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

Thank you for joining us for the Q2 2026 Investor and Analyst Q&A session, following the speeches this morning. My name is Stefan Richmann, and I'm Senior Vice President, Group Treasury and Investor Relations. With me are our CEO, Milan Nedeljkovic as well as our CFO, Walter Mertl, and we're happy to take your questions. [Operator Instructions]

[Operator Instructions] The first question is from Patrick Hummel at UBS.

It's Patrick from UBS. I would like to start with one -- more strategic one for Milan, please. You're starting the CEO job with a big restructuring task. I guess they're nice ways to begin, but nonetheless, what needs to be done needs to be done. I'm curious, can you elaborate a little bit on the other key priorities, key issues you've identified in the last couple of months since you took over and maybe the ones that matter the most in terms of the earnings impact, the strategic action you're planning to take? And if I may, more specifically also on China, we hear a lot from OEMs trying to fix China with new product. That's kind of the normal narrative, but the reality shows that you can't really fix China just with new product, everybody tries to do that. So I'm curious what else you're thinking needs to be done in China to stabilize the business over there? And my second question goes to Walter, please. In terms of the restructuring announced the 8,000 headcount cuts, it sounds like mostly overhead or white-collar jobs. Can you give us a rough idea about the magnitude of the savings you expect on a run rate basis? Is it fair to say it's going to be a mid or high 3-digit million euro amount once fully implemented. And also the time line will we see all of that in 2028 already materializing fully in the bottom line?

Patrick, and thank you very much for your questions. I would indeed follow exactly how you suggested in handing the first one to Milan about restructuring. You asked whether there were any additional strategic directions taken apart from what was also communicated yesterday. And then the second one, I would hand to Walter afterwards with regards to the magnitude of savings and Milan, please you go ahead with the first question.

Patrick, thanks for your questions. Concerning the restructuring, I mean, first of all, I would like to emphasize that the basic strategic direction of the BMW Group is not fundamentally changing. We have the open technology approach to our powertrains, which is one of our strengths and which brings us also into the future. We have a global footprint, a very strong product momentum with the Neue Klasse and all that is the backwind we have for the next years. On top of that, of course, and that's the issue we are talking is the cost structure of our company, which we need to improve. And it's not only our company in itself. I mean, of course, we will get some benefits through the restructuring, through reducing people numbers in our own organization, but the significant saving comes through the way of developing and purchasing parts and the overall way we approach the market on the sales side. And that's why the restructuring program is based on 4 pillars, starting with the customer level and the sales organization with direct sales, we see a very good opportunity for us to stabilize our pricing in the market and improve our earnings on that side. The organizational bids will primarily focus on reducing complexity inside our own organization and reducing the time we need to -- time to market for our products. On the purchasing side, we want to work more on partnership levels with our suppliers and by creating long-term contracts also leveraging some potentials on the value creation worldwide global footprint we have on that side. And last but not least, the way we develop our products must be changed more towards industrial standards, not meaning that we are giving up any performance of BMWs or any specifications we usually have in BMWs. But we have to realize that the supplier offer has increased over time. And there are industrial standards on the market, which are convincing, and it would be wrong not to use them. And based on these 4 pillars, the whole restructuring is set up. It's more about the way we work then about specific savings in specific activities.

Patrick, so with respect to all these topics Milan mentioned, it is a process to be adjusted, the attitude, how we work together and what we do, of course, also utilizing all digital aspects is taken into account. So this program we agreed quite quick and fast and in silence with our working council, especially in Germany, that is one building block of all the measures. So -- and of course, all measures and all building blocks will end up on our way back to 8% to 10% of the EBIT margin, our strategic target, which we also referred to in our speech. So I think that is the most relevant thing. And of course, linking to our message. We have given that their talk session on June 16. We assume, of course, whatever happens, a return, which is faster than 2 years. And based that we have agreed to start our discussions with people from Q4 onwards, we could assume, as we also mentioned already at the talk in June, that we will have hardly any cash out in this year '26, but rather in '27.

And the run rate of savings would then be in the high 3-digit million range from '28 onwards. Is that a fair assumption?

