Good afternoon, ladies and gentlemen. I would like to welcome you all to our telephone conference for the Q3 results. With us today are Oliver Tzipze, Chairman of the Board of Management and Nicolas Peter, our CFO. For today's telephone conference, we slightly changed the usual procedure. First, Nicolas Peter will take you through our financial results.
Oliver Sipps will then give you general business update for the BMW Group. Afterwards, we will have time for our Q and A session. And now we start with Nicolas. Please go ahead. Thanks, Max.
Good afternoon, ladies and gentlemen. I hope you are all staying safe and healthy. Over the past several months, the BMW Group has again proven its ability to act flexibly in high volatile market environment and
to pandemic initially in the second quarter, we delivered a strong performance in the 3rd quarter. We were able to increase sales and group earnings. This earnings quality is also reflected in our free cash flow. Currently, however, investment, are now paying off. This shows that we are safely steering the company and are making the right decision, and enabling us to limit the effects of the pandemic.
Our strict cost discipline is having a positive impact on earnings, supported by additional measures such as focused management of our working capital. 1 of the main drivers for this strong performance in the Q3 was a recovery in customer demand in many countries, including China and Korea, but also in major European markets like Germany, the Benelux countries the date. Performance was also bolstered by pent up demand in many markets. Ladies and gentlemen, as mentioned, the business environment has remained extremely volatile as underlined by sales development in the past 2 quarters. The BMW Group delivered 675,000 vehicles to customers in the 3rd quarter, the highest quarterly sales in the company's history.
But just before that, in the second quarter, we posted our largest ever decrease in sales. Now the situation in Europe is worsening again. We have never recorded swings like this within such a short space of time. Setting the right cost has therefore been especially important in in and in our individual segments. Let me go into detail beginning with the financial figures for the group.
Group revenues for the 3rd quarter totaled around €26,300,000,000 Due to Due to the suspension of sales and coronavirus restrictions, however, revenues for the 1st 9 months were moderately lower year on year at €69,500,000,000 Group earnings before tax for the 3rd quarter reached almost 2,500,000,000 euros up 9.6 percent on the previous year. The figure for the 1st 9 months was just under €3,000,000,000 and therefore significantly under the previous year. The group reported an EBT margin of 9.4 percent for the 3rd quarter and 4.3% for the 1st 9 months. I would like
to
a transformation. We are investing in the future and continuing to forge ahead, particularly with electrification and digitization. A good example of this is the iNEXT, which will celebrate its world premiere in the next few days. Research and development activities accounted for around EUR 4,400,000,000 in the 1st 9 months with an R and D ratio of 6.3% as expected. A word about our capital expenditure, which was around €2,400,000,000 In the year to date, we have systematically prioritized and focused our efforts without deviating from our roadmap for future mobility and innovation.
We were able to reduce capital expenditures significantly EUR3,300,000,000 reported in the same period of 2019. This also had a positive effect on our free cash flow. The 3rd quarter financial results stood at €540,000,000 The key driver for this was the BMW Brilliance Automotive result of €430,000,000 Thanks to effective pricing and high volume, this figure was significantly higher than the previous year. Ladies and gentlemen, let's move on to the individual segments. I would like to start with the Automotive segment.
The segment's EBIT margin for the 3rd quarter was 6.7%. Its operating result was €1,500,000,000 for the quarter and €152,000,000 for the 1st 9 months. This means that despite losses in the first half of Sales of our electrified vehicles are providing crucial contributions for complying with the European Union's CO2 limits. In the 1st 9 months of 2020, we sold over 116,000 electrified BMW and and of our fixed costs boosted earnings quality, despite expenses incurred for provisions in the mid to high three 3 program, which is making valuable contributions to BMW Group across the company. I'd like to highlight 3 initiatives briefly.
1st is more effective pricing due to optimized sales management. 2nd is on the product side, specifically in reducing manufacturing costs and product complexity. And thirdly, we are also optimizing initiatives such as future work structures. These will enhance the performance capabilities of the entire company. The decisions made so far are already having an impact as seen in our quarterly results.
We are therefore on course to meet our EBIT margin guidance of between 0% and 3% in the Automotive segment as planned. Ladies and gentlemen, let's take a look at free cash flow in the Automotive segment, which totaled almost €3,100,000,000 in the 3rd quarter and benefited from the positive effect of pretax earnings. It was also bolstered by focused working capital management as well as strict cost and investment gearing. At the end of September, free cash flow stood at 552,000,000 euros Group liquidity at the end of September totaled €21,800,000,000 By the end of the year, group liquidity will be back towards its pre crisis level at about 17,000,000,000 euros We have the liquidity reserves we need to remain flexible and able to take action at all times if saw a recovery in new financing and leasing business with retail customers. Between July September 2020, we reported a solid upward trend of 6.8 percent with a total of 538,000 new contracts.
