Bayerische Motoren Werke AG

XETRA:BMW

Earnings Call Analysis

BMW's positive Q1 results driven by strong electric vehicle growth

BMW had a successful start to 2024, delivering nearly 595,000 vehicles, a 1.1% increase from the previous year. Electric vehicle sales surged by 27.9%, contributing to an overall EBT margin of 11.4%. The Automotive segment's EBIT margin hit 8.8%, within the target range of 8% to 10%. BMW expects to maintain solid performance throughout 2024, projecting a free cash flow above EUR 6 billion in the Automotive segment and an EBIT margin of 8% to 10% for the full year. The Financial Services segment saw a 21.5% increase in new contracts, though earnings decreased due to higher credit risk provisioning.

Solid Start to 2024 for BMW Group

The BMW Group reported a strong start to 2024 with first-quarter sales and earnings meeting expectations. The company delivered nearly 595,000 vehicles, marking a 1.1% increase over the same period last year. All-electric vehicles played a significant role, with growth of 27.9% overall and 40.6% for the BMW brand alone .

Strong Financial Performance

BMW's group earnings before tax (EBT) totaled around €4.2 billion, achieving an EBT margin of 11.4%, surpassing the strategic target of 10%. The Automotive segment's EBIT margin was 8.8%, well within the target range of 8% to 10% . BMW maintained these margins despite facing rising manufacturing costs since the second quarter of 2023 due to inflation .

Revenue Growth and Future Outlook

Revenues for the BMW Group were on par with the previous year, reflecting a robust performance. Going forward, the company expects revenue increases driven by higher sales volumes and positive product mix effects from upper-price segment and battery electric vehicles (BEVs). This growth momentum is anticipated to continue for the rest of the year .

Strategic Focus on Electrification and Digitalization

BMW remains committed to its long-term strategy centered on electrification and digitalization. The company invested €2.3 billion into future models and innovations in the first quarter, with a focus on electric and automated driving systems . The R&D ratio for the entire year is projected to exceed 5%, and the CapEx ratio above 6% .

Market Trends and Regional Performance

In terms of regional performance, BMW saw mixed results. Sales in China decreased by 4% primarily due to the transition between old and new models. However, electric vehicle sales in China grew by 18%. Europe and the U.S. showed strong performances, compensating for the decline in China .

Guidance for 2024

BMW's expectations for 2024 remain positive. The company targets a free cash flow of over €6 billion in the Automotive segment, an EBIT margin between 8% and 10%, and a return on capital employed between 15% and 20%. Additionally, both the Motorcycle and Financial Services segments are expected to perform well, with moderate sales growth and solid returns .

Implementation of Cost Discipline

BMW emphasized its strong focus on cost discipline, specifically in manufacturing costs and overheads. This approach not only aids in navigating the competitive landscape but also helps in maintaining their strategic margin targets .

Outlook on Competitiveness and Regulation

On a broader scale, BMW is cautiously optimistic about the European regulatory environment, favoring continuous CO2 reduction policies over abrupt targets. Free trade remains a cornerstone of BMW's competitive strategy .

Future Products and Innovations

Looking ahead, BMW's future product lineup, including the Neue Klasse series, will focus on electrification and digitalization. The launch of models like the all-electric MINI Aceman and updated BMW i4 reflects the company's commitment to innovation and market leadership .

Earnings Call Transcript 2024-Q1

[Unknown Executive]

Dear colleagues, ladies and gentlemen, good morning and welcome to the telephone conference of the BMW Group for the first quarter.

Today, we have here, as always, Oliver Zipse, Chairman of the Board of Management and our CFO, Walter Mertl. However, as you can already see from the new start time for our conference, we have also adjusted the process for our quarterly calls. This will align with the process from our annual conference. That means we are still starting off with the speeches. They are now being held only once in English to make them easier to understand internationally. Written versions of the speeches in German and English are already available in our PressClub.

Following the speeches, around 9 a.m., we will have a 5-minute technical break before we start the Q&A session for media representatives. As always, this will be held in German. A simultaneous English translation will be available. The Q&A session for analysts will follow at 10:15 a.m. also in English, as always.

This more streamlined process gives us valuable time, particularly for your questions without losing substance.

So ladies and gentlemen, with that, let's get started. First, Walter will take you through our financial results. Oliver will then give you a general business update for the BMW Group. Afterwards, we will have time for our Q&A session, as just described.

Walter, please go ahead.

[Walter Mertl, executive]

Many thanks. Good morning, ladies and gentlemen. The BMW Group had a successful start into 2024. Both sales and earnings for the first quarter were in line with our expectations. This results from the focused implementation of our strategic priorities.

