Bayerische Motoren Werke AG

XETRA:BMW

Q3-2025 Earnings Call

[Maximilian Schöberl, executive]

Gentlemen, good morning, and welcome to the telephone conference of the BMW Group for the third quarter. Today, we have here, as always, Oliver Zipse, Chairman of the Board of Management and our CFO, Walter Mertl. First, Walter will take you through our financial results. Oliver will then give you a general business update for the BMW Group.

After a short break, we will then have time for our Q&A session.

And now, Walter, please go ahead.

[Walter Mertl, executive]

Thank you, Max. Good morning, ladies and gentlemen. In the third quarter of 2025, the BMW Group continued its strategic course and maintained its global market position. But before we dive into the details of the quarter, I would like to directly address our communication from October 7th. You all know the BMW Group as an ambitious company. We have always focused on identifying opportunities and realizing market potential and our success demonstrates that this is the right approach. In 2025, despite all known challenges, we're very confident in the fundamental potential of the Chinese market.

Our planning scenario was fully confirmed during the first 6 months with the performance on the level of the second half of 2024. For the second half of this year, we assume we would see growth momentum. However, at the beginning of the fourth quarter, we observed that this momentum has not materialized to date. So for the remainder of 2025, volume stabilization rather than volume growth now appears likely. Accordingly, we have adjusted our planning and now anticipate a consistent monthly run rate in China, in line with the first half of 2025.

In addition, we have introduced measures to support the profitability and liquidity of our dealers in China. The measures will also have an impact on our Q4 profitability. The consolidation of our dealer network in China is progressing to plan.

Ladies and gentlemen, with respect to tariffs, the BMW Group has been fully transparent throughout the year concerning the impact on our 2025 financial results. Our original guidance given in March as well as our updated assessments in the Q1 and Q2 reporting were based on certain assumptions. As mentioned in our ad hoc announcement, these assumptions were not fully realized as expected to date. In our anticipated tariff-related headwind of 1.5 percentage points on the auto EBIT margin for the full year.

I will share further details on our full year outlook later on. But now let me walk you through our Q3 figures. Group earnings before tax totaled over EUR 2.3 billion in the third quarter and exceeded EUR 8 billion year-to-date through September. Compared to the first 9 months of 2024, this represents only a slight decrease of 9.1%, a notable achievement in light of the current developments in the automotive industry.

And for the full year, we also expect a decrease in the single-digit range only. This represents a full year group profit before tax of approximately EUR 10 billion despite the significant burden of higher tariffs. Excluding the impact of tariffs, pretax profit even exceeds the 2024 figures. Within the BMW Group ecosystem, every segment contributes to our overall success. The reported group EBT margin stood at 7.2% in the third quarter and 8.1% year-to-date through September. The reported Auto EBIT margin fell within our full year target corridor for both Q3 at 5.2% and year-to-date through September at 5.9%.

Ladies and gentlemen, as you know, the BMW Group is always transparent in its reporting and we consistently focus on communicating our published figures. For better comparability within the industry, allow me, nevertheless, to provide a few additional details regarding our operational performance in the Automotive segment.

First, Auto EBIT includes the depreciation resulting from the purchase price allocation of BVA. Excluding this depreciation, which amounts to approximately 1.1 percentage points, a quarterly margin would be 6.3% and the 9 months margin will be 7.0%. Second, Auto EBIT also includes the burden of extra tariffs, which amounts to around 1.75 percentage points in the third quarter and 1.5 percentage points through September. So this impact should also be added for a fair comparison of our EBIT margin.

Q3 deliveries to customers at group level increased solidly by 8.7% year-on-year. After 9 months, the share of all electric vehicles reached 18% of total sales. And with a share of 26.2%, more than one in 4 vehicles sold globally was electrified, meaning either a BEV or a plug-in hybrid.

