Good morning, ladies and gentlemen. Welcome to the 2026 BMW Group Annual Conference Analyst and Investor Call. My name is Stefan Richmann. I'm the Head of Treasury and Investor Relations at the BMW Group. It is my pleasure to host today's investor and analyst Q&A with Oliver and Walter. As Oliver mentioned earlier, we continue to leverage our global business model and the advantages of our technology neutral strategy, meeting demand for both combustion engine vehicles and electrified vehicles. With the successful rollout of the Neue Klasse iX3, we have kicked off a major product offensive that will provide the BMW brand with crucial momentum for the future. Walter has shared with you how we have navigated 2025 and delivered on major KPIs in our operational business despite the tariff impacts, developments on currency markets, and the intense market situation in China.
Disciplined and consistent cost reduction underpinned our performance. We have also provided comprehensive and reliable guidance for 2026, factoring in all known and decided aspects against an uncertain geopolitical backdrop and tariffs. With that, I will turn the floor over to you, and we are happy to take your questions. Our first caller will be Patrick Hummel from UBS. Patrick, I can see you on the screen. Welcome this morning, and please, the stage is yours.
Yeah, thank you very much, Stefan. Good morning, gentlemen. Thanks for taking my question. So Oliver, first of all, your tenure is coming to an end soon, and you've not been shy to be anti-consensus on many of the key topics that we have discussed with you over the years. But your way of doing things or the BMW way of doing things has worked out pretty well compared to competition. So I'm curious, when you soon hand over to Milan, what's actually your high-level advice to him? What have been your key learnings over your tenure that you think are going to be most valuable for your successor, and the entire company in the future?
The second one for Walter, I have to dive a little bit deeper into the 2026 guidance, if you don't mind. You take certain assumptions for tariffs that some people this morning called quite optimistic, such as the EU lowering the tariff to zero later in the year. Also, some sort of USMCA agreement that would improve the current situation. To better understand and quantify what you've baked in versus the status quo, can you just give us the 105 basis points of tariff impact? Alternatively, what would be the right number in a no-deal scenario? Would it be 175 basis points, 150? Whatever that would be helpful.
If you don't mind elaborating a little bit on the other key building blocks in the EBIT bridge for 2026, the usual volume price mix, costs, D&A, all of these. Thank you very much.
Thank you very much, Patrick, for your questions and also for being so kind to directly allocating them to Oliver and Walter. That, of course, makes my job easier. So first, the question to Oliver from your side with regards to his tenure as it comes to an end after more than three decades with the BMW Group, and regarding high-level advice for Milan. Over to you, Oliver.
Good morning, Patrick. I regard being anti-consensual as a compliment. You know, we are living in a competitive environment, and to be consensual is probably the first mistake you are about to do if you want to compete in a pretty high-level competition in our industry. You know what drives us? If I give one word to what we, it's not me, it's a we including Milan, of course, what we've been doing for the past years is to become antifragile, if I might use that word. Antifragile means you're profiting from a highly volatile world. There are three components to that, and we've built on that competitive strengths for the past 10 years. To be a global company helps you.
Like you have seen, we have been shrinking in China, but we have overcompensated with growth in Europe and rest of the world and the United States. To be technology neutral or technology open, however you want to phrase that, helps you to quickly respond to market needs and requirements, you know. You have very fast-growing electrifying countries, and you have countries who hit the brakes, you know. To assume that would never be the case is the first mistake you do. This is a highly fluctuating world and under the assumption which every year holds true, the number of cars being sold in the world as new cars is increasing, not decreasing. The world market is there. The third component is, of course, that you offer cars in all segments with all drivetrains.
It starts with a MINI, then goes over to the lower segments at BMW, all the way up to 7 Series, and now very soon, Alpina plus Rolls-Royce, of course. All these three elements built an antifragile environment. Then all you have to do, you have to train your muscle to react quickly, and that is what we have done through all supply chain crises we might have had. Corona crisis, energy, whatever you call crisis, it helps you to train that muscle of maximum flexibility. In Milan, you know, you probably won't even feel that there is a change in top leadership because he has been with us all along.
There's good reason that he becomes my successor, so individual people do not make a big difference in our strategy because our strategy is built up of a close negotiation and devising a strategy with top leadership. Top leadership at BMW is 65 vice presidents and seven board members. It's not a top-down issue. There will be some very stable elements in our strategy.
Thank you very much, Oliver. Now turning to your second question, Patrick, it was about the 2026 guidance and providing some additional detail, specifically on tariff assumptions, and you were asking about individual building blocks within the EBIT bridge. For that, of course, I would like to hand over to you, Walter.
