Edited Transcript of BMW.DE earnings conference call or presentation 19-Mar-20 9:00am GMT

We have made far-reaching decisions affecting our daily business. Many people are focusing on their health and well-being and what is most essential right now. In light of this, many dealerships in Europe have already closed. Demand for cars, like many other goods, will decrease significantly. Our production is geared towards sales development forecasts. And we are adjusting our production volumes flexibly in line with demand.

Starting yesterday, we began to shut down our European and Rosslyn automotive plants, which will close by the end of this week. The interruption of production for these plants is currently planned for 4 weeks until April 19. The BMW Group has highly flexible and effective work time instruments. This applies to both direct areas like production but also in indirect areas such as administration.

Now we will reap the benefits of this. We will continue to ensure our ability to operate as a company. At the same time, we want to reduce the risk of infection for our employees. We have, therefore, put a comprehensive package of measures into effect.

The BMW Group knows how to handle difficult situations. We have proven this many, many times in the past. Even in the current situation, we remain cautiously confident. There will be a time during the coronavirus and there will be a time after the coronavirus. That is why we have decided today to give you an outlook of everything we have planned.

But now Nicolas Peter will present the figures for the financial year 2019 as well our forecast for the current year 2020, which we have adjusted at short notice to the current situation. Peter, please.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [3]

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Ladies and gentlemen, good morning. As Oliver already mentioned, we find ourselves in a highly unusual situation. Although we are well underway in many operational aspects, the measures regarding the coronavirus will impact our business significantly in the current year. Short term, we are focusing especially on stabilizing liquidity and our result. I will say more about this in the forecast at the end of my speech.

Basically, the following applies: We are highly adaptable. Our fast and consistent actions make us stand out. Our strategic long-term goals for a stable business environment have not changed. We are targeting an EBIT margin of between 8% and 10% in the Automotive segment and a free cash flow of more than EUR 3 billion.

Let’s take a look at the previous business year. In a challenging business environment, the BMW Group is actively driving the transformation of the industry. In the financial year 2019, we demonstrated once again that we can deliver a strong performance. With new, important models, we improved from quarter to quarter as promised.

As planned, we significantly expanded our market share in the luxury segment. This gives us a sound financial basis for funding our electro-offensive. At the same time, we continue to set all levers in motion as we strive to meet our ambitious long-term profitability targets.

Our steadily improving performance during the financial year 2019 shows we are on the right track. As expected, the fourth quarter of 2019 was stronger than the third quarter. In fact, in terms of revenues, it was the strongest quarter in our history.

In the Automotive segment, we continued to improve both our operating result and our profitability. Several factors contributed to this. First, vehicle sales posted another increase. Second, targeted expansion of our portfolio in the luxury segment significantly improved our vehicle mix. Our young and very attractive product portfolio is also reflected in better pricing. And finally, our continuous efficiency improvements are also having a significant impact.

Despite continuing high expenses for research and development as well as an increased manufacturing cost due to regulatory requirements, the EBIT margin in the Automotive segment was 6.8%.

Ladies and gentlemen, as previously announced, we steadily improved our performance after a first half year that was challenging, as expected. Group revenues climbed 7.6% in 2019 to more than EUR 104 billion and exceeded EUR 100 billion for the first time. This increase was driven, in particular, by improvements in volumes, mix and pricing. Adjusted for currency translation effects, revenues increased by 6.1%. As previously announced, earnings before tax were significantly lower than the previous year at EUR 7.12 billion.

In April, the European Commission provided us with a Statement of Objections relating to its antitrust allegations. In accordance with IFRS standards, we recognized a provision of almost EUR 1.4 billion in connection with the proceedings in the first quarter of the year. This had a significant negative impact on earnings. Consequently, the EBT margin for the financial year 2019 was 6.8%.

As expected, the financial result also saw a significant decrease. The earnings contribution of our Chinese joint venture, BBA, rose significantly by almost EUR 180 million to EUR 918 million. This was offset by the earnings of the YOUR NOW companies, value adjustments in connection with their realignment and a net interest result that was around EUR 330 million lower due to positive onetime effects in the previous year.

In 2018, the acquisition of DriveNow shares from SIXT had a positive effect of EUR 209 million. Net profit of the BMW Group for 2019 totaled EUR 5.02 billion.

Ladies and gentlemen, capital expenditure mainly for property, plant and equipment rose to EUR 5.65 billion in 2019. This reflects the recognition of right-of-use assets in the balance sheet for the first time according to IFRS 16. The overall CapEx ratio for the financial year 2019 was 5.4%. This was slightly higher year-on-year.

Our research and development spending is also clearly focused on gearing the BMW Group towards the future. For us, the transformation hasn’t just begun. We are already in the middle of it. In 2019, R&D costs, according to IFRS, increased by around EUR 630 million to almost EUR 6 billion due in particular to higher amortization and a lower ratio of capitalized development cost. The R&D ratio, according to the German Commercial Code, was 6.2%. This was lower than the previous year’s high, as already announced.

Ladies and gentlemen, despite numerous headwinds and a lower financial result, the BMW Group still posted very solid earnings for 2019. The Board of Management and Supervisory Board will, therefore, propose a dividend of EUR 2.50 per share of common stock and EUR 2.52 per share of preferred stock. This represents a payout ratio of 32.8%, which is higher than last year and remains within our target range of 30% to 40%. Subject to the approval of the Annual General Meeting, the dividend payout will total EUR 1.65 billion.

Let’s turn now to developments in the individual segments, starting with the Automotive segment. Segment revenues climbed 6.8% to EUR 91.68 billion, benefiting from positive model mix effects and strong business in China. Deliveries to customers topped 2.5 million vehicles for the first time.

As expected, the operating result decreased to just under EUR 4.5 billion mainly due to the provision referred to. The EBIT margin of 4.9% was within our adjusted target range. Without the effect of the provision, the margin would be 6.4%.

Let’s take a look at the EBIT bridge from the previous years. The greatly improved product mix had a positive impact in 2019. Specifically, the new X7 and 8 Series and the updated X5 are proving very popular with customers. We were also able to improve pricing slightly in key markets. Research and development expenses were over EUR 600 million higher than the previous year. Higher manufacturing costs resulting from regulatory requirements also dampened earnings, as did the planned increase in depreciation and amortization.

We also experienced headwinds, as expected, from the negative development of around EUR 650 million in currency and commodity prices. We were able to offset much of these headwinds with ongoing efficiency measures and optimization of our sales activities. However, this was counteracted by the provision for antitrust allegations included in other operating income and expenses.

Ladies and gentlemen, we have once again set clear targets for 2020. Profitability and free cash flow are high priorities for steering the company. All measures and initiatives under our ongoing Performance > NEXT program are geared in this direction.

