Good afternoon, ladies and gentlemen. I would like to welcome you all to our telephone conference for the 2nd quarter results. With us today are Oliver Zipse, Chairman of the Board of Management and Nicolas Peter, our CFO. For today's telephone conference, we slightly changed the procedure. First, Nicolas Peter will take you through our financial results.
Oliver Zipse will then give you a general business update for the BMW Group. Afterwards, we will have time for our Q and A session.
Nicolas, please go ahead. Thank you, Max. Ladies and gentlemen, good afternoon. In the Q2 of 2021, as expected, the BMW Group was able to build on its strong performance of the 1st 3 months. Individual Mobility remains in high demand across the globe.
The EBIT margin in the Automotive segment for the year to the end of June was 13.0 percent and therefore, on a very healthy level. In a decade of transformation, the BMW Group is taking an Active and Formative role, sustainable profitability lays the foundation for us to continue investing in future technologies. That is why during a strong first half year, we continued to focus on our performance. The efficiency measures we launched in recent years are now also bearing fruit. So far, Thanks to the hard work of our staff in purchasing, production and sales, we have been able to make up for the challenges in semiconductor supplies.
But as the supply bottlenecks drag on, the situation is becoming more volatile. That is why we anticipate further disruption into production in the second half of the year and the related impact on vehicle sales. Ladies and gentlemen, let's start with the financial figures for the group. The recovery from the economic impact of the coronavirus crisis continued in the first half of twenty twenty one. In the year to the end of June, group revenues climbed 28.1 percent to €55,360,000,000 At €9,740,000,000 group earnings before tax for the 1st 6 months were, as expected, significantly higher than the previous year, which had been heavily impacted by the lockdown.
The figure for the Q2 rose to almost EUR 6,000,000,000. Reflecting the positive business development overall, The group EBIT margin was 17.6 percent for the year to the end of June and 20.9% for the 2nd quarter. The revenue and earnings result largely reflect better pricing, positive effects from our model mix as well as higher sales volumes resulting from increased demand. Both our new vehicle and our pre owned Cars are proving very popular with our customers right now. The significant improvement in our financial results also boosted group earnings.
Lower risk provisioning and higher income from the resell of end of lease vehicles also contributed to the increase. Having recognized higher provisions last year in response to the volatile situation caused by the pandemic, We were now able to release some of this amount. In addition to this, as already announced in May, Positive effects came from the partial release of the provision in connection with the EU antitrust proceedings of around EUR 1,000,000,000 as well as from valuation effects from our pension obligations. However, these positive effects were offset by headwinds from higher raw material prices. In recent years, we have implemented long lasting changes in all areas of the company that are now paying off.
At the same We have taken further important steps to reduce complexity. For instance, new package solutions for our products have, in particular, made The digital customer experience is much simpler and more enjoyable. They are also relieving pressure on the cost side. To fully exploit sales potential and improve working capital, we are constantly optimizing our sales structures and using analysis tools to manage our sales and inventories in an even more granular way, I. E, by market, model or sales channel.
In this way, we always have the appropriate offer. On the production side, as previously announced, we will reduce cost per unit by a quarter from 2019 levels by 2025. One of the ways we will achieve this is by exploiting potential for optimization in logistics and capacity utilization as well as through virtual planning processes. Ladies and gentlemen, Further electrification of our vehicle fleet is the focus of our short- and medium term planning. The all electric BMW IX has been rolling off the production line at our plant in Dingolfing since July.
This will be followed in the autumn by the all electric BMW I4 from our main plant in Munich. At over EUR 2,570,000,000 R and D expenditure for the 1st 6 months remained high. This also includes initial upfront investments for the Neue Klasse as well as expenditure for further development of our electric drivetrains and digitalization of our fleet. As always, Our focus remains on the customer. The R and D ratio for the first half year according to German commercial code was 4.6%.
All our decisions are clearly focused on the main topics of Electrification, sustainability and digitalization. We are using available resources in LNG for maximum impact. Capital expenditure is higher than for the same period of last year at just under EUR 1,710,000,000. Investment in the launch of the new iX and further development of our electric drivetrains were key drivers for this. Higher revenues meant the CapEx ratio of 3.1% was slightly lower than the previous year.
In the second half of twenty twenty one, capital expenditure is forecast to be higher due to the number of launches and usual seasonal effects. We expect the ratio for the full year to be below our target figure of 5%. The financial results increased significantly in the 1st 6 months. The equity result once again reflects the Strong business performance of our Chinese joint venture, BBA, whose earnings contributed contribution climbed to EUR 1,000,000,000 thanks to the strong customer demand. Of course, the figure for the previous year had been dampened by pandemic restrictions, especially in the Q1.
The other financial results benefited from valuation effects for interest rate derivatives in connection with higher interest rates in the U. S. The result from investments also saw further positive valuation effects from the I Ventures Fund and FGL Carbon Shares. Euronav's digital services have benefited from the Europe wide easing of pandemic restrictions in recent months. Demand has risen significantly.
Free Now, light hailing, for example, achieved 140% growth in taxi and chauffeur rides. ShareNow also experienced a strong upswing in car sharing. Long term rents increased by 41% in the first half of twenty twenty one compared to the previous year. Ladies and gentlemen, Let's now take a look at the individual segment, starting with the Automotive segment. Strong demand in the international automotive market was reflected in significantly higher revenues, which reached EUR 47,750,000,000 for the year to the end of June.
Revenues for the Q2 totaled €24,980,000,000 All regions of the world Saw positive development, especially China and the U. S. The operating result, EBIT reached a new all time high of EUR 6,190,000,000 for the first half year. The figure for the Q2 rose to €3,950,000,000 as well as releasing some of the provisions For the EU antitrust proceedings, as I already mentioned, lower employee numbers, better pricing and An exceptionally good situation for original value development also had a positive effect. Higher raw material prices, including a sharp increase in rhodium and palladium costs, dampened earnings development, however.