Hello, Patrick . First, I thank you with respect to the tariffs assumption. Why is that? Because everyone is raising this question, of course. Eventually we start with 2025, first of all, to have a base. In 2025, we had a lot of ups and downs. You remember in Q1, we had more or less 0.75% EBIT margin hit because of China cars coming into Europe. We started with the U.S. then in Q2. We had 2.0% in Q2 and 1.75% EBIT hits in Q3 as well as in Q4. You do know, I'm not specifying it, whether it is 1.4, and I would still speak about 1.5, or whether it's 1.6, I would also classify it as 1.5.
There is a variance in already. Now, going forward, we assume, and we wrote about it on page 263, for everyone in this call, it's page 263 on the tariffs. It's about in the second half year, we assume that we will see changes for the better. We assume EU and the U.S. will come to the final agreement, and we still assume it is nil from the second half year onwards, meaning July, whatever July really means then. Ultimately, we also assume that there will be a better negotiation between the U.S. with Mexico and Canada and some other countries. With that, we assume that we are not having a 1.75 burden in the first half year, but a lower.
Overall, in the year 2026, we shall see 1.25 EBIT points burden in the EBIT margin. It's not on top. It is instead of the 1.5% EBIT burden in 2025. So instead, not on top. I think that's the key element number one. Then you ask for some further details, which we wrote on page 264 for everyone. I'm happy to highlight these once again. So we are working on all cost elements. Whether we speak about CapEx, we will reduce CapEx. We will reduce also R&D further on the German commercial law side. We will reduce also the fixed cost. That means sales and general costs, SG&A. So on all elements.
We shouldn't forget about the depreciation, which we see based on the start of the Neue Klasse. You saw some already in Q4, but just a bit. With the real start of production, we see, of course, the depreciation starting across the year. With that, there's a burden. On top of that, with the start of the Neue Klasse, you remember that our activation on development costs is finished six months after start of production. We focused heavily on all elements of the Neue Klasse. All our tech clusters are getting activated, and six months after start, not anymore. Hence, our activation ratio is going down in the second half year latest, but you shall see already some elements in the first half year.
Ending, before the next question is coming, that we assume an activation ratio, a capitalization ratio of R&D costs of around 30%. You saw that in 2025, we had 41% capitalization ratio of R&D, and we assume it is around 30%. That gives you also a burden on top of that. Of course, we also wrote about the product measures we described and discussed even in China. On the other side, I have to say, currently in the first two months, we see transaction price stabilization, even to the better. That works out all these product measures we did starting in November, and now one month after the other, we are shifting something behind. Also the dealer network is stabilizing themselves, so that should help a bit at least.
Now, if you take all these elements together, still the headwind is bigger than the tailwind, which we're working on. That ended up in the assumption that we'd rather guide for the segment automobile 4%-6% instead of 5%-7% last year. With that burden, we come also to the conclusion for the group that we have a moderate decline. A moderate decline is between 10%-15% minus the previous years, which I think I would like to underpin. Last year was a very good group profit of the year as guided, and we are better than EUR 10 billion profit. That is a very high position to start with in this current environment, especially if I look around some others. Hope that helps, Patrick.
Thank you, Walter, and all the best, Oliver.
Thank you very much, Walter, for this detailed explanation. We have the next caller up, and I hope we will see him on screen in just a second. That will be right here we see him, José Asumendi from JP Morgan. Good morning, José. The stage is all yours for your questions. Thank you.
Very good morning. Thank you very much. Thank you, Stefan. Two questions, please. Oliver, I would love to hear your thoughts, please. When you look at the, you know, the Chinese market over the next, let's say, three years, what do you think are the biggest challenges BMW will have to confront in the region? Looking back then at the work you've done in the last three, five years, how are you leaving the group in terms of the manufacturing and the product offensive to be able to compete and obviously, you know, take further market share? Walter, I'd love to also get some thoughts, please. What drives the lower end and the upper end of the margin range?
You provided already a very detailed reply to this, but a bit more thoughts as to, you know, the lower end and the upper end of the margin range for the automotive division and whether we should expect some, potentially some pricing relief, in 2026 in China as hopefully you will have to support less the dealers in China in 2026 in comparison to 2025. Thank you.
Thank you very much for your three questions, José, and the first two I will then hand on to Oliver, the third one, obviously, to Walter. First question being from your side, what is our expectation on the Chinese market over the next three years? Whether we see any big challenges and what are those? Oliver, please go ahead.
When you look at the Chinese market, then the first thing you must recognize, this is by far the largest car market in the world. All along, it was clear the largest car market in the world will be highly competitive, highly innovative, and of course, dominated by the largest local players. What happened, and it's still happening in this market, is not a surprise, it's normalizing. When you say normalizing, that means there is competition in a saturated market like we have in Europe and in the United States. To survive in such an environment of saturated market, of course, you have to safeguard your profitability. You cannot expect that you have higher profitability as somewhere else in the world, which is not a big disaster and not a surprise.