Let's now take a look at how the Automotive segment performed across key metrics. Deliveries of BMW, MINI and Rolls-Royce vehicles to customers reached 588,000 units in the third quarter, and Europe sales grew by 9.3% and in the U.S. by 24.9%. In China, retail sales did not meet our expectations, with deliveries at previous year's level. After 9 months, global retail sales approached 1.8 million units, representing a slight increase of 2.4%. This clearly demonstrates the strength of our global business model, the sales performance in Europe and the U.S., more than compensating the challenges in China.

Sales of all electric vehicles exceeded 100,000 units for the sixth consecutive quarter. Q3 revenues in the Automotive segment amounted to EUR 28.5 billion, reflecting a slight increase of 2.4% year-on-year. Adjusted for currency translation effects, the increase was 6.4%. Segment EBIT amounted to approximately EUR 1.5 billion in Q3, an EUR 5.1 billion from January to September. The reported EBIT margin, including the negative impact of BBA, PPA and tariffs, as mentioned, came in at 5.2% for the quarter and 5.9% as of September.

That brings me to my next slide, taking a detailed look at our operating results of the third quarter year-on-year. Automotive EBIT increased by around EUR 900 million compared to Q3 2024. As anticipated at midyear, changes in currencies negatively impacted EBIT by EUR 500 million while raw material positions remain neutral. The net effect of volume, model mix and pricing resulted in a negative impact of EUR 300 million in the third quarter compared to the previous year.

Both volume and model mix provided a tailwind while pricing was a headwind. This is particularly evident in China, where we see price pressure across all segments. Furthermore, since the end of June, Chinese banks have significantly reduced dealer commissions. While this led to a certain increase in transaction prices, as expected, it could not offset the negative impact of the lower commission revenues for dealerships. Consequently, we implemented dealer support measures in August to strengthen dealer profitability and liquidity.

Ladies and gentlemen, in line with our planning, we will continue to decrease our operating costs in 2025 and beyond. This trend is once again reflected in our figures for the third quarter. Research and development expenses decreased by about EUR 300 million compared to the prior year quarter. Group R&D expenditure totaled EUR 5.9 billion as of September. This remained significantly below last year's level despite extensive product initiatives and intensive preparations for the first model of the NEUE KLASSE. The R&D ratio according to the German Commercial Code stood at 5.9% after 9 months. Selling and administrative expenses decreased by around EUR 200 million compared to the previous year. These nominal cost savings of EUR 500 million more than offset the negative impact from volume, model mix and pricing. Product cost changes provided a tailwind of around EUR 1.2 billion compared to the third quarter of 2024.

This development results mainly from 3 areas. On the one hand, warranty expenses were significantly lower year-on-year. In Q3 2024, we fully recognized the necessary warranty provisions for the integrated braking system. On the other hand, tariffs had a negative impact of around 1.75 percentage points on the Auto EBIT margin in Q3. The majority of the improvement and other cost changes in Q3 results from the positive development of manufacturing costs and material costs.

So overall, we reduced costs by over EUR 1 billion in the third quarter by approximately EUR 2 billion year-to-date through September. In addition to EBIT, tariffs also affect free cash flow. While refunds are recognized in EBIT, cash flow rather be recognized in 2026 and in 2025. This negatively affect free cash flow through September and the timing effect alone will impact free cash flow for the full year by a high 3-digit million euro amount. Free cash flow in the Automotive segment totaled EUR 343 million in the third quarter.

We start with earnings before tax, which amounted to EUR 1.4 billion. The net change in working capital contributed positively to the free cash flow by around EUR 300 million. The negative net effect of capital expenditure and depreciation impacted the third quarter by EUR 300 million. The CapEx ratio was 5.2% in the third quarter and 4.4% for the first 9 months.

Following the peak in 2024, CapEx will decrease for the full year 2025. The CapEx ratio is projected to remain below 6%. Changes to provisions negatively impacted free cash flow in the third quarter by approximately EUR 500 million. This was primarily due to the consumption of warranty provisions. The change in the position, other, amounting to around EUR 600 million reflects the development of a set of various topics, including income taxes paid. After 9 months, free cash flow in the Automotive segment stands at almost EUR 2.7 billion.

