Bayerische Motoren Werke AG

XETRA:BMW

Earnings Call Transcript 2022-Q3

[Maximilian Schöberl, executive]

Ladies and gentlemen, colleagues, good morning, and welcome to our conference call of BMW Group Third Quarter 2022.

There's a slight change to the agenda today, Nicolas Peter, member of the Board of Management of BMW AG Finance, will be the one who will be giving you the overview of business development and the key figures of BMW Group. After that, he is, of course, ready to take your questions. The reason for this is our CEO, Oliver Zipse, cannot be with us today. He is participating in the trips to China with Federal Chancellor Scholz and members of business representatives.

Let me just make a few remarks. BMW Group is a global company. It is in 140 countries that we sell our vehicles. We produce at 31 plants in 15 countries, and we maintain a global research and development network. Europe with our home market Germany as well as Asia and China and America, including the United States, count among our most important markets over the world. We are very strong and reliable partners with a long-term focus.

Today, as the global economy, our industry is closely intertwined. This is why we continue to work for corporation across countries and constructive work together from our point of view, this is the only right way in order to also tackle the major issues of our times, above all climate change. What matters here are the major regions such as China, Europe and the United States with their influence in their economic power, they make -- or they can make and have to make a significant contribution. Protection measure is something that diametrically opposes these endeavors.

We need dialogue. This is why our CEO is very happy to be part of the delegation of our Federal Chancellor Scholz.

Now said enough, I will now give the floor to our -- member of the Board's Management for Finance, Nicolas Peter.

[Nicolas Peter, executive]

Thank you, Max, for these words of introduction. Good morning, ladies and gentlemen. In the third quarter, BMW Group delivered a very solid performance. In a globally highly volatile business environment, we can look back on a successful quarter. Sales totaled just under 588,000 vehicles, which is on par with the strong prior year quarter. The EBIT margin in the Automotive segment came in at 8.9%, which is at the high end of our target range for 2022. The semiconductor shortage and supply chain disruptions has been with us a year.

Not to mention, bottlenecks in vehicle and parts logistics partly due to pandemic-related lockdowns in China All of these things have disrupted production.

Since we were unable to fully meet demand, we adjusted our volume targets at the half year mark. For the full year, we're targeting slightly lower sales than in 2021. That is with solid growth forecasted for the second half of the year. After the third quarter, we're on track to meet this goal.

Thanks to our flexible production network, we once again did an excellent job of steering the BMW Group through the difficult supply situation in the third quarter. From purchasing to supplier management, to sales and marketing, our employees are delivering the highest standard of performance each and every day and are doing everything they can to meet customer demand.

We are partnering with our suppliers to continuously optimize our processes and make them more effective and more efficient. Flexibility and operational excellence are what make the BMW Group resilient.

Our sales are also benefiting from our presence in the key 3 regions of the world: Europe, the Americas and Asia as well from a highly attractive and updated model. This became especially clear in the month of September where sales grew by 6.6% compared to the same month of last year. Our order books remain full.

In particular, for our highly attractive range of all electric models. Here, we continue to see dynamic growth. In the first 9 months, we delivered more than 128,000 BEVs to customers an increase by 114.8% compared to the previous year.

Ladies and gentlemen, let's take a look at the financial key figures for the first 9 months, I'll start at group level. First quarter revenues were up 35.3% on the previous year reaching just under EUR 37.2 billion. Revenues for the first 9 months climbed to EUR 103 billion. This significant increase in revenues mainly resulted from the full consolidation of our Chinese joint venture, BBA. Group earnings before tax for the third quarter reached EUR 4.1 billion, which is 20% higher than the already strong result in the same quarter in the previous year. Pretax earnings September year-to-date totaled just under EUR 20.3 billion. This 64% increase over the previous year largely came from the fair market valuation of previously held equity interest in BBA, which resulted in a onetime effect of around EUR 7.7 billion.