Against this background, the EBIT margin was 13.0% for the year to the end of June and 15.8% for the 2nd quarter. The uncertainty over supply chains and additional raw material headwinds remained high. As a result, earnings momentum is expected to weaken in the second half of the year. The segment's financial results for the 2nd quarter benefited from the strong earnings contribution of almost EUR 500,000,000 from our Chinese joint venture, BMW Brilliance Automotive and positive valuation effects from equity investments. Let's take a look at free cash flow in the Automotive segment.
We are taking advantage of the current situation to systematically optimize of our working capital. We are on the right track. Free cash flow in the Automotive segment totaled €4,900,000,000 at the end of June. Good working capital management related to lower inventories due to the semiconductor situation And in particular, higher earnings are the driver for this. As is usual, payments for investments will increase towards year end.
Additionally, earnings momentum will be dampened by the supply bottlenecks I referred to. In the second half of the year, We also anticipate cash outflows for personnel restructuring measures. Tax prepayments will also be due. We are aiming for free cash flow at year end above our previous record of EUR 5,800,000,000 Ladies and gentlemen, let's move on to the Financial Services segment, which also benefited from global sales growth and a positive risk situation in the 2nd quarter and delivered a strong financial performance. A total of EUR 1,030,000 new financing and leasing contracts were concluded with retail customers in the first half of twenty twenty one, an increase of 28% year on year.
The total portfolio of 5,600,000 retail contracts was at the same level as at the start of the year. The very positive development in pre owned car markets, I already mentioned, also continued in the Q2, especially in the U. S. And UK. This resulted In high income from the sale of end of lease vehicles, credit losses remained at a low level.
In the first half of the year, segment earnings before tax increased to EUR 1,940,000,000. The figure for the Q2 was €1,150,000,000 The prior year quarter had been dominated by uncertainty fee due to the coronavirus pandemic with additional risk provisioning for anticipated credit and residual value risks. The Motorcycles segment also performed well in the Q2 with 8 new models introduced by the end of June. Thanks to this strong product offering, we were able to grow sales to 107,000 units in the first half of the year, a new all time high for this period. The segment's operating earnings rose in line with the positive business development in the year to the end of June to EUR 284,000,000 The figure for the Q2 was EUR 149,000,000 EBIT margin for the first half of the year was 17 0.5%.
Ladies and gentlemen, let's take a look now at our guidance for the current year. The BMW Group continues to focus on profitable, sustainable growth. After a strong first half year, we generally We expect the positive business development to continue in the second half of twenty twenty one. Our guidance assumes that political and economic conditions will not deteriorate significantly. It also does not take account of the possible further impact of the coronavirus pandemic.
For the full year, based on our current assessments, we expect the key financial and nonfinancial performance indicators to develop as follows. We anticipate a significant increase in group pretax earnings for the full year. Thanks to ongoing personnel restructuring measures, we intend to achieve our goals with a slightly lower number of employees than last year. In the Automotive segment, we should see a solid increase in the number of BMW, Mini and Rolls Royce vehicles delivered to customers. Electrified vehicles will account for a significantly higher percentage of total volumes.
We have a strong market position in China. Demand for cars from our 3 BMW Group brands remains high in the U. S. And Europe. However, Due to the current uncertainty over semiconductor supplies, we cannot rule out the possibility of our sales figures being impacted by further production downtime.
Continued high raw material prices will have a significant impact in the second half of twenty twenty one. We also expect to see the usual seasonal increase in fixed costs towards the end of the year. For this reason, the EBIT margin is forecast to be at the high end of our target range of 7% to 9%. We will once again significantly reduce CO2 emissions in our new vehicle fleet. In the Financial Services segment, Earnings development will benefit more from the improved situation than originally anticipated, both in terms of credit and residual value risks.
This is reflected in a higher return on equity and in our original guidance, which we now expect to be within the range of 17% to 20%. In the Motorcycle segment, we had so far forecast a solid increase in deliveries. Now Due to positive market development, it looks like we will be able to deliver slightly more motorcycles than forecast in March. We therefore anticipate a significant increase in deliveries slightly above the 10% mark. EBIT margin will remain within our target range of 8% to 10%.
Ladies and gentlemen, After the 1st 6 months of 2021, the BMW Group is on course to meet its goals for the year. However, the uncertainty surrounding semiconductor supplies makes planning for the full year difficult. Our vehicle plants have the capacity and the flexibility to meet high customer demand at all times, but we are dependent on functioning supply chain. There are, of course, opportunities to be found in every challenging situation. We are taking advantage of these and have reacted quickly and systematically in recent months.
Activities have ranged from Inventory optimization to sustainable efficiency measures
in
all areas of the company. We are maintaining the momentum of the past few months and actively shaping the transformation of the company. Thank you.
Thank you very much, Nicolas. And now, Oliver Zippe. Oliver, please Go ahead.
Good afternoon, everyone. The performance of BMW is undisputed, as Nicolas Peter told us. We are on the right track. We are making the right decisions at the right time. The decisions that will keep our company profitable and successful for a long time to come.
Ladies and gentlemen, what is the world most concerned with right now? What is our society's rising towers? What is the burning issue that unites us all? There can be no doubt that it is drastically reducing CO2. And we all share the same goal of effectively combating climate change.
That is where I would like to start today. And from there, I will go on to talk about the Following two other topics: 1st, how are we further strengthening our digital expertise? And secondly, Where does the BMW Group stand in the financial year 2021? Let's now start with the first point, our road to climate neutrality. The 3 main regions of the world, many other countries and even cities all want to become carbon neutral.