This is primarily due to demand in Europe and China. We also saw definite as in the 1st 6 months. The main reason for this was higher risk provisioning, compared with the previous year in the low three digit €1,000,000 range. This was necessary after adjusting Services segment makes extensive provisions for its main business risks on an ongoing basis as is customary in this sector. Based on current assessment, we are appropriately hedged against residual value and credit risks.
Let's move on to the Motorcycle segment. Here, we saw clear signs of recovery in many important markets in the 3rd quarter. The segment achieved an EBIT of EUR45 1,000,000 in the 3rd quarter, an increase of over 28% compared with the
the
months was 6.4%. Ladies and gentlemen, let's take a look at our guidance for the year. As of today, we are on track to meet our targets for the of the environment means our forecast is clouded by considerable uncertainty. Our outlook does not factor in the possible impact of rising infection numbers and the measures to contain them. The situation is currently deteriorating.
And if this continues over the coming months, it can have a significant impact on business Pending political decisions like unresolved Brexit issues are also contributing to this uncertainty. Although car markets recovered faster than predicted in the 3rd quarter, we still expect to see a significant decrease in sales of just over 10% in the premium segment for the full year. We are therefore still assuming that the BMW Group's global sales will be significantly lower in 2020 than last year. We cannot expect the pent up demand seen in the Q3 to continue throughout the rest of the year. In the automotive segment, we still expect the EBIT margin to be within the range of 0% 3%.
Deliveries in the Motorcycle segment are focused to decrease moderately during the forecast period. Based on our assessment, the EBIT margin should be between 3% 5%. On the Financial Services side, we anticipate a moderate decrease in return on equity, mainly due to an increased risk provisioning and the decline in new business. Group earnings before tax well below last year's figure. As planned, our workforce size will be slightly lower in 20 20 than last year.
Ladies and gentlemen, we continue to focus our financial management on high profitability and consistent cost management, while at the same time creating leeway to fund necessary future projects. We are benefiting today from our strategic focus on the high end luxury segment. For example, thanks to our attractive 8 Series models and the BMW X7, we have been able to grow sales of highly be on safeguarding earnings and continuing to improve our cash flow. We are now striving to achieve a free cash flow of at least €1,500,000,000 for the full year. Any cash outflow in connection with the antitrust allegations by the European Commission as well as a significant intensification of the impact of the corona pandemic is not included in this assessment.
Capitalizing on all business opportunities and absolute cost discipline will remain a clear focus of all areas of the company. We will continue to respond quickly and flexibly if needed to what remains an extremely to do so moving forward. Ladies and gentlemen, at the BMW Group, we think long term. High profitability is a basis to achieve our strategic objective, such as We Thank you. Thank you
very much, Nicolas. And now our Chairman, Oliver Sipsey. Oliver, please go ahead.
Good afternoon, ladies and gentlemen, also from my side. As you know, 2020 has been dominated by the highly volatile coronavirus pandemic worldwide, which is now worsening again and its impact on the economy and our lives. At the BMW Group, we respond to unexpected challenges like this with flexibility and sound judgment. The long term perspective is and will always remain decisive for us. We demonstrated all of this in the first three quarters.
Firstly, we are determined to target and exploit potential for growth and steer the company calmly and difficult environment, posting the highest quarterly sales in our history. We can therefore confirm our guidance for the financial year 2020 just like Nicolas Peter mentioned. We issued this guidance early in the pandemic and have only adjusted it once since. This means, despite all the uncertainties, we assess the situation correctly. And secondly, we are aligning the BMW Group for sustainable mobility through our strategic decisions.
This applies to products, technologies and also to our organization. It is precisely at these so called tipping points that BMW has often set the course for new beginnings in the past. We continue to do things BMW way in times of upheaval and always remain an attractive and reliable partner for our investors. With our products and technologies, we're ideally positioned for the years ahead. And we want to be in a similar position from the middle of the decade on, when the conditions on markets will have further developed.
This is why we are already working on solutions for after 2025 2030. Because in our industry, timing is crucial to leveraging opportunities as they arise and being able to make targeted investments in the future. Therefore, today, I would like to focus on 2 time frame related topics. First, our perspective up to 2025 and second, our perspective for the second half of the decade. Let's start with the first topic.
We have a fresh, attractive and diverse model lineup in all segments that is winning over customers. That is how we were able to absorb the regional lockdowns and even improve at the same time on the previous year in some cases. For example, in the Q3, we delivered 8.6% more cars and almost 21% more Cycles to customers than in the same period of last year. In the year to the end of September, our automotive sales decreased by only 12.5%. And at the same time, we even increased our global market share during the pandemic to 3.2%.