The group EBIT margin came in at 11% for the third quarter and 19.6% for the first 9 months. Our research and development costs in accordance with IFRS, totaled just under EUR 4.9 billion for the year to the end of September. This represents a year-on-year increase of 12.6%. The R&D ratio, according to the German Commercial Code stood at 4.7% at the end of September due to the strong increase in revenues. This figure was 0.6 percentage points lower than for the same period last year. We expect the figure for the full year to be within our target range of 5% to 5.5%.

We're constantly working on the future of sustainable individual mobility and the long-term transformation of the BMW Group. To achieve this, we're investing in new models, including our Neue Klasse. In the third quarter, we once again pushed forward with electrification of our vehicle fleet and digitalization. For example, the Leipzig plant launched its second line for standard production of battery modules. This way, the plant is making an important contribution to supplying the growing number of electrified vehicles with battery components.

At the Dingolfing plant, we rolled out an innovative digital system for the production of axle supports. This makes us more flexible and ensures optimal use of our production capacity.

Capital expenditure for the first 9 months of 2022 totaled just under EUR 4.7 billion, EUR 2 billion more than the figure for the previous year. More than 40% of this increase is the result of investments at BBA.

In the first 9 months, investment were also focused on the ramp-up of e-mobility. We expect to see the usual seasonal increase in investment activity in the fourth quarter. The CapEx ratio for the year to the end of September was 4.5%. For the full year, in 2022, we expect a CapEx ratio of around 5.5%.

Ladies and gentlemen, let's move on to the individual segments. Let's begin with the Automotive segment. Segment revenues for the third quarter totaled EUR 32.3 billion and were, therefore, 42.7% higher year-on-year. Revenues for the year-to-date reached a new all-time high of EUR 89 billion.

The full consolidation of BBA made a significant contribution to this increase. Other operational business factors also benefited revenues.

We're still able to offer bid prices for our vehicles. In combination with a consistently strong model mix and positive development in pre-owned car markets, we were able to more than offset the impact of the decrease in sales.

Currency translation effects also played a part due to the weak euro. The cost of sales in the Automotive segment reached EUR 27.3 billion in the third quarter and EUR 75.4 billion for the first 9 months. This is 30% higher than for the same period of last year.

Here, once again, the full consolidation of BBA into the group financial segment contributed to the operational increase in the year-on-year comparisons. Headwinds from the full consolidation had a total impact of EUR 2.7 billion. Of this amount, depreciation from the purchase price allocation accounted for EUR 1.4 billion as planned.

Around EUR 1.3 billion in intercompany profits from intergroup deliveries were eliminated in the first half year.

In the first 9 months, we also saw an increase in cost for materials and logistics of almost EUR 2 billion, partly due to the developments in raw material and energy prices. The higher percentage of electrified vehicles also contributed to the increase in costs.

The segment's third quarter operating results totaled just under EUR 2.9 billion, a 63.6% increase on the same quarter last year. EBIT for the year to the end of September was only slightly lower than last year's at EUR 7.7 billion. However, the figure for 2021 included the partial release of the pressure for the EU antitrust proceedings.

EBIT for the current year was also impacted by the effects from the full consolidation of BBA that I already mentioned. Overall, within high earnings quality, which is also reflected in the EBIT margin. The figure for the third quarter was 8.9%. And for the first 9 months, it was 8.7% This keeps us on track for the high end of our target range of 7% to 9% for the full year.

Excluding the consolidation effects mentioned above, the EBIT margin would be 10.1% for the quarter and 11.7% for the first 9 months. This underlines the strong operating performance of our core business. The segment's financial results for the year to the end of September totaled around EUR 8.2 billion and was therefore EUR 6.5 billion higher year-on-year. The main driver for this was the reevaluation of the previously held BBA shares, resulting in a onetime effect of EUR 7.7 billion. The ad equity results decreased by just under EUR 1.4 billion since earnings from the BBA joint venture were only included until 10th of February.

Free cash flow in the Automotive segment totaled EUR 9.9 billion at the end of September. It includes an inflow of totaling EUR 5 billion from the acquisition of BBA's liquid funds in the first quarter. In the third quarter, free cash flow stood at EUR 2.1 billion, primarily due to the higher operating profit. In the fourth quarter, too, we will see increased investments in electromobility. We also expect higher advanced tax payments as a result of business profit.