That is also our mission and responsibility at the BMW Group. As you know, we've always taken a forward looking perspective. It is the foundation of the long term business model our company is built on. It requires by definition that all our decisions are based on sustainable thinking. Our strategic orientation towards climate neutrality benefits our customers.
At the same time, it also sends a strong signal to all our stakeholders and the capital market, which is increasingly looking to invest in sustainability. And not least, it sends a signal to our teams and their jobs. The currency that matters in our industry today is how large is the vehicle's carbon footprint throughout the whole of its life cycle. The atmosphere that is the climate doesn't care whether a manufacturer adopts a best only, best centric or an open technology strategy. All that matters for the purposes of climate protection is the actual amount of CO2 emitted, as that means across the board, From raw materials and other materials throughout the industrial manufacturing process and active use of a vehicle all the way to recycling the raw materials.
Our impression is that it is often the case with 0 emissions The louder the proclamations, the broader the disclaimer and general terms and conditions tend to be. Not with us. Already in summer 2020, we unveiled concrete sustainability goals for 2,030 and geared our company to Towardham. We're documenting our progress in a way that is transparent and verifiable for everyone in our integrated report and as a member of the Science Based Targets Initiative. Our clearly defined targets in accordance with the Paris Climate Agreement put us on a course that is significantly more ambitious than the 2 degree goal and without the fine print.
We are already concentrating on all three scopes where CO2 is emitted: the supply chain, production and the use phase. Our vision is of a value chain that produces less and less CO2, culminating in a circular economy. Take the brand new BMW IX, for example. Already today, the battery cells are produced with green power And we use 20% recycled plastics. And stay tuned, we will be Presenting our circular approach at the IAA Mobility here in Munich.
By 2,030, we aim to reduce our entire carbon footprint per vehicle by at least onethree from 2019 levels across the entire lifecycle. Production at all our locations worldwide is already net Carbon neutral as of this year. This applies to all our properties and administrative buildings as well. We will be taking things up a notch in the near future. The use phase has a particularly strong impact on the carbon footprint, But we could even imagine higher CO2 reduction targets per vehicle by 2,030.
Already last year, we over fulfilled our fleet target significantly and we will over fulfill it again this year. The same applies to climate neutrality as everywhere. There are different ways of getting there. So ruling out certain approaches is not Very helpful. None of these are wrong as long as they benefit climate protection.
The approach should always be pragmatic and manageable And never ideological, in the interest of the creator vision, the global target of 0 emissions. The BMW Group is a global manufacturer. That is why we always focus on the big picture, the global perspective, if you like. That doesn't make things any easier or linear. On the contrary, it makes them extremely multifaceted Because our world is and will remain diverse, especially when it comes to people's mobility and the necessary conditions needed to ensure it.
We solved the biggest challenges for the world through innovation and technological progress. To do this, we use our ability to integrate highly complex technical systems into a product in order to tailor it optimally to the requirements of certain markets. In this way, we offer markets the right technologies for their individual circumstances and pace of change. We see this as a clear competitive advantage for BMW. 1, we will continue to leverage to gain further market share.
Because going forward, regulations and what customers want will vary from region to region and from country to country. In Europe, for example, New vehicle registrations in Norway and the Netherlands are already dominated by battery electric drivetrains, While other countries in the United and in the EU don't even have rudimentary charging infrastructure. In the U. S, likewise, California continues to lead the way on e mobility, but demand for vehicles with combustion engines remains strong in many other states. In Asia, countries like Japan and Korea have the potential for fuel cell drivetrains, and China is driving the pace on e mobility.
EFuels could also be an option for certain regions. Going forward, hydrogen technology will become more important alongside electric power and not, as is often rumored, just for utility vehicles. This is another area where we are delivering. Our small series of the BMW I Hydrogen Next will be released next year. We often asked whether the BMW Group has a date for its full transition to pure electric drivetrains.
The answer to put it clearly and precisely is, We are 100% committed to BEST wherever the use of battery electric dry fence makes sense And it is possible because the conditions are right. Our Mini brand is the best proof of this. From the early 2030s, It will be our 1st electric brand without any disclaimers because mini fans are mainly active in urban spaces. This is the exact same direction targeted by the new electric scooter from BMW Motorrad. Our CE04 is the perfect companion for the urban commuter.
We recently unveiled the production model, which we will begin delivering early next year. All of this underlines that Achieving market penetration with e mobility hasn't been a vehicle supply issue for quite a while now. It depends To create a degree on how quickly charging infrastructure is being expanded, we have been committed to this for a long time. We have already installed more than 15,000 charging points worldwide. In Germany alone, we operate 1 of the biggest company charging networks In conjunction with E.
ON, we currently have a total of 4,350 charging points in service. And by the end of the year, it will be over 5,000. All of them run on green power and some are open to the public. We will provide an update on our progress in the autumn as part of Ionity's European high power charging network. Ionity is open to anyone who wants to join.
Expansion is important to us. We must not only allow charging infrastructure to be the bottleneck that decides whether As the current ARCEA President, I'm fighting for this, so we can move faster in all 27 EU Member States. We need a stronger commitment to this. With the Fit for 55 package it unveiled in July, The European Commission has once again tightened its reduction targets for CO2 emissions. Every additional percentage point the targets are tightened means we need at least 200,000 more public charging points in addition to the €3,000,000 already needed by 2,030.
Companies are now expected to reduce CO2 emissions from their new vehicle fleet by 55% from current levels by 2,030. That is the Commission's proposal, which forms the starting point for the legislative process and will be finalized from today's point of view by end of 2022. It is equivalent to tightening the target by around 18 percentage points from the previous targets of minus 37.5%. And as you would expect from BMW, We are taking a reliable and consistent approach to this additional challenge. By 2023, we will offer our customers at least One purely electric BEV option in nearly all of our vehicle segments.
