Colleagues, ladies and gentlemen, good morning and welcome to the telephone conference of the BMW Group for the first quarter. Today, we have here Oliver Zipse, Chairman of the Board of Management, and our CFO, Walter Mertl. Walter will take you through our financial results. Oliver will give you a general business update for the BMW Group. After a short break, we will have time for our Q&A session. Walter, please go ahead.
Ladies and gentlemen, good morning. The year 2026 started off with sound financial results for the BMW Group in line with our expectations. In the first quarter, group revenues totaled EUR 31 billion. Group earnings before tax amounted to EUR 2.35 billion, approximately 25% lower than in Q1 2025. With this result, we generated a group EBT margin of 7.6% on the level of the 2025 as well as 2024 full year. The operating profit in the automotive segment was EUR 1.345 billion. The EBIT margin in the automotive segment stood at 5% in the middle of our full year guidance corridor of 4%-6%. As you know, we consistently focus on our reported figures.
Accordingly, the 5% represents our reported EBIT margin without any adjustments. The Q1 extra tariff burden of 1.25 percentage points is accounted for in this margin. In addition, the EBIT margin includes the depreciation from the BBA purchase price allocation of 1.2 percentage points. Let me now provide more details on the automotive segment's performance across key metrics. In the first quarter, the BMW Group delivered around 566,000 BMW, MINI and Rolls-Royce vehicles to customers. This represents a slight decrease of 3.5% compared to the same period last year, driven by the sales decline of all-electric vehicles in the U.S. and China. The BMW brand saw a decline of 4.6% year-on-year. This was driven by shifts in regional and powertrain sales.
The MINI brand continued its growth following the successful renewal of its model portfolio, achieving a solid sales increase of 6%. Let's take a closer look at our sales performance across regions. Starting this year, we have slightly adjusted our regional sales reporting to reflect our sales organization structure rather than geographical continents. In our largest sales region, Europe, deliveries increased slightly by 3%. We saw growth across all powertrains, combustion engine vehicles, all-electric vehicles and plug-in hybrids. The BMW brand's order intake in Europe showed strong growth across the entire product portfolio in Q1, with an order bank reaching well into the second half of the year. In our sales region, Asia Pacific, Eastern Europe, Middle East and Africa, deliveries declined by around 6,700 units or 8.3% year-on-year.
This development was influenced by multiple factors, predominantly the macroeconomic environment and the diverse competitive landscape throughout the region. While the conflict in the Middle East had a limited regional sales impact in Q1. In the Americas region, retail sales decreased by 4% year-over-year, primarily due to the U.S. Here, sales of all-electric vehicles dropped significantly following the discontinuation of IRA support in the fourth quarter of last year. Our product portfolio enabled us to largely offset this decline and fulfill customer demand with our attractive combustion engine vehicles. When comparing U.S. sales to previous year, we must also remember that Q1 2025, meaning last year, was positively influenced by strong customer demand, driven by expectations of custom duty increases starting in April 2025.
Overall, we performed better than the total U.S. market, which declined by 6.6% in the first quarter. In China, the overall market declined sharply by over 17% in Q1, driven by reductions of government subsidies and changes of regulations. By comparison, BMW Group sales decreased by 10% and therefore outperformed the overall market in Q1. Switching gears to BEV retail sales. In the first 3 months, the BMW Group delivered over 87,000 all-electric vehicles to customers worldwide. Sales of electrified vehicles, including both BEVs and plug-in hybrids, amounted to approximately 133,000 vehicles. This represents a BEV share of total sales of 15.5% and an electrified vehicle share of 23.4%.
In Europe, BEV sales continued to grow and order intake increased by more than 60% year-on-year, especially due to strong demand for our all-new BMW iX3 and the BMW iX1. In China and the U.S., the removal of incentives and the reduction of subsidies for electrified vehicles had a noticeable impact on BEV sales year-on-year, reflecting the country-specific market dynamics. Automotive segment revenues declined moderately by 7% to EUR 27.2 billion in the first quarter. Adjusted for currency translation, mainly from the U.S. dollar and the Chinese renminbi, the decrease was 2.9%. It was driven by lower sales volumes and intense global competition. Let's now take a closer look at the year-on-year changes in the operational result on the following slide.