Now, with the Neue Klasse coming up, we already received very high resonance from the Neue Klasse, the iX3, which will also be available very soon in the Chinese market in the long version. The feedbacks we get are as positive as we have them here in Europe. There's no difference. Underlining that we are highly competitive. Why are we highly competitive? The car in China is very much made in China for China. We are collaborating, of course, with local supply chains. We are collaborating with leading China tech players like Alibaba, Huawei, Momenta. We have a local production at the Shenyang plant, and we will present the car at the Beijing Auto Show next month.
This car is underlining exactly what, and that is your question, what is important in China? High local content, super innovative, and highly competitive, and all the three elements is inside the iX3 for the Chinese market. There's a very positive outlook. As we said before, this is not a car, this is a technology platform with technology clusters. All cars which are being launched after that, for example, the local X5, will bear all these technologies. We have a positive outlook into that market, especially with the launch of the car and the main fundamental, if you want to compete in the Chinese market in the future, the Chinese content will be ever higher, and that's exactly what we do.
Thank you, Oliver, for this look into the future regarding the Chinese market. Following up with José's second question, what have we done in the last 3- 5 years, specifically with regards to manufacturing and our product offensive?
I mean, what you see in our production and product, that always comes together kind of. Production comes from product. What we see with all these technology clusters, which you will see in more than 40 cars until end of 2027, you will see exactly the same thing in the production areas. You will see that in productivity, the throughput with AI applications are as high in the manufacturing area as it's in the product area, and which will help increase productivity as well as the quality and the output of the cars. New technologies are at the forefront of BMW, and this process of optimization will never end. There is never an end.
Every year, we have pretty tough targets for productivity improvement, so every year, this production system becomes more expensive. There's a good reason why Milan becomes my successor, because he has done that very, very successfully in the manufacturing area. Of course, you will see that at the end, you will see bottom line. Production is well on track worldwide. The Munich plant here in Munich will start very soon with the i3. It has been completely rebuilt. In Spartanburg, the new X5 starts very soon and next year, the new X7. In Leipzig and Regensburg, they're both working three shifts because of the high demand for the cars in these factories. The new plant in Debrecen also works well.
All plants are full speed ahead for the product offensive we are undertaking now.
Thank you very much, Oliver. Now moving to José's third question, I would like to pass that on to Walter, and I think it goes pretty well hand in hand with Patrick's question on guidance 2026. José's asking how the lower and the upper end of the margin corridor in the auto segment could be driven. Walter, over to you.
Yeah. Well, a corridor is a corridor, right? That's the reason why it's 4%-6%, and of course, as we are in the beginning of this year, everything could happen. As we remember in 2025, 12 months ago, over the course of the following 8-9 months, a lot of things have changed on the cost side, on the pricing side, across the geopolitics and the regions. Luckily, we are a global player, and hence, in 2025, we have been able to shift margins also between China with the success, especially in Europe and the U.S. You can only do that as a global player, and we're happy to do that. Other than that, of course, it's about pricing, it's about cost targets, how we achieve them, and I think in 2025 you saw that we executed very good in my eyes.
Of course, it's about the tariffs, whether our assumptions are right or not. On the other side, there's always risk, and there's always a chance. We try to organize them from a portfolio aspect, and we manage that one in the same year this year as we did it last year. Usually, you see that driving costs down is always a good thing because that is in our own hand. All the rest we have to organize flexibly with the markets on the pricing side, but so far, I think 4-6 is a very good prediction and guidance.
Thank you very much, Walter, for this answer, and we will now move on to the next caller. We should be seeing Tim Rokossa from Deutsche Bank, and we see him right here already on screen. Good morning, Tim. The stage is yours. Please go ahead with your questions. Tim, we are not hearing you, and I'm wondering whether it is technically on our side or whether it is on yours.
Yeah. Sorry, I was not unmuted by the host yet. Now I'm there.
You can't believe how happy I am that it was on your side.
Thank you very much. Thank you Stefan, Oliver, and Walter. I have two and a half questions, please. The first one goes to you, Oliver. When we think about the support from the EU, it feels like the regulator has finally understood how important this industry is and wants to help, but whatever they come out with seems oddly complex and difficult and probably beyond the point. I wrote for Oliver Blume yesterday, and obviously there was also a lot of investor questions about what he thinks the industry or the EU should do for the industry. Some very specific points about EU-made BEVs, for example, getting support for them. Do you feel like the EU has finally understood that they need to help this industry and want to help them, and what would be your view of what they should do to do that?
Then secondly, Stefan, I'm allocating the questions to you as well, but obviously please feel free to reallocate them. When we think about China, maybe Walter here, what do you say to people that just feel like they have a bit of a déjà vu moment at this point in time compared to last year? Where you also were very optimistic on the Chinese development. You also guided for some improvements from what we see right now. I understand the transaction prices have stabilized, but it still really feels like something that might be a bad awakening in the summer. The final point, probably also to you, Walter, why do you decide to bake in the tariff easing in the rest of the year? When we look at someone like Daimler Truck this morning, for example, they don't.