For the full year, we now target a free cash flow of over EUR 2.5 billion compared to the original forecast of over EUR 5 billion. This is driven by 2 factors: lower-than-expected earnings for the full year and tariff refunds that we now expect to receive in 2026 instead of 2025. We remain committed to shareholder returns using both dividends and share buyback. Despite the lower free cash flow outlook, we will maintain our dividend payout ratio of 30% to 40%, and we will continue our share buyback program, as announced. As a result, the anticipated shareholder return for the financial year 2025 will exceed free cash flow in the Automotive segment.

Let's now turn to our Financial Services segment. Financial services is a key component of our customer journey and an important part of our integrated value chain. As a vital element of our financial operating model, the segment contributes consistently to our group profit. New business grew significantly during the third quarter, primarily driven by the changed competitive environment in China. This contributed to a slight year-on-year increase of 1.9% in new leasing and financing contracts concluded with retail customers over the 9 months period.

New business volume increased by 4.2% to EUR 48.5 billion. The penetration rate for lease and loan offerings rose by 4.1 percentage points to 46.4%. Segment earnings amounted to more than EUR 1.8 billion, a year-on-year decrease of 14.4%. Decline is primarily attributable to the lower income from the resale of end-of-lease vehicles as well as the tax payment in the second quarter, resulting from a revised operational tax assessment for prior years. Retail income remains positive on a portfolio basis. The credit loss ratio across the entire loan portfolio remained low at 0.26%.

In the Motorcycles segment, deliveries increased solidly by 5.7% in the third quarter year-on-year. EBIT for the third quarter totaled EUR 60 million, resulting in an EBIT margin of 7.9%.

Let's now turn to our outlook for the 2025 financial year. 4 weeks ago, we confirmed that the outer EBIT margin will remain in the guided corridor of 5% to 7%. More specifically in the range of 5% to 6%. We also confirmed that deliveries in the Automotive segment are expected to increase slightly. At the same time, the BMW Group adjusted its guidance for the following 2 key performance indicators.

First, group profit before tax, which we now anticipate to decrease slightly compared to 2024. And second, return on capital employed in the Automotive segment which is now expected in the corridor between 8% and 10%. In the Motorcycles segment, deliveries are now expected to decrease slightly, whilst the EBIT margin range is confirmed between 5.5% and 7.5%. In the Financial Services segment, we confirm a return on equity in the range of 13% to 16%.

Ladies and gentlemen, we have invested early and significantly in the future of our company, in line with our long-term strategy. Our technology classes are ready, paving the way for the broad deployment of innovations across our complete product portfolio. Our Gen6 battery technology will sharply hit the market and support profitability with cost savings of 40% to 50% for the battery pack.

After reaching their peak levels in 2024, we are reducing both CapEx and R&D as planned. We are also maintaining our consistent management of operational costs. This is reflected in our figures for the third quarter and through September, and it will continue to be visible going forward. With our highly attractive products and the NEUE KLASSE, we have the right levers in place to continuously strengthen our global market position today and in the future.

We believe that our 2025 profitability stands out in the current business environment with a pretax profit decline only in the single-digit percentage range year-on-year. And with our strong balance sheet as a solid foundation we will deliver consistent returns for our stakeholders.

[Maximilian Schöberl, executive]

Thank you very much, Walter. Now over to our CEO, Oliver Zipse. Please go ahead.

[Oliver Zipse, executive]

Ladies and gentlemen, good morning. For the BMW Group, several key strengths have long formed the foundation of our strategic course. Our global footprint, our technology neutral approach, our premium multi-brand strategy and broad portfolio across all relevant customer segments and our ability to identify the potential of new technologies and bring them to the road in each major region. This strength gives us flexibility and make us resilient and we are benefiting from them now. As a global company with global brands, we are used to dealing with varied conditions and unpredictability on the ground in each market.