At the BMW Group, we have strong brands and attractive products, which create ongoing high demand and a profitable operational business.

In the first 3 months, the BMW Group delivered just under 595,000 vehicles to customers. This is a slight increase of 1.1% over the same period of last year. Our all-electric vehicles, in particular, made an important contribution with growth of 27.9%. If we look at the BMW brand alone, that number was 40.6%. At the same time, sales of models in the upper premium segment also recorded significant double-digit growth of more than 21%.

The group EBT margin for the first quarter came in at 11.4%, which is above our strategic target of 10%.

The EBIT margin in the Automotive segment was 8.8%. This falls clearly within our target corridor of 8% to 10%.

Ladies and gentlemen, this quarter confirms, once again, that the BMW Group's operating business consistently delivers strong results. We have a clearly defined long-term plan. And we have significant flexibility in our systems and processes. This allows us to adapt quickly to developments and take advantage of market opportunities. On this basis, we expect to operate at a consistent level throughout 2024.

Let's take a look at the financial figures for the first quarter in more detail. I will start with a brief overview at group level. BMW Group revenues were on par with the previous year. Group earnings before tax totaled around EUR 4.2 billion, resulting in a group EBT margin of 11.4%.

And now more details on how the Automotive segment performed across key metrics. In the first 3 months, the BMW Group delivered 595,000 BMW, MINI and Rolls-Royce vehicles to customers. The BMW brand reported growth of 2.5%. Due to the upcoming model changeovers, MINI sales were down 9.4% from previous year. The new MINI family comprising the Countryman, the Cooper and the Aceman will boost MINI sales, particularly in the second half of the year.

This sales development is also reflected in segment revenues. And adjusted for currency translation effects, revenues saw a slight increase of 1.5%. Both the higher sales volume and positive product mix effects from the upper price segment in BEV contributed to the increase in revenues in quarter 1 2024. This is expected to provide a tailwind for revenues also in the remainder of 2024. Furthermore, prices across the product portfolio are expected to be in line with last year's level.

The electrification of our product lineup continued to generate sales momentum in the most recent quarter. Almost 83,000 fully electric vehicles were sold or 13.9% of our total sales. Taken together, BEV and plug-in hybrids accounted for about 21% of total sales in the first quarter.

EBIT for the period from January to March was EUR 2.7 billion, with an EBIT margin of 8.8%. This means that the first quarter of 2024 is in line with the consistent trend in profitability since the beginning of 2022. Q1 2023 was exceptional as the effects of inflation were not yet fully reflected in the operating result.

I will provide more details on the Q1 year-on-year development with the EBIT bridge. Changes in commodity prices accounted for a positive impact of around EUR 200 million. Currency effects remained neutral.

For the full year 2024, we anticipate a positive net balance from currency and commodity positions. This is expected to nearly offset material cost headwinds.

The net balance of volume, model mix and pricing effect is about EUR 300 million lower than for the first quarter of 2023. Increase in volumes made a slight positive contribution. The double-digit growth by models in the upper price segment almost entirely compensated the effect from the higher BEV share.

Starting with the second quarter of 2023, we began to see increased competition due to better availability of fleets in the market. This led to a gradual softening of the global price environment for new and used cars, which has continued into the first quarter of 2024.

For the full year 2024, we expect the net effect from volume, mix and pricing to be slightly positive, as planned. We expect additional momentum from models like the new BMW 5 Series, which is currently ramping up in markets across the globe. In China, it launched after the Lunar New Year holiday and has, therefore, only been in showrooms for a few weeks. Full availability of the BMW 7 Series will also have a positive effect.

Moving on, we come to research and development expenses, which were EUR 200 million higher than in the prior year first quarter. Based on group R&D expenditure, the R&D ratio, according to the German Commercial Code, came in at 5.4%. Our R&D activities remain focused on the electrification and digitalization of our entire vehicle fleet. We are constantly developing attractive new models like the Neue Klasse or the next generation of the BMW X5.

Sales and administrative costs were approximately EUR 100 million higher than the previous year. This is largely due to the IT projects and the increase in personnel costs, which was implemented from the third quarter of 2023.

The headwind of EUR 700 million from other cost changes essentially results from 2 areas. The first is manufacturing costs. Sales margins in the first quarter of 2023 still benefited from a lower level of purchasing prices in 2022. This led to a positive EBIT effect in Q1 2023 as inventories with lower manufacturing costs were sold. Starting in Q2 2023, we saw an elevation in costs that is carried through into Q1 2024.