I think there's reasons to believe that you should rather show what is the reality today rather than taking a view on when this would be signed. Thank you.
Thank you very much for your questions, Tim. First one will be going to Oliver, the other two then obviously to Walter, and the first one with regards to the EU, support from the EU. Has the regulator really understood? Oliver, over to you, and since the question already came up this morning in media, maybe the concise, brief version on that question.
I'll try to make it brief. Tim, it's great that you're participating. You seem to be part of the inventory of this meeting. I cannot remember the last year that you have not been here. Good morning to you specifically. I will try to make it very short. Very clearly, the EU is making things not complicated. Complicated is not the problem. We can control complexity. That's not the problem. They're working against the industry. In the new proposal which came out in December, they tried to put even more topics in where markets are restrained from developing themselves. One portion is, yes, they go from 100% to 90% CO2, but how to achieve that in the small print, it actually works against technology openness.
The second element, that was not in the legislation before. They tried to put European content in such a way that export models and the German car industry is very much export-oriented, is neglected. All the European content which comes out of export is simply not taken into account, which is a very dangerous thing, I think, because this creates a lot of job and a lot of value. To only favor smaller cars which are 4.20 m and longer, you can do that. We don't mind giving incentives. How it's written, it creates two classes of cars and that of course reduces the competitiveness of the whole industry, you know.
The small print behind it is still very much technology unproven, too much focus on electric only, and not enough focus on real CO2 reduction. I end with a question: What happens to a regulation where the markets will, in the electric arena, with also with our products, grows to 50% market share and then it stalls? If that regulation is implemented and that is happening in the market, you will shrink this industry, and I think this is a dangerous path to go to. With that, I stop. I was supposed to be short. Thank you.
Thank you very much, Oliver, but I think the message came across.
Yeah.
A second question over to you, Walter, was with regards to the guidance 2026, our provision on the Chinese market, its development, whether it might be too optimistic. Please, over to you.
Too optimistic. We rather like risks to incorporate them as Germans, don't we? No, we do not. We have to see chances and risks. With respect to China, if you really compare the last six months, and you see months after months, or you eventually rather quarter by quarter, you will see that the dealer network and all these measures we have taken in place are starting to get more grasp and starting to be more effective and stabilizing the dealer network. That's the first of all, because in the Chinese environment, on all dealers, not just BMW, the whole auto industry, there's still a lot of irritation, let's say, with all these new rules also come in place, right? That price has to be finally over costs, which I really appreciate from SAMR, the new rules which they also double-check.
I'm really highly appreciating those. That's already a positive sign with respect to the transaction price. We see that in December, in January, in February, and they are stabilizing and even rising. They are becoming better, positive for us. Second, we also did a lot of product measures. In November, we started the first launch, in February, the second one, and the next one will come. We are enhancing product attractivity and increasing transaction prices for those products, and it works. The third one, which is, well, take it optimistic or realistic, whatever, if you see the run rate of our sales in China, if it moves on like that, we can achieve previous year. Of course, if everything is crashing, then we have a different scenario, but our run rate is stable. Don't mix up the Chinese New Year.
There's always a difference between January and February. That has always to be, a year-to-date February number, otherwise, you would fail yourself. Taking all this into consideration, we see the chance, and we wrote in our, guideline, guidance that we can achieve previous year. We didn't say that we want to achieve the previous year. Of course, we also aim for profitable growth, that's, and stabilization, always the thing. Given all the facts and given what we did in the network, we can achieve previous year. Even if you compare the numbers year-to-date February, once you saw them already from CAAM, you see that we are still on a very good track compared with all other competitors, whether they are Chinese or traditional ones. From that perspective, I still think what we wrote, is absolutely spot on and correct.
With respect to the tariffs, why I am baking them in already, well, I think we have to mention that one, what our assumption is, plus a quarter of an EBIT margin. Yeah, that is also a lot of money, but we will also find some assumptions and some measures in order to compensate should we fail in our assumption. You saw that last year. 12 months ago, we've been the only ones mentioning that we bake in 1% extra cost for tariffs, and ultimately they have become 1.5. We found measures to try to compensate this half percentage point. Now we speak about a difference of a quarter percent, and we still have 9.5 months to go.
On the other side, we really hope that tariffs will be lowered across the world, because free trade would be best for everyone. That is also a communication from us to everyone. Hope that helps.
Great. Thank you very much, Walter, for your answers. Thank you, Tim. We now have next up in line, Horst Schneider from Bank of America, and there he is. Horst, good morning to you, and please, the stage is yours.
Yeah. Very good morning also to Munich and to the board. I have got two, three questions, please. The first one is regarding cost versus volumes. What I have got to say is what is really outstanding, Oliver, also what you have achieved over your tenure is basically this level of cost-cutting without announcing big major programs and layoffs.