On the sales side, in material costs and indirect purchasing, we will continue to work on levers. As far as personnel costs are concerned, we have successfully taken measures early and in recent months, have agreed on the long-term package of measures with the Works Council. An additional tailwind resulted from changes to the pension scheme for employees in the U.S.

With regard to free cash flow, we are specifically concentrating on capital expenditure and consistent management of all aspects of working capital.

Ladies and gentlemen, despite the continued high level of investments in future technologies and lower net profit, free cash flow in the Automotive segment remains at a solid level, almost on a par with last year at EUR 2.57 billion.

Our liquidity also developed very favorably in 2019. Adequate liquidity reserves ensure we are always able to take action and safeguard our independence as a company. At the end of the year, our liquidity totaled EUR 17.4 billion. This sends a clear message to our investors and lays a strong foundation for further growth in our Financial Services business.

Ladies and gentlemen, let’s move on to the Financial Services segment. Pretax earnings reflected the positive business development and rose 6.0% to reach a new all-time high of EUR 2.27 billion. The return on equity of 15.0% was on par with last year, as forecast, and once again, exceeded our minimum requirement of at least 14%.

Despite sustained political and economic uncertainty, the risk situation in the segment stayed stable throughout the past year. We make comprehensive provisions for our main business risks on an ongoing basis. The current developments regarding the coronavirus will, in our estimation, likely impact the risk situation in 2020. Based on current assessments, we continue to be appropriately hedged against residual value and credit risks.

Ladies and gentlemen, let’s turn now to the Motorcycles segment. Deliveries saw a solid growth, as planned, with over 175,000 units sold. This was our ninth consecutive sales record. Pretax segment earnings totaled EUR 187 million, an increase of EUR 18 million compared with the previous year. The EBIT margin was 8.2% and once again, within our target range of 8% to 10%.

Finally, let’s look at earnings in the other entities segment and intersegment eliminations. The combined result was around EUR 146 million lower than the previous year. This development is partly the result of fluctuations in the market value of the interest rate derivatives we use to hedge our Financial Services portfolio. Intersegment eliminations were also affected by the growth in our new leasing business.

Ladies and gentlemen, through continuous optimization of our core business, we are systematically solidifying our financial strengths. We are growing in the right segments, setting clear priorities and funding the continuing ramp-up of emission-free mobility.

In 2020, we will again make high upfront investments in further development of e-mobility, autonomous driving and vehicle connectivity. We are also implementing the measures needed to meet European CO2 regulations. The current uncertainty surrounding future worldwide developments impacted by the coronavirus makes it very difficult to provide an accurate forecast for 2020.

According to the latest developments, our guidance for the full year assumes that the sales situation will deteriorate in all major markets. Here is the assumption that the sales situation in all markets will begin to normalize again after a few weeks. Possible long-term impacts as a consequence of the spreading of the coronavirus and the resulting volatility of financial markets cannot currently be estimated and are, therefore, not included in our forecast.

Ladies and gentlemen, let’s take a look at the forecast for the individual KPIs. With our very young, attractive model lineup, we are in an excellent position for 2020. Our ongoing efforts to improve both on the cost and the performance side will make an important contribution to earnings. As the prior year was burdened by the antitrust provision, there will be a positive effect this year in comparison to 2019.

Before the coronavirus, we expected group earnings before tax to increase significantly. However, due to the impact of the worldwide spreading of the virus, we now expect group earnings before tax to decrease significantly.

The number of employees will remain on a par with 2019 for the current year. From reporting year 2020, only core employees and employees with limited contracts will be included in the figures reported.

Due to the availability of new models like the 8 Series, the X5, the X6, X7, the new 3 Series and the new 1 Series, we originally expected deliveries to customers in the Automotive segment to increase slightly over last year. However, the spreading of the coronavirus has stopped growth in vehicle sales worldwide. As the number of infected people continues to rise in all world regions, especially in Europe and North America at the moment, we now expect our worldwide deliveries to decrease significantly from last year.

Our original planning called for an EBIT margin of between 6% and 8% in the Automotive segment for 2020. Due to the deterioration in the sales situation in China and an already visible similar development in other world regions, we anticipate a debiting effect, especially in the first half year. This will, therefore, impact the EBIT margin for the full year by about 4 percentage points. As a result, in our current planning, we now expect the EBIT margin to be in the range of 2% to 4%.

The revised earnings expectations will also have an effect on free cash flow in the current year. Originally, we expected a free cash flow of more than EUR 3 billion. Our current assessment for 2020 indicates a positive free cash flow generation. A possible cash outflow in connection with the antitrust allegations by the European Commission is not included in this assessment.

In the Motorcycles segment, we are planning for a slight decrease in deliveries. We expect the EBIT margin to be in the range of 6% to 8%. In the Financial Services segment, we now expect a slight decrease in return on equity mainly due to higher risk provision.

Ladies and gentlemen, we are monitoring the situation regarding the coronavirus very closely, and we will continue to update you on the precise impact on our business. In particular, in light of the challenges I talked about, we will continue to focus on profitability and strict working capital management. Both are key to being able to invest independently in new technologies and opportunities.

I would have really enjoyed meeting all of you today in person so we could discuss everything face-to-face. However, in these times, it is not possible. But I’m really looking forward to further discuss over the phone later on.

With that, let me hand over to our Chairman of the Board. Oliver, the stage is yours. Thank you.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [4]

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Ladies and gentlemen, the topic of the coronavirus is currently dominating all areas of our lives. However, we must also think ahead to the time that comes afterwards. The BMW Group is a company that thinks long term and acts responsibly. And I firmly believe that the far-reaching technological transformation and social changes currently taking place will actually strengthen our business model. Despite the coronavirus, our ambition is clear, to emerge as a winner and driver of this transformation.

Profitability remains essential for capitalizing on future opportunities. And this is what we aim to do. We will invest more than EUR 30 billion in research and development by 2025. We firmly believe we can continue to drive transformation and offer appropriate solutions for our customers.

I took over as Chairman of the Board of Management 7 months ago. I have spoken with a lot of people since then, associates, peers and colleagues within the industry; journalists; political representatives; and of course, with you, investors and financial analysts. Many people are uncertain about the future prospects of our industry. And in actual fact, the challenges are immense. For one thing, because each of these challenges is immense in itself, and also because a wide range of different demands must be managed well at the same time.

But being successful is not just about mastering individual technologies perfectly. The most important aspect that is crucial to long-term success at the highest level, on top of everything else, is our focus cannot be on a singular approach. We need to meet diverse and very complex requirements at the same time under constantly changing conditions. This, if you like, is the central management challenge of the 21st century.