For the full year, we're therefore still targeting a free cash flow of at least EUR 10 billion. In the Financial Services segment, just over 1.18 million new contracts were concluded with retail customers in the first 9 months of the year. This decrease of 21.9% from the previous year reflects higher interest rates in general and the price increases associated with them. At the same time, competition remains intense in the financial services sector.

In addition, the tight supply situation over the course of the year led to limited availability of new vehicles.

Thanks to our strong product mix and higher transaction prices, we have been able to partially offset the downtick in the new contract with the higher contract volume of finance vehicles. The volume of new business from all financing and leasing contracts with retail customers was therefore only 13.2% lower than for the same period of last year.

Segment earnings before tax for the first 9 months amounted to nearly EUR 2.7 billion, which represent a decrease by 8.6% compared to the strong prior year.

We continue to see high income from the resale of our end-of-lease vehicles, especially in the U.S. and Europe. The contracts last year, the macroeconomic parameters and overall conditions for consumers have deteriorated.

For this reason, we recognized higher provisions for credit risks in the first quarter. Nevertheless, the credit loss ratio currently remains at a historically low level.

In the Motorcycles segment, we sold just over 159,000 units from our attractive product portfolio by the end of September. This means we were, once again, able to surpass the results for the same period of last year by 1.7%. Segment EBIT for the first 9 months was on par with last year at EUR 322 million. The EBIT margin came in at 13%.

Ladies and gentlemen, let's now move on to the outlook for our key performance indicators. Owing to the full consolidation of BBA, we expect group pretax earnings to be significantly higher. The number of group employees will also increase significantly due to the integration of BBA staff.

In the Automotive segment, we anticipate a significant year-on-year increase in deliveries in the fourth quarter. We're therefore able to confirm our guidance for the full year, targeting slightly lower sales. The percentage of deliveries from electrified vehicles is also forecast to increase significantly and the number of all electric vehicles to more than doubled. We expect the EBIT margin in the automated segment to be within the range of 7% to 9%.

The CO2 emissions performance indicator for our new EU vehicle fleet is developing better than originally forecast, driven by the rapid ramp-up of our all-electric models, we now expect a moderate reduction in CO2 emissions for our EU fleet for the full year rather than a slight reduction. In the Financial Services segment, we can confirm our target range of 17% to 20% for our return on equity. In the Motorcycles segment, we anticipate a slight increase in deliveries with an EBIT margin within our target range of 8% to 10%.

Our guidance does currently assume -- does currently not assume that Russia's interruption of the gas supply will lead to a production standstill in 2022. However, we do expect cost for energy, materials and manufacturing to remain high. The macroeconomic environment remains dominated by high inflation and rising interest rates. This is causing conditions for consumers to deteriorate, which will affect their behavior in the coming months. We, therefore, continue to expect our higher-than-average order books to normalize, especially in Europe. Our guidance does not take into account any significant tightening of sanctions against Russia or reactive measures by Russia. The possibility of the conflict spreading outside of the Ukraine or a significant prolonged lockdowns in response to the pandemic are also not included in our guidance assumptions.

Ladies and gentlemen, although our environment remains volatile, the BMW Group is still on course to meet its targets for financial year 2022. We expect to pay significant sales growth in the fourth quarter after increasing levels of production during the third quarter, we plan to reduce inventories, especially in the overseas markets. We're also counting on high sales numbers for our all-electric models given the strong customer demand for e-mobility.

A growing number of forecasts for 2022 predict that Germany and parts of Europe will enter into a recession. The U.S. and China are likely to stay slightly better. Despite these signs, the BMW Group's dynamic growth will continue, thanks to our attractive product range and expertise in the field of e-mobility we're in a strong competitive position.