Over the next 10 years, The BMW Group aims to release a total of about 10,000,000 fully electric vehicles onto the market. For the target up to 2,035, a review by the commission in 2028 will determine whether credit should be awarded For other serial emission technologies such as e fuels in addition to BEVs and fuel cell electric vehicles. In 2025, just 4 years from now, we will launch the Neue Klasse. This all new product offering It's our response to the highly complex requirements of the coming decades. In many respects, the Neue Klasse is a real quantum leap For future model generation toolkits technologies, corporations and our mindset across the BMW Group, our new Vehicle architecture is uncompromisingly electric only, whether with battery power or hydrogen.
It also comes with an entirely new IT and software architecture as well as a new developed high performance electric drivetrain and battery generation. Systems integration is another one of the BMW Group's core competencies that we will be demonstrating in the Neue Klasse. For me, all of this underlines our forward looking approach. This brings me to my second topic. We are further strengthening our digital expertise.
In today's cars, software, hardware and services work together in an integral way. This is how we are laying the technological foundation that will enable us to offer our customers new functions on an ongoing basis. Our vehicles are always up to date with the very latest technologies. For the past few years, we have been able to update every single line of code in the vehicle The air via remote software upgrades and this since 2018. There are only 2 firms capable of doing this.
One of them is in California, the other one is in Munich. By the end of this year, the BMW Group will have over 2,500,000 vehicles with upgrade capabilities on the roads, the largest fleet of this kind worldwide. Our new generation BMW iDrive leads the interaction between driver and vehicle into the digital future. And we laid the foundation for this with the new BMW Operating System 8, a new generation of displays, Controls and software as well as extremely powerful data processing design for 5 gs. We are introducing it for the first time in the BMW and subsequently rolling it out broadly across all other models.
And we also integrated the digital service for navigation, Parking and charging into the BMW Maps cloud based system. With the IX, customers also have the flexibility to book functions on demand at any time. For the digital ecosystem in the vehicle as well as And digitalized processes across the company, we're building up the necessary skills and competencies. Here, We are concentrating on specific areas. For example, smart production and logistics, including robotics big data and data analysis Software Architecture and HR Software Development, artificial intelligence and autonomous driving and e mobility as well as Innovative Drive and Lightweight Technologies.
At the BMW Group, around 10,000 employees are working in the IT and software development. In the last few years alone, we have brought in 2,400 new experts in our R and D division. Our 14 tech offices span the world from California to the new fits in the north of Munich to Shanghai and Tokyo. In addition, we have joint ventures such as Critical Tech Works in Portugal. When it comes to in car IT applications in particular, Customers in different regions of the world, specifically in China, Europe and the United States of America use different services and providers.
That is the diverse markets I mentioned earlier. For every region, we provide Seamless integration of third party services such as Apple, Google, Tencent or Spotify. Let's wrap up now with my 3rd point. To sum up in just a few words, yes, we had a strong first half of the year. Our broad range of fresh new models and various drive technologies met with lively demand.
This applies to all of our brands BMW MINI Rolls Royce as well as to the MG and BEHA, BMW Motorrad and all regions of the world. Around 1,340,000 vehicles represents growth of almost 40% compared to the first half of twenty twenty. Sales for the 1st 6 months of the year were the highest in our corporate history. But we all know that At many regions of the world, the first half of twenty twenty was hit especially hard by the restrictions due to the coronavirus pandemic. That is why comparison with the first half of the pre crisis year, twenty nineteen is more meaningful.
Compared to that period, our sales increased by 7.1%. In July this year as well, the month just finished, our figure was again above July 2019. As expected, our customers are buying significantly more electrified vehicles right now. In the first half year of the year, our sales grew by almost 150%. In our domestic market of Germany, nearly 1 in 4 BMWs and around 30% of MINI sold already have an electric drivetrain.
By the end of the year, we aim to have a total of 1,000,000 fully electric and plug in hybrid vehicles on the roads and by 2025, 2,000,000 pure electric vehicles. By then, we aim to deliver 10x the number of fabs we sold in 2020. The fully electric BMW iX3 has been available since the start of this year. It was not designed specifically for e mobility. Despite that, it is winning comparative tests with its rivals.
The BMW iX and i4 will both be launched in autumn. Both are extraordinary vehicles that offer fantastic driving experience. High orders for both are already exceeding our expectations. The planned annual volume of the BMW iX, for example, is already largely sold out in Europe. This underlines the high level of interest in this technology unique vehicle.
We are naturally very pleased with the positive feedback in the media and on social media. New models will be coming in rapid succession from here on. In the next 2 years, we will launch all electric versions of the BMW 7 Series X1 and 5 Series. Ladies and gentlemen, 2021 It's proving to be a unique financial year for us with both tailwinds and headwinds. On 20th May, we reevaluated our provisions of €1,400,000,000 in connection with antitrust proceedings by the European Commission.
The Commission completely withdrew its allegations against the BMW Group. The Commission confirmed once again in this connection that There is and was never any allegation of illegal manipulation of exhaust gas treatment by the BMW Group. The proceedings were concluded on July 8, with a settlement and a fine of €3,700,000 The revaluation of the Provision has led to a positive earnings effect of around €1,000,000,000 in the Q2 of 2021. As a result, Our target corridor for the EBIT margin in the automotive segment increased by 1 percentage point. There are, however, On top of the impact of the coronavirus pandemic, additional risks for our ongoing business performance that we take very seriously.
Our industry cannot ignore the global shortage of microchips. So far, compared to other manufacturers, we have been able to absorb the impact of this well. A few of our plans have also been affected recently, but with varying degrees of intensity. We assess the situation on a daily basis and are taking appropriate measures with our suppliers. In addition to semiconductor supply bottlenecks, we also face rising raw material prices.