For 2026, my impression is that large part of the stability you aim for come from lower costs. That, of course, then raises for me the question, what comes after 2026? Here I refer more to the midterm guidance. Is the cost-cutting potential basically exploited after 2026 and needs the margin growth from 2027 onwards to come more from volume growth? With that, the question would be, do you expect the premium market to grow again, or you expect to gain market share? You said today in the media call, Oliver, that you expect not to lose market share to the Chinese OEMs in Europe. I share that view.
You aim to take market share from Chinese OEMs in China, or you take more market share from legacy OEMs, from your traditional peers as of 2027. What is the trade-off between volume and costs regarding the midterm guidance? The second question that I have is regarding EVs. I was surprised about this great contribution and reconciliation in Q4. Walter, maybe a question for you, since now I think BEV leasing in the U.S. is structurally lower in 2026. We're gonna see if this tailwind through all 2026, that this is a major part basically for the group earnings. Maybe you can remind us how you treat EV residual values in your portfolio.
You constantly write down, or you write down basically at the end of the contract period, what is now the share of EVs in your leasing portfolio? Thank you.
Thank you very much for your questions, Horst. Of course, it needs to be pointed out, I didn't notice that at first, that you're wearing the right apparel for this call. That's very much appreciated. Thank you for that. First question obviously goes to Oliver. You ask about the trade-off between cost and volumes. First of all, the price, how we've handled that in the recent past, but now also a midterm guidance, and how do we expect the premium market to grow and whether we intend to gain market share also in the Chinese market, but specifically in Europe from Chinese competitors. Oliver, over to you, please.
On the fixed cost side, not on the market, we made substantial progress last year, and we are of the opinion this is a continuous management task. You know, it and you see it, if you look at our efficiency, you can see that. We are against programs. We are against publicly announced programs because that kind of reduces the responsibility of management to take that task very seriously. We don't talk about it. We try to really do it whenever it's necessary. Of course, these things come in waves. There are years where it's easier, years, but we every year become more efficient all the way, also started last year already with the help of AI. On the market side, the question is wrongly asked, cost versus volume.
I know that people love to have that orientation, to say which way should they go. It's the wrong question because good contribution margin is the sum of both. Flexibility is the most important thing. If an opportunity arises to create positive or super positive contribution margin, you quickly have to react. Flexibility to quickly react, it's 10 x more important than to say, we push volume or we only concentrate on the upper segment. It's the completely wrong question because that is a result and not a target. When people ask you, what do we want? I said, "We want good contribution margins." Of course, these opportunities with quickly changing markets. The core question is, how quickly can we get into all these little niches where opportunity arises?
The good thing is the opportunities change currently very much. That means it's not important that you have a strategy to be in that market, that you have the flexibility to react very quickly. That's what we call antifragile. We have in all segments, all drive trains, we can always very swiftly react, and we are after contribution margin and not after cost or after volume in the first place. Thank you.
Thank you, Oliver. Horst, your second question was on EVs, specifically BEV leasing situation in the U.S. and whether it constitutes a tailwind for 2026. Also the handling of leasing contracts with regards to depreciation and the share of EVs in our leasing portfolio overall, and all of these topics at once, I would like to hand over to you, Walter.
All in one. Well, let me start with that. In different markets, we have different penetration ratios, and the U.S. has one of the highest leasing penetration ratios. Not to forget the loan, there is also a loan business there. With respect to BEV leasing, because of IRA and these subsidies more or less coming from the government, leasing was the one and only for BEVs, because on loan, you wouldn't have received anything. That was a very high share. Now, with the stop of IRA subsidies from October first onwards, that had an impact in the U.S., of course, on BEV sales and on top of that, into our leasing portfolio. In Q4, leasing penetration came down in the U.S. With that, you have, of course, effects on the elimination part, which I guess you also raised, coincidentally, the question.
Hence, there was a different impact in our segment consolidation. Because that is always the contra of the auto business. You do know elimination is mainly for financial services business. So auto sold the car and in the group nothing happened, so I have to take it out, means minus. If there's less financial services business, there is less minus, and it could appear as positive amount, right? That happened in Q4 definitely. Now you also raised the question with respect to how we treat residual values. Well, we always treat it locked at the start of the contract, thinking about where is the residual value in 36 months, if it is a 36-month contract. Of course, also 48, 30, you name it.
Always, once the customer is signing it, we see every quarter, of course, we are doing our total portfolio reevaluation, and we do know which prices we have been capable to achieve for the off-lease cars. That's our prediction model. It's not that easily explained. It's a bit more complex, a lot of math. That means if you depreciate a car already higher or lower during the course of the contract, it's already the first topic, right? How big is the depreciation during the contract time? Second, on top of that, with the revaluation, we double-check whether we have to adjust across the portfolio. That's what we also do, and that is a permanent approach. Every quarter we are doing that. This is ending up in our balance sheet. If you have a look at our residual value provisions, that's the second part.