In the first three months, changes in currency and raw material positions accounted for a negative impact of around EUR 400 million. As anticipated, the adverse FX development from the second half of 2025 continued into the first quarter of 2026. The net effect of volume, model mix, and pricing resulted in a negative impact of around EUR 700 million compared to Q1 2025. In addition to the impact from lower sales volumes, this decline was driven by intense competitive pressure across all major markets. Ladies and gentlemen, we are continuing cost reductions across the company to tackle the overall headwinds. In the first quarter of 2026, we have further reduced both R&D and capital expenditure, thanks to early investments in the Neue Klasse.
As of March, group R&D expenditure totaled around EUR 1.8 billion, a significant decrease of around 12% compared to the previous year. The R&D ratio according to the German Commercial Code came in at 5.7%. Despite this significant reduction, research and development expenses in the P&L under IFRS increased by EUR 100 million due to two factors included: an increase of EUR 200 million in depreciation resulting from capitalized development costs in prior years, and a lower R&D capitalization ratio compared to Q1 2025, which decreased by 4.3 percentage points to 31.4%. Our ongoing commitment to reducing operating costs is further visible by the development of selling and administrative expenses, which decreased by around EUR 100 million year-on-year.
Other cost changes provided a tailwind of around EUR 400 million compared to the first quarter of 2025. This includes various factors, most notably manufacturing costs and warranty expenses, as well as a year-over-year tariff burden. Overall, automotive EBIT amounted to EUR 1.3 billion in the first quarter. The decline of approximately EUR 700 million compared to Q1 2025 was driven by headwinds from FX, tariffs, and depreciation. Coming to free cash flow in the automotive segment, which amounted to around EUR 800 million in the first quarter of 2026. A net change in working capital reduced free cash flow by around EUR 500 million as expected. This mainly reflects the typical Q1 inventory buildup, with production exceeding sales volume.
The impact of higher inventories was partly compensated by an increase in trade payables, which rose in line with production levels. The net effect of capital expenditure and depreciation contributed about EUR 600 million to free cash flow. Depreciation exceeded capital expenditure in the first quarter, positively impacting free cash flow. We expected this position to flip versus previous years as we continue to reduce CapEx and see depreciation from earlier investments take effect. This trend will continue throughout 2026. The CapEx ratio for Q1 was 2.0%, reflecting the typically low level seen in the first quarter of the year. The change in provisions reduced free cash flow in the first quarter by EUR 300 million, primarily due to the consumption of warranty provisions.
A change in the position, other, reduced free cash flow by EUR 300 million, mainly due to regular tax payments. For the full year, the BMW Group is targeting a free cash flow in the automotive segment above EUR 4.5 billion. Ladies and gentlemen, the BMW Group remains firmly committed to its shareholder return strategy, which includes both dividend payments and share buybacks. The second tranche of our third share buyback program, with a volume of EUR 625 million, is currently underway and is scheduled for completion by the end of August at the latest. The third tranche is planned to follow thereafter. Let's now turn to our financial services segment. In the first quarter, the number of new contracts concluded with retail customers increased slightly by 4.3% year-on-year, reaching 420,000 contracts.
The penetration rate for lease and loan offerings increased to 51.6% in the first quarter. This development was supported by changes in the competitive environment in China. Mid-2025, local banks significantly reduced commissions related to brokering financing and insurance products for end customers. Adjusted for FX effects, new business volume grew by 4.1% to about EUR 16 billion. Segment earnings for the first quarter amounted to EUR 381 million, a decrease of EUR 269 million compared to Q1 2025. This decline results from an addition to an already existing risk provision in the U.K. At the end of March, the Financial Conduct Authority, FCA, issued its final cross-sector compensation program for customers who were sold automotive financing products under certain commission models since 2007.
