Bayerische Motoren Werke Aktiengesellschaft (OTCPK:BMWYY) Q2 2022 Earnings Conference Call August 3, 2022 8:00 AM ET
Company Participants
Maximilian Schöberl – General Manager
Nicolas Peter – CFO
Oliver Zipse – Chairman
Conference Call Participants
George Galliers – Goldman Sachs
Charles Coldicott – Redburn
Daniel Schwarz – Stifel
Jose Asumendi – JPMorgan
Daniel Roska – Bernstein Research
Tim Rokossa – Deutsche Bank
Gabriel Adler – Citigroup
Tom Narayan – RBC
Harald Hendrikse – Morgan Stanley
Stephen Reitman – SocGen
Maximilian Schöberl
Good afternoon, ladies and gentlemen. I would like to welcome you all to our Telephone Conference for the Second Quarter Results. With us today are Oliver Zipse, Chairman of the Board of Management; and Nicolas Peter, our CFO. First, Nicolas Peter will take you through our financial results. Oliver Zipse will then give you a general business update for the BMW Group. Afterwards, we will have time for our Q&A session.
So we start with our CFO. Nicolas, please go ahead.
Nicolas Peter
Well, thanks Max. Good afternoon, ladies and gentlemen.
The BMW Group successfully managed the second quarter of 2022 and delivered good results, despite difficult business conditions. Overall, the first half of the year was characterized by continuing semiconductor bottlenecks and supply chain disruptions. This meant the BMW Group was not fully able to meet demand.
As a result, vehicle sales went down 13.4% from the previous year’s all-time high. Despite this, we sold a total of 1.16 million vehicles and we are still able to expand our leading position in the global premium segment in the first half of the year. Here, electromobility remains an important growth factor. As of June 30, the BMW Group had delivered almost 76,000 fully electric vehicles to customers in 2022, more than double the figure for the same period of last year.
For the second half of this year, we expect solid growth in deliveries compared to the second half year of 2021. Deliveries declined in the first half of the year due to supply bottlenecks, the war in Ukraine and disruption in supply chain. We therefore expect a slight decrease in deliveries for the full year. However, we intend to at least double that – deliveries for the full year 2022 compared to last year.
Ladies and gentlemen, let’s take a look at the BMW Group’s key financial figures. Compared to the previous year, Group revenues climbed 21.6% in the second quarter and 19.1% in the first half year, reaching around €65.9 billion at the end of the first six months. This significant growth primarily came from the full consolidation of our Chinese joint venture, BBA, in the Group financial statements.
Group earnings before tax for the second quarter totaled just over €3.9 billion. The deviation compared to the previous year is due to technical effects. On the one hand, the prior-year quarter included income of €1 billion from the partial release of the provision in connection with the EU anti-trust proceedings. On the other hand, the second quarter of 2022 was also negatively impacted by the effect from the full consolidation of BBA of approximately €1.1 billion.
In the first half year, Group earnings before tax climbed 65.9% to almost €16.2 billion. The one-time effect of around €7.7 billion from the revaluation of previously-held equity interest in BBA at fair market value was a major driver. Accordingly, the Group EBT margin was at 11.3% for the second quarter and 24.5% for the first half of 2022.
Our research and development expenses in accordance with IFRS rose by 14.3% year-on-year in of first six months to just over €3.1 billion. Our R&D activities remain focused on electrification and digitalization of our vehicle fleet. The R&D ratio, according to the German Commercial Code, of 4.5% at the end of June was on par with the previous year. We expect the figure for the full year to be within our target range of 5% to 5.5%.
We are constantly working on the future of sustainable individual mobility. To this end, we’re continually investing in new products in our production network and in a comprehensive digitalization of our sales network.
With the recent plant extension in Shenyang, we have further expanded our production capacity. Our cutting edge plant, Lydia, is already setting new standards for diesel construction with its consistent focus on e-mobility and groundbreaking digital applications.
Capital expenditure in the first half of 2022 totaled more than €2.9 billion, an increase of €1.2 billion over the same period of 2021. The year-on-year increase is primarily due to upfront expenditure for the ramp up of e-mobility and investment at BBA. The CapEx ratio for the year to the end of June 30th was 4.4%.
Ladies and gentlemen, let’s move on to the individual segments. I will begin with the Automotive segment. Segment revenues for the first six months climbed 18.8% year-on-year to just over €56.7 billion. In the second quarter, they were up 20.1%. This increase in revenues largely stems from the full consolidation of BBA.
We were able to offset volume effect from the decrease in sales to good price realization for our premium products. Sustained momentum from the strong model mix contributed to this, as well as continuing positive conditions in the pre-owned car market. Revenues were also lifted by currency translation effects.