A good example of this is how we determine our strategy. On the one hand, our business environment is shaped by stable trends. For example, the growth forecast for the global premium segment up to 2030 or faster uptake of e-mobility and other historically important drivers for car ownership like household size, income and location.

And on the other hand, there’s uncertain developments in the world, which require a swift and quick response such as trade conflicts, Brexit or now the impact of the coronavirus. Defining our strategy is a constant and ongoing task for us every day, every week.

The Board of Management has geared the BMW Group’s strategy towards the relevant areas of future significance and adjusted some core elements already. We have defined a clear position for ourselves. What does the BMW Group stand for? We take on business and environmental and societal challenges at the same time.

At the BMW Group, we continue to chart our own course. We do things the way we think they should be done based on our own conclusions. And we tackle challenges early on because we believe in delivering instead of just talking.

What are the most dominant questions facing our industry? And what sets exactly the BMW Group apart? How can we continue to lead in a fiercely competitive car market? Our vehicles are more in demand than ever. In 2019, not long ago, we posted record sales for the ninth consecutive year with new all-time highs for our BMW Rolls-Royce and BMW Motorrad brands.

But how can we meet strict CO2 targets, specifically in Europe. Today, we are one of the world’s leading car companies in the fields of electrification. In 2019, we delivered more than 146,000 electric vehicles and plug-in hybrids to our customers. By the end of the year, we had more than 0.5 million electrified vehicles on the road already.

And now we are winning over customers with attractive new models. For example, the MINI Cooper SE was released just a few days ago. We have already received more than 8,000 orders. Most of the people who placed these orders did not previously drive a MINI.

How can we manage the coexistence of different technology in an efficient and intelligent manner? We are installing modular, scalable and intelligent architectures at our plants. And because of this, we’re able to scale production quickly and flexibly to meet demand. We currently build electrified vehicles at 11 of our plants already. Customers will always get a true BMW or MINI, whichever drivetrain they choose.

What is the right way to steer employee numbers through this transformation? We will keep employee numbers stable. We are qualifying staff for our new tasks on an ongoing basis. 1 in 3 employees has been trained in e-mobility. That adds up to more than 46,000.

Where can we find IT talents and software know-how? The BMW is one of the biggest IT employers in Germany. Some 7,200 employees work in IT and software alone and another 5,600 (sic) [5,300] employees at the company were trained in data analytics. In 2018, we established the joint venture, Critical TechWorks, in Portugal with more than 600 employees to secure exactly these skills.

How do we maintain long-term profitability? We launched the program Performance > NEXT back in 2017, almost 3 years ago. This will leverage at least EUR 12 billion in efficiency potential by the end of 2022. The BMW Group still has the best long-term ratings of any European car company.

How can we offset regional fluctuations and stay efficient? Our production network of 31 locations in 15 countries is highly flexible. We are located close to customers and can take, therefore, advantage of potential for growth in these markets at short notice.

Where do we get better results from? And how do we secure the raw materials needed for e-mobility? We have long-term supply contracts with CATL and Samsung SDI. Starting this year, we will be sourcing the key raw materials, mainly cobalt and lithium, ourselves and making them available to our suppliers.

In a nutshell, we are about delivering long-term viable solutions. We know what we are doing and why we are doing it. I believe the decisive factor in securing our future business is being able to further develop the highly complex and digitally connected car to benefit customers and meet changing society demands. We call this system integration. Here is a short film to tell you more.

(presentation)

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [5]

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Well, the car is the most complex, technical overall system you can buy as a customer today. Today’s vehicle manufacturing is less about bending sheet metal, but more about integrating hard and software to create a harmonious overall driving experience. To achieve this, we integrate market requirements, regulations and customer requests and technologies.

First, we industrialize and then we scale. All this capability must fit together smoothly and precisely to the point, and the complexity just keeps on growing.

The transformation in the automotive industry is taking place amid growing and concurrent requirements. We have the expertise and experience it takes to master this rising complexity. We see this as a definite competitive advantage for us. And all of this, of course, will benefit our customers.

The car enables individual mobility and allows for a sphere of privacy like no other mode of transport, very important today. Customers’ mobility demands vary increasingly between different regions of the world and different countries and also between urban and rural areas.

Different drive technologies will coexist alongside one another into the long term. Therefore, we are firmly convinced of this. We don’t want to tell our customers what to do. We want to truly convince them about our approach. And this is what we call the Power of Choice, and this is what it’s all about.

The popular BMW X3 is a very good example for this. Starting this year, it will be able with — it will be available with 4 different drivetrain variants: efficient diesel and petrol, plug-in hybrid and also as the pure electric iX3. We are producing the iX3 in China and exporting it from there.

We will also offer future model series with different drivetrains. And I can tell you officially today that our BMW 7 Series flagship will be one of them. The next-generation 7 Series will be also available as petrol, diesel, plug-in hybrid and as full electric. All drivetrains will be based on a single architecture. And on the top, most powerful 7 Series will be also fully electric.

The BMW i4 concept car, which you see here, is right here on stage. I can confirm again today, the design is very close to the production model we will release onto the market next year already. The i4, we will build at our plant here in Munich. The fully electric i4 and the conventionally powered BMW 4 Series Gran Coupé will come off the same production line.

The i4 demonstrates that you cannot divide our industry into electric cars and cars with conventional engines. Both of them have their place. The i4 is powered by the fifth generation of our electric drivetrain, which is a completely new unit we developed ourselves. Our electric engines no longer need rare earth. The i4 is just a taste of what is to come.

In 2021, we will launch the iNEXT, which will be built at our plant in Dingolfing, here in Bavaria. And it is the next milestone, fully electric and at the same time, enabled for highly automated driving with Level 3 functions for motorways.

You’re already familiar with our road map. We aim to have 1/4 of our European new fleet — new vehicle fleet electrified in 2021, 1/3 in 2025 and half in 2030. BMW clearly leads the market for electrified vehicles in Germany with a share of 21%. In 2019, the average share of battery electric vehicles and plug-in hybrids in the EU plus Norway was 3%. The BMW Group figure was more than twice as high in Europe.

By the end of 2019, we had delivered a total of more than 330,000 plug-in hybrids to customers. And this — these will now be joined by more new BMW models, the X1, X2 and 3 Series Touring to follow the 3 Series Sedan. And we are making it easier for our customers to use them effectively.

BMW eDrive zones went live on 12th of March, just last week, in the first 6 countries, with more cities and countries to be added over the course of this year. Our new plug-in hybrids automatically switch to electric mode whenever they drive into a green or blue zone of a city center. We have programmed around 80 cities for the start, including all major cities with green zones here in Germany, but also cities in the Netherlands, Belgium, France, Austria or Switzerland.