Our globally balanced sales and production strategy allows us to respond quickly and flexibly to different market developments. We're seeing continuing high demand for our products. Our all-electric vehicle fire, especially popular. The BMW iX and BMW i4 are a hit with our customers. Orders are particularly strong for both these models. The long wheel-based version of our 3 series BMW i3 has been produced in China since the middle of the year and has been extremely well received in the Chinese market.

The BMW iX1 and the BMW i7 will also be in the showrooms before the end of the year with the iX1, we're offering one of our high-volume models as a pure electric vehicle. This will provide the next impetus for our accelerated ramp-up of electromobility.

The all-electric i7 demonstrates the BMW Group's capacity for innovation like no other vehicle. It sets new standards for digitalization and electrified driving experience. Further momentum will come next year from the continued renewal of our product range. The introduction of the BMW i5 is another important step towards electrification of our full model lineup.

Ladies and gentlemen, the BMW Group remains focused on the long term. We are setting the course today for the successful future of our company. Our high profitability gives us the room to invest in a targeted and continuous manner in the long-term transformation of the BMW Group. In September, we presented the sixth generation of our BMW battery cells. The newly developed BMW round cell is optimized for the future vehicle architecture of our Neue Klasse. It represents an enormous technological leap, an increase of 20% in energy density, a 30% increase in range and a 30% increase in charging speed. The cost of the high-voltage patchy will be reduced by up to 50%. Our partners will be investing in a total of 6 factories to produce the BMW round cell. In keeping with our local-for-local strategy, the sites will be spread across the key regions of Europe, China and the Americas.

The next highlight on our road to the Neue Klasse will follow in January 2023. at the CES in Las Vegas, we'll be unveiling a vision vehicle that will underpin our digital expertise. The future of the BMW Group is electric, circular and digital. We're steering the BMW group prudently through current market volatilities while keeping our sites set firmly on the future. We're in an excellent position to shape the transformation and achieve our long-term strategic objectives.

[Maximilian Schöberl, executive]

This was Nicolas Peter, member of the Board of Management, Finance. We'll now start our Q&A session, I would like to ask the colleagues to now give the technical instructions for the conference.

[Operator]

[Operator Instructions]

First question is [indiscernible].

[Unknown Analyst]

I have a couple of questions. One about demand, how does demand currently develop in Europe? It's somewhat flattening. How large is your order book still in Europe? And by when are you able to fulfill orders in Europe and now in connection with that, Stellantis CFO, Palmer today said that he has concerns, especially in Europe, that demand will be slowing down in the middle of next year. So, what's BMW's opinion on that? Do you share that concern? And are there any indications already that demand at BMW in Europe could significantly decrease. That's 1 thing. The other topic I'd like to ask questions on is the current situation in Europe. Does BMW already have to support its suppliers because they have trouble because of increased material and energy costs? And which measures are you taking? Are you giving discounts on prices or prepayments?

And then the third issue that relates to the e-cars. First of all, I'm not quite -- I don't quite understand in your formal guidance. Sales of e-vehicles was to more than double. And now you're just talking about doubling. So what is the true guidance? And to which extent is it -- this is in China that you want to expand your position in electrified vehicles given the dominance of local suppliers there. Does that give you rise to concerns? And how do you want to compete with those local compliance?

And then the third question also relating to China with the Oxford plant, the MINI plant, Great Wall said. Now that the e-MINIs are produced in China, they said they might have interest in that as well. And like in time to produce models of their brand in Oxford. So what's your opinion on that?

[Maximilian Schöberl, executive]

Mr. Ekadona, so we have received 6 questions from you. To give a rough estimate instead of 3, it's actually 6. That's an increase by 100%. There we go.

I mean, we'll try and give an answer to each one of those questions, but we'll try and be brief so that others have an opportunity to ask their questions as well.

Let me begin with the beginning. The first question related to demand in Europe, then the supplier situation. Then e-mobility. Specifically in China, and then there was a question about the Oxford plant and Great Wall. Mr. Peter, please?

