Statement Oliver Zipse, Chairman of the Board of Management of BMW AG
Good morning, Ladies and Gentlemen!
2020 has been dominated by the highly volatile crisis worldwide – which is now worsening again – and its impact on the economy and our lives.
At the BMW Group, we respond to unexpected challenges like this with flexibility and sound judgement. The long-term perspective is and will always remain decisive for us.
We demonstrated all of this in the first three quarters:
First: We are determined to target and exploit potential for growth and steer the company calmly and consistently through the crisis. In the third quarter, we demonstrated our performance capacity and kept the company on track for success in a difficult environment – posting the highest quarterly sales in our history.
We can therefore confirm our guidance for the financial year 2020. We issued this guidance early in the crisis and have only adjusted it once since. This means, despite all the uncertainties, we assessed the situation correctly.
Second: We are aligning the BMW Group for sustainable mobility through our strategic decisions. This applies to products, technologies and our organisation. It is precisely at these so-called tipping points that BMW has often set the course for new beginnings in the past. We continue to do things the BMW way in times of upheaval and always remain an attractive and reliable partner for our investors. With our products and technologies, we are ideally positioned for the years ahead. We want to be in a similar position from the middle of the decade on, when the conditions on markets will have further developed. That is why we are already working on solutions for after 2025 and 2030. Because, in our industry, timing is crucial to leveraging opportunities as they arise and being able to make targeted investments in the future.
Today, I would like to focus on:
1. Our perspective up to 2025, and
2. Our perspective for the second half of the decade.
Let’s start with the first topic:
We have a fresh, attractive and diverse model line-up in all segments that is winning over customers. That is how we were able to absorb the regional lockdowns and even improve on the previous year in some cases:
• In the third quarter, we delivered 8.6 percent more cars and almost 21 percent more BMW motorcycles to customers than in the same period of last year.
• In the year to the end of September, our automotive sales decreased by only 12.5 percent. We even increased our global market share during the crisis to 3.2 percent.
A look at the markets in the first nine months shows how much the situation varies:
• In China, the recovery that began in the second quarter continued. By the end of September, our sales had risen 6.4 percent to reach a new all-time high.
• In Europe, on the other hand, deliveries were down almost 20 percent.
• In the US, sales decreased by about a quarter.
Our models in the luxury class and, especially, our electrified vehicles, emerged as winners from these times of crisis.
You could say circumstances provided a boost – aided by government-initiated measures in a number of countries. We delivered more than 116,000 electric vehicles and plug-in hybrids to customers in the first nine months – a new all-time high and a significant year-on-year increase of 20 percent. This trend became even clearer in October.
We are already firmly established as one of the absolute leading manufacturers of electrified vehicles worldwide. We already laid the foundation for this back in 2013, with the fully-electric BMW i3. Our project i was the beginning of phase I of our transformation to sustainable mobility – and has been a great success story! Since then, we have sold the i3 more than 200,000 times. And there is still no other vehicle on the market that has a comparable 360-degree approach and no vehicle with a longer life cycle.
Overall, we have delivered well over 600,000 electrified vehicles to customers worldwide to date. And now, as demand for electric models starts to pick up, we are starting phase II of our transformation with highly innovative vehicles:
• The MINI Cooper SE has delighted around 13,000 customers since March – and our current order book is just as full.
• The BMW iX3 will be arriving in showrooms in the next few days. Employees at the BBA plant in Shenyang celebrated the start of production in late September. The iX3 brings e-mobility to the extremely popular X family and paves the way for the fifth generation of BMW eDrive technology.
• In 2021, the BMW i4 will come out of Plant Munich, with an electric range of up to 600 km.
• Followed in 2021 by the iNEXT. The Board of Management took the series version for a test drive. I’m sure this car will surprise and delight a lot of people: the driving feeling is unique for an e-drive; it sets a totally new benchmark for digitalisation and connectivity; its operating system is revolutionary; the interior is minimalist and absolutely user-focused; and the exterior is progressive. You’ll hear more about this when our NEXTGen kicks off next week.
• Other fully-electric BMW models will include the high-volume 5 Series and X1, as well as the 7 Series. All of these will be available with four different drive technologies – petrol, diesel, plug-in hybrid and fully-electric. We call this Power of Choice. Customers choose the drivetrain that best suits their needs. That is why we need and use flexible architectures for several drive technologies.
This enables us to meet demand for different drivetrains efficiently across all model ranges and segments. This is not only an exceptional capability, but also a competitive advantage for us. Our electro-offensive encompasses all model ranges, with much more to come: By 2023, we will offer 25 models with an electrified drive train.
