Statement and Presentation by Harald Krüger, Chairman of the Board of Management of BMW AG, Annual Accounts Press Conference 2017

Ladies and Gentlemen, Good morning and welcome!

 

These will be our main topics today:

 

  1. First, from me, a brief introduction: What is important to me?
    Where are we steering the BMW Group?
  2. Then, Nicolas Peter will talk about our 2016 financial statements
    and the outlook for 2017.
  3. After that, I will outline the decisions we have made as part of
    Strategy NUMBER ONE NEXT.
  4. And, I will talk about the first new products from our model offensive.

 

First, a few general remarks:

 

Right now, everyone is talking about plug-in hybrids. Here, the BMW
brand is clearly number one in the premium segment. And our BMW i3 is
one of the top three best-selling pure electric cars worldwide. This
shows we are in a strong position. And we continue to drive ahead: In
2017, we aim to sell 100,000 electrified vehicles, and by 2025,
electric models and plug-in hybrids are expected to account for around
15 to 25 per cent of our sales. This means the electrification of all
BMW Group brands and model series. Our goal is sustainable mobility.
We are absolutely clear on this.

 

Everything we do is for our customers. We want them to experience
premium mobility in both an individual and emotional way. With our
services, we are available whenever and wherever the customer needs
us. For this, we will embrace the opportunities offered by
digitalisation. With Strategy NUMBER ONE NEXT, we have taken
clear decisions: The cooperation with Intel and Mobileye, our campus
for autonomous driving, our automated test fleet for urban environments.

 

The BMW Group has a strong financial footing. We have the best credit
rating of any European car company and the second best worldwide. My
colleagues on the Board and I will do everything we can to strengthen
even further our financial standing and reputation on the capital markets.

 

For the past seven years, the EBIT margin of our Automotive Segment
has been within our target range of 8 to 10 per cent or higher. We
intend to maintain this level – while continuing to invest in our
future. Profitability secures our ability to take action and makes us
a reliable partner within society.

 

Strategy NUMBER ONE NEXT combines profitability, operational
excellence and fresh thinking. We are merging two business models: Our
established core business, on the one hand, and a start-up mentality
with new business segments on the other.

 

To change we need to change our mindset. We have started a
transformation unlike anything our company has seen before, with
Strategy Camps for senior managers, where they met up with start-ups
and technology drivers at global hotspots. And, we created an
interactive platform called NEXT EXPERIENCE, in which more than 14,000
employees at all management levels have participated since the
beginning of the year. This includes line managers from the plants.
They have been learning about all aspects of our strategy and will
share these insights with all other employees.

 

The feedback from these events has been very clear: Our employees
understand that we have to change. And they are fully committed to our
vision and our new corporate values: responsibility, trust,
appreciation, transparency, openness. These provide a basis for our
transformation. They reflect the spirit of our times and the younger
generation’s understanding of working together.

 

2016 was our centenary year. We ended the year with new record highs
– for sales volumes, revenues and profit before tax.

Our EBIT margin in the Automotive Segment remains within our target
range of 8 to 10 per cent. Our segment Financial Services and BMW
Motorrad also contributed to the positive overall result. We achieved
our targets. The BMW Group remains the world’s leading car
manufacturer in the premium segment.

 

We have always been an ambitious company. I promise we will continue
to be so:

 

  • First: We are now going on the offensive.
  • Second: We are launching the biggest model offensive ever for our customers.
  • Third: Future competitiveness is reflected in a combination of
    several performance indicators: not just sales figures, but also
    profitability, capacity to innovate, flexibility and attractiveness
    as an employer.

 

I would now like to hand over to Nicolas Peter, who will present our
2016 financial performance.

 

* * *

 

Ladies and Gentlemen,

 

We aim to continue our successful course in 2017. We are targeting
new all-time highs for sales, revenues and profit before tax. The EBIT
margin in the Automotive Segment should remain within the range of 8
to 10 per cent. We are assuming that political and economic conditions
do not change significantly.