The cost of sales in the Automotive segment amounted to €48.1 billion in the first half-year, an increase of 23.1%. Effects from the consolidation of BBA amounting to around €2.3 billion contributed to the increase in the cost of sales. As planned, this included depreciation from the purchase price allocation amounting to about €1 billion at the first half year as well as an elimination of around €1.3 billion in inter-company profits from intra-group deliveries.
Segment EBIT stood at just under €2.5 billion for the second quarter and just over €4.8 billion for the first six months. This is a decrease of around €1.3 billion compared with the same period of last year.
However, as already mentioned, this is due to some technical effects. On the one hand, the previous year benefited from the partial release of the provision for the EU anti-trust proceedings. On the other hand, the EBIT for the current year has also been impacted by the BBA consolidation effect mentioned above.
EBIT margin of 8.2% for the second quarter was within our target range. At the end of June, it stood at 8.5%. Excluding the consolidation effects mentioned above, the EBIT margin would be 12% for the second quarter and 12.6% for half-year. This reflects the strength of our car segment in the second quarter, particularly given the difficult business conditions.
The financial result for this segment totaled around €8.1 billion at the end of June compared to a figure of approximately €1.3 billion for the previous year. On the one hand, this reflects a one-time effect of around €7.7 billion from the revaluation of the previously held BBA shares. On the other hand, with BBA’s contribution no longer included, the equity result decreased significantly by €800 million.
Thanks to a strong operating performance, this segment’s free cash flow for the second quarter totaled almost €3 billion. At the end of June, it had reached around €7.8 billion. This figure includes an inflow of €5 billion from the acquisition of BBA’s liquid funds, less the purchase price paid in the first quarter.
Temporary closures of Chinese dealerships due to the Coronavirus pandemic dampened the cash inflow from operating activities in the first half of the year. As a result, liabilities for advance payments from retailers and bonus payments to dealers decreased significantly.
Due to strong demand for all electric vehicles, the BMW Group will increase its investment in electromobility. In addition, we expect a slight decline in deliveries for the full year. This will only partially be offset in our results by positive price and mix effects, and the development of the pre-owned car market. For this reason, we are now aiming for our free cash flow of at least €10 billion in the Automotive segment for the full year.
In the first half of 2022, the Financial Services segment concluded just over 815,000 new contracts with retail customers, down 20.8% from the previous year. The decrease in vehicle sales is also reflected in the number of financing and leasing contracts concluded. In addition, the Financial Services sector continues to be highly competitive.
With a strong product mix, we were able to partially offset the reduction in volume of new contracts. The volume of new business from all financing and leasing contracts with retail customers was therefore only 12.3% lower than for the same period of last year.
Our Financial Services portfolio generates consistently robust and stable income. Combined with continued high income from the resale of end-of-lease vehicles, this lifted segment earnings before tax to almost €2 billion for the first half year. This represents an increase of 2.3% compared to the strong prior-year.
Despite difficult external conditions, sales in the Motorcycles segment were on par with the previous year. In the first half of the year, we sold just under 108,000 motorcycles from our attractive model lineup. The segment’s operating earnings for the first six months of the year totaled €235 million, with an EBIT margin of 14.1%.
Ladies and gentlemen, let’s move on now to the guidance for our key performance indicators. Despite the challenges in its business environment, BMW Group is on track to bring the financial-year 2022 to a successful conclusion. Thanks to the full consolidation of BBA, we expect Group pretax earnings to be significantly higher.
In the Automotive segment, we expect solid sales growth in the second half of the year compared to the same period of the previous year. In the first half of the year, the ongoing supply bottlenecks, the war in Ukraine and interruptions in supply chain have led to a decline in deliveries.
As a result, we no longer expect vehicle sales to reach the same level as in 2021 for the full year. We are therefore currently forecasting a slight decrease in vehicle sales. Regardless of this, we still expect the EBIT margin in the Automotive segment to be within the range of 7% to 9%.
The percentage of electrified vehicles should also increase significantly, and the number of all-electric vehicles should be more than double. We are targeting a slight reduction in CO2 emissions in the new vehicle fleet and CO2 emissions per vehicle produced.
For the Financial Services segment, the consistently good development on pre-owned car market led to a rising segment result. For this reason, we are raising our target range for return on equity by three percentage points. It should now be within the range of 17% to 20%. In the Motorcycles segment, we anticipate a slight increase in deliveries with an EBIT margin within our target range of 8% to 10%.
Ongoing inflation and interest rate hikes will continue to shape the macroeconomic environment in the coming months and impact demand. Accordingly, the above average order bank, particularly in Europe, is expected to normalize towards the end of the year.
Our guidance assumes that political and economic conditions will not deteriorate significantly. It does not include any significant tightening of sanctions against Russia or counter measures by Russia, including an interruption in gas delivery. An expansion of the conflict situation spreading outside of Ukraine as well as far as further significant and prolonged lockdowns in response to the pandemic are also not factored into our guidance assumptions.