Our plug-in hybrids are also doing very well. This is a great opportunity to introduce people to electric drivetrains. We want our customers to choose e‑mobility for themselves, because they recognise and appreciate the benefits.
Later this month, we will be expanding our plug-in hybrid options for the 5 Series from two models to five. That is more PHEV variants than any other model range.
With the right timing and right technologies, and despite the crisis, we will meet the European CO2 targets for both this year and next.
This year alone, our fleet emissions will be around 20 percent lower than in 2019. We are preparing for future CO2 targets just as systematically and just as persistently.
The key to success for our electro-offensive clearly lies in our plants. We are expanding our production network for e-mobility and the necessary components. Here, we are specifically strengthening Germany as a manufacturing location.
Let me give you three examples:
1. By 2022, each of our four automotive plants in Germany will be capable of manufacturing fully-electric vehicles.
2. From 2022 on, Dingolfing will be able to build e-drives for up to 500,000 electrified vehicles a year. Leipzig and Regensburg will produce battery modules and high-voltage batteries, respectively.
3. Our new pilot plant for near-series-standard battery cell production will also begin operations in 2022. The BMW Group has more comprehensive battery cell expertise than any other car manufacturer in the world. Our aim is to have the most efficient and most sustainable battery cell in the industry. Together with Northvolt and Umicore, we are creating a closed material loop for battery cells.
We are combining the reorganization of our production network with structural efficiency improvements and optimized utilization of capacity. By doing so, we aim to save a mid-triple-digit million-euro amount, by the middle of the decade.
At the same time, we are investing in research and development according to our commitment: More than 30 billion euros by 2025.
Here, also, we are continuing to focus on our locations in Germany. In September, the first FIZ Future sub-project was put into service: At the new FIZ Nord facility in Munich, a total of 4,800 employees are developing innovations for the mobility of the coming decades. This makes the FIZ Research and Innovation Centre one of Europe’s largest R&D sites. It connects our 14 Tech Offices – from California to Shanghai and Tokyo – as a new digital R&D hub.
Let’s move on to the second topic:
Our perspective for the second half of the decade.
We expect demand for fully-electric vehicles to continue increasing significantly from 2025 on. Exactly then – just at the right time – we will launch phase III of our transformation.
Here, in addition to electrification, the focus will be on digital connectivity and volume capability. In ten years, we aim to have more than seven million electrified BMW Group vehicles on the roads – two thirds of them fully-electric. The company is already scaling up for this, both strategically and technologically.
We have established two new cross-functional areas internally to coordinate, shape and take company-wide responsibility for key areas of transformation:
• First: In-car digitalisation.
Over twenty years ago, we began focusing on digitalisation in our vehicles. To this day, we have brought 14 million connected vehicles to roads worldwide. They collect 25 million bits of traffic information daily. Now, we are strengthening digital across the company and creating a new central decision-making function. All key software functions have been pooled into the new “Digital Car” unit since October, and report directly to the board member for development.
Our vehicles are “managed devices”. They are always up to date with the latest services and features. We are continuing to expand our successful Operating System 7 to support this. It goes without saying that our user interface is easy to operate, because technology should serve the user. And digital technologies are at the heart of BMW. Hardware and software are equally important to our customers.
• Second: Underlying product development, and its implications for our vehicle architecture from the middle of the decade.
Our new cluster architecture is geared towards electric drive trains. This area reports directly to me. It is organizationally connected to all divisions – from markets, finance, procurement, development and production, all the way to sales and marketing. This gives us greater leverage and makes us much faster – also in our cooperation with partners. The objective is for the new architecture to create an overall optimum. Our new plant in Hungary will play a key role in this, ramping up the new BEV-centric architecture from the middle of the decade.
There is another aspect to our transformation in phase III: In the midst of the crisis crisis, we geared our company towards a circular economy.
We aim to reduce our carbon footprint per vehicle by at least a third from 2019 levels by 2030. No other manufacturer in our industry is making its business model as holistically sustainable: throughout the supply chain, production, use phase and recycling.
We cannot achieve this through offsets. We are using renewable energies and efficiency measures.
This is impactful progress through technology.
Ladies and Gentlemen,
The crisis is far from over.
The current rate of infection, especially in Europe, makes this abundantly clear. The virus will remain the biggest of many risks for the global economy in the foreseeable future. New lockdowns could severely impact our business development in the fourth quarter and early 2021. However, the same rule applies in this situation: We will continue to respond flexibly to short-term challenges.
And we will systematically and proactively set the course for the long-term development of the company.
