Bayerische Motoren Werke AG

Welcome back to our quarterly earnings call. Oliver Zipse and Walter Mertl are also back in the room with me.

The line will be open shortly for your questions. The operator will first give you some technical instructions, please?

Two questions for Walter, please, and Oliver, no offense, but we just met in Munich for the strategic question. So I'll focus on 2 financial ones, if you don't mind.

First, regarding the tariff impact, thanks for the quantification. I think the 200 basis points in the second quarter impact, that's clear.

If I apply simple math, 150 basis points in the first half and 125 for the full year, that suggests about 100 basis points for the second half. So I'm just wondering if you would say this 100 basis points run rate for the second half for tariffs should be also a good indication for how things would look like going into 2026?

Even maybe as a more, let's say, cautious scenario because you might be able to mitigate more of the tariff impact via pricing and optimization of your industrial footprint. So that's the first question, is 100 basis points a conservative run rate for the future?

And my second question, I think you're still holding on to your China guide, volume-wise, flattish, which means better than minus 5 or at least minus 5. Are you still comfortable with that?

And if not, if maybe the number would be a bit more closer to minus 10, would you still feel comfortable with the group guide in terms of slight volume growth and the 5% to 7% margin range, just to get an idea about stress testing your assumptions here for China.

Thank you very much, Patrick. Walter?

Patrick, so with respect to your math on tariffs, I can just reiterate that for the full year impact, we have 1.25%, so 1.25, and it's around 1.25. You also do know that not every deal is closed yet.

And I also mentioned already that we don't take our credit scheme we proposed and tried to get into the U.S. deal.

We took that one out of this year's expectations, but we are still fighting for because we are still convinced that has to be included to honor the production in the country, not just in the U.S., but also even in Europe, right? So we always talked about that one also in Europe.

But with respect to our guidance in this 1.25 percent point, that is not included anymore, but that doesn't mean that we are not fighting for. With respect to your question on 2026, I will elaborate about this one in March at the press conference, and why is that?

If you just have a look for the last 6 months, a lot of things happened, impacting tariffs. So the next 6 months, I guess, there could be also some changes, and that's the reason why we rather speak about when it's due and time to discuss about it.

Your question about China, I just want to reiterate, we are not doing guidance by region. The guidance is set on the world and not on the region.

Of course, we see all these topics in China affected by a strong monitoring of the authorities with respect to the commissions paid from external banks to the dealers and the impact, especially on the first week of July. Of course, we are seeing that.

You're also aware that we are restructuring our dealer size. But of course, whilst our ambition on flattish is up to minus 5% versus last year's, we clearly approach that one from the level below.

And of course, all depends on the recent developments in the market. We see some improvements week by week, but it all depends.

So I think that is still comfortable. And finally, to end up with our volume guidance, if we just have a look on Q2, in the quarter 2, you just saw, despite the fact we lost 13.7% year-on-year in the quarter 2, the full world was still positive by 0.4%.

So we compensated some losses in China year-on-year with European and America performance. So that is still a clear statement.

The world guidance is intact, independent of the situation there in China.

I have 2 questions. The first one to you, Walter, probably.

I think one of the most appealing aspects of your equity story is that you can actually plausibly claim that the investment peak is behind you because you invested in all the necessary flexibility and capacity. Now can we talk a little bit about the phasing and seasonality here when we think about quarters?

We have seen another step in the right direction during Q2. Is this something that you think will continue over the next few quarters?

Is it volatile? And perhaps you can contextualize this with what we should expect in terms of seasonality for margin and cash flow in Q3 and Q4 this year?

And then secondly, not sure but probably, Oliver, to you. I agree with your comment on the press call.

It's all about building attractive products and that it outweighs things like even tariffs. Now in Europe, we actually noticed that a couple of OEMs talk about good momentum now, even those with all the portfolios like Mercedes, for example.

Where do you think that the emergence of the European consumer, at least on the premium side but also upper mass market side, comes from? And how do you feel how sustainable that is?

Okay. We start with Oliver and then Walter.

Oliver, please?

Let's have a look at Europe, and that is where your question is directed. Europe has an ever-aging age of the product, the car fleet.

And I think now also comes the time to replace that fleet. And customers, of course, know that.

That's the first thing. So it's quite obvious that there is a replacement momentum in Europe.

The second is that especially BMW, we have a very attractive product portfolio over all segments. Starting on the very top with Rolls-Royce, then 7 Series, the 8 Series is still in the market, and all the way down to the 1 Series and MINI.

And you can have in every segment, you have combustion engines, you have the electric fleet. And on top, as I said in the media conference call, we never sold as many' M products as we've done before.