Ladies and gentlemen, the BMW Group is capable of delivering consistently good results, even under challenging conditions. Our robust operating performance gives us a high degree of financial strength and earning power. Our priority is the long-term growth of the BMW Group. To achieve this, we are investing in the transformation of our Company in a targeted and sustainable manner.
The BMW Group is ideally positioned for the future. Despite the increasing challenges, we are looking ahead with confidence. Thank you.
Maximilian Schöberl
Thank you very much, Nicolas Peter. And now our Chairman, Oliver, please go ahead.
Oliver Zipse
Good afternoon, ladies and gentlemen.
For the current year, we see both positive trends and risks for our business development. Without supply bottlenecks, we would have sold more vehicles in all three main markets in the first half of the year. In the second half of 2022, despite uncertainties in the supply situation, we now expect a solid increase in our deliveries to customers than in the same period of last year.
Our order books are well filled several months out. The BMW Group remains number one in the global premium segment. We offer customers an attractive range of products, with a large number of new models and a great variety of drivetrains.
As previously announced, we intend to more than double our sales of all electric vehicles for the full-year 2022 compared to last year and after the first six months, we are on track to do this. Our product and drivetrain strategy is now realizing its full dynamic potential, but we wouldn’t be BMW if we weren’t already gearing up our Company for the next big leap forward.
Our Neue Klasse will be coming in 2025 at exactly the right time when the e-mobility ramp-up will be reaching new levels. The Neue Klasse will speed up market penetration of electric vehicles ever further. For the launch of the Neue Klasse, we are planning a compact sedan in the 3-Series segment and a sporty SUV. By the end of the decade, the Neue Klasse should already account for more than half of our global sales.
We had also mentioned a hydrogen drivetrain for this new vehicle generation, but the Neue Klasse is so much more than a comprehensive new product portfolio with the core characteristics, electric, digital and circular. It defines what the BMW Group will stand for in the future and will make us an entirely new company because BMW was founded in 1916. In the 1960s, the Company reinvented itself with the old Neue Klasse and now in 2025 we will totally reinvent ourselves for the second time with the Neue Klasse. We see the Neue Klasse as a complete reset for the car and our understanding of mobility.
Over the next three years, our preparations will be intense encompassing all areas of the Company. At the same time, we are systematically transforming our production network for e-mobility as these three examples show. First, at our oldest plant in Munich every second vehicle coming off the production line will be fully electric by the end of next year already. And there – we will also be producing in the Neue Klasse there from 2026.
Secondly, in China we have expanded the Dadong site in Shenyang where we are localizing the long wheel-based version of the X5 for our Chinese customers. We’ve also brought a comprehensive plant expansion on-stream at the Tiexi location. This is where we are producing a long realized version of the new 3-Series BEV for the Chinese market. By the way, we planned and simulated this plant in an entirely virtual environment. It is fully geared towers e-mobility.
And thirdly, the same applies to our new plant in Hungary for which we laid the foundation stone in June. Debrecen will be the site for the initial launch of the Neue Klasse from 2025. For the first time in BMW history, we will be launching a new plant with a new vehicle architecture and utilization of electric car and a new generation of electric drivetrain.
Something else that is unique, Debrecen will be our first vehicle plant to operate completely carbon free and without natural gas. We’ll be using heat converters that can run on electricity or even geothermal energy. This message has been extremely well received around the world.
Each and every one of our production locations worldwide will become an iFACTORY, that means lean, green and digital. Our plants already perform very well in the latest customer studied by US market research company, JD Power. All BMW plants in Europe took top spots or made it into the top 10. The BMW Group won eight awards in total, the best performance ever.
Ladies and gentlemen, we remain optimistic. In a complex environment dominated by macroeconomic developments, we are deliberately playing to our strength. Rising raw material and energy prices, energy insecurity in Europe, high inflation, interest rate hikes and worsening financing conditions, all of these things affect our business as well as our consumer behavior.
Semiconductor supply difficulties remained dominant and decisive issue for our sales performance. Against this background, we’ve updated our sales guidance for 2022. We now expect deliveries for the whole year to be slightly lower than the previous year’s level.
Our EBIT margin in the Automotive segment should stay within the range of 7% to 9%, as Nicolas already mentioned. The crucial factor will be how the supply situation develops, not just for semiconductors but also energy supplies in Europe.
Our natural gas competence team is actively preparing for a potential gas shortage together with our suppliers. Extensive reviews are currently underway at our locations in Germany and Austria. We are looking at all areas and all fuels to see where we can reduce our gas usage. We could potentially envisage making up electricity from gas-powered cogeneration vents by purchasing external power. We are evaluating whether this is feasible and what the possible implications might be. We’ve shared tips with our employees on how to save gas and electricity at work and at home.