[Nicolas Peter, executive]

Let's begin with e-mobility, Mr. Ekadona, more than doubling, more than doubling. If you look at the figures as per September, we are pretty good on track, especially with the i4 and the iX but also with MINI Electric and iX3, we've got a pretty good order book. And with the i7 that we've just presented to the media, we have already received great feedback. And as of the weekend, you'll be able to read about it in the press as well.

And with the iX1, we now have a very strong volume model that will be launched. It's fully electric, and we're right on track here as well. So there is a more than doubling to be expected.

Second question relating to demand. We continue to have a pretty full order book in Europe. And it will remain so way into the year 2023. But to be honest, this is not surprising if you look at the current environment in Europe in some important markets. we have pretty high 2-digit inflation. We're talking about above 10% given. At the same time, increasing interest rates, increasing costs for energy. So it's quite understandable that demand will flatten out somehow.

However, in September and also now in October with the introduction of the X1 you see, especially for Europe, the X1 is a very important model. And again, we've had have been able to generate quite good momentum. Well, so this is why we're making this balanced forecast. We do see a slight decrease in new orders coming in, especially we see fewer orders coming in from the South European markets, a few -- I mean, in France, the level of inflation is somewhat lower and we see more of that, in fact, in Germany and in England.

[Unknown Analyst]

Then the suppliers, do we support any of them?

[Nicolas Peter, executive]

Well, this is a known fact in the industry. We have a pretty good relationship with our suppliers. There is no such thing as a general statement from us. I mean we truly have a very dedicated consideration of individual cases. We're in a continuous exchange, with each individual supplier. And for this reason, we're quite optimistic that despite the complex underlying situation, we will be able to maintain our production as planned.

Next question related to the Oxford plant. Basically, what I can say is the Oxford plant is an integral component of BMW production structure. And let's say, it's the heart of MINI production, and it will remain so.

In Oxford, we'll see the next generation of the 3-door and 5-door hatch models of the MINI Cooper. And in addition to that, I don't know whether that's a well-known fact already. The MINI convertible will return to Oxford in 2025 and further plant will then be announced at a suitable time.

[Operator]

Markus Klausen, Dow Jones.

[Markus Klausen, analyst]

Hello, to Munich. Thanks for giving us the opportunity to ask questions. I have 3 questions. What were the reasons to confirm the forecast for the range and start at the upper end, and you've confirmed that. But in view of what you said about September business, which was very good. If you look at Germany in October, I guess there will be a leap in sales. It could very well be that you could actually be above the forecasted range, a little disappointed actually that you only confirmed your guidance and could perhaps give the reasons for that.

Second question, price development in the current year and also previously, it was pretty good development of prices with used and new cars. Now for the next year, what do you expect? Will that remain stable?

And the third question on the outlook for 2023, Peter, you said that the growth momentum at BMW will continue. Does that relate to sales or revenues? Or is that more something like a general guidance.

[Maximilian Schöberl, executive]

Thank you, Mr. Klausen. Let me summarize. Margin confirmed why not an increase, then the price development, also expectations for 2023. And growth dynamics next year. Well, Mr. Peter, please?

[Nicolas Peter, executive]

Okay. Margin confirmed. I think that's good news, isn't it? We're confirming our guidance and we'll be at the upper end of our range. We continue to have a positive effect, especially, as you rightly mentioned, in terms of volume, we're doing well in terms of volume and September also proves this.

And in terms of price, we're doing well, too. However, as I mentioned in my speech, we had slightly higher logistics costs and material costs. And all of that has the effect that from today's point of view, we are assuming that we'll end up at the higher end of our range, price development, 2023, but it's too early to say anything. And this sort of answers your third question as well. It's really too early to give a guidance right now. But due to our good product momentum, and despite a difficult environment or a volatile environment as I described, we are quite confident for 2023.

Why is that? Well, there will be a new X1 coming, an iX1, a very, very important model for us. And that will certainly give us some momentum. And at the upper segment of our portfolio, we'll have the new 7 Series and the i7, we're receiving lots of orders for that already. Then there'll be a revised X7, again, a product which plays an important role for our margin, makes an important contribution.