The first part you can't see because that's our leased-out products. You just depreciate. You don't know whether we depreciate it on a straight-line high level or on a low level. Sorry, I'm not sharing this information. You see this on top provision, and that is how we deal with that, and that is how we organized with shrinking used car prices since we had these top prices in 2022 and 2023. That's why we speak about lower residual value profits than we had previous years before, because we see that it comes down gradually, step by step. It's still positive, but less positive than previous year. Even this effect you see in three segments, you see it in auto, you see it in financial services, and you see as a contra in consolidation.
That's how we deal with the financial services lease business especially. Hope that helps.
Reconciliation gonna be a positive contribution in 2026, significant positive contribution, right?
Whatever you classify as significant, but we can assume if we have less ref leases in the U.S., you will have less negative consolidations.
Okay. Okay.
Mm-hmm. That way around.
Thank you.
Of course, don't forget, we are not just dealing with leases in the U.S. We have it across the world. U.K. is getting the iX3, for example, now in Europe already. Leases are going there. There might be contrasts, might be different, but yeah, you're right.
Thank you. All the best for Oliver.
Thank you very much, Walter. Maybe just a quick statement on how we are proceeding so far. We have obviously quite some interest in our figures and the guidance 2026. For the next callers coming up, we still have several in line. I kindly ask you to limit yourselves to one question each. We have already answered quite a significant amount of topics, and we surely have covered a lot of issues already. Therefore, please limit yourself to one question. Next one up, we should seeing him on screen rather soon. There he is, Mike Tyndall from HSBC. Good morning, Mike. The stage is yours. Mike, please do me the favor and check whether it works on your side.
I'm hoping you can hear me now.
Now we can hear you, yes. Thank you.
Fantastic. I'll stick to one question then. Just one for Walter, please. If I look at the profits from BBA, we were at around EUR 270 million in 2025, down from about EUR 1.4 billion in the prior year. When you talk about China achieving the same sort of number for this year, can you just unpick the difference there? How much of that was one-off, and therefore, how much of a recovery is likely in that profitability of BBA in 2026?
Good question goes to you, Walter, regarding profit from BBA in 2025 and an outlook for 2026 with regards to potential one-off effects in 2025 that may have an effect in 2026. Over to you.
Right. Hi, Mike. I hope you have a look for the right disclosure in our 432-pager. You see two elements where you can see BBA numbers. One is the group consolidated one. There you end up with your EUR 227 million, but that is after PPA, after OCI, so that is a rather consolidated view. In the disclosure where we present all the shares we have on every legal entity, you see the legal entity view. There you see more than just EUR 227 million, rather EUR 1.2 billion. I hope you see the right disclosure. Now with respect to 2025 versus 2026, all measures in place, we did already a lot of fixed cost cuts in 2025 to stabilize the situation.
We have given also a lot of cost targets on the manufacturing cost side, on fixed cost side, which they are driving forward positively. We assume that we are running more or less stable year-on-year 2025, 2026, with our assumption that they hit the cost targets and they've organized also the price targets they have. I'm so far positive, at least the two first months I saw.
Good. Thank you very much, Walter. We have the next one in line, and we will probably not see him, but only hear him, if I understand that correctly. Nope, there we see you, Stephen. Very good. Stephen Reitman from Bernstein. Stephen, good morning, and also please go ahead with your question.
Thank you. First of all, again, congratulations, Oliver. I mean, it's been obviously an incredible environment you've had to deal with since 2019, which you've done gracefully, and I think to the great effect for BMW. My question actually is for Walter, and it's about the cash flow. At the Q3 stage, part of the reason for the reduction in the cash flow guidance last year was this timing mismatch that the refund you were expecting were not going to occur on tariffs in 2025, so were gonna come in 2026. My question really is about the guidance on the cash flow for 2026. How much of that includes the expected refunds you're getting from the U.S. Treasury for the tariff, the refunds on the tariffs?
Can you just generally talk about where you see sort of the refunds from tariffs going forward really? Thank you very much.
Thank you very much, Stephen, for your question concerning cash flow and focusing on cash flow only. Question being, coming out of the Q3 statement that we made, we had a clear statement there that a reduction of our cash flow expectation for 2025 came out of a postponed tariff refund and whether that now and to what extent it has an impact on the 2026 guidance. With that, I hand it over to you, Walter. Please go ahead.
Hi, Stephen. Well, we had to reassess our receivables expected in November as, for example, Europe didn't come in place, and I can't put receivables against the EU at the current stage based on which contract. I had to reduce that one, first of all, and hence, I would rather speak about receivables of a mid three-digit million EUR number rather than this high level. Secondly, also with respect to the U.S. authorities, we have to say that we see in terms of our volumes, in terms of process complexities and also sometimes also effects as results of shutdowns, numbers came up and down. Ultimately, we are running on. I can say that with respect to the 3.75% discount, we handed into the authorities our claim for April 2025 to March 2026 already.