E-mobility continues to gain ground. However, the conventional engine remains the best drivetrain choice for a lot of people’s mobility needs in many regions of the world. That is why it makes still a lot of sense to continue improving our combustion engines’ efficiency.

We’re driving climate protection in all vehicle segments and with all drivetrains. This is how we are defining responsibility. We are now stepping up electrification by introducing an additional component. We will be systematically rolling out our 48-volt mild hybrid system throughout our combustion engine fleet.

We are deliberately starting with our highest-volume engine variants. This saves up to 0.4 liters per 100 kilometers, which is up to 9 grams less CO2 per kilometer depending on the vehicle and engine variant. And all these measures show that we take climate protection seriously. That is why we are already able to say we want to meet Europe’s CO2 targets for 2020 and also 2021. And in simple terms, this is how we want to meet the 2020 CO2 fleet target, with conventional vehicle measures contributing 1/3 and 2/3 coming from e-mobility.

Climate protection has the biggest impact when it is actually implemented and swiftly and quickly, and also when customers want it and use the technologies on offer. And our understanding of responsibility has always been about the entire value chain. This is nothing new for us. We’ve already achieved nearly all the sustainability goals for 2020 we set ourselves back in 2012. We continue to be clearly committed to the Paris Climate Agreement.

Currently, we’re discussing next steps in the Board of Management, and our thinking is clearly headed in this direction. We will get much more involved in upstream supply chains and take a very close look at our tendering processes in terms of sustainability. Of course, we will continue to work together in partnership with our suppliers around the world in a fair manner.

The same applies to our sustainability strategy as to our IT strategy. Both are anchored in our corporate strategy framework. This means sustainable actions and IT are automatically channeled into all areas of the company very quickly.

And already today, the BMW Group is a digital company. We put all our employees from the worker on the assembly line to our Board of Management members in a position to make data-driven decisions in the interest of our customers and the company.

Services enhance our mobility offer. Our mobility powerhouse YOUR NOW was created last year in 2019. In collaboration with the Daimler Group, we want to play a major role in this highly dynamic market, and we remain fully convinced of the potential of YOUR NOW. That is why we are making investments to expand our product and service offering in the field of mobility services. YOUR NOW is, therefore, open to other partners and investors, so we can continuously successfully expand this business.

Ladies and gentlemen, the BMW Group is a strong innovative company. The customer is the focus of everything we do. We’ve updated nearly all series over the last 2 years. They will be joined this year by new models like the BMW 2 Series Gran Coupé, highly profitable BMW M models, new plug-in hybrids and of course, electric models. There’s something for every customer, and we are challenging the competition in every single segment.

At the moment, though, for all of us, our first priority as a society and as a company, is to overcome the corona pandemic and then to find our way back to a normal life. I sincerely wish that you and your families stay healthy. Thank you very much.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [6]

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Thank you very much, Oliver and Nicolas. Ladies and gentlemen, this year, your questions will be taken here in the room via telephone. We are streaming around the world, and so please understand if there are minor technical delays. We don’t expect this to happen. However, should the connection break up, you can also send your questions per e-mail, ir@bmwgroup.com. And now ladies and gentlemen, the line is open for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Dorothee Cresswell, Barclays.

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Hanna Dorothee Hellmuth Cresswell, Barclays Bank PLC, Research Division – Research Analyst [2]

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My first question is around CapEx and R&D in 2020. I think yesterday, you mentioned that CapEx and R&D would for now prioritize investments in the technologies of the future. So I wondered whether you could help us to quantify that a bit. How much could you cut those 2 items back this year to protect your free cash flow?

My second question is around China. It seems that the auto market is coming back up for air. Could you tell us to what extent production has revamped for BMW? How many shifts are you operating? And also, how much of the production that you lost in February can you make up later in the year if you add extra shifts? And perhaps you could also tell us what you’re seeing on the demand side in China?

And then finally, I wondered, are you expecting any government support measures in Europe? It sounded like you’re less convinced that we’ll see a relaxation of the 2020 CO2 targets. But could you comment on the potential for a scrappage scheme?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [3]

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Thank you very much, Dorothee. The right question for the starting point for Nicolas. We start with the first part of the question with Nicolas and then Oliver. Nicolas, please.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [4]

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Okay. As — Dorothee, as I said, CapEx was planned to go down below the target of 5% in 2020. And as you can imagine, in a very specific unusual situation as we are in today, what do we do? We review our plans, and I would say, we have more or less 3 categories. We will maintain certain elements. We will, of course, check whether we can postpone the one or the other item or maybe there’s even something we simply will discontinue. So this is definitely what I would call now daily prioritization and monitoring of the situation.

And this is extremely a relevant and important exactly for the reason you’ve mentioned, to protect our free cash flow. So on free cash flow, we have a very vigorous implementation of the relevant performance measures. They are already implemented. We are working, and you’ve seen this already in the fourth quarter with a strong free cash flow of around EUR 1.5 billion in the fourth quarter, working capital going down in the fourth quarter. And of course, we will, in this light, review the investment requirements as described.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [5]

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Dorothee, if I may continue on China. We monitor the situation in China very closely because it could be a blueprint for what could happen in the rest of the world. What happened in China, that we saw an abrupt downturn of the market end of January, early February. That, of course, diminished the sales volume to down to 10% of what the market volume was normally. In March, it already improved substantially. We’re currently about 60% of the normal volume. And we expect currently that by the end of April, we could see a normalization of the market.

I think what is very important to understand is it is not market demand so much which led to the lowering of the market. It was almost exclusively the forced shutdown of all sales outlets. And that is important to understand also for the rest of the world, what is forced closures and what is actual market demand. The market demand is fairly robust also in Europe, by the way. So that’s — I think that’s to frame that.

Of course, with that market downturn, we also extended the closure of our plants in Shenyang, 2 plants running out there, and extended the Chinese New Year break to 3 weeks. The plants are currently running quite normally with a slightly reduced volume, but they’re all running. And we don’t currently have, in the structure, the — not a single corona case amongst our employees. So it’s quite stable up there.

And of course, I think that’s also something to learn. It’s not about closing the plants. It is about providing a workplace which is safe to get infected with the corona case. So we try to create very safe places and with a lot of measures we’ve taken there.

After April, what could happen? Since we see that the market demand is fairly stable, we could — but that’s too early to say, we could even think about an increased market demand to compensate what we lost in February and March. But that remains to be seen. So I think China is a good blueprint what could happen. And currently, the supply chains for our plants in China, as far as we can see it, are stable.