So in the course of the year, there will be a new 5 Series coming. And all of this is positive input in order to have good momentum despite a difficult environment. Now quite significantly, talking about price development, here, we continue to see, and this is also due to the leasing markets. I mean, we have pretty good residual values. They are very stable in U.S. and also in the large leasing markets of Germany and U.K. And we're assuming that this will also continue next year because in 2023, the first end-of-lease vehicles will be coming back from the COVID years. So due to COVID, we simply had less production fuel cells and there's fewer cars being returned. And this will obviously have an effect on price quality in 2023.

[Operator]

[ Kristina Aman ] from Thomson Reuters.

[Unknown Analyst]

You already gave some answer regarding pricing dynamics next year. Mr. Peter earlier, you talked about residual values. Now how about the new cars and their prices, how will they develop? You already announced that you will not reduce prices not -- you don't want to give any discounts in order to strengthen sales. What's the BMW strategy here compared?

And then second topic, energy, you mentioned that BMW is not assuming in the current year that they will be having to reduce production due to gas shortage. But what about the entire winter? I mean, until March, April, whatever, I mean, we're starting late right now, but it can still get pretty cold even in April. So have you hedged against that as well? Or can you make some more detailed comments on that?

And in the margin, the range of 7% to 9% was reduced coming from the long-term range of 8% to 10%. Now the 8% to 10% range. Is that something that you're envisaging again for next year? Or is it too early to comment on it?

And then about China, Mr. Zipse is traveling with Mr. Scholz going to China today. So what's your opinion on the market development there?

[Maximilian Schöberl, executive]

Thank you. Ms. Aman. Four points. Let me summarize. The first one is about price dynamics, residual values, the BMW strategy concerning discounts, then the cold winter, especially between January and March. What are the effects of the gas problem then the margin and then the market development in China. Mr. Peter?

[Nicolas Peter, executive]

Okay. Ms. Aman, I think I'll begin with the margin. 7% to 9%. We're at the upper end of this range, which means we're also within, as you rightly said, the very long-term range of 8% to 10%. Now as we had explained. And as we have communicated, I mean, if you consider that special effect from BBA from the full consolidation. And if you take that out, then we're in fact above the range in 2022. We're in it -- at a 2-digit figure. And this, I think, underlines the profitability and the resilience of the BMW Group.

The question relating to 2022. As you can imagine, we'll answer that or we'll talk about it together when we meet again March next year. It's simply too early now. based on today's knowledge, and I think a lot of positive things happen politically. We're not assuming that there will be any interruptions in production over the course of the winter in the European markets. So that's -- at least that's our assumption. We, ourselves -- well, a reduction of about 15% is something we could imagine. We'd be okay with that. And as far as the price dynamics and the residual values are concerned. I mean, we have further improved our processes, in particular, so that balance between supply and demand, together with our dealers in the most important markets we agreed that we'll work with slightly less inventory. And that's in fact -- I mean, the positive price dynamics, they will be supported by that.

China and further market development. It's like I said, we're not pessimistic as far as China is concerned. Right now, we have a mix of -- well, it's an up and down. Why is that? That's because of the COVID situation. Basically, there is pretty good demand for our products. However, due to lockdowns, repeated lockdowns, we keep having these interruptions. So a little more than 10% of our operations in China are closed due to COVID. And of course, that also affects sales. But we're assuming that over the next few weeks, this will become more balanced once we get to see a more positive development in infections due to those COVID measures.

[Operator]

Franz Hubik, Handelsblatt.

[Franz Hubik, analyst]

I have 2 brief questions. One about Mr. Zipse is traveling to China, Mr. Peter, why has the Board of management come to the conclusion that it's a good idea now -- to do that now, that the timing isn't maybe a bad sign. Many think this would be seen as a legitimation of the authoritative or the restrictive political course of Mr. Xi Jinping. And is there any reactions from your partners in the U.S. to that and the other thing, most recently, I think it was in the U.S. where Mr. Zipse emphasized it would be dangerous if only very few wealthy people could afford new cars. What does BMW actually do in order to make such a new car more affordable?