This is another reason why our circular approach makes a lot of sense. Lastly, extreme weather such as the devastating Plus in Germany, Europe and other parts of the world show forecasts and expectations can change fast, quite apart from the immense suffering people in the affected regions are facing. Confronted with all these risks, the second half year will be more challenging for the BMW Group than the first. Nevertheless, we are confident that we will achieve our targets for the full year And we are convinced our holistic approach is absolutely effective. The requirements for the automotive industry are highly complex and There are no simple truth.
What counts for climate protection as well as all the other major future fields is effectiveness. And this is what the BMW Group stands for. Thank you very much.
Thank you very much, Oliver. Now we start our Q and A session. Please wait for some technical advice.
And the first question is from Dorothy Cresswell, Exane. Your line is now open.
Hi, there. It's Dorothy from Exane. Thank you for taking my questions. My first question is around the speed of electrification. So you'll know that Mercedes has just announced they expect up to 50% of their sales to be XCDs by 2020 5, the majority of that will be BEVs and they've also said they will be 100% BEV ready by 2,030.
Now I'm wondering whether that is a powertrain mix you could deliver to, at least in theory, from a product perspective, from a capacity perspective And also from a supply chain perspective, if we assume for a minute that the demand and the infrastructure is there to support it. And then my second question is around the spending you're Still making on ICE vehicles, how much of your current CapEx and cash R and D spending is still going on ICE And how sharply do you expect that to contract in the coming years? Thank you so much.
Thank you very much, Dorothy. So we start with Oliver first. Oliver,
please. Dorothy, hello. Thank you very much for your question. This question is not unexpected, as you might know. And I think from our perspective, we will exactly follow not only the markets, but also All the political movements we currently see.
We have a strong statement from the European Union. They would like to accelerate it. And we will follow exactly that path. Meaning, whenever one country or a city or one region Turning towards fully electric, we will follow. As I said, next year with the introduction of the I said next year and in 2023 with 5 Series and X1, we have product offerings That's only in every single market segment.
That is earlier than any other competitor. In every market segment, we have a purely electric vehicle From the very small UKL segment, mini all the way up to the 7 Series. So we will be able to follow. What is currently not Specifically fast moving, it's public infrastructure. And our take on this is the following.
There are 3 different charging infrastructures. That's Public charging. That is private charging. And that is corporate charging. I think as I said in my speech on the corporate charging I think we will see the fastest movement.
We already installed by end of this year, we will have alone at BMW more than 5,000 charging units. And I expect that most of other corporations will follow because there's a big advantage of going back only with your corporate fleet. So that's not the problem. I think on the highways and that's mainly the public charging infrastructure that will also Move quickly. The problem is the public charging infrastructure and the corporate charging infrastructure To represent only about 20% of the complete charging infrastructure.
The main charging infrastructure is private. And we currently see the development in that is very diverse, not very transparent. And by leaps and bounds lagging the amount of vehicles. So we will match our product offerings very closely in every region of this world. And we will have the ability to follow by 100% If the regions even if that is happening very quickly, to assume that this will happen 100%, everywhere in the world, in all our markets in the next 10 years is not an assumption we share.
So we will halt the markets. We will contribute to climate change in whatever offer we have because every product offering is getting better day by day. So that would be and one last word, our Neue Klasse, PEPF only architecture from 2025 on. Of course, we present that the market share during that time starting in 2025 will, of course, be higher than in 2021.
Okay. The second part of the question was pending about ice. Nicolas? Dorothee, thanks a lot for your questions. First of all, we continue to invest in a very significant way in 2021 in Research and development.
So our NDA ratio should be plusminus on the same level, so slightly above 6% in 2021. And as you can imagine, as we will reduce the number of ICE drivetrains, ICE powertrains by around 50% till 2025. The amount we are spending in this area will go down significantly, and we spent significantly more than 50% Of our total R and D spending in the electrification of our portfolio. Good.
Thank you very much. Next question please.
The next question is from Tim Rokosz at Deutsche Bank. Your line is now open.
Yes. Thank you very much, Oliver, Nicolas and Max for taking my questions. There will be 2, please. I guess the first one is for Oliver, and something that we already discussed about in previous calls, but you touched on it again this morning. So I'd like to touch on it again as well, your goal of selling 3,000,000 units.
You said this morning that all your competitors are chasing volume as well. Frankly, that's not really what we're hearing. Audi gets rid of the A1, talks about a stronger profitability focus. They want So less vehicles and make more money. On the mass market side, we have extreme examples like GM, but also Stellantis and Renault now sell less vehicles and rather don't stuff the center channels.
Frankly, right now, almost every player sells less than they probably would like to, and they are much more profitable. So the same question that we already discussed in previous calls, why do you believe it is necessary and desirable to have a 3,000,000 volume unit sales When this entire industry seems to reverse to profit over volume growth, why do you not target less volume growth, but a higher margin instead? And then secondly, Nicolas, it's probably for you on the guidance. Obviously, that is something that investors really dislike about your results today. I get the raw headwinds.
I get the semi stuff in H2. But taken together, that's maybe 1% to 2% margin headwind. You guide for significantly less in H2 2 over H1. So what is it that we don't see? Or what is it that you didn't tell us that's going to be a headwind in the second half of this year?
Thank you.
Thank you very much, Tim. We start with Oliver.
Well, Tim, if you look at the market forecast, They all go up. If you look at all market for there will be far above 90,000,000 cars. So we will have peak car demand in the world ahead of us, not behind us. The question is with what kind of drive trend and so on, but the world market is growing. And if you go on a reduction strategy, you will lose market share because If the normal OEMs would not grow someone else would grow.