Your next question, Dorothee, was about CO2 targets, government support. I think this is not on the table right now because, first of all, what is happening with the coronavirus is — needs our full attention of what we need to do. And I think our commitment to 2050 to create a new environment in Europe with the green deal and our commitment to do everything possible to support that, that is unchanged. And so currently, we are not — we will not request any postponement of any CO2 requirements we have agreed to.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [6]

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Dorothee, if I may add on the last topic. We’ve seen our xEV, so our electric and plug-in hybrid sales, in the first 2 months going up by around 26% in a year-on-year comparison.

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Operator [7]

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The next question is from Tim Rokossa, Deutsche Bank.

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Tim Rokossa, Deutsche Bank AG, Research Division – Research Analyst [8]

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I’m afraid given how the world has changed, they will also be primarily about the corona impact. First of all, thank you for quantifying what you think will be the impact for the full year, not many companies feel in a position to do so. Can you help us understand to how you get to that number? Specifically, how should we think about the quarterly development in your planning right now?

Could Q2 be even loss-making with all the sudden shutdowns? And also, what happens when you do shut down a plant, what happens with your cash cost and working capital situation? Is there any way that you can help us understand that a bit?

And then secondly, when we think about liquidity, we obviously have the numbers from the annual report. Have those changed materially year-to-date? How much gross cash do you have, how much in credit lines? And why wouldn’t this year be a reasonable time to think about not paying a dividend that you have suggested yesterday?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [9]

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Thank you very much, Tim, for your comments. Thank you very much. And we start with Nicolas.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [10]

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Tim, so what do you do as a company in such type of situation? You work in scenarios in order to quantify the impact of the coronavirus. So what did we do? We’ve developed — we used China, as Oliver said, as a blueprint. The situation in China started mid of December to slightly deteriorate. We had a very strong January in a declining market in China. February already, yes, down by between 80% and 90%. However, in March, we are back to 2/3 of our regular volume.

So — and this, using this as a blueprint, we’ve identified 3 different scenarios: one, what I would call an optimistic best possible scenario; one very pessimistic; and the middle one, as you can imagine, in what I would call a likely scenario. And this scenario all — of course, not only includes volume impact. It includes what could happen on the service side, parts business, what about used car prices, residual values and so on. And this was then developed for all 3 major regions: Asia, Europe and of course, the U.S.

If we look at our cash situation, as I said, we are around EUR 17.4 billion liquidity at the end of 2019. This has not specifically changed. It even slightly improved in 2019 despite EUR 2.3 billion dividend payout last, last, last year. And of course, as you can imagine, we’ve discussed what to do with the dividend payment, but we are confident that with our very strict liquidity management on the one hand side with the measures we have already implemented in all parts of the organization that we will be able to manage this situation without cutting or yes, paying no dividend in 2020.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [11]

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So I think, Oliver, you would like to add something?

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [12]

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Tim, when you shut down a plant, I think it’s crucial that your cost curve follows the lowering demand curve on the volume side. And that, of course, means that your — that everything where you have a cash outflow, you must manage. And that is mainly — you have to manage very closely your stock levels, that you don’t overproduce. And that is why we already said today that we quickly ramped down our European plants and Rosslyn and stay in that mode for the next 4 weeks. I think that was important that we swiftly made that decision.

Second big cash outflow is salary payments. And I think with our flexibility matters we have in our European plants, work time accounts, we will demand from most of our employees to take a vacation and so on. So we keep that cost factor under control.

And then if you ramp up and down, it is adamant that you keep our supply chains under control, that the obsolescence, which is created by this up and down, is minimized. And I think we have a lot of practice in ramping up and down due to our individualized product structure.

And lastly, I think we will use that time. The plants won’t stay idle during that time. But we will use these 4 weeks to do everything possible to rebuild the factories for e-mobility. Some of it, it has been planned during that period anyway. But we will put something forward. Things we have planned for summer, we will do now. Those — I think with these 4 measures, we will minimize the effect on our cash flow.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [13]

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Thank you very much, Oliver. Now we have a very interesting discussion. Nicolas, I think you would like to add also something?

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [14]

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Tim, I think I missed one part of your question. You’ve asked, well, what is the impact quarter-by-quarter? On one hand side, of course, we are not guiding quarter-by-quarter. However, as you can imagine, looking at our guidance to 4% for the full year, we will see an impact and particularly an impact in the first half of the year. China already happened. Europe is impacting now March and of course, very much April. And we forecast in our guidance a stronger second half year of 2020.

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Operator [15]

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The next question is from Horst Schneider, Bank of America.

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Horst Schneider, BofA Merrill Lynch, Research Division – Research Analyst [16]

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I hope you can hear me. I have got 2 ones, please, and that is — okay. And the first one is maybe you can tell us what was your unit sales growth in January and February on a global basis. Would be good to know since you don’t report your monthly gross anymore. And maybe also you can tell us what is the likely number for March?

Then second question that I have is what is a good assumption regarding fixed cost per car, just a rough number. Is it more towards 20% or more towards 30%?

And last one that I have is now since everything is coming under pressure and you still have got great net liquidity, do you think it now comes the time to look finally for some M&A opportunities?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [17]

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Thank you very much, Horst. This question will be answered by Nicolas.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [18]

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Horst, you rightly said we are not communicating monthly sales. However, what I’m very happy to share is if you exclude China, we are, in January and February, on a really good wave in all other sales regions. China, as I already mentioned, was significantly down in February. And the guidance for the full year, as I said, is that we will be significantly down compared to the previous year.

Net liquidity, clear focus, Horst, is on our core business. We are, as an organization, probably in one of the strongest position in our industry. Why? Because on one hand side, we are leading in terms of technology, and we have a very, very flexible and which proves exactly in those space to be a key element. We have a very flexible production network.

Fixed costs, as you can imagine, we’ve already worked extremely hard and in a consequent manner in the last years to reduce fixed costs in the whole organization. And we will, of course, in such type of environment, accelerate those efforts.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [19]

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Thank you very much, Nicolas. Next question, please. The chairman would like to add also, yes.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [20]

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I think we missed the M&A question from Horst. He asked whether M&A is important to us. I think to give you a quick response to that, I think we had some M&A experience some years ago. And so we are, of course, cautiously with these actions. I think — and I can only speak for us. There’s currently no sense nor any need to do any M&A activities on the top level of the industry, meaning that one company overtakes the other. That doesn’t make sense.

But below that, where you talk about components, where you talk about competencies, where you talk about parts of the processes, I think that is a continuous looking at the current situation and look for cooperations. You know that we are cooperating with Daimler on the autonomous driving components. You know that we have our i Ventures arm who looks at opportunities on the component and competence level. And of course, that is going on all the time to either acquire some competencies or to leverage our own competencies with specific partnerships. And that is, of course, is still going on.