Resource efficiency has been a key issue for production at the BMW Group for many years. We are the leader in many areas, including lowering CO2 emissions and water consumption per vehicle produced.
Over 99% of the waste from our production is recycled or recovered. At the present time, no one can reliably predict how this situation will develop in the coming months and years. But we at BMW belief in seizing opportunities wherever they arise.
The flexibility of our vehicle architectures and our global production network are proving extremely valuable as are our strong partnerships with our suppliers. We are able to serve diverse markets efficiently. And at the same time, our electric models are winning important comparative tests. There can be no question for us about whether to stand by our sustainability goals. This is more important than ever in the current volatile environment. We take the long view, and we know where we are headed.
The vision vehicle we unveiled at the IAA 2021, the BMW iVision Circular, showed exactly how entrepreneurial thinking can work in a circular economy. And now, in January 2000-23, we will take things to the next level when we present digital vision vehicle at the CES as well as our NEXTGen in Las Vegas.
It will showcase our digital expertise, both in our vehicles and as a company and partner for tech players around the world. And for the IAA 2023, I can already promise you a glimpse of the Neue Klasse, with a spectacular digital experience for our customers.
As you can see, we are right on the track and we have ambitious plans for the future. Thank you very much.
Maximilian Schöberl
Thank you very much, Oliver. Ladies and gentlemen, the line will shortly be open for your questions. Please wait for technical advice.
Question-and-Answer Session
Operator
[Operator Instructions] And the first question is from George Galliers, Goldman Sachs. Your line is now open.
George Galliers
Good afternoon, and thank you for taking my questions. The first question I had was just on the electric vehicle development. You’re clearly seeing very good traction for your battery electric vehicles. When I look at last year, your plug-in hybrids out-sold the battery electric vehicles by more than two to 1, but with your objective to double sales this year there seems to be a high probability that in the second half your battery electric vehicle sales will be at the same level as your plug-in hybrid electric vehicles. Is this correct? Do you expect the volumes to be equal to or maybe even exceed the plug-in hybrid volumes in the second half and on a forward basis? And if this is correct, would you describe us as being at peak plug-in hybrid today?
The second question I had was on hydrogen. I don’t know if you could give any insight into what percent of industry passenger car sales could hydrogen account for in 2030. And Q3 last year, BMW did reference the fact that the EV infrastructure had not kept up with EV sales. With this in mind, who does BMW think will pay for the hydrogen infrastructure? Will it be public investment or private investments, or is this even an area that BMW itself might support? Thank you.
Maximilian Schöberl
Thank you very much, George. Your questions will be answered by Oliver. Oliver, please.
Oliver Zipse
Yes, George, hello, this is Oliver speaking. Well, both question a very much lined up right in the heart of our strategy. The first one, we always said there will be a long period where combustion engines PHEVs and BEVs will run alongside. And we always said, beginning in 2022 and then progressive all the way up to 2030, the amount of BEVs will have the strongest growth push.
This year overall, we will have about 10% of our – all of our retail volume will be there, and we are right on track in achieving this. The PHEVs, they will end up at about a little more than 200,000 units, and that has been the same last year and we expect that to remain at that level for the next three years or four years, and then we will see.
And that is pretty independent of new car sales support from different countries because the PHEVs is a very unique product offering for the time being, especially when chartering infrastructure, as you said, is lagging substantially behind market increase on the BEV side. So you will see a parallel work at the same time and we are very happy that we can fulfill with really superior product both market demands. But of course, BEVs will be – will have the stronger sales push than PHEVs.
Then I go to hydrogen, you know, the reasoning behind hydrogen is if you wanted to become more – first, if you want to become more independent on raw materials which you need in abundance for BEVs and you will see what we foresee that on a scale there will not be enough charging infrastructure.
The Nordic states, Germany, France, U.K., Belgium, they might have enough charging infrastructure. But the other half of the globe, also inside of Europe, is extremely unlikely that we will have enough charging infrastructure to 2030 or 2025. And if we run into an emission free world, we have to have an offering of hydrogen, otherwise you will lose market share. We are heavily convinced that we have a few on the future on a global scale, which requires an offering of hydrogen.
And your last point was also the H2 infrastructure, no, you’re not depending so much on solidly installed infrastructure like which– with electric charging infrastructure, it’s very mobile and hydrogen can store energy. So there will be a parallel world. Of course, the hydrogen segment will come at a much later time than the best development.
George Galliers
Thank you very much.
Maximilian Schöberl
Thank you very much, George. Next question please.
Operator
The next question is from Charles Coldicott, Redburn. Your line is now open.
Charles Coldicott
Good afternoon. Thanks for taking my question. My first one, on the Auto margin guidance, if I…
Maximilian Schöberl
Charles, can you speak a bit little bit louder? Charles?