Another reason for the difference in other cost changes is income from the resale of end-of-lease vehicles.

As expected, income was lower than the first quarter of 2023 yet remained positive. The normalization we have been seeing in the used car market over the past 12 to 15 months has gradually continued.

Free cash flow in the Automotive segment totaled about EUR 1.3 billion in the first quarter of 2024. The difference to the first quarter of 2023 mainly results from the lower EBT.

Inventory level rose during the first quarter, in line with planning. This contributed to the change in working capital, which amounts to EUR 1.2 billion. The increase in stock will ensure that we can service the expected customer demand.

The net effect from capital expenditure and depreciation also reduced free cash flow by EUR 200 million. Capital expenditure for January to March totaled around EUR 1.3 billion. This was mainly allocated to new models and structures with a clear focus on electrification and digitalization as well as automated driving systems. The CapEx ratio for the year to the end of March was 3.6%.

Changes in provisions and in the position other, such as tax payments, had no net impact on free cash flow.

In the first quarter of 2024, investments totaling EUR 2.3 billion were made into future models and innovations. Nevertheless, the Automotive segment generated EUR 1.3 billion in free cash flow.

For the full year, the BMW Group is targeting a free cash flow above EUR 6 billion in the Automotive segment despite the planned peak investments in R&D and CapEx in 2024.

The strong underlying free cash flow generation supports our ongoing and consistent shareholder return. As part of the share buyback program, BMW AG has acquired shares equivalent to 5.03% of the share capital in place on March 31. The second tranche of the second program with a volume of EUR 500 million is currently in progress and will be completed no later than June 28. And currently, we see no reason not to continue with tranche 3 immediately after conclusion of tranche 2.

In the Financial Services segment, the positive trend in new business from the second half of 2023 continued through the first 3 months of 2024. The number of new contracts concluded with retail customers increased significantly by 21.5% year-on-year to reach 422,000 contracts. Financing for both new and used vehicles contributed to this growth.

In line with this, the volume of new business grew by 22.1% to just over EUR 15.6 billion.

Segment earnings for the first quarter amounted to EUR 730 million, a decrease of EUR 215 million from the previous year. This can be attributed both to higher credit risk provisioning and the normalization of income from the resale of lease returns.

The credit loss ratio across the entire loan portfolio remained at a low rate of 0.21%.

In the Motorcycles segment, first quarter deliveries decreased slightly by 3.1% year-on-year. EBIT for the year to the end of March totaled EUR 106 million with an EBIT margin of 12.2%.

Ladies and gentlemen, after a successful first quarter, we expect the solid business performance to continue throughout the year 2024. Therefore, our guidance for key performance indicators remains unchanged. This is based on the assumption that geopolitical and macroeconomic conditions do not deteriorate.

Group earnings before tax are projected to decrease slightly.

In the Automotive segment, we are planning for a slight year-on-year sales growth with the percentage of all-electric vehicles set to increase significantly.

We expect to see an EBIT margin of between 8% and 10% and a return on capital employed of between 15% and 20%.

Sales should be slightly higher in the Motorcycle segment, too. The segment's EBIT margin should come in at between 8% and 10%, and return on capital employed should be between 21% and 26%.

In the Financial Services segment, we are targeting a return on equity in the range of 14% to 17% for the full year.

Ladies and gentlemen, the BMW Group combines a robust financial performance in its current business with a long-term perspective for the future. We have a range of highly attractive products in the market. And we are continuously developing new models that will set the standard for driving experience, digitalization and connectivity.

As planned for and previously announced, our research and development spending and our capital expenditure will, respectively, peak in 2024. We expect our R&D ratio for the full year to be above 5%, and the CapEx ratio above 6%.

Our underlying profitability allows us to finance these investments in the future, and at the same time, yield attractive returns to our shareholders. We continue to steer the company in line with our strategic priorities, and we deliver what we promise. Our flexibility allows us to quickly adapt to market fluctuations and to meet customer demand across the globe. This ensures that we capitalize on market developments and deliver strong results through consistent execution.

Thank you.

[Unknown Executive]

Thank you very much, Walter. Now over to the Chairman of the Board, Oliver Zipse. Please.

[Oliver Zipse, executive]

Ladies and gentlemen, the figures for the first quarter of 2024 underline, once again, that our strategy for long-term profitable growth is robust and effective, especially in the dynamic environment in which we operate. These conditions are the same for all players within our industry.