[Maximilian Schöberl, executive]

Okay. I'll summarize your questions, Mr. Hubik. The first 1 related to China, participation of Mr. Zipse in the trip and possible reactions from the U.S. that I'm not aware of. I can tell you that now already.

And then second part of your question was mobility being affordable and what does BMW to keep new cars affordable. Mr. Peter?

[Nicolas Peter, executive]

Let's start. Why is it basically a good idea to talk to partners in China. There's a couple of very important elements. First of all, from our point of view, the cooperation with China is indispensable also in order to be able to implement important political things. For the Green Deal, for example, China is not a risk, but it's an opportunity. China presents an opportunity, and we have a high interest in taking this opportunity by talking with each other, and by then implementing corresponding projects. And this is important, in particular, as you bear in mind that China, together with the U.S. is our most important foreign market. It was more than 2 years ago that we went to China last time.

And this is now a good time. It's a good opportunity to restart our discussions, especially when you talk about e-mobility, China will be a very important driver. We're assuming that by 2030, at least 50%, and you know our sales figures, and we expect that 50% of our sales in China will be fully electric vehicles. And we're on a good track here. I mentioned the i3, the iX1 is manufactured there. There will be further models, fully electric vehicles coming from China.

And what's really important in this context is the relationship with our partners in China. This is something that happens on eye level and in order to make this possible. It's very important to talk to each other.

The second question, affordability. I mean BMW, we're a premium car manufacturer. We're in the premium business, MINI, BMW and Rolls-Royce with all 3 brands. Still, nonetheless, it's important to us in order to also secure our sustainable profitability to continue to work on our cost structures. And for this reason, we decided to start the Neue Klasse and the sixth generation of battery cell technology to take the next steps there. I mentioned this that this next generation, depending on a vehicle, can actually reduce cost by up to 50%. And this is quite decisive, a decisive step on the way to electrification and implementation of the Green Deal.

[Operator]

[indiscernible]

[Unknown Analyst]

I have 2 questions. One that also touches on China. Do you think or is that -- is it your strategy in the future to produce even more vehicles in China and then to export them into other regions of the world, such as the e-MINI, for example. And then another question relating to the economic outlook for Europe. You said you're expecting a recession. So what are the factors of economic development in Europe next year that you're most worried about?

[Maximilian Schöberl, executive]

Thank you, Mr. Fick. So that's China and the outlook.

[Nicolas Peter, executive]

BMW is probably one of the car manufacturers that has the best geographic distribution across the world. It's very strong in Europe. We are firmly anchored here. We have the largest plant in the U.S., but also they're very strong in Asia. And talking about strength in Asia, we must not only talk about China. We also need to talk about markets such as Korea, a market that is developing very, very well. For Japan, we're quite confident there as well. So this is really a very, very balanced picture. Production in China is mostly for the Chinese market. So most of the production in China is intended for the Chinese market with the MINI electric, we will then also export to other markets.

But in view of the truly excellent quality of the product, we think this is the right step. And it's a little more than 2 years ago that we already communicated this step.

Outlook EU and recession, well, I've mentioned the factors that are important in Europe, it's increase in interest rates, inflation, but in particular, in the large markets such as Germany and U.K., I already said that the picture in South Europe is slightly different. Markets such as Italy, France and also Spain, but these are the factors that we are keeping an eye on. But still, we're assuming that despite a difficult situation because of our strong portfolio, we can go into the next year with confidence because we're coming with products with fully electrified products, which go very well in those economic conditions.

And as I just mentioned. In the U.K. L segment, we are launching products of which convinced that they can also make a major contribution.

[Operator]

[indiscernible].

[Unknown Analyst]

[indiscernible].

[Maximilian Schöberl, executive]

Thank you for the question. So this is about sales increases due to price increases and reasons for that. Mr. Peter, please?

[Nicolas Peter, executive]

Well, firstly, in the most important markets, we increased the prices slightly more than in the past few years. And this applies to all important markets really. At the same time, and you can see this quite nicely. If you look at motor data figures, this was done because our products are highly desirable. So the incentive level was brought down on a very low level. At the same time, as I mentioned, this is also the way that we continue to optimize supply and demand. We want to make sure that we have high overall price stability. These are the major reasons that play a role here.