Charles Coldicott
Sorry, is that any better?
Maximilian Schöberl
Yes, it’s – now it’s much better. Wonderful. Thank you.
Charles Coldicott
Great, thanks. Sorry about that. So, on the Auto margin guidance, if I look at the consolidation effects from BBA, it had a negative €2.3 billion impact in H1 but your guidance is for only €700 million of one-off costs related to BBA in the second half of the year. Nevertheless, your overall Auto margin guidance implies total earnings in H2 will be similar to H1. So my question is what are the additional costs that are fully offsetting those lower BBA consolidation effects in H2 versus H1?
And then my second question, you referenced in your prepared remarks the BMW iX tests that showed the real life range is significantly longer than the official range and also uses less energy per mile than all of its competitors, including the Tesla Model X. Obviously, you model – you design and manufacture your own powertrain components for that model. So I wondered if you could talk a little bit about the technology that has helped the iX deliver market-leading efficiency.
Maximilian Schöberl
Okay, thank you very much Charles. We start with Nicolas and then Oliver.
Nicolas Peter
Charles, first of all, I really like to restate that the first half year our EBIT performance in the Automotive segment I believe wasn’t very strong one in such a volatile environment. And if you adjust by the BBVA consolidation effect, we are at 12.4% after six months.
Now, you’re absolutely right. We will see and some positive effects coming from some less BBA consolidation effect in the second half of the year. However, as always, in the second half of the year we have higher costs in particular in the fourth quarter.
We have some higher burden from logistics and supplier price inflation as well as slightly more negative coming from raw material costs in the second half. Overall, we are confident that we are well within our guidance of 7% to 9%, which again is taking into account this very volatile market environment, I believe, and strong performance.
Maximilian Schöberl
Okay, thank you very much. The second part of the question was the iX technology efficiency. Oliver?
Oliver Zipse
Yes, Charles, that is a very good question. You know, efficient dynamics is part of our DNA, has always been. Even in the old world of combustion engines, we were able to prove that we always had the product offering which is more efficient in its fuel consumption. And the same DNA we kind of translate now into the new world of electric vehicles.
In the case of the iX, we use every possibility to reduce driving resistance by lightweight bodies, for example, the iX also includes carbon fiber elements like we had in the iX3. We look at battery efficiency where the main ingredient is temperature control. We have the actual drivetrain deliver the so-called heat, it’s the actual electric engine is fully – 100% developed and manufactured in-house and we think we have a substantial competitive advantage with the technology we developed here and it’s fifth generation now.
Aerodynamics of the car, a big player, introducing the efficiency and also the whole mechanical performance of the car in terms of [technical difficulty] in place into driving that efficient dynamics approach. And therefore, we think the best complete system leads to the results which you have mentioned. And we are also rather conservative in measuring it in a formal way. If now an independent institute measures that and sees the real efficiency, of course that helps us to improve even further.
Maximilian Schöberl
Okay, thank you very much.
Charles Coldicott
Thank you.
Maximilian Schöberl
Next question, please.
Operator
The next question is from Daniel Schwarz. Your line is now open.
Daniel Schwarz
Yes, thank you for taking my question. First one would be on the cash flow guidance. Is it possible to split the €2 billion shortfall into an earnings effect, CapEx or working capital effect? And then on the market outlook, the cut from 1% to minus 6%, this 7 percentage points, could you approximately say that is split into weaker demand and what is the supply bottlenecks?
And just a follow-up question on the earlier question on the guidance. So, could you confirm that all of the weaker earnings in the second half, that’s higher cost and none of that is really a price effect that – or deteriorating pricing from first half into the second half?
Maximilian Schöberl
Okay, Daniel. Thank you very much. This will be answered by Nicolas.
Nicolas Peter
Well, Daniel, maybe let’s start with pricing. Pricing continues to be strong in all three regions. If you look at, for example, at the very recent auto data report which was published early earlier this week and if you look on models comparison to our brands, we are in an extremely strong position despite the fact that we have out-sold most of our competitors in the first half of the year. Very similar situation in Asian markets, and we’ve seen an improvement in terms of price realization in many, many European markets if we talk about – because it’s of course linked to residual values. We continue to see strong pricing with regard to off-lease vehicles in the US, in U.K. and in Germany. So that’s positive.
Second element is – your question regarding what – we have not adjusted our guidance by 7%. We have adjusted our guidance in terms of sales volume from flat to slightly below, which is in our wording between minus 1% and minus 5%. So that’s – let’s see where we exactly end up.