However, there are currently 3 distinct groups of commercial actors, each with their own approach. The first group is a group of the newcomers, the ones who generate a lot of hype with single products. They often have only individual technological highlights such as maximum performance, the largest range or the largest screens. It remains to be seen whether the overall package will meet high customer expectations, especially in the premium segment over the entire life cycle. Additionally, they face the challenge of managing complexity as they scale up and expand. Market entry is also bought with aggressive price positioning.

The second group is the group of the established manufacturers who are trying to copy these new players' approach but run the risk of losing their own identity.

And finally, the third group is a number of manufacturers who are struggling to keep pace with change, and therefore, remain entrenched in their traditional business models.

In this competitive space, the BMW Group continues to chart its own balanced course and therefore not belonging to any of the mentioned groups.

And we remain true to ourselves. We analyze and anticipate both current and future trends without prejudging the outcome. From this, we develop our strategic approaches. The ability to respond to market developments, customer needs and new technological approaches is essential. This has earned us a leading position in e-mobility, and at the same time, allowed us to maintain consistently high profitability even in a volatile environment.

For 9 quarters in a row, our EBIT margin in the Automotive segment has been within our target range of 8% to 10% or even higher, like it was in the first quarter of 2023. Walter Mertl already explained the reasons for this.

Our development efforts are focused on technologies that deliver real added value for our customers. Decades of market experience have taught us what our customers want throughout the entire customer journey. We use this knowledge and our technological expertise to create the perfect overall concept. This is not easy to replicate nor to copy.

The BMW Group is one of the few true global players in the automotive industry. From production to sales to suppliers, we're in a strong position in all major markets, whether that is in the United States of America, in Europe, in China or in the rest of the world. We have well-established footprints in each region along with a local-for-local mindset.

This global approach is our greatest strength. It creates resilience, opens up opportunities and keeps us flexible. We are building on this to leverage our business success today and in the future.

A look at global regions shows that markets and customers demand continue to develop in a highly diversified way. Maintaining a presence in all major sales markets enables us to balance out these different trends. Our unique BMW approach allows us to respond flexibly to changing demand, especially when it comes to drive technologies.

And let me be quite clear: we continue to ramp up e-mobility at a fast pace that our competitors can barely keep up with. Just a few weeks ago, we hit an important milestone. Since the market launch of the BMW i3, we have delivered more than 1 million all-electric vehicles to customers. This confirms the appeal of our fully electric product range.

This is also backed up by our current figures in the Chinese BEV market. With growth of more than 18% in China in the first quarter, BMW outperformed both the total market for electric vehicles and the electric premium segment. And this means we're gaining segment share in the world's biggest e-mobility market.

However, our success in China is not just evident from the numbers. The BMW Group is held in high regard that we are a local player. I experienced this when I was part of the business delegation led by German Chancellor, Olaf Scholz, in April. And we were also very pleased that Premier Li Qiang took the time to visit the BMW Group stand at Auto China in Beijing.

Therefore, we are confident about our long-term economic prospects in China. We are, therefore, comprehensively repairing our joint venture's BBA's production site in Shenyang for future vehicle models. In late April, we signed a memorandum of understanding to this effect in Shenyang for the investment totaling around EUR 2.5 billion.

Our highly diversified electric offering across BMW, MINI and Rolls-Royce is not just in demand in China, but worldwide. With sales up by about 18% (sic) [ 28% ], fully electric vehicles, once again, made an important contribution to the BMW Group sales growth and earnings in the first quarter of 2024.

At Auto China, a few weeks ago, we presented 2 vehicles that will reinforce this trend. The all-new fully electric MINI Aceman and an update to the electric BMW i4.

The BMW i4 comes straight from the heart of the BMW brand and is a success story in its own right. People love its combination of eDrive, design and signature driving dynamics, all the things they associate with the BMW brand. More than 80,000 customers bought a BMW i4 last year, making it one of the best-selling BEVs in the entire premium segment.

And MINI is also continuing on a path that is just as brand authentic and modern. The new MINI family is a real game changer that reimagines the brand's unique British heritage in an entirely new way for the future. The all-electric MINI Aceman brings fresh impulses. With this latest addition, the new MINI family now features 3 models that serve different segments and appeal to new customer groups. And this will enable us to continue and expand the MINI success story in our global markets.

Our growth and economic success today are laying a solid foundation for the future. We are investing more than ever in developing new products, efficient technologies and automated driving functions as well as in digitalization.

As the biggest single investment in the history of the company, the Neue Klasse shows how we are redefining the BMW brand for the future. From design to drivetrains, to totally new forms of digital interaction between human and machine, the Neue Klasse represents a massive leap into the future across virtually all fleets of technology.