That is not finally confirmed yet by the authorities, but we handed the claims in already. With respect to this procedure, we assume that we are not getting cash back, but we rather can run more or less our tariffs to be paid as a discount of that one. That's more or less the assumption, so that we just pay net rather than getting a gross number to us and the other one's paid by us. That is our current assumption and understanding with the U.S. authorities with respect to going forward. Hope that helps.
Thank you very much, Walter, and also thank you to you, Stephen, for sticking to one question only. We have run over the official time already, but we'll continue with just one question each. I believe we still have three callers in line. First one already on the screen right now, Christian. Christian Frenes from Goldman Sachs. Christian, good morning, and also the stage is yours for your question. Thank you.
Thank you very much, and also for my part, Oliver, thank you and congratulations on your stewardship of BMW through what has been a really volatile environment from 2019 to 2026. I think the execution has been really impressive, you know, and underlines your flexibility strategy. My question's really on TNR, the new retail strategy, and my question for you, Oliver, would be, you know, what are your thoughts on the strategic importance of shifting to TNR? Why is it so important? Perhaps, as part of the same question, the financial impact of shifting the BMW brand in 2026 to TNR, should there be any financial impact that we should expect? Maybe the last one's a little bit for Walter, but thank you.
Thank you very much, Christian, for your question concerning TNR. I will just briefly say the abbreviation stands for The New Retail, which is in Europe, our sales model change to direct sales. You were asking with regards to its strategic importance for the BMW Group and also financial impact. I would indeed give the question on strategic importance and relevance to you, Oliver, and then an expectation with regards to when BMW will be shifting to TNR and the potential financial impact, Walter will be handing that to you. Oliver, please start.
TNR, The New Retail, is based on three assumptions. First of all, we are in the business of individual mobility. That means each car we sell is owned by an individual with very specific needs. That's the first assumption, and I think you would agree that this is a valid assumption. The second assumption is the future of understanding customers is largely based on AI competence. To know what he has owned in the past, what his lifestyle is, what his expectations are, to make him very individual offers for other products is a central function. The third one is we are already half down the road because we installed TNR in our European operation of MINI, and our learning experiences are quite positive.
We're not in a rush to implement that, but we are almost 80% through with the preparation of the IT systems, so it doesn't come at one single point. I think there is no way back. We will introduce that step by step because individual mobility will be closely linked to understanding the customer individually, and that is something you can only do as a retailer and not as a wholesaler. Does that mean that we don't need partners? No. It's exactly the other way around. We need dealers, partners, entrepreneurs, just as we before, but we need central intelligence of understanding the customer. So strategically, we're unwavering. Are we in a rush? No. We do it step by step, just like we have done it with MINI.
We introduced it in the first countries in 2022. We're now in 2026. We will take our time, but there's no way back.
Thank you, Oliver. Walter, over to you with regards to financial implication.
Well, with respect to the financial implication, it's a positive aspect because we create price stability online and offline. There is no haggling around the pricing from dealer A to dealer B to dealer C, and the customer is just playing this game. There's stability for everyone. Not to forget, people are starting to change their habits, not running on Google search engines anymore and on our homepages. They run ChatGPT's and Claude, whatever. That will search for pricing. Currently, under MSRP, under wholesale system, we can advise MSRPs, but ultimately we deal with independent dealers, and the independent dealer is setting their price. Now, we have a mixture of offers by different OEMs. Some are already on direct sales, so they have this transaction price on the list.
Others, like us on BMW side, we are running in wholesale, meaning on our homepage is the MSRP and not the transaction price. Now, if ChatGPT or Claude or whatever machine is searching for the best price and best offer, surely the one who is organizing and presenting the real transaction price is better off than the other. So that is why Oliver Zipse also mentioned we will run into this direction automatically because that will be the advantage. To get the same price in the country rather than X different ones. From our point of view, we also have then a better chance for upsale procedures online and offline, because we can present the products rather than having the discussion at the dealer side about the pure price. It's about the products and all features in it.
Finally, the last positive topic on financial impact is stock management, because we can do it centrally, like Oliver mentioned, rather than having a dealer individual stock management. Usually in total, you will have always too much stock in the pipeline, and that creates price pressure again. Once we do it on a central stock management, we do know in which areas and regions we run which cars and sell which cars. We can optimize that one as well, and that saves again further costs. That is our position. We are looking forward to implement that, also for BMW in Europe.
Thank you, Walter, and thank you, Christian, for this very important question. We're now coming to the second to last in line, and we have him on screen already. Stuart Pearson, Oxcap Analytics . Good morning, Stuart. Please, your question.