We recognize the current dynamics in the automotive industry, major transitions in innovation, operating with the global supply chain, a shifting geopolitical framework with trade impacts such as tariffs as well as a rapidly evolving market in China, to name but a few. We remain focused on our long-term trajectory while using our flexibility to adapt to the changing dynamics and are tackling them head on. This is what has always set the BMW Group apart. Our business remains on track and healthy. As Walter just shared, this is underscored by our group EBT result over the first 9 months, demonstrating the performance of the entire business, including our sales development.

Despite the challenging market dynamics in China, our overall global sales posted year-on-year growth of 8.7% in the third quarter, excluding China, it was 12.2%. Through September, sales in Europe were very up 8.6% compared to 2024, while sales in the United States grew by 9.5%. These strong results helped compensate for the development in China. Electrified vehicles and M vehicles both drove global growth. With our technology open approach and multiple premium brands, customers find products that fit their wide range of needs and tastes.

In the coming months, we will take this to the next level with the introduction of the NEUE KLASSE. Just 2 months ago, at the IAA mobility here in Munich, we unveiled the BMW iX3, the first vehicle of our NEUE KLASSE. The response was tremendous, from visitors and fans from across the globe, media, analysts and political stakeholders. A few weeks later, we celebrated the official opening of our new plant in Debrecen, where production of the iX3 is now underway. We have started taking customer orders for the car, which have exceeded our expectations.

Just looking at Europe, we see orders already extend several months into 2026 already. This confirms an exceptionally positive start of the vehicle. The NEUE KLASSE is BMW at its best. And starting with the iX3, it will set new benchmarks from the performance data and revolutionary digital interface to its sustainability approach. The BMW iX3 offers a range of more than 800 kilometers in the WLTP cycle.

And thanks to the ultra-fast charging capability, the peak charging power is up to 400 kilowatts. And that means in just 10 minutes, the iX3 can charge enough to drive more than 370 kilometers. The fully emersive digital experience will bring UI/UX to a whole new level. But the BMW Panoramic iDrive, drivers can intuitively keep their eyes on the road, while all necessary information is perfectly in view.

With the BMW iX3, we will also introduce a new generation of driver assistance systems. The BMW Group is the first car manufacturer in Germany to receive approval for assistance systems in accordance with the United Nations Regulation for Driver Control Assistance Systems, DCAS. This approval enables the BMW Group to offer the Motorway Assistant with Level 2 hands-off function in numerous other models and countries in the future. This also covers an extended range of functions. More innovative assistance functions for urban driving will follow.

In terms of sustainability, the iX3 is explicitly focused on conserving resources and production and reducing the model's environmental footprint throughout the supply chain, production, use phase and recycling. In line with the principles of design for circularity, the iX3 is made up made up of 1/3 secondary raw materials. Moreover, Plant Debrecen is the first BMW Group car factory that operates and produces vehicles without using fossil fuels, such as oil and gas, under normal operating conditions.

Overall, the iX3 is a perfect example of our strategy of reducing CO2 wherever we have leverage. This will help us reach our near-term target to reduce our carbon footprint by at least 40 million tonnes CO2 by 2030. Since 2020, we have been fully committed to the Paris Climate Agreement, with the target of achieving net 0 by 2050. The next NEUE KLASSE model, which we teased at the IAA, is prepared for its launch, the new BMW i3.

With the eighth generation of the 3 Series, we will bring the NEUE KLASSE and its technology clusters into the core of the BMW brand. Production of the i3 will get underway at our main plant in Munich, the second half of next year. Other locations in our international production network will follow with production of 3 Series variants.

Throughout 2026, we will show how the NEUE KLASSE technologies will be integrated into further models just as the 7 Series and the X5. And by 2027, we will put 40 new models and model updates with NEUE KLASSE technology and design language on the road worldwide. This all-new BMW generation will provide an enormous boost to our already broad and popular portfolio, with technology solutions tailored to customers in their markets.