All future BMW models will benefit from this regardless of their drive technology. In this way, we are able to ensure that our customers always have the latest technology on board.

The Neue Klasse will start out with a Sports Activity Vehicle and a sedan in the current 3 Series segment. We provided a glimpse of what this future will look like for BMW at our recent annual conference. The BMW Vision Neue Klasse and the BMW Vision Neue Klasse X showcase both the consistency and the breadth of the Neue Klasse. There is plenty of room between the 2 vehicles for innovation and new models, and we intend to use it.

Ladies and gentlemen, the BMW Group is growing despite the many different challenges we face. Even in times of change, we deliver positive financial results at a consistently high level. The course we are charting today will enable us to build on this success in the future across all our brands and products with next-generation technologies and within the company. We are in a strong position globally and maintaining our leadership of the global premium segment.

We recognize that there are a lot of new players looking to gain a foothold in this highly attractive segment, and of course, we're taking this very seriously. But this is not a one-way street. You can be sure of that every player in this industry, whether an ambitious newcomer or an established manufacturer, is also keeping a very close eye on the BMW Group. Thank you.

[Unknown Executive]

Thank you very much, Oliver. Ladies and gentlemen, we will now have a short break before we move on the Q&A session. We are on time. So we'll see you in 5 minutes. Thank you very much. See you.

[Break]

[Maximilian Schöberl, executive]

Colleagues, welcome back to the second part of our quarterly conference. We'll now continue in German after this short break just now. We're now looking forward to take your questions. [Operator Instructions]

[Operator]

[Operator Instructions] Our first question comes from Christina Amann, Reuters.

[Christina Amann]

I have 2 questions. One is it relates to the product mix. In your press release, it didn't become quite clear to me. The first quarter, you're talking about catch-up effects in car sales, especially in the mid-range segment. On the other hand, you're speaking about high demand in the other segment. Now which of these were particularly high in demand in the first quarter? And what do you think will demand be in the next quarters?

And the second question relates to the margin. 8.8%, this is pretty much in the middle of your target range. However, traditionally, in the first half of the year, BMW usually does better business than in the second half of the year. So money is earned in the first half of the year. So based on this, how do you want to get to 8% to 10% towards the end of the year and may this require additional measures?

[Maximilian Schöberl, executive]

Thank you, Ms. Amann. We'll begin with the product mix, Oliver Zipse; and then the margin, Walter Mertl.

[Oliver Zipse, executive]

Ms. Amann, well, the product mix, you need to distinguish between MINI and BMW. BMW in total in the first quarter grew by 4%. MINI decreased slightly, but that was a planned effect because we have a major model change in the MINI products. The Countryman and the Cooper, they've only just ramped up.

Now if you're just looking at BMW, you can see quite interesting effects already. First of all, as far as the segments are concerned, this is the upper market segment, Rolls-Royce and performance, and these grew by 7%. If you look at -- well, if you just look at the upper segment in the so-called GKL, that grew by even more than 20%. So we've got pretty solid growth and pretty full order book.

Now on the [ xEV ] side, as I've said, if you just look at the BMW brand, we have a growth of more than 40%. And then if you deduct MINI, which is decreasing slightly because of the model change, this will get you to about 25 -- sorry, 27%. So here, too, we've got pretty robust demand.

And as far as those catch-up effects are concerned, we've got a pretty solid order book in the medium market segment, the X models, 3 Series, 4 Series, we talked about i4. So except for MINI with the model change, we're seeing a very, very robust market momentum, which is pretty strong in relation. And at the end, what this reflects is that even in a difficult environment, we can grow by more than 2.5%.

Let's perhaps have a look at the regional distribution. We've got a slight decrease, 4% in total in China, not with the electric cars, we're growing 18% above market. But in total and here, we're just adapting to the market situation. And so -- but the minus 4% is overcompensated by pretty strong Europe. And also in the U.S., we are growing as planned. The only region we're currently performing some adjustments are in China, where we've currently got minus 4%.

[Maximilian Schöberl, executive]

Thank you so much on the product mix, Q1. Now the EBIT margin, Walter?

[Walter Mertl, executive]

As I said in my speech, Q1 '23 was not a normal quarter. It was exceptional, like I said. But if we look at the entire year '22, we can see that -- we can maneuver pretty well between 8% and 9%. The range is between 8% and 10%, that was our guidance, and this is exactly how we are steering it.