Unfortunately, the published program reflects only a few of the many amendment proposals made to the initial draft by both the Finance & Leasing Association and the BMW Group. As a result, the compensation payment volume will likely exceed previous estimations. Additionally, income from the resale of end-of-lease vehicles was lower year-over-year as expected. The credit loss ratio across the entire credit portfolio remained low at 0.27%. In the motorcycle segment, first quarter deliveries declined slightly by 4.2% year-over-year. The segment EBIT for the first three months rose to EUR 89 million with an EBIT margin of 11.4%. Finally, one remark on the other entities results, which increased by around EUR 300 million.
This was driven by positive valuation effects from interest rate derivatives resulting from the sharp rise in long-term interest rates in March. Ladies and gentlemen, let me now turn to our outlook for 2026 and briefly outline some of our current assumptions. The situation in the Middle East currently remains highly uncertain. Our outlook assumes that the ongoing conflict is temporary. The expected tariff impact on our 2026 results can still only be estimated based on our existing assumptions. We expect import duties from the EU to the US to remain at their current levels. Following the recent positive vote in the European Parliament, we anticipate that tariffs on imports from the US to the EU will drop to 0% effective in the second half of the year.
Similarly, tariff reductions for imports into the U.S. from Mexico and Canada are also expected to take effect in the second half of the year. We continue to anticipate a full-year negative impact of around 1.25 percentage points on the auto EBIT margin from the increased tariffs instead of 1.5 percentage points in 2025. In China, we are making good progress with our set of measures to support market performance. The overall vehicle market in China declined more sharply than anticipated throughout the first quarter, already prompting several revisions of official market forecasts for the year by the CPCA. In light of this trend, our focus will remain on achieving the right balance between sales volume, transaction prices, and dealer profitability. Based on our assumptions, our full year guidance parameters remain unchanged.
Proved earnings before tax are expected to be moderately lower than in 2025. In the automotive segment, we forecast global deliveries to be at last year's level. The automotive EBIT margin is expected to be within a corridor between 4% and 6%. The EBIT margin in the motorcycle segment should also come in at between 4% and 6%. In the financial services segment, we are targeting a return on equity in the range of 13%-16% for the full year. Ladies and gentlemen, the year 2026 started off with sound financials for the BMW Group, with an auto EBIT margin in the middle of our full year guidance corridor. Within our global business model, we continue to leverage flexibility across powertrains and regions as we ramp up our Neue Klasse. This flexibility enables us to effectively mitigate risks as they arise.
The prudent management of R&D, CapEx, and operating costs is clearly reflected in our Q1 results, underscoring our strong commitment to financial discipline. With that, the BMW Group remains on track to meet its operational targets as we advance our strategic plan. As we roll out the Neue Klasse technologies across the entire portfolio, we at BMW Group and all of our stakeholders have plenty to look forward to. Many thanks.
Thank you very much, Walter. Now over to Oliver Zipse. Oliver, please go ahead.
Good morning, ladies and gentlemen. Before I am talking about the quarter figures, I would like to address a tragic loss that has deeply touched many BMW fans around the world. On May 1st, race driver, longtime BMW works driver, and company ambassador Alessandro Zanardi passed away unexpectedly. Alex, as everyone called him, was an impressive personality, an unwavering optimist, and an inspiration to many people worldwide. He demonstrated what is possible in life with dedication, willpower, and ambition. The BMW Group has lost a fascinating humanitarian representative, and BMW M Motorsport has lost an ambitious and successful works driver. Ladies and gentlemen, Walter Mertl has taken you through the results after the first 3 months of 2026. As we outlined in March at our annual conference, we knew that there would be several headwinds we would face throughout this year.