And your third topic was cash flow guidance. And it’s a mixture, and we’ve said – to be very precise, we’ve said minimum €10 billion. So, let’s see whether it will be exactly €2 billion or less, but the shortfall is on one hand side will – related to the high demand in our electric portfolio, in particular i4, iX, and we anticipate strong demand for i7 and iX1. And this motivated us to a further increase in the investment in particular of battery module production. To give you one example, we’re, just as we speak, opening a second line of battery production – a battery module production at our Leipzig plant.
Maximilian Schöberl
Okay, good. Thank you very much, Dan. Next question, please.
Operator
Your next question is from Jose Asumendi, JPMorgan. Your line is now open.
Jose Asumendi
Thank you. Jose, JPMorgan, I have three questions please, probably for Oliver. The first one, when do you expect to see a balance between supply and demand on the semiconductors? Do you think this is something that could be achieved for BMW in 2023 or should we think it is a post-2023 discussion?
Second Oliver and Nicolas, I’m sure you have – you’re seeing an opportunity to keep lower inventories or lower level of inventories across regions and protect pricing power. Do you have in mind the level of inventories you want to keep in different regions to protect this pricing power?
And then three, if possible, could you please quantify how many gigawatt hour battery capacity, not building modems but producing cells, you would like to target maybe by 2025 or 2030? Thank you.
Maximilian Schöberl
Okay. Yes, thank you very much, Jose. I think this can be answered by Oliver altogether, yes. Semiconductors and – yes, we start with semiconductors.
Oliver Zipse
Yes, Jose, to your first question, the semiconductors supplies, it’s a two-sided view. The first, that we don’t have any supply difficulties with the so-called advanced nodes, which are used also in the consumer industry. We don’t have any supply problems. There is enough capacity. What we see in the consumer market, the orders are coming down, so there is some relief in there anyway. So, that is not the problem. It’s more on the mature side. So it’s the power control semiconductors, it’s CMOS technology and so on.
And in the past – the whole industry I think is overwhelmed by the continuing supply by the automotive industry, but the machine suppliers, by everything that has to do with sustainable energy, wind turbines. They – all of these need these mature nodes. And mature does not mean old, that means they will continue for 20 years, 30 years, 40 years of having that demand and there we have don’t have enough technology – capacity.
Not the way they look forward, I think we have peaked, as we speak, in June, July maybe August we have peaked to where we have a supply bottleneck. It will become better but I think the capacity increase by some of the suppliers takes time. They started to invest some 18 months ago. You need between two and three years until that becomes effective.
So we see, yes, a gap between supply and demand for – at least for the next six months to 12 months. But again, there is bettering of the situation in sight. I don’t think it will become worse than it is today. I’m pretty sure. And we have very, very close connections, I myself, with the semiconductors. So, I think that’s a description of the today’s situation.
The second question was about our inventories. The inventories on the car side, of course we perfectionize our inventories to demand and that is independent of the region in the world. We try to lower our inventories to a level where we can supply the demand, but that we definitely do not have over-capacities. Of course, that means that you have a more stringent control of your inventories.
The good thing is all of our cars at BMW are connected. With that connectivity, we know exactly where the cars are and so we can have a very distinct steering of our inventories. On the parts side, we increased our in our inventories for critical parts, so we become more and more independent of the extra supply situation. And that’s specifically on the semiconductor side but also on the critical electric mobility part side.
And the third question was how many gigawatt hours of capacity in 2025 and 2030 plant. As you can see, we will five-fold our capacities here. This year we will have about 10% of BEVs in our product portfolio. By latest – maybe even the earliest, by latest 2030 we’ll be 50%, that means we five-fold our capacities here.
And we remain in our opinion that the direct production of battery cells is not the route we take because we currently have more than five suppliers of it. That means if you start doing that, you would have to reason it, you would have to supply all cells out of your own realm. And I think to play the market, which is very big by the way, and is very competitive would be at least from the year – from the perspective of the year 2022 would be a mistake.
Where we invest heavily by ourselves is the complete battery pack, especially for the current situation but even more so for the next generation of Neue Klasse in 2025, that will be done almost exclusively in-house, very close – in proximity to our plants. So, that has been our strategy and I think for us it’s exactly the right strategy.
Maximilian Schöberl
Thank you very much, Oliver. Next question, please.
Operator
The next question is from Daniel Roska, Bernstein Research. Your line is now open.
Daniel Roska
Good afternoon, gentlemen, thanks for taking my questions. Maybe on your 2022 outlook, it sounds a little bit more cautious than some of your peers possibly. And I wonder if you are a little bit more pessimistic on the rest of the year, what – where does that leave us for 2023. So may I ask which development in the upcoming months would make you more optimistic on next year and which developments neglecting, let’s say, big black swan events, but which developments would make you less optimistic?
And then during the press con also earlier you highlighted the importance of battery efficiency and the improvement process you’re on. Could you put some numbers around that? So where do you – where is the efficiency in your view on the iX now and how much in numbers do you think you can improve that into your next platform? And maybe just short follow-up to clarify if I misunderstood, but did I hear you correctly that Neue Klasse potentially would accommodate a hydrogen drivetrain later in the decade? It’s again the question around BEV only or BEV first. Thanks.