So the whole breadth of product offerings leads to, of course, growing market share. And is that sustainable?

I think it is because the 27 countries in Europe are much more predictable than what we see, especially in China. So -- and also, of course, we have political stability inside of Europe.

So we see for the remainder of the year and also going into '26, a robust, predictable market demand, which is able to compensate some of the more difficult markets like in China, for example.

Thank you, Oliver. Walter, please?

And just reiterate the strength of Europe, just to speak about the second price level of our sold side is less than 20%. So we have a strong first price level, which is even more stronger then.

With respect to your right directions you asked, after Q2. So the free cash flow is on par with previous year's level, but we shouldn't underestimate the second half year is also different to previous year.

Why is that? Because CapEx peak, for example, was last year in Q4, and that is not going to happen this year.

So we will have less CapEx in Q4. We have the seasonality of our working capital procedures.

And not to forget, we are also aiming to organize profit in Q3 and Q4. Otherwise, we couldn't confirm our full year guidance.

All these elements together end up that we are still confirming our EUR 5 billion free cash flow. And if you just think about last year, when we had the big IBS impact, we also organized the right free cash flow ultimately, and we are not going to have that.

Not to forget on the consistent approach, which you saw on the cost side, R&D as well as the operational costs. We came down in Q1 year-on-year.

We came down in Q2 year-on-year, and we are planning to go down in Q3 as well as in Q4 year-on-year. All that is proving our consistent approach, first of all; and secondly, is underpinning a stronger free cash flow in the second half year.

I think that's the main relevant things for you.

You mentioned in the speeches that you've had already a journalist testing of the iX3 in kind of in a preform in Miramas in June. Could you comment on the reactions you received, particularly from Chinese journalists and other people who know that market very well?

That is your question? Yes.

Okay. Then Oliver, please.

I think what we have done, of course, on purpose because the iX3 is not only the front runner of the Neue Klasse, it also encloses a complete product and corporate strategy directed towards 4 different technology clusters. And you can only experience that when you drive the car, not by looking only at the battery size and so on.

And what you find out, if you combine that driving experience around these 4 technology clusters, wherever we go, whether it's European journalists, whether it's American journalists, whether it's -- especially Chinese journalists, they say, well, wow, this is a masterpiece of engineering. How it fits together, how it feels when you drive the car, especially if you drive it against current competition.

Just for example, if we -- we have the objective, everything that has to do with assistant systems, meaning autonomous driving, it has to be smart, it has to be symbiotic and it has to be safe. And symbiotic means that the car is your companion and it's not just a function which you buy and put in it to a technology stack and put it in the car.

And I think when the journalists drove the car, they said, "I've never driven a better BEV in my life." And this is not only directed about the electrical drivetrain.

This is how it feels. And therefore, we're extremely optimistic when we unveil the car in early September and then launched the car in early November, that there will be a substantial market demand because that car is going to be at that point in time, the benchmark of the industry.

And that is what whoever we talk to, whatever is written about the car, which is reflected by media and journalists. So you already hear from what I'm saying.

We are very optimistic about the market success of the iX3, but also the subsequent cars, the iX3 and the other cars which are coming closely after.

Sam, are you with us? Hello?

We don't hear you.

Two questions Oliver, please. Oliver, in the light of the rapid developments we're seeing from Tesla and Waymo, when it comes to deployment of Level 4 autonomous driving.

I would love to get your thoughts, please, on how you strategically think about autonomy within BMW? And how do you tackle Level 3, Level 4 autonomous driving within the house?

Who are your key partners? And ultimately, whether you think this is a technology you need to be involved at the forefront in order to be able to protect pricing power in the premium segment.

And the second question was, Oliver, for you as well. When it comes to tariffs, I would like to understand, beyond the framework we have seen between Europe and U.S.

when it comes to tariffs, what are the maybe outstanding bolt-on negotiations that BMW strategically is looking to pursue in order to maybe round up the agreement?

Okay. Thank you very much, José.

The answer will come from Oliver.

The first question, if you talk about individual mobility, is you have to answer the question, what business are you in? And of course, we ask ourselves, what business are we in?

I can tell you what business we are not in. We don't build trucks.

We don't build pickup trucks. We are not in mobility services.

We are not in driverless cars. And that's the first question, what you have to do.

The second thing, we are not testing out business models. When we launch a car, it must be profitable from the first car on.

This is what we are in. And in line with that, and you will see that in the Neue Klasse, that assisting system, autonomous systems have to be in line with that business we are in.

That means individual mobility in the premium segment. I cannot talk about other business models.