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Operator [21]

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The next question is from Ashlee Ramanathan, Redburn.

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Ashlee Ramanathan, Redburn (Europe) Limited, Research Division – Research Analyst [22]

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It’s Ashlee here from Redburn. My first question is just on trying to understand and quantify the cash burn that we’re seeing in the current corona situation. So what we’ve seen is you’re planning pre-corona to guide to the market of — in excess of EUR 3 billion of free cash flow. Now we are speaking of a positive amount. So if we take the lower end of that, that is roughly EUR 3 billion of cash burn from, call it, 7 weeks of disruption.

So my first question is, are you willing to communicate a minimum level of net cash that you want to hold in your industrial division, maybe EUR 10 billion? And secondly, how quickly do we get into a scenario where cash levels become an issue, again, thinking back to the math I just described with the EUR 3 billion cash burn from roughly 7 weeks of disruption?

And secondly, my question is on restructuring. How will the corona situation impact your restructuring program? Will it hinder it? Will it accelerate the program? And can you remind us of what you had or you currently expect as your EBIT bridge impact in 2020? I think you previously said a mid-triple-digit figure. You mentioned in your remarks that there are some long-term packages have — that have been agreed. Maybe you can elaborate on that.

And then very finally, just to add on to Dorothee’s question on the China business. Are you able to tell us how much inventory of the X5 and X7 currently sit in China or is on its way to China? I’m now thinking as we look to plant shutdowns going west towards the U.S. and the impact that would have on some very high-margin sales you have in the region.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [23]

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Thank you very much, Ashlee. I think we start, first of all, with Nicolas.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [24]

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Actually, we have — as I said, we have a very systematic liquidity management, which includes, what I would call, a liquidity risk concept. And this, of course, includes an ongoing concern approach in crisis scenarios. From my perspective, it doesn’t make a lot of sense to communicate an absolute minimum level of cash as we are continuously rolling over our planning in such type of environment. We calculate this internally over a defined period of time and the fact that we have the second best rating in the industry, the best rating of all European OEMS, I believe, is definitely confirming our approach.

Now regarding free cash flow development, of course, in our scenario, there will be an impact in the first and second quarter. But our assumption, as we’ve described, is that markets will pick up afterwards. And this, of course, then will help to further — to improve free cash flow again. Clear focus, clear focus in such type of environment is focusing on working capital management. The organization handled this extremely well back in the financial crisis more than 10 years ago.

And regarding your question about restructuring measures. As you can imagine, we’ve — and you know we have our Performance > NEXT program now running since a little bit more than 2 years — 3 years, sorry. And we, of course, will reinforce the program in some areas. Regarding…

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [25]

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You can start with the inventory of the X5 and then Oliver, yes?

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [26]

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Oliver.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [27]

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Oliver, okay.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [28]

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Ashlee, the character of this corona crisis is that the demand is fairly stable. Meaning as soon as dealers are reopening, demand is almost continuing as before. And currently, our Spartanburg plant is up and running. It hasn’t been stopped. And so currently, the inventory levels over to China is very intact. How long that condition will stay, we don’t know. We foresee that at least for another week, we will be able to keep the Spartanburg plant running. And then it all depends on the political developments in the United States to keep the plant running. South Carolina, where the plant and is not one of the hotspots of the coronavirus currently in the United States. So we will have to see then.

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Operator [29]

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The next question is from Tom Narayan of RBC.

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Gautam Narayan, RBC Capital Markets, Research Division – Assistant VP [30]

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Yes, yes. Tom Narayan. Maybe a follow-up on Ashlee’s question asked in a different way. What happens to working capital in a downturn for you? Maybe you could look at historical precedent, perhaps what happened in 2009. Presumably, inventories could be a source of cash, maybe not so much for accounts payable. Just maybe — just any high-level color on how you — how we should think about that for our modeling? It’s been obviously — it’s a huge swing factor.

And then a follow-up on the CO2 question. I know you said you’re not going to request a postponement. Just wondering why not. I mean presumably — we’ve heard from one of your peers yesterday that battery prices are coming down. Perhaps consumer adoption of EVs, giving it a little bit more time, could be beneficial for you guys, maybe less margin dilutive.

Just maybe some more color on why not ask for a postponement on CC. We’ve heard from the German Chancellor, this is the greatest calamity since World War II that’s happening to us. Maybe folks are looking at other things besides complying with CO2 this year.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [31]

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Okay. Thank you very much, Tom. I think we start with your question to CO2 again and Oliver would like to say something about it.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [32]

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Tom, I think the greatest challenge since World War II is changing by the week. Some 4 weeks ago, I think the greatest challenge was climate change, and that is still around. And we are convicted that CO2 emissions have to be reduced. That doesn’t change even during the corona crisis. And we are prepared.

We have business contracts with battery supplies for the next 5 years. We have the right cars. For us, there is no need to step out of commitments we made still some 4 weeks ago. So from us, I think it’s not — because there will be a world after the corona crisis, and we will have the same discussion again. So I think we stick to our commitments and I think that’s the best way for us.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [33]

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Thank you very much, Oliver. The first part of the question was about the working capital in downturn. Nicolas?

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [34]

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Tom, why are we investing so much money in the flexibility of our plants? Exactly to be prepared in situations like today, to react very fast. Our guiding principle is that production follows market demand. And this is why we’ve — very fast, we acted now with the plants with the shutdown in Europe for weeks. This is exactly what we did during the financial crisis.

Of course, it’s extremely difficult today to forecast precisely month by month. But as you can imagine, we’ve reinforced in the framework of our Performance > NEXT program that focus on working capital and in particular, also supply chain. And we are addressing KPIs like DIO and DSO in a very stringent and systematic way.

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Operator [35]

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The next question is from Patrick Hummel, UBS.

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Patrick Hummel, UBS Investment Bank, Research Division – Executive Director and Lead Analyst of European Autos [36]

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It’s Patrick from UBS here. Just a very brief one on CO2, very simple. Can you share your CO2 emissions in the EU year-to-date with us?

And second question for Oliver, you emphasized several times that you think demand is not the issue and you see demand is still there. As much as we all, I think, like to believe in your scenario that we can use China as the blueprint and things will be back to normal everywhere by summer, there are some severe recession risks on the horizon that we can’t just completely ignore.