For us, it is about minimizing their impact while consistently leveraging opportunities that arise. At the same time, we remain firmly on course with our long-term strategy, a strategy that has provided clear direction and enabled us to navigate an increasingly unpredictable global business environment over recent years. Three characteristics in particular define the BMW way. First, our strategy of technological neutrality. Second, the BMW Group's global footprint. Third, inspiring brands and fascinating products. Since 2021, the BMW Group's long-term product and technology orientation has focused on the Neue Klasse. Building on an exceptionally strong foundation of products and successful technologies delivered to customers over many years through to today, we're now making a huge leap forward in nearly every area of technology with the Neue Klasse. This will pay off as we roll these technologies out rapidly across the whole product portfolio.
You remember last year in September, here in Munich at the IAA Mobility, we represented the BMW iX3, the first vehicle of the Neue Klasse. With this all-new vehicle generation, BMW is now entering into a new era. The launch of the iX3 has been extremely successful. Just a few weeks ago, in March, we handed over the first BMW iX3 vehicles to customers across Europe. Over the past weeks, the model has also reached showrooms throughout the region. Pre-orders in Europe now exceed 50,000 units, underscoring the strong interest in this vehicle. The iX3 also continues to win notable major international awards. Most recently, it won two awards at the renowned World Car Awards.
An international jury of 98 automotive journalists presented the BMW iX3 two prestigious titles: the 2026 World Car of the Year, beating out competitors across all powertrain categories, as well as 2026 World Electric Vehicle of the Year accolade. With the first Neue Klasse model, BMW has delivered a clear step forward in technology and design, one that is resonating strongly with experts, journalists, and customers alike. Now, given the very high market demand, we already pulled forward the second shift of BMW iX3 production at our Dingolfing plant in February, and further rollout across the U.S. and Asian markets is planned for the coming months. The iX3 was just the beginning. A lot has happened since our annual conference. The Neue Klasse is gradually making its mark across the entire BMW portfolio.
In March, we unveiled the next step with the world premiere of the new BMW i3 at BMW Welt here in Munich. Since 1975, the 3 Series has inspired dreams. At the core of the brand, each of the eight generations embodies progress and innovation. With the BMW i3, we are building our future on this rich legacy. This event provided a unique opportunity to celebrate this milestone not only with media and other key stakeholders, but especially, and perhaps most importantly, with our associates.
More than 30,000 employees joined the celebrations over days, underscoring the strong bond our team feels with the brand and their pride in this incredible moment, both for the company and for their achievements in bringing this vehicle to life. As the second model of the Neue Klasse, the BMW i3 perfectly symbolizes the journey BMW has taken over the last years.
It is, of course, a completely new vehicle with a reimagined design and seamless integration of advanced technologies. At the same time, the BMW i5 Touring represents the progress of the BMW Group itself. From the systematic modernization of our production facilities through new ways of working that enable efficiency, scalability, and our long-term competitiveness. The BMW i5 Touring will be produced at our main plant in Munich with an investment of around EUR 650 million. The facility has been completely remodeled following the principles of BMW iFACTORY: lean, green, and digital. Production of up to 1,000 vehicles a day continued uninterrupted during the shop floor adaptations over many months. Now, beginning in 2027, the plant will exclusively produce electric vehicles. The plant also continues to make great progress in realizing cost efficiencies.
When the BMW i3 rolls off the line for customers, we will have reduced overall production costs at the Munich plant by an additional 10%. These improvements are driven by optimized production processes, targeted automation and digitalization, as well as the vehicle design improvements enabled by Neue Klasse technologies. Series production of the BMW i3 begins in August, followed by the market launch in Europe a few weeks later. Several additional Neue Klasse models will soon be manufactured in Munich, including the all-new BMW i3 Touring. The BMW i3 leverages all the technologies developed for the Neue Klasse, from driving dynamics to powertrain, from battery technology to operating concept, and of course, the digital user experience. You can choose between different drive variants because, as you know, we remain technology-open.