So first of all, taking care of that Our product strategy is aligned towards that 3,000,000 unit and it's not a target we set ourselves internally, which has to We reached by whatever means. The ground basis is profitable growth. And we showed in the first half year twenty twenty one that we can grow and be very profitable. And we will stay exactly on that course. That is not volume or profitability.
If you would not grow in this industry, you will shrink and lose market share. And If you allow that, that everyone can decide for itself. And we can stay profitable with Mini In the small assortment only with a very unique product offering and we are profitable in all segments today, all the way up to Rolls Royce. And we don't see any need to change that. And We stick to that target.
And I think for us, it's exactly the right target.
Thank you very much. Oliver, second Part of the question, what are the headwinds for the second half year? Tim, Tim,
Tim, Tim, of course, I was expecting Your question. And there's probably nothing you do not see. And I'm telling you of course, I'm telling you everything. And if you reflect on one hand side on the first half, which Undoubtedly, it was a very strong performance, even if you would adjust by the antitrust Provision release and the pension provision release, strong performance in the upper part of our 8 to a 10% guidance, probably around 9.8%, 9.9%. Now what Do we see and I know I think you guess I guess you know all those topics.
On one hand side, we have And impact from raw material prices we anticipate at this point in time for the second half of the year. Could it improve in the course of the next week? Of course, it can. But as we speak from today's perspective, We see a risk against the 1st 6 months. And the second topic is, of course, the Semiconductor supply situation, we've been performing extremely well in the first The 6 months of the year probably better than most of our peers.
And of course, our colleagues in procurement, in production, in sales We'll do everything to maintain this strong performance. Having said this, we see some Challenges in the last couple of weeks. Will this materialize? Let's see. We do everything to avoid that this is materializing.
And we will see much, much clearer in a couple of weeks from now. And the 3rd element, of Of course, it's and this is something you know extremely well, we have a peak of our overhead costs in the 4th quarter. So those are the 3 main elements. And of course, this has to do with a ramp up of R and D spending in the course of the year. Those are the 3 topics.
Good. Thank you very much. Next question, please.
The next question is from Tom Nourien, RBC. Your line is now open.
Yes, Tom Nourien, RBC. Thanks Taking the question. If I could just follow-up on the last question, wondering if there was any demand pull forward From H2 into H1 of higher margin vehicles, I guess that was one element that you didn't call out. And then a follow-up on the comments on public charging. Renault, I think last week said 80% of The charging on their BEVs was happening at the home or the office.
Curious if these fears over public charging Might be somewhat overblown. Just love to hear your thoughts on that. And if there's any Indication on data of how people are charging your BEVs. Thanks.
Okay. Oliver?
Let me start with the second question. With the second question, please. Because I think I answered it already. It's absolutely right that the majority of charging It's at home or at the workplace. Yes.
That's exactly our picture. And the discussion we have in the public is mainly not about these Stu is mainly about public charging. And we think we have to have a more close look where 80% of the charging, namely in the office or at home It's happening. It's much more diverse. And we created our own model to reflect the development of our And currently, we see a big lag on 80% of the necessary charging stations.
So Renault is exactly the same what we see currently. And the first one, Nicolas, yes.
Tom, no, not at all. There is luckily an ongoing high demand for in particular, for our high end models, X7, 5 series are performing really very well. Of course, what you will see is a ramp up of XEVs in the second half. Month by month, We improved our XUV performance. And this, of course, unfortunately, has Some negative impact on our margin on one hand side.
But on the other hand side, this underlying our commitment and our strong performance with electrified cars. Thank you very much. Next question please.
The next question is from Keim Leerink Barclays. Your line is now open.
Thank you very much for taking my question. The first one is really regarding your Margin in H1, if we look at the underlying number, you just mentioned the 10%. That's at the same time when you have a record M model sales and record Rolls Royce sales. Just trying to understand a little bit, at the same time, you also have residual values that are supporting this margin. What is required to go beyond that 10%?
And as a second point is really when we look at your guidance again, and I'll come back to Tim's point, You've now delivered 13% in H1 in the auto division. And even if we take the upper end of your auto margin, the 9%, That would technically sort of imply below 6%, maybe even a 5% margin in the second half. At the same time, you said on the press Call earlier that the FX and raw mats headwinds should be at the lower end of the €500,000,000,000 to €1,000,000,000 range. So can you just Clarify a little bit what are the moving parts. And that's also combined with the point of your provision release.
You said the SEK 1,000,000,000 Left your guidance or moved your guidance up by about 100 basis points. You had the EUR 500,000,000 pension impact as well in the 2nd quarter, but that didn't have an impact on your Guidance, why is that?
Okay, Kai. Understand. Thank you very much. This will be answered by Nicolas.
Kai, let me start with your first point. So as you rightly said, on one hand side, 10% is at The top end at the top end of our corridor. And on one hand side, you've pointed out the Positive elements. But on the other hand side, as I've mentioned, we see a significant ramp up of ex EV, so electrified cars, which is which are impacting in a negative way our profitability. And we continue, as I've stated, to invest.
And we believe that's absolutely Essential in research and development, not only just in electrification, but also in digitalization and Autonomous Driving. Just to give you an idea, the XEV sales in the second half, And that's now already the part of the answer for your second question will be a further 75% up compared to the first half of The second element of cost is what I've indicated, we see Some risks, risks in terms of raw material prices, risks in terms of Semiconductor supply. Will all those risks materialize? Let's see. As I've stated, We work extremely hard in a consequent manner to avoid those risks, but This is the actual status.
And I'm convinced we will be we will see much clearer in a couple of weeks from now. But first of all, we are extremely pleased to see that our profitability Is even if you adjust by the two items you've mentioned is in the upper part of our 8% to 10% margin corridor. Okay. Next question, please.
