D-developed cells around the globe with different suppliers. To do that all by yourself would mean you would -- at the same time, you would have to start up factories in at least 4 regions in the world at the same time. And that is, I think, a task which you should thoroughly think whether that is possible. So with our technology, with our know-how, we look for various partners to ramp up quickly, and I underline quickly in various regions our new cell technology will then, with the other components I talked about, to ramp up the Neue Klasse quickly. So it's not only about the manufacturing, to sum it up. Almost the R&D technology and the R&D knowledge is even more important for the ramp-up of the Neue Klasse. Thank you.

Our next question comes from Horst Schneider from Bank of America.

Can you hear me?