So I’m just wondering what gives you the confidence to say at a time when showrooms in most Western world markets are closed or will be closed to say that demand is still there. And more specifically, can you comment a little bit as far as Europe is concerned about how the fleet segment is behaving? Is that going more or less normal because you have the typical 3-year leasing contracts that are rolling over? Or what’s going on in fleet versus retail?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [37]

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Yes. Thank you very much, Patrick. Excellent question. We start with Oliver and then Nicolas? Yes. Oliver, please.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [38]

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Yes. As we said before, customer demand for electrified vehicles and also new combustion engines in Europe was very stable in January. And also February, it was slightly above our planning premises, and so we are right on track achieving these targets. And I think, as you know, we have to achieve at least 104 grams. I think overall, we are a little bit ahead of that. But of course, we also want to have a little buffer in there.

So all we can say now, it’s still only mid-March. But I think we shouldn’t be — at this point in time, at least, even if volumes go down, the share of vehicles that pay into our CO2 levels, I think that is not diminishing so far, even if complete volumes go down. So we are right on target that.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [39]

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Nicolas?

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [40]

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Patrick, taking first your question regarding China as a blueprint, as I’ve tried to describe. We had, on one hand, China as a blueprint, but we work, of course, in different type of scenarios. And we didn’t use in exactly the same scenario for Europe and the U.S. as we’ve used for China. But from China, we know approximately what could happen.

And is this — 100% confident that this is exactly going to happen? Of course not, of course not. This is what we believe, as of today, being the most likely scenario. However, we have included, in this scenario, more elements than just how is the market developing. We have included — as I said earlier, we have included impact on financial services. We have included impact on our parts business and so on.

Regarding how are the different segments, your third question, how are the different segments developing in Europe. Of course, as you can imagine, the segment which immediately reacted and we already see in the reaction is the rental business, the rental companies. So this is, of course, something we’ve integrated in our scenarios.

And the second element is that we assume that it’s not black and white in Europe regarding the fleet business. We will have a fleet business, which will recover faster than some other companies. So this is an element we’ve included as well in our calculation.

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Operator [41]

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The next question is from Stephen Reitman, Societe Generale.

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Stephen Michael Reitman, Societe Generale Cross Asset Research – Equity Analyst [42]

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I have 3. The first one regarding the guidance you’ve given us. First of all, thank you for giving some quite precise guidance over the 2 to 4 points impact. I think you’ve given some indication that the optimistic scenario with the sort of 4-week shutdown and then kind of return to normality following the China model, does that suggest that it’s like a 2-point margin hit? I’m kind of interested what is the — where do you get the 4 points? How far would that stretch in terms of shutdowns and issues in the market?

My second question is about the — is about electrification. And specifically, you’re a major shareholder in IONITY. IONITY changed its charging structure in January, charging for kilowatt hour, which has led to very high charges. Now I know that, obviously, as — if you’re a BMW driver, you will be able to subscribe to a discount.

But how do you think this feel — that fits into the whole ecosystem of charging, which everyone says has to be expanded and stay more attractive? But putting higher prices on this thing is certainly — doesn’t aid the case and probably plays to one of total advantages with its supercharger network, which will be at lower prices.

And my third question is about — also about your car architectures. You are also looking to reduce the complexity of your vehicle architectures or to reduce ECUs used in your product. When are we going to see the first fruits of this with — is it going to be iNEXT? Or is it already going to be seen in vehicles like the iX3?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [43]

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Thank you very much, Stephen. So we start with Nicolas and then Oliver with the second part of the question. Yes, Nicolas, please, to the guidance 2020.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [44]

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;

Stephen, maybe I should be — try to be more precise. What we’ve guided is 2% to 4% EBIT margin and the impact being 4%, and the 4% are not based on a worldwide optimistic scenario. They are based, what we would call, on realistic, most likely scenario. And of course, why do we guide and range because we have other elements, which we have to include, how is FX developing, how are raw material prices developing, what about the share of xEVs and so on, which impact, plus or minus, the profitability of our automotive segment.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [45]

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Oliver?

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [46]

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Yes. Stephen, your question was about electrification and charging infrastructure. What is happening in the market that product offering from all OEMs and charging infrastructure, they kind of grow together and they’re regionally very diverse. And we see currently, there’s a lot of charging infrastructure being built up, maybe not as fast as everyone anticipated, but it is being built up because there is an increasing amount of people using that.

And charging infrastructure comes in 3 situation: it’s public infrastructure, it’s private infrastructure in homes and 1/3 at the workplace. And specifically at home and at the workplace, there’s a lot going on. So of — very roughly speaking, I think the infrastructure will go up with market demand. I wouldn’t be too worried in that because we also invest a lot in that, especially on charging — high-speed charging infrastructure on German highways.

Your next question goes about car architecture. What is — the overarching scheme is whatever car we produce, independent of which architecture is on, it’s built inside of our existing car plants and it comes with different instances. The first instance is it’s an older architecture and is being built in a normal plant like, for example, it’s the MINI.

The MINI is a car which has been in existence and the architecture already in existence. And afterwards, we rebuilt the car, and you see it’s very successful. So the architecture is not the dominant thing. It’s — the brand right, is the application right? And for a small car like a MINI, no one needs 600 kilometers reach because that induces a lot of cost. That was the first instance.

The next is, for example, the iX3. The iX3 is the first car being built in China using our new set of the fifth generation of our component strategy for batteries and the electrical engine and [so lighter]. So that is another specific case. But again, it’s built together in line with our normal X3 in China.

A third instance you will see with the iNEXT, which is also being built in Dingolfing. But the iNEXT has a singular architecture. It’s not a flexible architecture. It’s a single architecture based on the specific requirements of that very segment. It’s an MKL car in the upper middle segment. And of course, customers want to have a high reach, and this car will have a very high reach and also will have outstanding autonomous driving capabilities.

And the fourth instance you will see with — for example, with the i4, but also with the X7 Series, these are the fully flexible architectures unlike, for example, the MINI, where we built really EV cars but based on a flexible architecture. So you see all kinds of instances.

And the overarching scheme is it’s fully integrated. Why? Because with that approach, we can respond flexibly for higher demand, which we hope, but also in case that might happen for lower market demand. And I think by the day, we are more and more convinced that this is exactly the right approach for the next decade.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [47]

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Thank you, Oliver. One more comment from Nicolas.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [48]

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Stephen, this has also — this flexible architecture has a positive impact on CapEx. Why? Because we can use the blueprint from one plant for other plants and of course, use a scale effect in purchasing.

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Operator [49]

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The next question is from Stuart Pearson, Exane BNP Paribas.

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Stuart Patrick Pearson, Exane BNP Paribas, Research Division – Chief Financial Analyst & Analyst of Automotive [50]

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Yes. Just a couple of questions left on my side. And I will come back a bit more specifically on liquidity because if we look at the way, at least, your stock’s trading, it does suggest, given that its value now less than your net cash and financial services equity, that there are growing fears around liquidity here, which given the Series is understandable.