 

For us, 2017 marks the beginning of a new era: We are transforming
ourselves into a technology company for premium mobility and premium
services. And we aim to lead the way. Our vision vehicles are a symbol
of our focus on the future. Here’s a short film about them.

 

Ladies and Gentlemen,

 

Our vision vehicles clearly demonstrate the design language of our
future series models. All areas of future mobility have been
integrated: The so-called ACES are a core element of our strategy –
and in part, already in our series vehicles:

 

  • Autonomous driving: The assistance systems in the BMW 7 Series and
    the new 5 Series pave the way for highly-automated driving.
  • Connectivity: With Connected Drive, the BMW Group leads in digital
    offerings. We already have more than 8.5 million connected cars on
    the roads.
  • Electrified: We have sold more than 120,000 electrified cars to date.
  • Services and shared: With the Now Family, we offer our customers a
    comprehensive range of services.

  

Let’s move on to our next main topic: What decisions have we
made as part of Strategy NUMBER ONE NEXT?

 

Our business environment is marked by volatility, unexpected
developments and political uncertainty. However, we continue to
benefit from our balanced distribution of sales and production across
the main regions of the world. This balance is a stabilising factor in
our business development. Our roots are in Germany.

 

Moreover, we are at home in Europe, China and the US. Our sales
figures for 2016 reflect this balance. Europe, China and the US also
form the nucleus of our global production network.

 

In our home country, Germany, we have invested an average of more
than one billion euros per year in our plants over the past ten years.
The UK remains an important location for us. Much will depend on how
Brexit is ultimately negotiated. At the BMW Group, we are preparing
for different scenarios. Our production network offers us flexibility.
MINI models are also built at VDL Nedcar in Born in the Netherlands.

 

Now China: Our new engine plant – the fourth worldwide – began
operations in 2016. Our two auto plants in Tiexi and Dadong already
produce five models.

 

The US is home to our plant with the highest production volume. We
have invested almost eight billion dollars in this site. Spartanburg
produces vehicles for the entire world: 70 per cent of them are for
export. This makes the BMW Group the largest exporter of cars from the
US. Directly and indirectly, we employ around 70,000 people in the US.

 

All other sites worldwide provide us with additional flexibility,
depending on demand. In total, our network comprises 31 locations in
14 countries. We have an even balance of production between Germany
and the rest of the world. All locations are preparing for
electrification of their models and series.

 

This capability is part of our Strategy NUMBER ONE NEXT. This
strategy has been designed for adaptability, serving as both a vision
and a dynamic roadmap that evolves as we progress. What does our
priority list look like? Top priority is currently electrification.
Next is connectivity and autonomous driving. As part of this digital
shift we are expanding our services. We are expanding our know-how in
selected areas through strategic cooperation with partners from our
own industry and technology leaders from other sectors.

 

I would like to say a few words about this: First: sustainable mobility.

 

Since 1995, we have reduced the average CO2 emissions of our European
fleet by more than 40 per cent. For us, the plug-in hybrid has been a
success story: The X5 was the top-selling plug-in hybrid in 2016. By
the end of 2016, we had six plug-in hybrid models on the global
market, plus one model for China. The new BMW 5 Series has also been
available as a plug-in hybrid version since March. This summer, it
will be followed by the first MINI plug-in hybrid, the Countryman. In
2018, we will welcome a new member of the BMW i family: the BMW i8 Roadster.

 

Demand for pure battery electric cars is also growing. We see this in
the BMW i3 with its new battery providing 94 ampere hours. BMW
Motorrad already has an all-electric model, the C evolution. Its range
has also been increased significantly.

 

In 2016, electrified vehicles accounted for around 2.6 per cent of
our Group sales. But in certain EU countries, electrified cars already
make up over 20 per cent of our sales. In 2017, we aim to sell 100,000
electrified cars. Already in January and February 2017, we sold more
than twice as many e-cars worldwide as in the same period last year.
February sales of the i3 were 55 per cent higher than last year.