Each element is perfectly attuned to the characteristics of the three series, creating a whole new dimension of sheer driving pleasure. This is also confirmed by initial reviews and feedback from customers and journalists, which have been exclusively very positive. This was also evident just two weeks ago at Auto China in Beijing, the world's largest automotive trade fair. We presented not one, not two, but three new models: the BMW iX3 and the BMW i3 long wheelbase for the Chinese markets, as well as the world premiere of the BMW 7 Series model update with Neue Klasse technologies and design elements. The China-specific Neue Klasse vehicles have been developed in close collaboration with our local R&D teams and local partners in China. Think global, act locally.
This enables us to leverage the knowhow of leading Chinese tech players and integrate local digital ecosystems and technologies to meet the specific needs of our Chinese customer needs. For example, in voice assistant features and automated driving solutions. This momentum generated by the Neue Klasse in China will provide a powerful impulse for our portfolio and marks the beginning of the next chapter in BMW's tailored innovation and technology leadership in this key market. In 2027, the 7 millionth BMW vehicle will roll off these lines at our Shenyang production base.
This remarkable milestone underscores our long-term commitment to China, and we are constantly strengthening our local footprint to underpin this momentum. Through deeper localization across the value chain and expanded China-based decision-making, we are faster, more robust, and even more synchronized with local customer expectations and market dynamics.
The new BMW 7 Series we unveiled in Beijing will kick off the rollout of Neue Klasse technologies across all powertrains and into other product lines and segments. Coming in the middle of its life cycle, it is the most extensive model revision in BMW's history and will take the 7 Series to a whole new level. The technology open drive offer co- covers all customer needs. The updated BMW i7 with new round battery cells features up to over 700 km of range, according to the WLTP cycle, meaning an increase of 100 km from the current version. Start of production will begin in our plant at Dingolfing in July. The new 7 Series exemplifies BMW's ability to industrialize the latest technologies at speed, integrating them into series vehicles and making them available directly to our customers.
This summer, we will also unveil the next generation of our BMW X5. It will be the 1st BMW model to be offered with 5 different drivetrain variants: highly efficient conventional powertrains, plug-in hybrids, battery electric, and from 2028 on, also hydrogen. In this way, we are laying the foundation to successfully meet the diverse needs of our customers around the world, both today and in the future. Ladies and gentlemen, our products continue to enjoy strong demand globally. We are well-positioned to meet the needs of customers across different regions and markets. In the first quarter, we leveraged the strengths of our current portfolio in a shifting environment, supported by a brand offering across brands, segments, drivetrain technologies, and geographies. Consistent with our balanced global approach to sales, the performance in Europe helped to partially offset weaker dynamics in other markets.
Sales were particularly robust in Germany, where Group re-registrations increased by more than 10% year-on-year. In China and the U.S., the BMW Group performed better than the overall declining markets. Orders in our view were up by around 62%, with European sales of all-electric vehicles exceeding the previous year's very high level. For the fifth consecutive quarter, the MINI brand delivered global growth, with sales increasing by 6%. As we roll out the Neue Klasse, we can look ahead with confidence. Its technologies and design language will provide fresh momentum into our already strong BMW products, offering individual mobility solutions tailored to the needs of customers across markets worldwide. At the same time, the company is prepared to weather differing dynamics in the global markets and to seize opportunities at the same time.
That combination is what sets the BMW Group apart. We have stayed on course, consistently implementing our long-term strategy and are now ideally positioned to reap the rewards. This is very much part of our DNA. Time and again, the BMW Group has proven resilient from the pandemic through supply chain interruptions and semiconductor shortages and the energy crisis. Throughout, we have remained true to our technology-open approach, which has proven its strength as global automotive markets continue to transition and delivered stronger results in new technologies.
As this will be my final quarter call as CEO of the BMW Group, I want to extend my sincere thanks to the media and capital market communities who have accompanied me throughout my tenure since 2000. You have brought to these exchanges. I hope you will extend the same openness and warm welcome to my successor, Milan Nedeljković.
I wish you all the best and look forward to answering your questions one last time. Thank you.
Thank you very much, Oliver. Ladies and gentlemen, we now have a short break before we move on to the Q&A session. See you in 5 minutes.