Of course, we always have a focus on cost discipline. Anybody would tell you that right now. We just don't talk about it that much, but cost discipline is something that's necessary everywhere. There's increasing competition, we all know this. And accordingly, we are very clear with our guidance of between 8% to 10%.

[Operator]

The next question is from Markus Fasse, Handelsblatt.

[Markus Fasse]

I have 2 questions. One is just to Mr. Mertl. It is a little surprising that swing from the first quarter '23 to the first quarter '24 between earnings. That's a little unusual for BMW that you've got 3% swing in your margin. And my question would be, could you explain that in somewhat more detail also in relation to costs, which changed so drastically from '22 to '23? And then also going back in the other direction, have you lost the capability of smoothing out these earnings? That's something BMW was characterized by in the past years. And do we have to expect further such peaks in the future? Or how can you explain that? That's my first question.

Second question, perhaps to Mr. Zipse, it's more of a political nature. We've got elections in Europe this year. And there will be a new commission, European Commission, with regard to the work of the current commission, which actually focused very much on the Green Deal. What would be your expectations for the next commission? Because there a lot of points that also impair your business as far as regulation is concerned.

[Maximilian Schöberl, executive]

Thank you. We'll begin with Walter Mertl.

[Walter Mertl, executive]

Mr. Fasse, very happy to explain Q1 '23 to you. As I said, it was an absolute peak in Q1 '23 with the 12%. If you look at the individual quarters and read them in sequence, you can see that we're nicely between 8% and 10%. The entire year '22, we were in that range and the same in '23.

We would like to emphasize that, of course, our R&D peak in '24 that we announced as same as the invest into our IT projects signify expenses that are above those of the previous year. And this is also how we explained it. We have an R&D peak that will be above 5%. It costs money even if we are efficient and if we have cost discipline. But we're now preparing the NEUE KLASSE and we're also preparing for new vehicles such as the successor of the X5.

The main point, however, is related to 2 issues. One is the positive effects in manufacturing costs from the year '22. That was in inventory end of '22; '21, we sold that. So we had a positive effect in '23. Even if we were already increased prices there somewhat, so that's something we could benefit from in the first quarter. Now starting in the second quarter last year, inflation began to hit manufacturing costs as well. So at constant price levels, the margin will automatically decrease, and this was then obviously reflected in our manufacturing cost and the EBIT starting in Q2 '23.

And I'd also like to get back to aperiodic residual values or price enforcement. We know that with increasing availability of vehicles, of new vehicles, and this started in the second quarter mainly, the resolving of our residual car supply was not the same as still in Q1. Well, there were not that many new cars available. That's why last year and this year, in our guidance, we have pointed out that these values would be gradually declining, and that is the second impact. And looking at the reconciliation, which you can exactly see, I mean, the lower residual volumes are still positive. They still have a positive effect, but you can see this is where we have the EUR 700 million.

[Maximilian Schöberl, executive]

Thank you, Walter. The second question was more of a political nature related to elections, the European Parliament future and Green Deal.

[Oliver Zipse, executive]

Mr. Fasse, now the expectations to the new commission are that they will follow up on the announcements made that they will place more emphasis on competitiveness, and this is a direction we generally welcome. The most important thing about being competitive in Europe and Germany is free trade. This is something we have to very clearly underline. Free trade, first of all, concerns the internal market and then global trade. And the internal market needs to be strengthened. This is the essential element of capital markets. Compared to other economic regions, U.S., China, that's what's still missing, to be able to act on high level. And this is one point on the political agenda.

Now the world market, you know we're always much in favor of free trade. What we're experiencing today with the anti-subsidy investigations against China is actually the opposite of what we're expecting or what we -- if you say that more than half of the Chinese imports from China to Europe are from non-Chinese manufacturers, such as German manufacturers, then you just see how quickly this can turn against yourself. And I increasingly noticed that afterwards, people say, if only we have known. And this is why I'm saying it so clearly, we're really harming ourselves with these very simple protective functions that we want to adopt. Essentially, we would only be harming ourselves.

So what I expect is that not only on the internal market, but also globally, Europe will play a more important role, that we also consider the mutual interdependencies and not restrict trade in any way. And a last word, more specifically to the automotive industry, we've got regulations, CO2 reductions by 2035, minus 100%. And we urgently need to find a new policy where not only emissions of vehicles are considered, but also the fuels themselves.

Today, via [ RD3 ] regulation, there's hardly anything, such as e-fuels, which become effective in existing cars and are highly effective in CO2 reductions, are not even included in the regulation. And you know what our position is on the so-called ICE ban. This will achieve exactly the opposite of that because the sales of new cars will dramatically decrease and then existing cars will be more to the fore. So here, what is urgently needed is a more fact-based database review. And hopefully, that will yield better results.