A look at the markets in the 1st 9 months shows how much the situation varies. In China, the recovery that began in the second quarter continued. By the end of September, our sales had risen 6.4% to reach a new all time high. In Europe, on the other hand, deliveries were down almost 20%. And in the United States, sales decreased by about a quarter.
Our models in the luxury class and especially our electrified vehicles emerged as winners from these times of pandemic. You could say circumstances provided a boost, aided by government initiated measures in a number of countries. We delivered more than 116,000 electric vehicles and plug in hybrids to customers in the 1st 9 months, a new all time high and a significant year on year increase of 20%. And this trend became even clearer during the month of October. We are already firmly established as one of the absolute leading manufacturers of electrified vehicles worldwide.
And we already laid the foundation for this back in 2013 with a fully electric BMW project was the beginning of Phase 1 of our transformation to sustainable mobility and has been a great success story. Since then, we have sold the I3 more than 200,000 times. And there is still no other life cycle. Overall, we have delivered well over 600,000 electrified vehicles to customers worldwide to date. And now as demand for electric model starts to pick up, we are starting Phase 2 of around 13,000 customers since March, and our current order book is just as full.
The BMW iX3 will be arriving in showrooms in the next few days. Employees at the BBA plant in Shenyang celebrate the start of production in late September. The IX3 brings e mobility to the extremely popular X family and paves the way for the 5th generation BMW's e drive technology. In 2021, the BMW i4 will come out of planned Munich with an electric range of up to 600 kilometers, Followed in 2021 as well by the iNEXT, the Board of Management took the serious version for test drive just last week. I'm sure this car will surprise and delight a lot of people.
The driving feeling is unique for an eDrive. It sets a totally new benchmark for digitalization and connectivity. Its operating system is revolutionary, the interior is minimalist and absolutely user focused, and the exterior is progressive. You will hear more about this when our next gen kicks off next week. Other fully electric BMW models will include the high volume 5 Series and the X1 as well as the 7 Series.
All of these will be available with 4 different drive technologies: petrol, diesel, plug in hybrid and fully electric. We call this, as you know, power of choice. Customers choose the drivetrain that best suits their needs. That is why we need and use flexible architectures for several drive technologies. This enables us to meet demand for different drivetrains efficiently across all model ranges and segments.
This is not only an exceptional capability, but also a strong competitive advantage for us. Our electro offensive encompasses all model ranges with much more to come. By 2023, we will offer 25 models with an electrified people to electric drivetrains. We want our customers to choose e mobility for themselves because they recognize and appreciate the benefits. Later this month, we will be expanding our plug in hybrid option for the 5 series from 2 models to 5.
That is more PHAP variants than in any other model range. With the right timing technologies and despite the coronavirus pandemic, we will meet the European CO2 targets for both this year and next year. And this year alone, our fleet emissions will around 20% lower than in 2019. We are preparing for future CO2 targets just as systematically and just as persistently. The key to success for our electro offensive clearly lies in our plans.
We are expanding our production network for e mobility and the necessary components. Here, we are specifically strengthening Germany as a manufacturing location. Let me give you three examples. By 2022, each of our 4 automotive plants in Germany will be capable of manufacturing fully electric vehicles. And secondly, also from 2022 on Dingolfing, we'll be able to build e drives for up to 500,000 electrified vehicles a year.
Leipzig and Regensburg will also plan for near Sirius then battery cell production will also begin operations in 2022. The BMW Group has more co brands of battery cell expertise than any other car manufacturing in the world. Our aim is to have the most efficient and at the same time most sustainable battery cell industry cell in the industry. Together with Northvolt and Umicore, we are creating a closed material loop for battery cells. We're combining the reorganization of our production network with structural efficiency improvements and optimized utilization of capacity.
By doing so, we aim to save a mid triple digit €1,000,000 amount by the middle of the decade. At the same time, we are investing and development according to our commitment, more than €30,000,000,000 by 2025. Here also, we are continuing to focus on our locations in Germany. In September, the first FITS Fusion Hub project was put into service. At the new FITS Nord facility in Munich, a total of 4,800 employees are developing innovations for the mobility of the coming decades.
This makes the FITS Research and Innovation Center one of Europe's largest R and D sites. It connects our 14 tech offices from California to Shanghai and Tokyo as a new digital R and D hub. Let's move now on, as promised, to the second topic. Demand for fully electric vehicles to continue to increase significantly from 2025 onwards. Exactly then, just at the right time, we will launch Phase 3 of our transformation.