The BMW Group is in a strong position and exactly where it needs to be for the second phase of the transformation up to 2025 – with a growing share of e‑mobility and maximum production flexibility.
We are now concentrating on the third phase of the transformation, from 2025 and beyond. We will be making more fundamental decisions for this in the coming months.
I look forward to your questions.
Statement Dr Nicolas Peter, Member of the Board of Management of BMW AG, Finance
Good morning, Ladies and Gentlemen,
I hope you are all staying safe and healthy!
Over the past several months, the BMW Group has again proven its ability to act flexibly in highly volatile market environments and to adapt quickly to new circumstances.
After experiencing the full force of the crisis initially in the second quarter, we delivered a strong performance in the third quarter. We were able to increase sales and Group earnings. This earnings quality is also reflected in our free cash flow. Currently, however, the situation is worsening again, particularly in Europe, and again requires a great degree of flexibility.
The measures we introduced in the first half of the year to lower costs, together with our investments, are now paying off. This shows that we are safely steering the company and are making the right decisions – enabling us to limit the effects of the crisis.
Our strict cost discipline is having a positive impact on earnings, supported by additional measures, such as focused management of our working capital.
One of the main drivers for this strong performance in the third quarter was the recovery in customer demand in many countries, including China and Korea, but also in major European markets, like Germany, the Benelux countries and Italy.
Electromobility has proven to be a substantial growth driver. Our sales of electrified vehicles increased significantly from the previous year, both in the third quarter and in the year to date.
Performance was also bolstered by pent-up demand in many markets.
Ladies and Gentlemen,
As mentioned, the business environment has remained extremely volatile – as underlined by sales development in the past two quarters. The BMW Group delivered 675,000 vehicles to customers in the third quarter – the highest quarterly sales in the company’s history. But, just before that, in the second quarter, we posted our largest-ever decrease in sales. Now the situation in Europe is worsening again. We have never recorded swings like this within such a short space of time.
Setting the right course has therefore been especially important in recent months.
The market developments and performance measures I just referred to are having a positive impact across the company and in our individual segments.
Let me go into detail, beginning with the financial figures for the Group.
Group revenues for the third quarter totalled around 26.3 billion euros. Due to the suspension of sales and crisis restrictions, however, revenues for the first nine months were moderately lower year-on-year, at 69.5 billion euros.
Group earnings before tax for the third quarter reached almost 2.5 billion euros – up 9.6% on the previous year. The figure for the first nine months was just under three billion euros, and therefore significantly under the previous year.
The Group reported an EBT margin of 9.4% for the third quarter and 4.3% for the first nine months. I would like to point out that we achieved this in an extremely volatile and challenging environment.
Ladies and Gentlemen,
The BMW Group remains well on course, as the automotive industry undergoes a transformation. We are investing in the future and continuing to forge ahead, particularly with electrification and digitisation. A good example of this is the iNEXT, which will celebrate its world premiere in the next few days.
Research and development activities accounted for around 4.4 billion euros in the first nine months, with an R&D ratio of 6.3%, as expected.
A word about our capital expenditure, which was around 2.4 billion euros: In the year to date, we have systematically prioritised and focused our efforts without deviating from our roadmap for future mobility and innovation. We were able to reduce capital expenditure significantly from the 3.3 billion euros reported in the same period of 2019. This also had a positive effect on our free cash flow.
The third-quarter financial result stood at 540 million euros.
A key driver for this was the BMW Brilliance Automotive result of 430 million euros. Thanks to effective pricing and high volumes, this figure was significantly higher than the previous year.
Ladies and Gentlemen,
Let’s move on to the individual segments. I would like to start with the Automotive Segment.
The segment’s EBIT margin for the third quarter was 6.7%. Its operating result was 1.5 billion euros for the quarter and 152 million euros for the first nine months. This means, that despite losses in the first half of 2020, earnings were back in the positive range, although still lower year-on-year.
This stems from healthy third-quarter sales, a strong model mix and better pricing from our young and attractive model line-up.
Sales of our electrified vehicles are providing crucial contributions for complying with the European Union’s CO2 limits. In the first nine months of 2020, we sold over 116,000 electrified BMW and MINI models. That is 20% more than in the same period of last year.
Strict management of our fixed costs boosted earnings quality, despite expenses incurred for provisions in the mid-to high-three-digit million-euro range for restructuring measures, including for personnel costs.
I would like to give a special mention to our Performance Programme, which is making valuable contributions to BMW Group targets across the company. I’d like to highlight three initiatives briefly. First is more effective pricing due to optimized sales management. Second is on the product side – specifically in reducing manufacturing costs and product complexity. And thirdly, we are also optimising new initiatives, such as future work structures. These will enhance the performance capabilities of the entire company. The decisions made so far are already having an impact, as seen in our quarterly result.