Yeah. Good morning, everyone. Thank you for taking the question. Just quickly, Walter, just to clarify, did I hear correctly, apologies if I missed it, that based on what you're seeing year to date in China, you think profitability there could be flat this year? I wasn't sure if that's what you were trying to say or if you just meant more on volume terms. But my main question was just on mix, because you're coming out of a period, I guess, that's been relatively strong in that respect. Obviously, you have the X5 changeover this year, which in previous incarnations, you know, would have created some volatility. I think it was down 20% volume-wise in 2018. It sounds like, I think you said you're running three shifts there already.
It sounds like maybe this time, there'll be minimal disruption from there. I wonder what you expect from mix for the full year, but also in Q1? Is it right to assume that with some mix disruption, I think you mentioned FX would be tougher in Q1 and tariffs as well, that Q1 would be one of the weaker quarters of the year? Thank you.
Thank you, Stuart. If you don't mind, I would briefly comment on the first question, since we do not guide individually per region. I will leave that up to Walter, whether he wants to start guiding on regions now, but that would be my answer at least. The second one then with regard to mix, especially with X5 changeover, Walter, hand that over to you.
Yeah. Hi, Stuart. Absolutely right. We are not doing country-specific guidance, but the discussion you're referring to was with respect to the legal entity BBA, where I helped Mike to find the right number in our disclosure. That was the number. Further on, I elaborated that I also have the fixed cost targets and material cost targets and price targets, and that was the long story. Now, with respect to the effects expectations on full year Q1, the expectation on full year is that we are ending up with 4%-6% in this corridor with segment automobile, of course. Yeah, we also mentioned already in Q3 that we are facing an FX headwind in the first half year and especially in Q1. Why is that? Exchange rates deteriorated, especially end of Q2 2025.
That's why we had this big exchange rate effect in the second half year of 2025. If everything stays stable. That will move over into the first half year of 2026 with an exchange rate burden. I said rather in Q1. Why is that? Because in Q2, the deterioration started already. Now coming to your strong X5 changeover, we have a good mix. Don't forget that the Neue Klasse starts to kick in in the second half year, and X5 is still on a very good sale mode and is not stopping whenever during this year. That's quite positive.
Thank you, Walter. We're just about to end, but we still have Henning Cosman from Barclays joining us. You should be coming up on screen in just a second.
Yeah. Hi, Stefan. Can you hear me?
Oh, it is via audio only. Sorry about that, Henning. Please go ahead and ask your question. We can hear you indeed.
Okay, perfect. Thank you so much. I'll try and be brief, so I'll save my congratulations to Oliver for the Q1 call. My question is on total shareholder return. I'm surprised it hasn't come up yet, so this is probably to Walter. As a combination of dividend and share buyback, of course, would you say it's fair to assume the moderate decline to your group EBT guidance as a proxy to you know, to net profit and ultimately dividend payment as well, and draw conclusions to the dividend component of TSR. On the share buyback, I suppose if you were to conclude the remainder of the existing envelope, that could be up to EUR 1.3 billion or so, but between the two would imply below EUR 4 billion.
Separately, I think unlike last year, you also haven't said explicitly at least that the shareholder return could exceed the automotive free cash flow. I was just wondering if you could help us a little bit with the potential magnitude of TSR. Could it exceed the automotive free cash flow this year? Again, are you prepared to comment on that at this stage? Any more color would be great, I think. Thank you so much.
Thank you for your question, Henning. Concerning total shareholder return, some assumptions on your side, whether our current guidance gives an indication with regards to net profit and potentially, dividend payments for the year 2026. Also, as we already stated for the year 2025, whether we would be willing to exceed the available automotive cash flow in order to follow up with shareholder return payments. I would hand that question, of course, over to you, Walter, with regards to 2026. Thank you.
Hello, Henning. In principle, our framework hasn't changed, right? Our framework is 30%-40% and share buyback. Usually we also limit that with free cash flow. As an exception, last year in 2025, we said exclusive to free cash flow situation. That's what we did. Ultimately in 2025, you shall see, with our proposed dividend, which has to run through the Annual General Meeting, of course, plus share buyback, we would have achieved EUR 4 billion cash out, and we have achieved an automotive free cash flow of EUR 3.2 billion. We can do statements that we are overrunning the automotive free cash flow. Usually, I would see that as an exception. Between 30% and 40%, there's a lot of room for maneuver.
The suggestion we do to the Annual General Meeting is 36.6% payout, so there is still room for 40%, whatever we discuss, and I think that is a discussion for in 11 months rather than now. We just can highlight that we're sticking to our rules and the share buyback we are running currently, the second tranche is going to be ending by August. We also mentioned that we earmarked already the third tranche. Share buybacks are moving on. I think that is all I can say to this topic currently.
Thank you very much, Walter. Ladies and gentlemen, this brings us to the end of our Q&A for the 2026 BMW Group Annual Conference Analyst and Investor Call. Thank you all for making the time to join us here today, and we wish you a great rest of your day. Thank you.