Here, in addition to electrification, the focus will be on extended digital connectivity and also volume capability. In 10 years, we aim to have more than 7,000,000 electrified BMW Group vehicles on the roads, 2 thirds of them fully electric. The company is already scaling
up
2 new cross functional areas internally to coordinate, shape and take company wide responsibility for key areas of transformation. 1st, in car digitalization. Over 20 years ago, we began focusing on digitalization in our vehicles. And to this very day, we have brought 40,000,000 connected vehicles to Roads Worldwide. They collect 25,000,000 bits of traffic information daily.
Now we are strengthening digital across the company and creating a new central decision making function. All key software functions have been pulled into the new digital car unit since October and reports directly to the Board member for Development, Frank Weber. Our vehicles are managed devices. They are always up to date with the latest services and features. We continue to expand our very successful operating system 7 to support this.
And it goes without saying that our user interface is easy to operate because technology should serve the user. And digital technologies are at the heart of BMW. Hardware and software are equally important to our customers. And secondly, underlying product development and its implications for our from the middle of the decade. Our new cluster architecture is geared mainly, but not only, towards electric drivetrain.
This area reports directly to me. It is organizationally connected to all divisions from markets, finance, procurement, development and production, all the way to sales and marketing. This gives us greater leverage and makes us much Also in our cooperation with partners, the objective is for the new architecture to create an overall optimum. Middle of the decade. But there is another aspect of to our transformation phase in Phase 3.
In the midst of the coronavirus, we geared our company towards a circular economy. We aim to reduce our carbon footprint per vehicle by at least onethree from 2019 levels by 2,030. Chain, production, use phase and all the way to recycling. We cannot achieve this through offsets. We are using renewable energies and even more importantly, efficiency measures.
This is impactful progress through
This is impactful progress through technology.
Ladies and gentlemen, the coronavirus pandemic is far from over. The current rate of infection, especially in Europe, makes this abundantly clear. The virus will remain the biggest of many risks for the global economy in the foreseeable future. New lockdowns could severely impact our business development in the Q4 and in early 2021. However, the same rule applies in this situation.
We will continue to respond flexibly to short term challenges. And we will systematically and proactively set the course for the long term development of the company. The BMW Group is in a strong position and exactly where it needs to be for the second phase of the transformation up to 2025 with an ever growing share of e mobility and maximum 2025 beyond. Thank you very much. I look forward to your questions.
Thank you very much, Oliver Tippze. And now the line will be
shortly be open for questions. Please wait for some technical advice.
Ladies and gentlemen, thank you for your patience. We will now start the Q and A session. And the first question is from Dorothy Creswell, Exane. Your line is now open.
Yes. Hi, there. It's Dorothy Creswell from Exane. Thank you for taking my question. I have 2, if I may.
The first is around this new vehicle architecture that you're planning from 2020 5. I'm sure we'll hear more about it in the coming months. But I wondered if you could confirm that your targeted CapEx and R and D ratios remain in place, so the under 5% of sales for CapEx and the 5% to 5.5% of sales for R and D, will you hang on to those despite the costs associated with this new architecture? And then if that is the case, perhaps you could also tell us how quickly you expect to achieve those targets in the wake of this year's coronavirus disruption. Are either of those targets already realistic for 2021?
My second question is around the earnings dynamics in the autos division for Q4. Could you give us some idea of the disruption to sales from dealerships closing? How much can you keep the business going given you have digital distribution? And I'm guessing that where dealers are closed, you can still deliver the orders that were placed in the lockdown. And then perhaps you could give us some visibility over Q4's mix dynamics.
I'm guessing that the proportion of XCDs will rise even further into year end. Thank you.
Thank you very much, Dorothy. The opening for the first question will come from Oliver and then Nicolas. Oliver, please. Dorothy, hello. Thank you for your questions.
Let me give you some perspective of how we think about architectures. They are renewed every 5 to 7 years. And our current architectures we have, they are 2 fold. It's a front wheel architecture and the rear wheel architecture. And especially in the second renewal phase, where we are now going into, Now we go almost biologically into the next phase after 2025.
The question is what kind of character do these successor platforms have? And I think due to the very high volume of electric vehicles, they will be more aligned towards electric demand. They will not be electric only. They must start electric only. And so it's very much the successor architecture, but under new boundary conditions.
And we call that Phase 3 because it's for us is a continuum. And that also leads to my answer to your questions. Of course, in our plant, there were always a successor architecture put into our figures. And as we say, we will stick very much to the figures we communicated. And that is our setup that we will do with the current R and D information so here you have so far.
Thank you, Oliver, Nicolas? And there we see maybe to follow-up on what Oliver just said. Our strategic targets remains unchanged, meaning EBIT margin 8% to 10%, CapEx below 5% and R and D on full year 2020, we expect CapEx to be in the area of slightly below 4,000,000,000 euros and R and D ratio plusminus on the same level as 2019. Now very important topic you raised with your second question, Q4 dynamics and particularly if we think about the business development, in particular in some of the very relevant European markets. We believe the situation is slightly different compared to the situation we were facing in spring when we had really more or less 100% lockdown, showrooms closed, workshops closed, delivery is not possible.