And I guess when you look at the bonds, the commercial pay for the ABS you had maturing as of the start of this year during 2020, it did add up to around EUR 25 billion, which is similar to your liquidity plus your credit line. So I guess the first question is how much of that had you already done year-to-date as of the, let’s say, 2 to 3 months you’ve already had? And how do you think about liquidity from here? Obviously, the markets are clearly volatile to say the least right now. Do you — are going to pull ahead and try and raise as much liquidity as possible sooner rather than later? Or do you wait for those markets to calm down?

And then the second question, just on the lease book and residual values. You mentioned it briefly earlier, so apologies if I missed it. But maybe just a quick comment on what you are seeing early days but anything on lease prices. And if you can’t answer, if we were, just hypothetically, to see, let’s say, a 20% drop in used values around the world, what would that do to your lease book? And how much conservatism is there in the account values of those leased assets? And what kind of write-down could we see if you saw a 20% drop in used values?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [51]

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Thank you very much also for your question about the liquidity. It’s very important in this time. This will be answered by Nicolas.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [52]

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Stuart, number one, are we happy with our stock value? Of course not, and it’s definitely not reflecting the value of our company. We have access to — thanks to our strong rating to global capital markets compared to the financial crisis. We have even increased a couple of years ago our backup line from EUR 6 billion to EUR 8 billion. We have over 40 global banks in this — included in this backup line.

Our Automotive business is self-funded. So everything we do on the capital market in terms of refinancing is for our financial services business. We have to fund approximately plus, minus around EUR 40 billion per year. And of course, this will slightly go down as we forecast a negative development of the market. However, as I’ve already mentioned, our scenario is that the second half year of 2020 will show in better development as we’ve experienced today.

We have, regarding used car prices, which is — and you’re absolutely right to put this on the table. It plays an important role, in particular, in markets like U.S., U.K. and Germany. We have included in our guidance some impact on the — regarding the residual value situation. And we believe, as I said in my speech, that this will be sufficient from today’s perspective to cover in a very robust way the today’s market situation.

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Operator [53]

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The next question is from José Asumendi, JPMorgan.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division – Head of the European Automotive Team [54]

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José, JPMorgan. Just a couple of items please, the first one for Oliver. Can you talk about 2 topics, please? One, the ramp-up of the plants in Mexico and Hungary, how important strategically is this for BMW in order to improve the cost competitiveness, especially in Germany? And what are your plans to localize additional vehicles across both regions?

The second topic for Oliver as well, please. Can you speak a bit — little bit about Level 2, Level 3 ADAS adoption across the BMW portfolio, and specifically on the BMW X4, whether you think you will be in a position to do over-the-air updates and what kind of ADAS functionality we should think about?

Third question, please, for Nicolas. Can you talk a bit about the dividends you get from China? It has been growing quite extensively over the past 2 years. It could be a big cash inflow factor in 2020. And in the light of the earnings you posted in 2019, there is no reason, I think, not to see an increase in the dividend. Can you comment on that dividend, please, from China and whether that could be an opportunity and a safety net for 2020?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [55]

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Thank you very much, José. So we start with Oliver.

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Oliver Zipse, Bayerische Motoren Werke Aktiengesellschaft – Chairman of the Board of Management & CEO [56]

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José, these are very, very important questions. When we decide on manufacturing structure, these are really long-term decisions we made. They’re not done by current cost competitiveness only. This is more — they follow a view that we are a global player where we need structures where we can follow the market demand in these regions more closely.

When you look at our current structure, I think we’re building up plants in China, which follow market demand there. I think we have a very robust structure in Western Europe. There’s no need for additional capacity there. And we added the Mexican plant because — not only because Mexico has a very competitive labor cost structure. It — even more important today is what kind of free trade zones do specific countries have, and that is very favorable for Mexico on top of a very competitive supplier base there. And the same arguments hold true for Hungary because we think Hungary is the right location, and we decided on that location some 2 years ago. That is the perfect addition in our long-term plant strategy, so that’s very intact.

Your second question, Level 2 or 3 in autonomous driving — in the autonomous driving area. I think the iNEXT is the cornerstone of our ADAS strategy. It will be the most advanced system BMW will be able to offer. And it will have the capability to offer Level 3 on highways. And then the actual configuration it will provide for the customer will depend very much on the local regulator.

What we currently see that the United States and China are a tick more progressive in allowing the Level 3 technology we have on the road. The European regulator is a little bit more conservative. So it will highly depend on local requirements on that base. But the car with the iNEXT and then the subsequent cars like the 7 Series will then have the equal technology. So that’s our current plan there.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [57]

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Thank you very much, Oliver. The third part of the question was about China, the cash inflow factor in 2020. Nicolas, please.

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [58]

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José, 2 elements are relevant regarding cash inflow from China. First element, we have already in Q1 positive impact from a dividend payment related to 2019, dividend payment 2019, but cash inflow in the first quarter 2020. Regarding dividend 2020, what is — the joint venture, the partners will decide on dividend usually in the second quarter of the year. Now of course, this will depend on the business development and the profit of BBA. I can assure you there will be no decision at cost of the balance sheet substance of BBA.

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Operator [59]

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The next question is from George Galliers, Goldman Sachs.

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George Anthony Galliers-Pratt, Goldman Sachs Group Inc., Research Division – Equity Analyst [60]

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I just wanted to come back to some of the discussion previously around working capital. And I was wondering if you could firstly confirm to us what on average is your kind of average payable days. So typically, how quickly do you pay suppliers?

And following on from that, I wanted to ask, to the extent some of your suppliers were seeing financial distress as a result of the production shutdowns, would you be willing to pay them sooner than you typically do? And if we go back to 2008 and ’09, is that something you actually did? Did you support your suppliers’ liquidity?

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [61]

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Nicolas?

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Nicolas Peter, Bayerische Motoren Werke Aktiengesellschaft – CFO & Member of Management Board [62]

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George, of course, this is 2 very, very important questions. On average payment terms for suppliers, around 40 days. And similar to what we did in the financial crisis, we will decide case by case. There will be no global overall decision. We will decide case by case. And luckily, of course, there are also national support schemes in place by various government schemes, which can be used by suppliers as well.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [63]

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So ladies and gentlemen, thank you very much. It’s a quarter to 12. Do we have another question? I think…

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Operator [64]

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Currently, no further questions.

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Maximilian Schöberl, Bayerische Motoren Werke Aktiengesellschaft – EVP of Corporate & Governmental Affairs [65]

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That is not the case. So ladies and gentlemen, thank you for your question and your interest. We hope it is not too long before we see one another again. I wish you a pleasant day and above all, stay safe. Thank you very much from Munich. Bye-bye.