 

With our Strategy, we have decided that: The fully electric
drivetrain will be integrated into our core brands, with: an
all-electric MINI in 2019, and an all-electric BMW X3 in 2020. Soon,
range will no longer be a differentiating factor. We are already
concentrating on achieving an optimum balance between all relevant
features: safety, range, and duration and life of the battery. We
believe that our customers will benefit the most from this approach.
We are keeping expertise in electric drivetrains, power electronics
and battery cells within the company. We have more in-house value
creation in electro-mobility than any of our competitors. This also
brings cost benefits.

 

At the same time, we are also working on fuel cells. These are
particularly well-suited to larger model series and long distances. We
plan to produce a low volume series in 2021, and we will be able to
offer vehicles with fuel cells from 2025.

 

Also by 2025, all our vehicles with combustion engines will be fitted
with 12 and 48-volt energy recovery systems.

 

The drivetrain mix will ultimately be decided by the customer. We are
starting out on the basis of two trends:

 

  1. Demand for e-mobility will increase significantly over the coming decade.
  2. In some markets, in particular, development will be strongly
    driven by regulations.

 

That is why we are stating a range of 15 to 25 per cent in our
estimates of the share of electrified cars in 2025. In this context,
we are refining our vehicle architectures. They are already designed
so that we can build cars with a combustion engine and plug-in hybrids
on the same architecture for every model series. That is a result of
our project i. From 2020, project i 2.0 will enable us to introduce a
pure battery-electric model for our model series. To achieve this, we
are now gearing our architectures towards combustion engines and pure
battery-electric drivetrains. We are not only able to assemble and
paint cars with both drivetrains on the same line; we also only need
one car body construction to produce models with a combustion engine
or electric drivetrain. The benefits of this are obvious: Maximum
flexibility for planning and production, regardless of how e-mobility
develops in a segment or market.

 

That brings me to the second of our priorities: Digitalisation and connectivity.

 

The iNEXT is the next innovation spearhead for our company. As with
project i, BMW i will once again be a key element within our strategy.
The iNEXT project will develop modular kits for our electrification
offensive across all brands and segments. Digitalisation will open up
totally new possibilities for customers. The car will become a living
space which is fully integrated into the customer’s life and learns
from its driver. At the CES in Las Vegas, we provided a glimpse of the
operating system and interior of the future.

 

We want to make fast progress in autonomous driving. As part of our
strategy, we have made the following two decisions:

 

  1. We will be concentrating all our expertise in this area at our new
    Research and Development Centre for Autonomous Driving near Munich,
    starting in 2017.
  2. Later this year, we will begin testing highly-automated driving in
    city centres with a test fleet of 40 computer-operated cars.
  3.  

Digitalisation is bringing new providers and their business models
into the automotive sector. There is a strong reason for this:
Individual mobility is an attractive area for future business
opportunities. More than ever, a digitally connected world demands
strategic cooperation.

 

With our Strategy, we made clear decisions regarding: What we should
continue to do ourselves. Where we can benefit from partnerships.

 

Let me show you what this means for our ACES:

 

  • In 2015, to meet a basic requirement for autonomous driving,
    together with the other German premium car companies we acquired the
    map service HERE. Since 2016, we have been cooperating successfully
    with Intel and Mobileye. Intel is now also a partner of the HERE
    open platform for real-time navigation. Intel’s acquisition of
    Mobileye shows that we have the right partners. Our non-exclusive
    platform offering will be even more attractive.

 

  • For connectivity,
    we are relying on an OEM backend. All aspects of data security and
    customer privacy are top priority for us. Beyond that, we
    collaborate with and invest in innovative start-ups in selected areas.

 

  • On electrification, as
    already mentioned, we possess the in-house expertise to develop
    drivetrains. We support projects to create public charging
    infrastructure worldwide. In Europe, we are involved with other
    companies in setting up a network of rapid charging stations. On
    fuel cells, we continue to work with our partner Toyota.

 

  • In the field of Services, we are
    expanding our offering through the NOW family. This represents a
    holistic approach to the big issues of urban mobility: parking,
    charging, air quality. 

DriveNow is our car-sharing programme with more than 800,000
customers in eleven European cities. The all-electric BMW i3 makes up
one-fifth of the fleet.