We expect that showrooms will be closed in some markets. However, deliveries and workshop services will still be possible. And we have 2 different type of lockdowns. We have on one hand side a more severe lockdowns in markets like most parts of the U. K, Belgium, France, parts of Slovenia, parts of Greece.
And on the other hand side, markets where even the showroom is open, service delivery is possible, markets like Germany, Italy, which by the way developed in a quite impressive way after the very difficult period in spring, Netherlands, Austria and Spain. So it will be different from Spring. We expect an impact, but not as severe as the one we had between Q1 and Q2. On the mix side, we've seen a positive effect in terms of mix and pricing in 2020, in particular based on the 8 Series X7, still very strong performance across the world of X5 and X3. And looking at incoming orders, I see no reason why this trend should not continue.
However, if we look at, of course, at that profit impact, we have to state that with a growing share of XEVs, we have on the other hand side, a negative impact on our profitability.
Thank you very much. Next question, please.
The next question is from Ann Ellinghaus Bernstein. Your line is now open.
Yes. Hi, everyone. Thanks for allowing me a question. I have 2 actually. The first one for Oliver Sefer, please.
Oliver, in your discussions with regulators these days, do you believe that's a reasonable chance to assume that government incentives in future will be linked to well to wheel emissions and also to actual driving or charging behavior? And if that's the case, how will that impact the most suitable EV architecture moving forward? And the second question please for Nicolas Peter. Nicolas, shouldn't you be a bit more progressive with your ambition to generate free cash flow? The annual target of more than €3,000,000,000 has now been set about 8 years ago.
So it's just quite outdated. And also looking at your peers, Daimler has demanding cash conversion targets. Volkswagen is aiming for more than €10,000,000,000 BMW just looks a little bit outdated concerning its ambition to generate cash. Thank you.
Thank you very much. Arnd, I think we start with Oliver. Yes. And then Nicolas
to
the free cash flow. Yes.
Arnd, thank you very much for your question. I think that's a very important one. I understood your question as is hybrid charging behavior and the regulator maybe regulating the charging behavior is influencing our strategy. I think the most important thing for hybrid drivers is that they charge the car. Of course, it is.
Because only then, they will reach their communicated emissions. And what we are very much after and working very tightly with the regulator to make sure that people charge their cars. And that starts with our own fleet. We want to give only hybrid cars to people who can prove that they can charge the car. And we work highly closely with all regulators in Europe how to make that possible that we also have proof of charging behavior.
And we actually open we are open for that discussion because we have no interest in people driving cars, which should be charged and are not charged. So we are very aligned with the target of the regulator. On the other hand, we believe that plug in hybrids, our play worldwide by the way, is a very important part in moving towards more electrification and also to contribute to CO2 emissions targets. And in Europe, 3 fourth of our cars are currently plug in hybrids. They've great market demand, overwhelmingly so, also because of the high subsidy levels we have in Europe.
But we believe firmly that independent of what the regulator actually will decide, The plug in hybrids have a great future, at least in our product portfolio. Okay. Nicolas? Arndt, as
you know, first, welcome back. BMW is a very long term oriented company, and we spend a lot of time thinking about our strategies and our key KPIs. And not only our free cash flow ambition is a couple of years old, also our 8% to 10% EBIT margin target was fixed back on the basis in of the strategy number 1, and I was part of this working group. And if you reflect on how the company and this is a second element, so long term oriented and a very reliable company. If you look at our free cash flow performance over the last 10 years, I think it's quite impressive.
And in particular, in such type of environment we are in as the one I've described on one hand side with short term impacts of the industry, the most important thing is to deliver. And we have fixed ourselves the targets we are highly motivated to deliver against those targets for 2020. The target is on the free cash flow side, minimum €1,500,000,000
Thank you very much, Nicolas. So ladies and gentlemen, I know we have a lot of questions today. So I can guarantee a longer time for our Q and A session today. So next question
please. The next question is from Tim Rod Khorsa, Deutsche Bank. Your line is now open.
Yes. Thank you very much, Oliver, Nicolas and Max. It's Tim from Deutsche Bank. I would have two questions as well, please. The first one is we're very close to now getting Gen 5 into the market from you guys.
Can you remind us on the current cost advantage or disadvantage versus Generation 4 and also versus ICE? And then secondly, you sound still very confident that you're going to make your CO2 target by now. A lot of other major manufacturers are feeling quite confident as well, but primarily because of pooling. How close are you to make this target? Or would you be able and willing to share some of what you are achieving there with others to also pool?