We are therefore on course to meet our EBIT margin guidance of 0-3% in the Automotive Segment, as planned.
Ladies and Gentlemen,
Let’s take a look at free cash flow in the Automotive Segment, which totalled almost 3.1 billion euros in the third quarter and benefited from the positive effect of pre-tax earnings.
It was also bolstered by focused working capital management, as well as strict cost and investment management. At the end of September, free cash flow stood at 552 million euros.
Group liquidity at the end of September totalled 21.8 billion euros. By the end of the year, Group liquidity will be back towards its pre-crisis level, at about 17 billion euros.
We have the liquidity reserves we need to remain flexible and able to take action at all times if the situation should deteriorate.
Let’s turn now to the Financial Services Segment.
We also saw a recovery in new financing and leasing business with retail customers. Between July and September 2020, we reported a solid upward trend of 6.8%, with a total of 538,000 new contracts. This is primarily due to demand in Europe and China.
We also saw definite signs of recovery in new financing business for used cars in key sales markets in the third quarter.
The segment’s third-quarter pre-tax earnings trended significantly lower year-on-year, at 458 million euros. As in the first six months, the main reason for this was higher risk provisioning compared with the previous year, in a low-three digit-million euro-range. This was necessary after adjusting expectations for credit risks, specifically, and, to a lesser extent, for residual value risks.
The Financial Services Segment makes extensive provisions for its main business risks on an ongoing basis, as is customary in this sector. Based on current assessments, we are appropriately hedged against residual value and credit risks.
Let’s move on to the Motorcycles Segment.
Here, we saw clear signs of recovery in many important markets in the third quarter.
The segment achieved an EBIT of 45 million euros in the third quarter – an increase of over 28% compared with the previous year. A total of more than 52,000 motorcycles were delivered to customers in the third quarter, and over 129,000 per September. The EBIT margin for the first nine months was 6.4%.
Ladies and Gentlemen,
Let’s take a look at our guidance for the year.
As of today, we are on track to meet our targets for the year and can confirm our guidance for 2020.
However, the volatility of the environment means our forecast is clouded by considerable uncertainty. Our outlook does not factor in the possible impact of rising infection numbers and the measures to contain them. The situation is currently deteriorating, and, if this continues over the coming months, it can have a significant impact on business development. Pending political decisions like unresolved Brexit issues are also contributing to this uncertainty.
Although car markets recovered faster than predicted in the third quarter, we still expect to see a significant decrease in sales of just over 10% in the premium segment for the full year. We are therefore still assuming that the BMW Group’s global sales will be significantly lower in 2020 than last year. We cannot expect the pent-up demand seen in the third quarter to continue throughout the rest of the year. In the Automotive Segment, we still expect the EBIT margin to be within the range of 0 and 3%.
Deliveries in the Motorcycles Segment are forecast to decrease moderately during the forecast period. Based on our assessments, the EBIT margin should be between 3 and 5%.
On the Financial Services side, we anticipate a moderate decrease in return on equity, mainly due to increased risk provisioning and a decline in new business.
Group earnings before tax will remain well below last year’s figure.
As planned, our workforce size will be slightly lower in 2020 than last year.
Ladies and Gentlemen,
We continue to focus our financial management on high profitability and consistent cost management, while at the same time creating leeway to fund necessary future projects. We are benefiting today from our strategic focus on the high-end luxury segment. For example: Thanks to our attractive 8 Series models and the BMW X7, we have been able to grow sales of highly profitable models by more than 70% since 2018.
Over the coming months, our main focus will be on safeguarding earnings and continuing to improve our free cash flow.
We are now striving to achieve a free cash flow of at least 1.5 billion euros for the full year. Any cash outflow in connection with the antitrust allegations by the European Commission, as well as a significant intensification of the impact of the corona crisis is not included in this assessment.
Capitalising on all business opportunities and absolute cost discipline will remain a clear focus for all areas of the company until the end of the year.
We will continue to respond quickly and flexibly, if needed, to what remains an extremely volatile business environment. Our production, sales and purchasing networks have handled these challenges exceptionally well so far. Aligning our production closely with demand has proven successful – and we will continue to do so moving forward.
Ladies and Gentlemen,
At the BMW Group, we think long-term. High profitability is the basis to achieve our strategic objectives, such as electrification and digitisation. The same applies in these challenging and volatile times.
We are making the right decisions and setting the right course today to secure the long-term success and profitability of the company into the future.