ChargeNow already comprises 65,000 charging points in 29 countries.
The plan is to open it up to other OEMs.

ParkNow is already integrated into the new BMW 5 Series and the BMW
Connected app. The service is also available to any driver via
internet and app.

ReachNow has been our on-demand Mobility Service in the US since
2016. This is a completely new service offering. Also in Beijing, we
are testing ReachNow.

 

Ladies and Gentlemen,

 

We are living in unpredictable times. With our Strategy NUMBER ONE
NEXT, we are steering a clear course through these uncertain
times. And we will continue to be open-minded and flexible.

 

At present we have a pool of around 30 million customers of BMW
Group, which has been generated almost exclusively through the
traditional automotive business. By 2025 we want to increase that pool
to more than 100 million customers. To achieve this, we are using not
only the automotive business but also our various services.

 

Alongside key performance indicators, our reputation as a company
also includes sustainability as well as our attractiveness as a global
employer. This helps us attract the young talent we need for
digitalisation across all our business segments. We already hire more
IT specialists than mechanical engineers. In 2016, we hired 6,900 new
employees. Once again, we invested more than 350 million euros in
vocational and professional training for our employees.

 

Both our shareholders and our employees will benefit from our success
in our centenary year, 2016. For our employees we are paying the
highest-ever profit-sharing bonus. For our shareholders, the Board of
Management together with the Supervisory Board are proposing to the
AGM the highest dividend ever.

 

That brings me to my final topic: Our new models for customers.

 

In 2017, we will launch the largest model offensive in the history of
the company. We will be releasing more than 40 new and revised models
onto the market this year and next.

 

One focus is on the new BMW 5 Series: The Sedan has been on the
market since February. The plug-in hybrid model and M Performance
version have been available for three weeks now. The Touring, as well
as a Long-Wheelbase version, will follow for China in the summer. And
there’s sure to be another M5 as well.

 

The revised BMW 4 Series models attracted a lot of attention at the
Geneva Motor Show. All new 4 Series models have been in the showrooms
since March: the Coupé, Convertible, Gran Coupe and the M4 Coupé and
M4 Convertible.

 

Our customers love our BMW X models. In 2016, every third BMW sold
was an X model. As part of our strategy, we are expanding our X
family: The BMW X7 – from 2018 – will appeal to new customers in the
upper-luxury class segment. In 2018, we will launch the BMW X2. As you
can see the design language of this vehicle is quite striking. The new
X3 will be presented later this year. As this image suggests, our
engineers are once again combining optimal driving safety with maximum
driving pleasure.

 

We recently expanded the MINI line-up with the new MINI Countryman.
It is the second MINI, after the Clubman, in the fast-growing premium
compact segment.

 

Rolls-Royce is the pinnacle of luxury. In 2016, we launched the
Rolls-Royce Dawn. With the Black Badge models of the Ghost and the
Wraith, the brand is appealing to new target groups. The eighth
generation of the legendary Phantom will arrive in late 2017, with a
completely new aluminium architecture.

 

BMW Motorrad customers can also look forward to 14 new or revised
models this year. The “Fit-4-2” growth strategy is paying off. In
2020, we aim to sell more than 200,000 BMW motorcycles and scooters.
To this end, BMW Motorrad will be expanding its retail network in Asia
and the US.

 

As you can see: We are renewing our entire portfolio significantly.
This will strengthen our performance side. Our strategy places a clear
emphasis on the high-margin upper luxury segment, where we will launch
new and emotional models, such as the X7. We want to make BMW the
strongest brand in this segment and significantly increase our sales
volumes and revenues here by 2020. We will also be selectively using
the BMW i and BMW M brands to expand our offering in this segment.

 

Ladies and Gentlemen,

 

The BMW Group has always reinvented itself. I am confident: In the
coming years we will successfully make the transformation to become a
tech company for premium mobility and premium services. Our
Strategy NUMBER ONE  NEXT shows us the way. And in the future our
company with its strong portfolio will continue to grow profitably and successfully.

 

Thank you!