So we start with your second part of the questions, the CO2 targets with Oliver and then Nicolas.
Yes. Tim, also welcome to you. Thank you for your questions. The CO2 targets, I'm sometimes surprised that it seems a surprise that these targets are there because they have been around for many, many years. And it all depends on your product strategy whether you are fulfilling these targets and also your ability to read the market in its entirety.
So we will reduce our CO2 footprint of the complete fleet in Europe by more than 20% this year, which leads us into a fairly I wouldn't say comfortable, but we have even a little flexibility in there. So that is why we trust ourselves to state that we will reach the target. And it's not a surprise for us because the whole setup on how our best strategy is allocated, our peer strategy, but also not to forget what is the contribution of our normal combustion engines because the combustion engine, at least in 2021 and 2022, is the majority of the Power of Growth strategy that we will with not too many market pressure, we can reach this target. A wrong strategy would be if you're so close that you can only do it by hiring your cost of retail. It's not it does not help the climate, and it does definitely does not hit your margins.
So that is not our strategy, very clearly not. And yes, that was the second question.
Yes. First question? Tim, of course, this is one of the most relevant topics you're raising. We are addressing with our budget we are allocating to research and development because the question behind your question is, are we at cost parity between electrified drivetrains and ICEs. We aren't not at this point in time.
However, we made a significant improvement with Generation 5. If you can look at it from 2 angles, energy density is approximately perspective, Generation 5, that's even more impressive, is approximately 30% more competitive compared to generation 3. And furthermore, we are less dependent with Generation 5 on warehouse because there are no warehouse in the cell, which is an additional advantage. So still, we have an cost disadvantage, which you probably know pretty well in mid-four digit area between an electrified and ICE. Part of it is offset by pricing.
Why? Because we see, in particular, in the European environment that there's a really very, very strong demand for plug in hybrids and electric cars, and we are very confident as we are launching the IX3 as we speak in China and in a couple of months in Europe followed by the I4 and the iNext in 2021. Mini, very high demand, i3 as well. So we are confident step by step we will make progress in this area as well.
Thank you.
I think my first question was misunderstood, Oliver. I meant, are you happy to help others since you can achieve the target and some others might not?
That is your point, Puneet. Tim, I tried with my answer to answer your question. Okay. Then I understood it. That's I tried to
say that. If that was the double text,
it's okay. But to make it clear, we are not pooling in either direction. Okay. Got it. Thank you.
Yes. Thank you. Okay. Thank you very much, Tim. Next question, please.
The next question is from Tamarayan, RBC. Your line is now open.
Hi. Yes, Tamarayan, RBC. Thanks for taking the So you've sold quite a lot of plug in hybrids thus far and you talked a lot about them in your prepared commentary. You sold far more than your full electrics. This is contrasting with some other European OEMs thus far.
Curious as to what you're seeing on the demand for these plug in hybrids? Like who are these customers? Are these ICE people that you've converted to EVs in general? Are they folks who are actively selecting plug in hybrids over BEVs? Asking because it seems like there is a strong demand developing for full electrics and the concern would be this transition happens to full electric quicker maybe than you anticipate, what happens to the residual value of all these plug in hybrids that you have on the roads?
Would those not decline significantly? Thank you.
Yes, thank you very much.
Oliver, please. Tom, that is the fundamental question. What kind of customers do we have? And there is no such thing as the battery electric customer or the PF customer or the combustion engine customer. Every customer is quite different.
So it's a matter and that is the topic of power of choice that we let the consumer decide what is best for his needs. A customer in Oslo, due to the very good charging infrastructure, is much more likely to drive a battery electric vehicle than a customer in Naples because there's no charging structure at all. So it's both in Europe and what we try to do that for every customer, for every customer need and taste, we have something to offer him. And that strategy is working excellently for us. Best are all the best we are offering, they are more or less sold out currently.
Even an underestimated product like the mini BEF, it's going extremely well in the market. And we expect the same thing for the best to follow. The same is even more true for the PHEVs because a lot of customers, whether they're on the business fleet side or on the private customer side, they feel interested. They would like to try out what is electromobility. They want to they don't take the risk of making a big bet on charging infrastructure.
They want to blend into. And that has proved very successful to us also because BMW plug in hybrids are excellent drive. From all customer tests we get, BMW are one of the best in the market around. So we would like to convince our customers and not to forget, this line of the equation is always forgotten that there is still a combustion engine market, which is extremely efficient towards CO2 reduction. That's always forgotten.
And it's in Europe and United States and also in China today, the majority of the market. And at least for 20 21 and 2022 and 2023, that will be the case. And the rest, we will see. And I allow myself to say, we will see because our company is structured in a way that we can follow the market. If it's more, we do more.