Thank you very much, Nicolas.
The next question is from Jose Asumendi, JPMorgan. Your line is now open.
Thank you, Max. Hello, Oliver and Nicola. Jose, JP Morgan. Just a couple of questions Oliver. Maybe can you comment I mean, I heard you comment to you prior this morning around the launch of your cell pilot line next year.
I'll be very interested pleased to hear how much capacity does this line have, How much CapEx does it require? And any thoughts around the battery chemistry? I'm fully on board with all the comments you provided this morning around the state of the battery market And how you have multiple suppliers fully on board with those comments. We'd love to hear a bit more how much progress is D and W making there, which I think could be a differentiating factor going forward. And second, on electric motors, you launched already your own technology some years ago.
Maybe Nicolas and Oliver, can you give Some tangible comments on how is this differentiating factor for BMW? How is it helping your profitability maybe versus peers as well? Thank you.
First one?
Yes. Thank you very much. Petrobrassel pilot line, capacity CapEx and so on. Yes. Yes.
Okay. We'll start with Oliver, And then Nicolas for the second part. Yes.
Yes. Jose, good morning. Thank you or good afternoon. Thank you for your questions. Let me go a little bit more into detail what we do there.
That market segment of electric vehicles is moving rapidly As we assume for many years now. So our strategy, which we worked out a couple of years ago, Has two elements. 1st of all, rapid growth and the second is cost reduction. So our 5th generation of batteries now Moves exactly towers that. And this the 5th generation is has been launched at the beginning of last year.
Now we move towards the 6th generation with much higher volumes, much lower costs. And The question is the leverage on the volume side from our point, it only makes sense if you go over various suppliers and not only with 1 supplier. There's a big huge market out there with no oligopol or monopole restrictions. So this works very well for us. We have 4 large suppliers for the next 5 years.
And They have high flexibility also on the volume side. And I think much higher flexibility you would ever be able to do by yourself. And the second thing is cost reduction. And cost reduction doesn't happen so much by the normal economies of scale industrialization process. It's much more that you have tight control of what is inside the cell, what kind of materials do you use.
It's highly complex growth with more than 1500 parameters in a single cell. And I think with that competence with our Battery Research Center plus the mentioned pilot line we have, We have the right competencies. The pilot line will have around the capacity of 10,000 cells per year. So we could we can't produce the cells ourselves and then give them to the suppliers. And it's a part of the IFC A process which we have sketched out in line with the European Commission.
That's our stake here.
Okay. Thank you very much, Nicolas, for the second part.
Jose, if I got your question right, your question was about The HCV performance 2020 versus 2021. So the plan is to grow by approximately 75% in 2021. Of course, plug in plus All electric cars combined. We've already seen a significant ramp up in the 1st 6 And now with the launch of the I4 and the IX, we will we are optimistic that we continue to progress really well. Thank you
very much. Nicolas, I think ladies and gentlemen, we have time for some more questions, please. So the next one, please.
The next question is from Harald Henriksen, Morgan Stanley. Your line is now open.
Hi, guys. It's Harald from Morgan Stanley. Thank you so much for taking my question. Two quick questions, please. One, you've mentioned a number of things on the residuals, on the credit loss reversals, other financials, hedge gains and things.
Is it possible to give us a little bit more detail in terms of those numbers, the sustainability of those numbers into the second half, just to give us a better idea of what the margin Extrapolation from the Q2 should be. I think we all understand it's not 15%, but is it 10%, 11%, 12% maybe you can help us with that a little bit. And then secondly, China margin was also very strong. Can you just talk about that a little bit more, again, the sustainability of the China margin? Obviously, as we go 22, that's going to be a big, big thing for you guys.
Was there any exceptional impact or anything in the China margin in the Q2? Thank you.
Thank you very much, Harald. Nicolas, please?
Harald, of course, 2 extremely relevant topics. I will Start with the second one, sustainability of our China margin and China business. Since April last year, now since April 2020, we see a very positive development in Sales and Margin Development in China. We are on a very low level of incentive Spending in China in from what is from our perspective in a sustainable way. Why?
Because we manage Supply and demand in what I believe is a very smart and precise manner to manage this. So we have no oversupply in our dealerships, which is definitely supporting the development and the sustainability of the margin in China and the outlook despite the fact that the overall market It was under pressure. The premium market continues to perform very well in China. So we believe too early to give guidance for 2022, but we have no signals at this point in time that This should weaken in the second half of the year. On digital value and credit Loss provisions, you're absolutely right.
We continue to be if we start with credit loss provisions, we continue to be On a very strong, meaning low level in terms of credit losses in all our Major market, and I believe this has to do with this is not something which happened in the last 15, 18 months. This is a trend which Much, much earlier has to do with the way we manage this business, and we have no reason to believe that this is going to change. And this is one of the reasons why we've increased the guidance for the full year for Financial Services to 17% to 20%. And digital value development, of course, is very much driven by used car market pricing, in particular in U. S.
And U. K. And has to do as well with the Much better balance in the whole industry between supply and demand. You can be assured that from our side, We will do everything to maintain this situation because it's not only us benefiting from that. It's also our dealer organization benefiting from this well balanced approach.
Good. Thank you very much, Harald. I think we have time for 2 more additional questions. Next question comes from
The next question is from George Georgios, Goldman Sachs. Your line is now open.
Yes. Thank you for taking my questions. So I just found the comments around the roles of e fuel and hydrogen interesting, given you obviously have Concerns around EV infrastructure. What is your view on who is going to fund the infrastructure for efuels and hydrogen? And is it rational to have 3 technologies and 3 different infrastructures going forward?