Maximilian Schöberl
Thank you very much, Daniel. We start with Nicolas, and then Neue Klasse and iX, Oliver. Nicolas, please.
Nicolas Peter
Dan, my perspective is slightly different. If you reflect on the sales results in the first half, minus 13.4%, we are guiding for the full year a slight decrease compared to 2021, which means on one hand side we have to accelerate and we will accelerate versus the first half year of 2022 and we will be above the second half of 2021.
We will be – compared to the second half year of 21, you will see a solid growth of our global sales between 5% and 10%. So, I believe that it’s not a very realistic plan we have in place taking into account the situation in the different geo regions, taking into account what Oliver just outline, the development in the semiconductor – on the semiconductor supply side, and on one hand side our strong order bank, and in particular, the development of incoming orders, in particular in Europe. So, I believe it’s an optimistic, well balanced scenario – growth scenario. And what will happen in 2023, we will discuss in a couple of months from now.
Maximilian Schöberl
Okay, thank you very much Nicolas. The second part of the question was about the battery efficiency, iX, and Neue Klasse, BEVs only or BEVs first? Very easy question.
Nicolas Peter
Yes, with the iX, I think the iX is only one example where we can – or external proof that our efficiency is part of this team, A; and also being better than the competition. I would say, with the iX but also with the i7 we see, even with the i4 the realistically reached efficiency is about 10% to 15% better than publicly measured in the normal – doing the normal methods.
So, we think we are about 10% to 15% better than – not anticipated but then communicated, that we’re also on the – obviously on the conservative side here. But in the test we see, we’re also about 10% to 15% better than the majority of the competition. And that has been one of our core strengths, and we’ve built on that strength and want to build that even further in the Neue Klasse later. The Neue Klasse is electric-only because the hydrogen car is an electric car. So, that’s a simple question. And whether we do a hydrogen drivetrain, we will decide on a later point but because it’s a net electric car it’s what we need to do.
Daniel Roska
Good, thank you.
Maximilian Schöberl
Thank you very much, Next question, please.
Operator
The next question is from Tim Rokossa, Deutsche Bank. Your line is now open.
Tim Rokossa
Thank you very much for taking my questions, gentlemen. I have two, please. The first one is on your strong BEV demand, especially i4 we test-drove it. I liked it, lots of people seem to like it. But anecdotally, the waiting times can be up to 18 months, in Europe at least. Now, lots of demand is a good problem, but it’s still a problem because lots of your customers may end up still buying Tesla if this two years is simply too long for them to wait. And in two years’ time, obviously also this may not be a very competitive maker in the market anymore. So any chance that you can realistically shorten these waiting times substantially in the near term or is that just what customers have to live with?
And then secondly – and I think that is actually a decisive question for your stock price performance today outside of your margin guidance, it’s been a while since we saw an OEM taking up the CapEx guidance with quarter results. Now, for most of us, if I recall that correctly, that was basically in 2019 also when you were close to 5.5% of your topline as CapEx. And back then, a lot of your peers announced dedicated EV architecture. Now, you said there is no need to do that.
Now, you have one that we just also discussed. What do you say if someone looks at the results today and such that we are now looking for a situation where you guys will under-earn because you don’t have this dedicated architecture and your flexible approach is quite expensive as it seems, and at the same time you have to out-spend your peers for the next two years in order to adjust it. Thank you.
Maximilian Schöberl
Thank you very much, Tim. This will be answered by Nicolas.
Nicolas Peter
Well, first message, it’s good news that our all-electric cars are in high demand. iX, i4 mentioned – you’ve mentioned but MINI electric as well. And as we anticipate that i7 and iX1 will be in high demand as well. This is the first feedbacks we are – positive feedback we are getting. This is exactly the reason why we are investing heavily, in order to ramp up production capacities, in order to shorten lead times and to have, yes, customers waiting a little bit shorter. I think you can wait for a premium product a couple of couple of weeks, maybe even two months to three months. But definitely now, it’s a little bit too long. And this is why we are investing.
Second element, underperform – if you look at our key KPIs, we have delivered 12.4% EBIT margin. We’ve delivered in the first six months, if I’m not wrong, the highest free cash flow in the industry. So I don’t – to be honest, I don’t see any underperformance. And the fact that we are investing in CapEx, it exactly has nothing to do with Neue Klasse, it has to do with the fact that our today’s cars, which are the cars I’ve referred to are in high demand. And from my perspective, all those three elements are positive messages, positive news.
Maximilian Schöberl
Okay. Thank you very much, Tim. Then we come to the next question please.