But you have to answer the question, are you profitable? Do you have a chance to be profitable?

Do you have a chance to be profitable if the regulator has not admitted specific things? And only to have a testing ground in some areas of the world does not mean that this is scalable.

So I cannot tell you the logic of other market participants should think that this will be profitable. I cannot answer that question.

But we are in the business of having profitable high-tech, premium individual mobility, and completely, autonomous cars are not part of that business model. The second question, I think we have answered that before.

I think the most important thing that we come to an agreement, what has been done by a handshake agreement between the EU and the United States. And we must now quickly finalize and implement the agreed measures.

That's the first priority. And whether we pursue individual agreement, that has to be seen, but that's not the most important thing.

I think the most important thing, to now come to a conclusion, to a reliable conclusion that we have a 15% 0% agreement on United States and the EU tariffs. That's the most important thing.

And I think it's a good agreement for both sides because it ends a never-ending dispute, which you can do forever. And I think that's the best thing for both sides that has been -- that could be achieved at this point in time, and as we said before, it's not a complete disaster for our business model because BMW has a global business model.

We import and export into the United States and the EU at the same time. So there is some offset included in that deal because we have that business model.

And the most important thing is that Europe recognizes that this is a business model that works which is not confined and restricted to the European Union, but this is a global business model. That is the most important thing that has to be recognized.

And this is not a disadvantage. This is a great advantage for European companies.

Hello, Michael?

Michael Punzet. Can you hear me?

Yes. Yes.

Yes, we hear you. Please give us your question.

Okay. I have one question regarding the CO2 targets in Europe.

You mentioned several times that you will meet that target already in 2025. Do you see the risk that become disadvantaged in competition in the years '26, '27, assuming that other car makers can push BEV sales by lower prices or higher incentives?

Thank you very much, Michael. Oliver Zipse, please.

Mike, thank you for that question. I have a 2-parted answer to your question.

We're not concerned about -- and I can only speak for BMW. We're not concerned about '25, '26 or '27.

We will reach the targets even if there is some market pressure. We have enough leeway to fulfill the requirements.

We have prepared for many, many years for that. And we will never push something into the market just to reach a specific CO2 requirement from the legislator.

At the same time, while saying that, I think we nevertheless need a different framework for CO2 regulation. To look only at the tail pipe will lead, over time, to serious market distortions, which less effectiveness of CO2 reduction, with less profitability for market participants and therefore, less investment capabilities into climate change.

And therefore, we advocate for a different regime, which is oriented towards a life cycle assessment, which includes supply chains during the creation phase of the car, which looks at a technology-neutral approach, which includes e-fuels or alternative fuels, which includes the type of power you use for driving the car, all the way down to what happens to recycling the car. This is the much more effective and much more competitive approach to CO2 regulation.

Are we there yet? No, we are not there yet, but we made a proposal to advocate for, and I can tell you that we get more and more institutions, market participants who we convinced that this is a better approach.

Is that happening overnight? No, of course, not.

This will happen during the next 12, 24, 36 months until we are there that we get into a new regime. But if we don't start to argue what is the better regime, every week, you run into a much more difficult competitive situation and market situation in the market, as you can already see in Europe.

People report diminishing profits, and that has nothing to do with the tariffs of the trade relation with the United States. This is purely self-inflicted, and that will -- has only started now.

So yes, especially with the Neue Klasse, we will reach the targets, but at the same time, we advocate for a new regime.

I had a question more at the top of the mix, even above GKL, and I'm talking about Rolls-Royce. So do you have any updates or KPIs that you might be able to share, whether it's ASP or personalization rates?

And I think tied to that, maybe any updates on the Goodwood expansion and what it could contribute to the business going forward. And I think maybe a second part of the question on the same theme, any next steps that you're able to share on the development of the ALPINA sub-brand starting next year?

We had some early comments a couple of weeks ago. Sounds like it's still a very low volume, high performance orientation, but would love to get an update, if it's possible.

So we start with the Rolls-Royce question with Walter and then Oliver. Yes.

Walter?

Adrian, well, as you do know, we don't say explicitly to our brand-dedicated numbers, as you do know. But with respect to Rolls-Royce, you do know that we have over EUR 500,000 revenue, that one we shared already last year, and that is still the case.

So it's more than EUR 500,000 revenue a car. And bespoke is more than 50% on a share.

So that is a really good business, but I'm not talking more about it. Other than, yes, we have an expansion on the Goodwood side because the business is really good.

And we are not overdoing it because this is a special client deal, and that's the reason why we are not talking so much about it. Many thanks.

Oliver?