And with Back to this multifaceted and I guess diverse and flexible approach that you're offering your customers. When I compare your CapEx and R and D ratios today of 10% to 10.5% of revenues, they are starting to look high Versus the latest targets provided by some of your peers, do you think your flexible approach is requiring you to invest more Then some of the competitors who are focused purely on battery electric vehicles. Thank you.
Yes. Thank you very much, George. So we start with the infrastructure with Oliver and then Nicolas. Oliver, please go ahead.
George, thank you very much for your very good questions. If it would be possible to go only with one technology, we would do that. But as I said in my beginning, the regions in the world develop very differently. Of course, we are impacted very much about European discussion We have it, which is very much dominated by the e infrastructure discussion. But if you go to Korea or Japan, they have a completely it's a completely different set And that is why Maja said we are a global manufacturer.
And every one of these Drive trends has its relevance in specific markets. Southern Europe, it lacks Northern Europe by about 10 years, a complete decade. Inside of Europe, the Korea and Japan development, they go for other reasons Specifically for hydrogen, because of the density of population there. It's extremely difficult to build up quickly enough Electric infrastructure is much easier with e fuels or hydrogen, which can be transported to specific locations. And I think if you have a strategy, which is not depending everywhere in the world of a specific State of infrastructure then this is the right approach.
There will be a lot of fields in about 10 years where there is a demand to drive emission free, but you do not have charging infrastructure. You can see that already. And that is why hydrogen And or eFuels are important. And on the eFuels side, of course, all the investments are already made. We this is The allocation of our investments on the combustion engine side.
So we think as a global manufacturer, despite The different approaches we have in some of the regions, this is exactly the right approach. If you wouldn't do that, this is our take, You would go into a shrinking scenario, and that is what we don't want.
Thank you, Oliver. Nicolas? Yes. George, as you can imagine, we always benchmark ourselves against our main competitors and so did we for the first half of for 2021. And if I look at the respective numbers, Pete, from an EBIT margin perspective for the Automotive segment of CapEx and R and D ratio perspective, I can't see any weakness of the BMW Group in terms of EBIT margin.
We are Leading in the industry. And in terms of The CapEx and R and D ratio, of course, always difficult. We are in absolute numbers and relative numbers Below our competitors, you might even argue, well, is it enough? We believe it's very focused and Extremely well allocated in our organization, and we clearly focus on one hand As I've mentioned when answering Dorothee's question, focus on electrification of our Portfolio and of digitalization, not only on the car, the product, but the whole organization because this will lead to Further efficiencies in our overhead. So I definitely and not to be misunderstood.
We have a very, very clear focus with Neue Klasse. This is an electric architecture, which will Be in terms of cost because we benchmark ourselves here as well, definitely Leading in terms of industry standards.
Good. And now ladies and gentlemen, the last question please.
The last question for today is from Henning Cosman, HSBC. Your line is now open.
Hi, good afternoon. Thank you for squeezing me in. It's Henning from HSBC. I also had a question on China and specifically with respect to your JV consolidation. Consensus, of course, It's still by a long shot not reflecting the consolidation that I believe you're planning from January 2022.
So I was just looking for you to please clarify if you're still planning for consolidation from 2022 and if and when you plan To communicate around this a little bit more proactively, to help consensus accommodate the effects of that consolidation. And maybe while we're at that, you could also clarify if you're planning to give an adjusted Strategic target margin range, the one that's currently 8% to 10%, are you looking to give us an updated version of that, Including the China JV once consolidated on the group? That's my first question, please. And the second question is, I suppose on similar in a similar direction 2022 and beyond margin, seeing The implied margin that you have for H2 with the full year guidance now, you have, of course, more of a V shape, If you want from the low H2 level to your strategic target compared to your premium competitors, Can we just talk a bit about how you see price normalization? Is it fully really attributable to those cost items that you mentioned?
Or how do you Price in the industry evolving in 2022, 'twenty three, lots of clients are concerned About the normalization driving industry profits across the board lower in 2022, 2023. Please can we have your view on that? Thank you very much.
Thank you very much, George. Henning, sorry, Henning. Henning. Thank you very much, Henning. Your question will
be answered by Nicolas. Yes? Hanging to very relevant topics. Question number 1, increase of 25% from 50% to 75% in our China GV. Of course, that's well underway.
We have On necessary approvals from the Chinese authorization, and we are now preparing what I would call the administrative Elements required planned for the Q1 2022. And we will, of course, communicate the impacts which financial impacts which related to this most likely at the end of this year or early next year with the guidance for 2020 2. What will be the impact maybe in a first glance On our strategic KPIs, we are in final calculation What will be the impact on our EBIT margin? But of course, you have to integrate the fact that you consolidate turnover as well, not only The strong financial result. Having said this, the quality of our business in China is very strong.
And we anticipate that this will continue in 2022. And this leads me to the second to your second question, 2022 and beyond margin, of course, and beyond is very, very difficult to forecast. I believe that's a unique opportunity. The industry has maybe caused by The pandemic, we have seen inventories trending in the right direction. This supported an improvement in our margin and our network margin.
And we will do from our perspective and in the way we feel the business everything to continue with an extremely Well balanced approach and we have set up a strategic program as part of our performance program involving colleagues from production, from procurement, from sales in order to be even more precise in managing demand, production, supply and logistics. And you see already the first Positive impacts from this initiative in the 2021 free Cash flow. And this is a very, very important element in order to maintain The strong pricing, in particular in the U. S. And in China, to be very straightforward, in Europe, we see further Potential for optimization as not all markets are from an overall market environment Such a good shape as lead to other major markets I've referred to.
Good.
Okay. Thank you.
Okay. Ladies and gentlemen, thank you very much for your time and for joining us today. We wish you a wonderful Summertime, and please stay healthy. Servus from Munich.
Bye bye. Bye bye.
Bye bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.