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. Now, Walter, please go ahead.
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. 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 were confident in the fundamental potential of the Chinese market. Our planning scenario was fully confirmed during the first six months, with a performance on the level of the second half of 2024. For the second half of this year, we assumed we would see growth momentum. However, at the beginning of the fourth quarter, we observed that this momentum had not materialized to date.
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 as planned. 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.
We now anticipate a tariff-related headwind of one and a half 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 nine 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. 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, pre-tax profit even exceeds the 2024 figures.
Within the BMW Group ecosystem, every segment contributes to our overall success. The reported group EBIT margins 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 BBA. Excluding this depreciation, which amounts to approximately 1.1 percentage points, the quarterly margin would be 6.3%, and the nine-month margin would 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 one and a half percentage points through September. 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-y ear. After nine months, the share of all electric vehicles reached 18% of total sales. With a share of 26.2%, more than one in four 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. In Europe, sales grew by 9.3%. In the U.S. by 24.9%. In China, retail sales did not meet our expectations, with deliveries at previous year's level.
After nine 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, with 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-y ear. Adjusted for currency translation effects, the increase was 6.4%. Segment EBIT amounted to approximately EUR 1.5 billion in Q3 and 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 result of the third quarter year on year.
Automotive EBIT increased by around EUR 900 million compared to Q3 2024. As anticipated at mid-year, changes in currencies negatively impacted EBIT by EUR 500 million, while raw material positions remained 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. 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. The 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 remains 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 nine 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. Other cost changes provided a tailwind of around EUR 1.2 billion compared to the third quarter of 2024.
This development results mainly from three 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 in other cost changes in Q3 results from the positive development of manufacturing costs and material costs. Overall, we reduced costs by over EUR 1 billion in the third quarter and 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 will rather be recognized in 2026 than in 2025.
This negatively affects free cash flow through September, and the timing effect alone will impact free cash flow for the full year by a high three-digit million euros 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 nine 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 foreign 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 nine 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 two 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%-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 nine-month 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%.
The 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. Resale income remains positive on a portfolio basis. The credit loss ratio across the entire loan portfolio remained low at 0.26%. In the motorcycle 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. Four weeks ago, we confirmed that the auto EBIT margin will remain in the guided corridor of 5%-7%. More specifically, in the range of 5%-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 two 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 a corridor between 8%-10%. In the motorcycle segment, deliveries are now expected to decrease slightly, but the EBIT margin range is confirmed between 5.5%-7.5%. In the financial services segment, we confirm a return on equity in the range of 13%-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 clusters are ready, paving the way for the broad deployment of innovations across our complete product portfolio. Our Gen6 battery technology will shortly hit the market and support profitability with cost savings of 40%-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 pre-tax profit decline only in the single-digit percentage range year-on-year. With our strong balance sheet as a solid foundation, we will deliver consistent returns for our stakeholders. Thank you.
Thank you very much, Walter. Now over to our CEO, Oliver Zipse. Please go ahead.
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. These strengths give 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 EBIT result over the first nine 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 up 8.6% compared to 2024, while sales in the United States grew by 9.5%. These strong results helped compensate for the developments 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 two 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.
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 km in the WLTP cycle. Thanks to the ultra-fast charging capability, the peak charging power is up to 400 kilowatts. That means in just 10 minutes, the iX3 can charge enough to drive more than 370 km. The fully immersive digital experience will bring UI/UX to a whole new level. With 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 two hands-up 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 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 of one-third 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 tons CO2 by 2030. Since 2020, we have been fully committed to the Paris Climate Agreement with a target of achieving net zero by 2050. The next Neue Klasse model, which we tease at the IAA, is preparing 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 in 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, such as the 7 Series and the X5.
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 proud and popular portfolio, with technology solutions tailored to customers in their markets. 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 us to integrate local tech stacks from leading Chinese tech players into our own ecosystem. This gives consumers access to innovations and features they're used to, including solutions from Alibaba, Baidu, DeepSeek, and Momenta. With the Neue Klasse, we are again demonstrating our strengths in mastering system complexity, integration, and efficiency. We know what our customers want and identify 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 cluster 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 nine 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 free 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, pooling or averaging. This 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 for using a lifecycle assessment approach for the full carbon footprint of the vehicle and its value chain. That also values climate-neutral fuels such as HVO 100. Such a holistic framework would reflect various market needs and uneven infrastructure development while safeguarding Europe's value chains, jobs, and industrial strength. 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 EU's planning greening the fleet's 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.