If it's less, we do less. And that is, I think, the big hidden trick in how we see our business. And up to now and every day, we look forward, it's proven to be the right strategy for us.
Okay. Thank you very much, Tom. Next question please.
The next question is from Jose Asamendi, JPMorgan. Your line is now open.
Thank you very much. Oliver, Nicolas, Maximilian, it's Jose from JPMorgan. A couple of questions, please. Oliver, maybe the first one for you. I mean, you're taking the firm into a different direction versus other companies in terms of the vertical integration of components in the electric car.
You make a very, I think, big statement where you were saying that you have comprehensive batteries expertise and in fact larger than many other car manufacturers in the world. So I'm just trying to think about this. And can you give us a bit more details about your battery cell expertise? What have you been preparing for the past 3, 4, 5 years? And can you put this also into context with the new pilot plant you're launching in 2020 2?
That would be question 1, please. Also, if you could put this a little bit into context with the IX3, maybe provide some numbers in terms of the order backlog, if Chinese joint venture partner. And the question Chinese joint venture partner. And the question is simple. Basically, the health situation of your Chinese joint venture partner seems to be in a tricky spot at the moment.
So is this impacting your strategy to increase the stake in your Chinese joint venture operations? Is this impacting at all your strategy in China? Thank you.
Okay. Thank you very much. Jose, we start with Oliver.
Yes. Jose, I think what how we develop and how we structure our electric drivetrain is, in a sense, accumulation of all our experience with the I3, but also with the development of the 5th generation of our battery electric drivetrain. And what we learned is you must be extremely precise what you do and not do. And it's far more complex than to say, well, we either do it everything by ourselves or we buy everything. It's right in between.
And I think we have an extremely high competence on the engine side. We just launched the HEAT, the highly integrated electric drivetrain. And we built that in house, completely in house. And we are very extremely happy about the development because the physical properties of the car and the functional properties of this engine is fantastic. On the battery cell, we have an approach where we build up all the competencies to know how to develop research and produce the battery cell and leave the decision whether we should do that to a later point in time when we would need do it.
Until now, we restrain ourselves in development that developing, planning and prototyping battery cells and then go to the supplier markets. And the supplier market is bigger. There are more than 25 battery cell suppliers in the world. So there is no monopoly coming up. It's quite different.
There are European suppliers coming up, Chinese suppliers, as you know, with CATL. So we currently don't see the necessity to go into. But if a day comes where in this, for example, the 6th generation of battery cells, which we already start researching about, We just launched the 5th generation, but we always think about the 6th generation. We, of course, question everything whether it's better to produce it ourselves, and we will make our own conclusions. And I think the characteristic of BMW is we like to draw our own conclusions and do not depend on a so called mainstream what other
people do. Okay.
Thank you very much, Oliver. Nicolas?
Jose, on one hand side, and you probably understand, I can't comment the situation of other companies. However, I can state the following. One hand side, the BMW Group and our joint venture, BMW Brilliance, we are not affected by any difficulties of the Chinese Brilliance Group. And as a second point, there is, from our perspective, no indication at all, which is regarding the validity of contracts, regarding the increase in our joint venture from 50% to 70 5%. So we see no impact from this perspective either.
Thank you very much.
Thank you very much. Ladies and gentlemen, it's 3 but we have time for 2, 3, yes, more questions. So we start with the next question and then we will see.
The next question is from Patrick Hummel, UBS. Your line is now open.
Yes. Thanks. Good afternoon. Patrick EV platform strategy. BMW is known as a technology leader and this time it really feels like you're lagging competition because you're now announcing something that will happen in 5 years from now, whilst basically most, if not all of your competitors are already in the race with a dedicated electric vehicle architecture.
And I just like to understand, you presented as a logical evolutionary step that you're doing now. But to me, it feels like something has changed in your thinking. And I'm trying to understand what that is. Have you come to the conclusion that the unit cost for a dedicated platform are lowered? You take now a more bullish view on EV adoption rates.
Do you see sticker price parity of EVs now reached by 2025? What is it really that has changed your thinking? And another aspect to this whole debate, do you how do you think and do you care about the valuation aspect of it? Because and we talked about that before, the market seems to assign huge valuations to companies that are seen as structural EV winners. And undoubtedly, you have the technology in house, we just talked about Gen 5 powertrains, etcetera.
But if it takes another 5 years for you to bring EVs to the market on a dedicated platform and then only you're really all in and push the pedal to the metal to EVs, that's not helpful for the valuation in the next couple of years, if you're thinking about the multiples that people assign to legacy versus EV centric businesses. So a lot of questions, but all in the same topic, just interested in your thoughts. Thank you.