Well, that is an assumption, but we won't commit to that -- to this assumption, and maybe you get more clarity at the CMD end of September.

The next question is from Jose Asumendi at JPMorgan.

Two questions, please. The first one relates to improving the competitive footprint in Germany. So which measures are you implementing in Germany across your German plants to make the footprint more competitive? And second, how do you plan to balance this production footprint between higher labor cost countries and lower labor cost countries in Europe. A second question on China. Should we expect another capacity cut in China? Or is the current capacity that you have in China adequate for the current sales development?

Thank you for your 2 questions. I would actually hand both of them to Milan your first, you asked about the competitive footprint, whether we would be improving that, especially with regards to plants? Second one then, you addressed capacity overall in China with your question, whether it is adequate and Milan also having run production, I think it's appropriate to hand this question -- these 2 questions to you.

Well, concerning the improvement of the competitive footprint, as I mentioned, with the program we are tackling different directions starting from sales with production, purchasing and the way we develop parts. The biggest contribution in Europe will, of course, be the supplier network and how we integrate the competence of the supplier into our own organization, how do we localize more parts close to our new plant in Debrecen. And how do we gain benefits from a long-term contract, which gives more capability to us and the supplier. Based on that 3 approaches, we do see significant potentials which will improve our cost position in Europe. The production footprint is in our case, quite balanced and well loaded, especially looking on to Europe. So our plant in Europe and the U.S. are well balanced also in South Africa. So the only market which gave us a surprise was China. And as you know, we did implement a new plant in China a couple of years ago, which we did not ramp up yet to full capacity. So even we have installed capacity, we don't have a surplus of people in the amount which would in our business, and we have high flexibility in the contracts we have. So for us, the volume we have now in China is adequate to the number of associates we have there, and it gives us the potential to grow, but we don't see a need to reduce installed facilities.

Jose, maybe I add another aspect on the cost side, right? So we installed create and have buildings, but it is not fully established with the capacity possible. Hence, there is no cost. And even on the buildings, you also are fully aware of that the cost position is a total different one than outside China. Hence, depreciation is also a total different level than outside China. And we mentioned already that we have taken already actions last year and further this year with respect to all cost elements in China. So we are reducing these ones already that is contributing, but not compensating anything on the contribution margin side, which we achieved in China, of course.

The next question is from Tim Rokossa at Deutsche Bank.

I have 2 questions, but can I clarify something first that you just did Walter before I start with my 2. And that is the strategic margin target of 8% to 10%. That's still intact, right, regardless of what we're going to hear new at the CMD? And then my 2 questions is, obviously, there's quite a few things that you're kicking off at the same time. There's the efficiency program new ways to run the business. What should we expect from the CMD perhaps, Milan to you. Is this where you're going to reveal the master plan, so to say? Or is this more of a long process that we need to adapt to and learn about? And then secondly, on China, Mercedes has obviously taken the write-down. I get that you are derisking your case to the PPA consistently, but given how different the business is developing versus your own expectations. Can you help us understand why you have not to take more strategic actions there, thinking about writing off some of the stake and so on and so forth?

Good morning, Tim. Good morning to Frankfurt. I would -- first, before we come to your 2 questions, briefly, I hand the word to Walter with regards to your -- let's call it, the pre-question, with regard to the strategic target corridor 8% to 10%. Walter, would you like to make a brief statement on that topic first.

Yes, brief and clear. Tim, as we mentioned already, we intensify and speed up our structure and efficiency measures to end up with our strategic corridor of 8% to 10%. That's confirmed. And of course, with respect of the current situation, we have to do more than maybe we expected 12 months ago and we are just in the middle of doing so. With all these elements, Milan mentioned before, they should all help step-by-step we are becoming better, and you will see our execution.

And now coming back to your questions. The first one is with regards to expectations for the CMD. I would hand that to Milan in just a minute. The second one, you commented on Mercedes-Benz having written down assets. We will, of course, not comment on what our friendly competitors in Stuttgart have done, but you were asking us why we're not taking more strategic actions there? Walter, I would kindly ask you to answer the second question. But first to you, Milan.