Adrian, you apparently watch us closely, and that is a very good thing. If you look at our brands, especially in the upper segment, Rolls-Royce, but also BMW, what you see is that individualization plays an ever-increasing role.

At BMW, we launched 2 cars, the Skytop and the Speedtop, for example, very low volume -- ultra low volume in the upper price range in a never until then, achieved price range. Those 2 cars were immediately sold out, immediately.

You mentioned ALPINA. There is more to come, but that is a similar approach, low volume, high profitability, high individualization apart from normal products.

So you have there Skytop, you have Speedtop, you have ALPINA on the BMW side. And the same thing you see at Rolls-Royce, an ever higher individualization rate.

And in that context, we also invest into Goodwood. We even expand that individualization.

It's never about volume. It's about increasing the contribution margin per car, and that is working quite well.

Because independent of market sentiment, there is a very, very stable marketplace for ultra-high net worth individuals. And we are exactly targeting these new customer bases.

And Rolls-Royce, you see all kind of difference individualization. You see the normal bespoke business, which is ever increasing.

You see custom build cars and you have even one-offs, which we've done in the past 3 years, 3 times. Rolls-Royce had one-off cars, which only exists one time.

And so that business models, to individualize in all kinds of segments and all kinds of price ranges, you will see that at BMW, and you will see that also at Rolls-Royce. And that, of course, stabilizes both brands.

Thank you.

Can you hear me now?

Yes, we hear you.

Yes. Apologies, I was having some issues.

Just a couple of questions on China, please. First one was about discussions currently ongoing regarding sort of minimum price guarantees replacing tariffs in Europe for Chinese-produced vehicles.

Can you talk a bit about the puts and takes for that for BMW, both from a perspective of your many exports from China to Europe and also, I guess, the European business more broadly. Second question also on China.

At the CMD a few weeks ago, you mentioned the only area of the Chinese market growing was below CNY 150,000, and you didn't want to compete there, which was a large reason for why your volumes have been under pressure. However, the data I'm looking at, and maybe I'm looking at wrong data, but it shows that the market is growing up to around the CNY 300,000 mark, which is where about you have about 50% of your product offering.

My question, I guess is, is the reason the volumes are under pressure because you don't compete at that price point or because you're continuing to lose some market share?

Yes. Thank you very much.

Walter?

Well, on the EU-China tariffs, you do know our statement. We have been persisting serious criticism of this legally implementing regulation.

And on which these countervailing duties are based, the BMW Group has filed an action for annulment of this regulation with the general court. And this is still ongoing.

We haven't any conclusion yet, but we are coping with it. And with respect to the competing on the side, yes, you're right.

On the June side, up to CNY 300,000, there was growth, up to CNY 150,000. There was a growth of 18% year-on-year, and between CNY 150,000 and CNY 300,000, there was a growth of 4% year-on-year.

And -- but we shouldn't forget what I mentioned previously, we are restructuring our dealer network. The performance of the healthy dealers is still a good one.

But whilst restructuring these ones, and we are having a good progress by doing that one since November '24 and we will finish that by end of this year, we lose out here some performance, and that is to really kick in and the issue we are facing on the volume side.

I'm going to stick with China. And Walter, I wonder if you could help me out here a little bit.

The dealer rationalization, what does that mean in terms of your P&L? Are those dealers a drag on volumes?

Are they competing aggressively on price? Or are you in fact supporting them through this transition?

Is there compensation going out, such that when those dealers are no longer in business, you'll actually see a meaningful impact. So I'm kind of -- if you could give us a bit more detail as to what exactly will change once those dealers are no longer in operation.

And then the second question for Oliver. Oliver, when we spoke last year, you very rightly described the Chinese market that was in this unsustainable state in terms of the number of operators.

And I'm noting that you've said things have started to change in June, but I'm also noting that some consolidation efforts haven't really played out. From your perspective, are we on the cusp of seeing the Chinese market start to consolidate, such that it's a more rational, sustainable market going forward?

So we start with Walter, and then Oliver. Yes, Walter, please.

Michael, so on the dealer side, yes, we mentioned that one already, that we are in the middle of this restructuring side. We are closing down some outlets, and we are selling some outlets from one dealer group to other ones.

And I want to reiterate that existing dealer groups are buying those outlets. So that is positive.

And with respect to end of this year, we are assuming that by then, compared with end of '24, we will have roughly 10% less dealer points and roughly 20% less on the owner structure. So this is going on.

There has not been changed in our story. It's just getting executed.