[Operator]

[indiscernible].

[Unknown Analyst]

Mr. [indiscernible] just recently started a discussion when he said it would be okay to reintroduce car-free Sundays or a speed limit. What's your opinion on these in order to save energy?

[Nicolas Peter, executive]

Well, Mr. Banker, simple answer. We don't think that any of this is a good idea.

[Operator]

[indiscernible]

[Unknown Analyst]

Dr. Peter asked another question on China, the joint venture with Great wall. Can you describe precisely how that works? How many MINIs will be exported from the Chinese plant, just a percentage or a rough number. The local for local, I understand that. But in the case of MINI, I guess that doesn't apply.

And the second question will Great Wall produce combustion engine cars of its own brand in Oxford?

[Nicolas Peter, executive]

Let's begin with the second part of the question. Currently, this is not planned. Production of combustion engine cars in Oxford is not something we're planning. And for further plants, I guess, you'd have to direct your questions to the Great Wall management. The joint venture spotlight in China, that's a joint venture for development and production. We've had several test drives and these are truly excellent vehicles that we have developed jointly and that we will produce. There will be about 3,000 employees working in that plant, and these are investments that we made jointly of around slightly -- or around EUR 650 million.

Great Wall products will also be built in that plant. And in all the capacity will of around 160,000 vehicles per year. And we're now entering the final phase of preparation of serious production of our MINI products there.

[Unknown Analyst]

So can I just ask again because you didn't answer my question. So about half, 80,000 vehicles will then be electric MINIs and those will then also be exported. I wanted to know a percentage. With the ramp-up phase, that's 160,000 vehicles. And how many of those will then be exported or will remain in China that will depend on demand.

[Nicolas Peter, executive]

We're flexible. It really depends on market development in the global regions on the one hand and in China on the other hand. It's important to be flexible here.

[Operator]

[indiscernible]

[Unknown Analyst]

[indiscernible]. I have 2 brief questions. Peter, could you tell me something about the future dividend payout policy at BMW. You'll have an extremely good result this year. Is it safe to conclude that, that will be reflected in the payout of dividends. For a long time, there's been discussion about a more flexible dividend payment policy? And the second question with respect to the end of combustion engine cars in the EU. So far, when it came to battery production, BMW, always relied on partnerships. Will you want to do that in the future? Or can you exclude that you'll be producing your own batches in the future?

[Maximilian Schöberl, executive]

Thanks, Mr. Ragan. Mr. Peter, please?

[Nicolas Peter, executive]

Well, let's begin with the dividend policy for 2022, '23 what exactly we'll do is something that we will decide after we've had our financial accounts drawn up. In the past, at least I do not recall that we had a more flexible or discussed a more flexible dividend policy. We have a pretty sound structure in place. And from our point of view, from the current point of view, there's no reason to deviate from that. Then production of our own battery cells.

We will briefly or shortly be opening a small cell manufacturing plant in Parsdorf near Munich, and this will enable us after the opening of our battery center near Munich to truly cover the entire process of development and manufacture of battery cells. And moreover, the manufacture of the battery modules. Well, to a major portion, this is already something that's being done in-house. This is not done by suppliers.

[Unknown Analyst]

But I actually thought in this context, our thought were greater scale of sales, and that's something you haven't done yet.

[Nicolas Peter, executive]

No, we're not planning anything like that. I mean we've just communicated what we're planning to do in the U.S. and here too, we'll be working with a partner.

[Maximilian Schöberl, executive]

Thank you very much. And I can see and as I can hear, there are no further questions. I would like to say thank you to Nicolas Peter for answering all the questions. So thanks, Nicolas Peter for answering the questions. Thanks to the colleagues for their time today. And our conference call for Q3 is over. Thank you, and all the best to you. Goodbye from Munich.

[This transcript was translated by an interpreter present on the live call.]