Tim, thanks a lot for your question to the CMD since, as you know, we are putting a lot of emphasis on that meeting and reason is we are doing now a very intensive work on setting up a detailed presentation for you for that meeting. I mean the core element of it is also our transformational program, which I did explain in rough -- right now. But on top of that cost, we also do -- we'll have some discussion about technologies and products and derivatives and furthermore. However, the core orientation of our strategy as a group is not changing. We still stick to our global footprint. We still stick to our technology openness, we will come with the Neue Klasse the technology all this remains and is a robust base for the future orientation. However, in detail, we will have some changes, and that's why it will be quite interesting for you, I think.

Yes. And with respect to impairment, we have to do impairment tests quarterly and we have to check our assets. And of course, maybe some assets are differently measured if you have an equity consolidation or a full consolidation. Now with respect to us, we do have a full consolidation aspect of our joint venture in China. What is that meaning that we have the whole balance sheet in our group balance sheet integrated and not just one element of financial assets. That's the first difference. But you know that. The second one, of course, is that with the takeover of the further 25%, we have to add value on our asset based on all the balance sheet side. And on this immaterial element, we are depreciating the purchase price allocation, and this will end mid '28. There is the second element of the goodwill, which we can't depreciate over time, and that is stated and closed of roughly EUR 1 billion, and that one, of course, also has to do always this impairment test, and we don't fail the impairment test. And hence, there is no write-off but just ordinary depreciation, not a write-off, it's an ordinary depreciation of our purchase price allocation since February '22, and this is ending May '28. That's the different situation between these ones having to check out at equities or we having done the full consolidation. Hope that helps.

The next question is from Stephen Reitman at Bernstein. We will move on to Michael Tyndall at HSBC.

Hopefully, you can hear me. A question, if I may. Just the first one, sorry to stick on China, but can we talk a little bit about cost flexibility because I guess this is a key difference between China and the rest of the world. And I'm curious, given the volume decline you saw in Q2, did China stay profitable, did the joint venture stay profitable in Q2? And if so, can you tell us how you manage that? How flexible is that versus North America versus Germany? And then the second question, I noticed in the other in the walk that there was a more favorable positioning on warranty, which has been a bit of a trend. I'm just wondering whether or not with the increase in recall rate that we've seen in the U.S. Is that warranty tailwind likely to continue or potentially reverse in the second half?

Good morning, Mike. And yes, we were able to hear you. Thank you. Both questions will be going to Walter. Your first, with regards to available flexibility in China, you asked how we were actually managing that and whether we remain profitable in China itself and the question then one item under others, warranty whether there was any correlation between the improvements we see there and also recall rates in the U.S. So Walter, please, if you don't mind.

While China flexibility is all based on costs, first of all, and that we started our homework already the year before last year. So we have positive effects year-on-year on the cost side for the production like we just mentioned beforehand. And with respect to the joint venture profitability, we are still profitable in the joint venture. It's positive, not as positive as it was a year ago, but it's still positive, contributing to our group profit. I think that is a fundamental message. And with respect to the warranty side, we are running worldwide our warranty costs. And even you see increased recall rates in the U.S., it's obviously a question one recall is not costing the same. So we are still recognizing that we have a good run rate, a positive fund compared year-on-year. So I can't see any reverse actions in the second half year you're asking for.

We will now go back to Stephen Reitman at Bernstein.

I think the technologies are working now. I have 2 questions, please. First of all, Milan, using changes in the supply structures and how that's moved on in terms of the offering technology solutions. Obviously, we think about particularly in China -- in terms of China. But we also talk about the potential in the other European operations as well? And secondly, again, looking at your European footprint, are you happy with the mix of high cost and low-cost locations? We've also said that in the context of a competitor that's recently doubled its capacity in Hungary of its plant. Obviously, you have your device plant, which I believe is capacitized by 150,000 units.

Good morning, Steven. And yes, this time around, we were able to hear you, and we took note of both questions. I will actually hand both of them to Milan due to the most recent responsibility within the company before becoming our CEO. With regard to the changes in buyer structures, you were wondering whether there are any potentials in other European operations beyond specific China supply chains. And the second one then whether we were happy with our mix within regionally in the European region. So Milan, please?