[Operator]

Our next question is from Lennart Wermke from Automobilwoche.

[Lennart Wermke]

I have 2 questions as well. I noticed your competitors were more strongly affected by supply bottlenecks in the first quarter. That's something you didn't address at all this morning. How about the supply chains, are they stable? Are they no longer an issue? Or are you expecting further problems? And if there were no problems, what is it you did differently than your competitors?

And second question also in relation to CO2 fleet targets 2035. At the annual accounts press conference, you commented on this already. I'm not quite clear what exactly is your approach. Could you perhaps elaborate? Let's say, once the new commission were to talk to you and asked you for advice of how to do that, what are your ideas about that new regulation?

[Maximilian Schöberl, executive]

Oliver Zipse on both questions.

[Oliver Zipse, executive]

I'm happy to answer both questions. The supply chain, well, these days is really at the core of our corporate strategy. Supply chains from raw materials to assembly in the car itself and then on the recycling side, we want to really look at the entire chain. And there are considerable requirements and there's considerable efforts that we have initiated to obtain a complete transparency about those delivery chains.

One topic is Catena-X. This is supposed to be an [ Internet ] of companies along the entire supply chain where we have full transparency, and it helps us. If we do this quite early, if there's any disruptions to services, interruptions of supply chains, if we can learn about these as early as possible in order to then be proactive.

Just think of the interruptions we had on the Suez Canal because of the Houthi rebel attacks, if you know this earlier and if we've got an alternative plan as to how you can supplement that, then you've already got your measures in place before this happens. And your observation is correct, we truly don't have or we haven't had any serious interruptions of the supply chains. We've had some disturbances, but they're not that severe. And this is related to the fact that apart from our product strategy, this is really at the heart of our corporate strategy.

Now on the fleet targets, there are 2 demands that we have, and this is not about maintaining a business model. You know that we can do all types of drive systems. We'd even be prepared if only one of these systems were still to be admissible. It's not about our product offer. But what does it -- what's maximally effective to reduce CO2 emissions? Two demands.

First of all, we've got a regime today where only once every 5 years, the CO2 targets are adjusted. The current regime prescribes that, on average, of course, all manufacturers in 2025, CO2 fleet targets, well, that provides for a reduction of minus 15%, then there's nothing for 5 years. And then it will be down to minus 55% in one go, which does not correspond at all to how vehicles develop. No car is developed such that you reduce this by minus 55%. And then there will be the ICE ban by 2035, minus 100%.

And you can already see this gradual improvement. The principle of continuous progress is actually ignored by this. Our proposal, therefore, is to work with a continuous reduction, let's say, a certain percentage X every year, let's say 5% or 8%. So every year, fleet CO2 emissions of new cars would be decreased by a certain percentage X. And that way, you go into an asymptotic development. And what you can achieve by that is CO2 effects will be achieved much faster than in that gradual approach of once every 5 years. So we are in favor of continuous improvement rather than just once every 5 years. So that's the first part of our suggestion.

And the second part is, let's not just look at cars because the -- I mean, it's the fuels themselves that are responsible for the emissions. And they're not under any pressure right now, and this is absurd because the entire regulation really only focuses on new vehicles, but not on all of the existing cars, which are -- that's a much larger pool. And you can only reach those if you also put requirements on the fuel industry, such as the admixture of e-fuels, it could be E5, E10, you all know these. Our cars are able to run on these. And you can also add more of these e-fuels. Our cars can take it. So in the entire regime of CO2 reduction, the fuels have to be included.

And it's in a combination of both fuels plus continuous improvement, the combination of those 2, in my opinion, we will be able to much more efficiently achieve CO2 reductions without putting the entire industry in danger because we are in global competition, and there's no other region in the world that has such a tight regime where there's 4 technologies that are going to be [ pivoted ]: diesel, regular ICE, plug-in hybrid and hydrogen. None of these -- there's no other region, neither here nor in the U.S., has a regime where that will actually harm our competitiveness a great deal.

[Operator]

[ Tanya Zweig ] from [indiscernible]

[Unknown Attendee]

I have 2 questions. One relates, Mr. Zipse, to what you said about customs payments. Have you got -- have you already received any indications from the Commission regarding these extensive questionnaires you filled in? Because the way I see it, customs duties will be calculated individually per company. Any suggestions how high this could be for BMW if it were to come?