And this applies especially to China. The NEUE KLASSE products, we will launch in China, are developed together with our local engineering teams and Chinese partners in the market for the market. Our NEUE KLASSE architecture allows to integrate local tech stacks from leading Chinese tech players into our own ecosystem. This gives consumers access to innovations and features they are used to, including solutions from Alibaba Banma, DeepSeek, and Momenta. With the NEUE KLASSE, we are again demonstrating our strength in mastering system complexity, integration and efficiency.

We know what our customers want, and identified trends in individual markets early. The result are products that perfectly integrate the best technologies, both in-house and with partners across regions to offer the best product substance to our customers. What makes the NEUE KLASSE so unique is that we are rolling out the technology clusters across the entire portfolio regardless of the drivetrain. Our technology-neutral approach continues to show its success and allows broad market access as consumer preferences shift.

At the same time, we are making progress in decarbonization in the here and now. After 9 months into 2025, Group sales of all-electric vehicles are up by 10%, resulting in a BEV share of 18%. PHEVs grew nearly 28% year-on-year delivering an overall electrified share through September of 26.2% globally. Europe showed particularly strong growth, with BEVs reaching over a quarter of total sales, while BEV and PHEV sales combined for an impressive 41% share. Europe will also be the primary driver of our BMW iX3 sales in 2026.

Thanks to this solid result, we are well on course to reach our CO2 fleet target for the year, just as we have consistently done for the past several years. For us, it has long been clear that we would meet the targets for 2025 and importantly, without penalties, cooling or averaging. The success with our technology neutral strategy also gives our voice weight in the ongoing discussions regarding the EU's targets. We have reached our climate targets by following market demand and customer needs. And by continually optimizing all drivetrain variants.

It remains critical for Europe to revisit the targets for 2030 as well as for 2035. Setting an end date to a specific successful technology will lead to a massive shrinking of the industry as a whole. It will harm European industry and also create dependencies that are unwise in the current geopolitical dynamic. To achieve climate goals and create effective CO2 regulations, we must take a comprehensive view, one that accounts by using a life cycle assessment approach for the full carbon footprint of the vehicle and its value chain. And that also values climate neutral fuels, such as HVO100. That's a holistic framework which reflects various market needs and uneven infrastructure development, while safeguarding Europe's value chains, jobs and industrial strength. And above all, it delivers genuine climate protection and real reductions in CO2.

Companies should be free to deliver the solutions, taking customer demands and needs into account, while adequately investing in new paths and technologies to achieve the EU's climate goals. In this context, the BMW group is very skeptical about the EUs planning, greening the fleets regulation as it does not consider current market realities. Commercial fleets rely on high vehicle availability with high mileages. The currently inadequate charging and hydrogen refueling infrastructure will not be guaranteed in all member states by 2030 either.

Further fleet mandates and additional regulations that exclude individual technologies are not necessary to achieve the CO2 targets. Moreover, they hinder technological development and introduce harmful market distortions contrary to customer preferences. Here also, we advocate for a holistic and technology neutral approach.

Ladies and gentlemen, we are tackling the challenges in global markets head on, leveraging our strengths and implementing our long-term strategy. We have made significant investments and have created the right operating framework to deliver. Our flexible global network, our tech-open strategy, our focus on innovation and our ability to master technological complexity sets us apart. Over the coming months, we will deliver as promised.

Starting with the iX3, we will rapidly deploy our ambitious strategy one vehicle at a time around the globe. We will continue to lead with product substance and solutions that meet our customers' needs. We, therefore, remain optimistic as we close out 2025 and move forward to 2026. Thank you very much.

[Maximilian Schöberl, executive]

Thank you very much, Oliver. Ladies and gentlemen, we now have a short break before we move on to the Q&A sessions. See you in 5 minutes. Thank you very much.