So thank you very much. Patrick, we start with Oliver and then Nicolas. Yes. Patrick, thank you for your question. Nothing changed in our growth.
That is why I try to tell you the 3 phases. We started 2013, and then we said, well, this is becoming mainstream. That is why we have now 2021 and 2022 with new cars coming up. And then I tried to make the connection into the 3rd phase, which was always quite clear to us. For us, that was always quite clear that there is a 3rd phase coming when the next architecture step is due.
And we don't talk about platforms. I think there is a big mistake to think that there are platforms which must always be distinct. And watch next week's next gen when we will tell you much more about the iNEXT. That is neither a platform. This is part of bigger architecture.
And always, technological progress, every year going on, you have new technological advances. And of course, every 5 years, you update your architecture. And the Phase III I was talking about is a very natural next step in our architecture base because we would renew the architectures anyway. And as markets progress with more digital in the car and at the same time with more EV emphasis, this is quite natural that the next architecture will have the best technology at that time. So for us, it's quite a natural phase and that is not anything new.
And I don't we still don't think that the world is separating immediately and very quick in 2 completely different phases, the combustion world and the EV world. It's about architectures competence overall. And it's not only about EV, it's much more about user interface, digital competencies, right drivetrain for the right customers in the world. And our current market success tells you also a bit what can be successful. And with our approach, we don't have problems reaching the CO2 targets.
And until 2,030, we adapt very quickly. And I think Peter, you wanted to say something also about the financial implications of
the architecture. Patrick, maybe let me start with a more personal comment. I'm not an engineer. And I was driving 10 days ago the I4 and the Inex by the way, the Inex is on a dedicated platform. Both cars outstanding, outstanding.
And with the iNEXT, the iX3, the Mini and the i3, we will be already in more or less all very relevant segments to our business. We will be in the KKL, SAV segment, in the MKL, SAV segment. We will have with the I4 and high performance sedan. So I think we are well positioned from this angle, and there's more to follow. And I think this is exactly the way the customer consumer is looking at the market.
From an valuation perspective, we are not a start up. So we are not organization. We sell between 2,000,000 2,500,000 cars. Every year, we have to manage the transition in profitability that we can invest in the right technologies, and we will focus on one hand side on what Oliver just described and on the other hand side, in particular, on the digital backbone of our products. So I believe we are in a definitely in a good position.
And will that give you full sticker price and margin parity a new platform in 2025 then versus ICE, including all the development costs, so down to the EBIT level?
Tim, this is I believe this is exactly the challenge for everyone in the industry to bring down the cost level of electric drivetrain. It has nothing to do with a dedicated or not dedicated. This is the number one challenge. And as we are already talking about Generation 5 level, I would assume we are more advanced than most of our competitors.
Maybe one short comment on this one. More important than what you call a platform is that you have an architecture which spread over all your cars. And when we talk about the generation 5, these components are in all electric vehicles, not only in one specific car segment. And I think that has to be understood. That is the real big leverage you have in the cars.
If you are in one platform, you can only apply your components in that one which might be a big disadvantage. 2nd of all, as Nicolas said, we are not a greenfield company. And as I said in my speech, in 2022, all factories can do purely electric vehicles already. So the transformation into electric architectures is almost behind us. We have already done it.
And when another new architecture comes, we will simply blend it into our current structures. So we're almost through already.
Okay. Appreciate the color. Thanks, Oliver.
Okay. Thank you very much. So next question and I think last question
from? The last question is from Angus Citi, Citigroup. Your line is now open.
Hi, and thank you for taking my questions. First one is hopefully quite quick. You've made some comments about credit risk rising in the Finko. Could you provide some sort of gauge of what credit loss ratio you're assuming in that guidance? And then secondly, on the Chinese JV, you saw very strong performance in the quarter.
Could you perhaps talk about how you're thinking about the volume trends into 2021 in that business? And how you're thinking about the cost of emissions compliance? Thank you.
Thank you very much, Angus. Nicolas?
Yes. So Angus, let's start with credit losses. It's in the area of 0.21%, 22%. So it's still extremely low. However, based on some of the indicators we see in some markets, losses.
Performance of BBA, in fact, was throughout 2020 excellent, not only from a volume perspective, but also from improvement in pricing, while at the same time, in particular, in the Q3 and double digit growth in the area of nearly 30%. Too early for any expectations 2021. We will guide 2021 in our press conference in March. However, looking at the indicators we have as we speak, we are confident that we will see a strong finish in China in 2020. We still have strong order income.
Okay.
Thank you very much to Nicolas and Oliver. Thank you very much. And ladies and gentlemen, thank you for joining us today. I think it was a pleasure for us. And all the best from Munich, and please stay healthy.
Bye bye.