And the second thing, earlier in your speech, you addressed the 3 groups of car manufacturers for supplies, you said BMW actually has its own, will go your own way. Now in connection with the motor show in China, there was great attention for Xiaomi, which I would say is the Apple Car but in Chinese. Now entry of this competitor, is that a milestone for you? Does that change anything in the market? Does it change anything for BMW?

[Maximilian Schöberl, executive]

Oliver Zipse, please?

[Oliver Zipse, executive]

Thanks for your question. We understand that it's not that easy to read the air in this very dynamic environment. But here's our position, let's begin with market share of Chinese manufacturers today in Germany and Europe, that's below 1%. It is certainly not true that Europe is currently being swamped with Chinese products. So that's my first point. Let's just look at the facts.

Second point, what is the reason we can give, why is it that we are so successful on the Chinese market? We have good market access, otherwise, we wouldn't even be represented there. It's the same country where we have access to the market. And by the way, this is now our largest market. And as soon as they begin -- and we're just at the beginning. As soon as they begin to gain a foothold in Europe, we're getting worried, although they're not even fully here yet.

And from a Chinese point of view, this is not comprehensible at all. And we understand that this is not comprehensible. We have very good market access in China. And in the other way around, if all of a sudden, we're trying to close down the borders because we're so afraid, this is not what free trade is about.

Second point, I think we can be a little self-confident too. This is why I talked about those 3 groups. It's not that easy, especially in Europe, it's not that easy to gain customers who are extremely demanding. They want to have spare parts. They want to drive the car for more than 3 years. They don't want to have any outdated models who, by the way, also want to have a successor model. That's -- I mean, if you have a look at those 3 groups, they will fight with the successor generation after the first launch. You need to look down a little deeper.

I think we have a right to be self-confident and don't be so afraid, as the European Union currently is. And we're also warning against introducing those customs duties. Can it be prevented? Probably not. But even if they're just introduced temporarily, I mean, maybe they want to introduce them for 4 months and then remove them again, well, I can only warn against doing anything like that on a permanent basis. It will harm the German industry much more than the other way around.

And you mentioned one new entrant, I mean there's dozens. And then there's -- it's just an announcement. You see they're not even in the market yet. Why not just wait and see what happens? So let's just be a little more relaxed about this.

[Operator]

[Operator Instructions] The next question comes from Henning Hinze from manager magazin.

[Henning Hinze]

I have 2 questions. Mr. Zipse, you spoke about volume adjustments in China. I wondered, it sounds so permanent, the volume adjustment. Is this a more long-term process? Is it a permanent change of objectives, especially seeing that growth in China is only half than it is elsewhere? And is there perhaps a time also to get out of that again?

And my second question, just Mr. Mertl, you spoke about cost discipline, which you also have at BMW. And I wondered, where exactly is that reflected? Is it in salaries, in purchasing? Or where do you place your focus in terms of cost discipline?

[Maximilian Schöberl, executive]

Oliver Zipse, please.

[Oliver Zipse, executive]

Well, the volume adjustment in China is not of a permanent nature. We're still planning growth over the entire year. It was the 5 Series model change. It was actually planned that we're phasing out the old one, and the new one is just being ramped up right now. So it's nothing that has any structural reasons. And like I said, we are still planning to grow in that market over there. And on the BEV, we grew by 18%. So we're not really worried and it's nothing permanent.

[Maximilian Schöberl, executive]

Then the second part of the question was that related to cost discipline and where the focus is. Walter Mertl?

[Walter Mertl, executive]

The focus is not just on one element, but it's on everything. So manufacturing costs for our products, not just vehicles, but also motorcycles are affected and, of course, anything related to fixed costs or invest.

And then [ hygiene ] is also an important topic as far as traveling events are concerned. It's not just here and there, but actually for many years, always with a slightly different focus, we are continuously reviewing our costs and challenging them. Nothing -- just because currently other manufacturers make it explicit, to us, this is more of a continuous process.

And if I can briefly touch on our sales behavior, auto data in the U.S. is clearly available. And you can see that we're doing what we're saying we're doing. Available vehicles at the dealers in the U.S., this is increasing everywhere, also here. That's correct. But if you compare BMW with the competitors or with the industry average, then you can see March '24, available standing days, BMW, 28 days; see, 48 days is the industry average and the spread is going up massively. And I'm proud of how we are managing this operatively.

[Maximilian Schöberl, executive]

Thanks to both of you. I hear we have no further questions. Thanks from me for your interest, and we would now like to say goodbye and farewell from Munich.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]