I think that is the big thing. With respect to compensation, you mentioned, as I always said last time, no dealer compensation has been neither announced nor paid hence, and of course, while transaction pricing in the last 3 weeks has seen slight sequential recovery, of course, it doesn't entirely compensate all these losses of the bank commissions they previously received or up to end of June they received we see.

We are, of course, closely monitoring that one. And as good partners, we are, of course, also in good discussions with our dealer partners.

That's the thing for -- to your first question, I think.

I would like to answer the question about the Chinese market situation. Of course, the Chinese market will remain very dynamic in the coming weeks and months and even years.

Two things are very important to recognize. First of all, the market share of Chinese manufacturers in the whole market is still below the value of European manufacturers in Europe.

So the current share of Chinese car manufacturers in China is 59% compared to over 65% of European players in Europe. So there is even more development.

And what is the final end game? Is this 70%?

It's probably going to be above the 66%. So we must expect that in the next months and years, the market share of Chinese manufacturers will grow up to 65% or 70%.

That's the first thing. Everything else would be, I would say, unrealistic, first thing.

But that means for the rest of them, for non-Chinese players, there's still a market share of 1/3, which is substantially due to the size of the market. Now with these remaining Chinese manufacturers, you currently have more than 100 brands.

Can you expect that these 100 brands with the remaining market share in China will remain? That's also very unlikely.

If you ask the question, who are the dominant players? I cannot answer that question.

But there will be some flourishing brands. There will be some brands who struggle.

What you see that the profitability level in the Chinese market is very low, also for the Chinese players. So that will lead to more market dynamics.

But brand will become even more important. That's the good thing.

Whoever has a strong brand, who has some heritage, who has a track record of reliability, of high-quality product has an advantage, even if the current market conditions are very fierce, that will be the remaining element who is able to stabilize market share or even to grow market share, and BMW will be one of these brands.

So our last question comes from Horst Schneider.

I hope you can hear me. The last question I have is -- the last question, maybe something for Walter.

Walter, maybe you can help me to understand the drivers in terms of earnings for H2 now, also more from a sequential perspective, if I reconcile that, you expect rising volumes, China pricing is improving, in contrast -- or also tariffs are declining, then material costs are going up. You ramp up Neue Klasse, you ramp up Debrecen plant.

So it's a kind of trade-off. But when I look at your free cash flow guidance, it -- so you say the free cash flow is higher in H2 than H1.

It implies to me that also earnings should be in H2 higher than H1. Is that conclusion right?

And is -- does that mean that basically you stay within the 5% to 7% margin guidance also in H2 or also in Q3 and Q4 even. So in other words, Q2 was the trough in terms of margin.

Is that conclusion correct?

Walter?

Hello, Horst, nice try. So the full year guidance is still intact, as I mentioned.

So the full year guidance is still intact. And I think we have a good starting basis because if you have a look from my half year numbers, auto EBIT is on EUR 3.6 billion and my total group profit is starting with EUR 5.7 billion, all half year numbers.

So even if you would just double it up, it is already in reach in my guidance. And we have, of course, a lot of ups and downs in the second half year with respect to profit and everything could happen, of course, but there are chances and not just risks.

So I think we have a good starting basis first of all, eventually better than a lot of other ones, first of all. And secondly, I can just reiterate what I mentioned to Patrick and Tim before and on the free cash flow.

We presented that our fixed cost, our operational fixed costs are declining every quarter. We presented and proved that one in Q1, and we have done so in Q2.

And we also promised already in March that we are going to do that all along, meaning also in Q3 as well as in Q4. Plus not to forget, our seasonality on working capital in Q4.

We know how our structure is running in Q4. That's always beneficial for free cash flow, which we also presented last year.

And last but not least, our CapEx development over the quarters. If you have a look for '24, you saw there was a huge CapEx impact as a burden on free cash flow in Q4, and we also mentioned that we have a very good slowdown of CapEx because we did our homework already, right?

Other ones have eventually a different strategy and have to have more CapEx in Q4, whilst we, not, especially not versus last year where we had our final peak. And if you put all these jigsaws together, you end up in our free cash flow prediction, and you end up with our guidance on profitability on group as well as on auto EBIT.

Many thanks, Horst.

Many thanks to Walter. Yes, Horst?

Yes. Just a follow-up maybe to Walter on that.

So in other words, so CapEx is up H2 versus H1, and working capital in H2 is a tailwind or a headwind?

Horst, nice try again. So again, on my full year number, CapEx is lower on full year this year than last year.

And you saw already a decline in the first half year. You will also see a decline in the second half.

If you just compare year-on-year, the first half versus first half year '24 or the same on '25. That is just easy.

And we have reached the end of the telephone conference. Bye-bye and [Foreign Language] from Munich.