Operator
The next question is from Gabriel Adler, Citigroup. Your line is now open.
Gabriel Adler
Hi, thanks for taking my questions. My first is on the impact from supplier price recovery that you mentioned in answer to another question about the second-half cost pressures. Are you expecting those price recoveries to continue into 2023? I mean, could you give us any more details on how the contracts are structured to these one-off repayments or are they price increases that are going to be renegotiated annually? And anything that could quantify the impact in the second half of this year would be really interesting.
And then, my second question is sort of a follow-up on the previous one on CapEx again. I just really want to understand here whether this increase should be seen as an opportunistic response to the strong EV demand you’re seeing or whether it really represents a change in strategic thinking and it means that EV investments being going forward CapEx should be higher in 2023 and 2024 perhaps than initially anticipated? Thank you.
Maximilian Schöberl
Thank you very much. Yes, I think this will be answered by Nicolas.
Nicolas Peter
Well, Gabriel, maybe let’s start with your second question, EV investments, and I’m repeating in a certain way what I just said. It’s a positive news that our EVs, our all-electric cars, are in the higher demand than we’ve anticipated, and this is exactly the reason why we are investing, we are planning to more than double our sales.
And if – maybe to start with the first half, if you look at our performance in the all-electric area we are ahead of – take aside those manufacturers which are only focusing on all-electric, we are ahead of all others in the premium segment. Demand continues to be strong. We are anticipating high demand for i7 and iX1 as well. And you are aware that we are launching additional models in 2023. And of course we have an investment plan, which is in line with our ambition to grow from today to approximately 50% of our global sales being all-electric in – by 2030.
Your first question was on cost pressures in the supply chain. Of course, this has to do a lot with energy price and raw material price development. We’ve seen in raw materials some volatility in the last couple of weeks in both directions. And talking about raw material impact in 2022, if – we’ve guided from the positive for the full-year 2022 raw material and FX low to mid 3-digit negative deviation. Now, we are on the opposite side.
We have – thanks to the development on the FX side, we have – we are forecasting now and low to mid 3-digit positive impact. And we are – as you can imagine, our procurement department is discussing with every individual supplier different type of solutions. So, I’m confident that – and this is reflected in our guidance, that despite those challenges we stick to our guidance of 7% to 9% in 2022
Maximilian Schöberl
So thank you very much, Tom. So it’s 3 O’clock but we have time for some additional questions. Next question, please.
Operator
The next question is from Tom Narayan, RBC. Your line is now open.
Tom Narayan
Hi, yes, Tom Narayan, RBC. Thanks for taking the questions. The first one is, I suspect this is a regulatory issue, but is there a reason why BMW includes purchase price accounting in the adjusted EBIT? And then I just wanted to confirm some of the answers you’ve given in the Q&A session thus far. So, you called out a logistics supplier price inflation, raw materials as to why H2 EBIT margins ex-PPA will be lower versus H1. And your comments suggest that price mix should be – remains strong in H2 and then I guess semis still could be better in H2 versus H1, just wanted to make sure that’s a fair assessment.
And then lastly, could you just update us on your specific exposure to nat gas energy use? And on that topic, some of your peers have voiced some optimism that governments, specifically German Government, will do what they can to protect industry and this is in reference to the supply chain. Just curious if you share this optimism. Thanks.
Maximilian Schöberl
So we start with Nicolas for the first and the second part of the question. And then the third about the net gas energy comes from Oliver. Okay, Nicolas, please…
Nicolas Peter
Well, number one, we stick to our guidance, so 7% to 9% is unchanged. You’re absolutely right. We will see lower PPA impact in the second half of the year. Mix and price is okay. We will see volume developing in the right direction. On the other hand side, we have, as always – in the second half of the year, we have higher costs, in particular in the fourth quarter, and altogether it’s leading to a confirmation of our profit guidance of 7% to 9%.
And as far inclusion of PPA in the EBIT, we follow IFRS standards and regarding IFRS standards is the right way to account for the PPA in the auto segment.
Maximilian Schöberl
Oliver?
Oliver Zipse
Yes, Tom, I think this is a very crucial question. We currently are seeing 3,500 gigawatt energy use by BMW in Germany and Austria. About 1500 gigawatt hours are gas. I think some of it we can convert, especially the gas-to-power conversion units we run here. The electricity power can be bought otherwise. We are quite confident there.
Can we completely save or replace the rest of the gas? No, we could not. I think any industrial operation could not do that. So, we are very happy that the policy in Germany, in Europe, is targeted to tell us – keeping the is running. And even if we could counteract on the gas shortage, I think our supplier base will have even bigger problems because some manufacturers, especially the chemistry industry, uses processed gas, which we cannot replace by electricity and so on. So, I think it’s absolutely mandatory, at least for the majority of gas, that the pipelines keep running. And that’s our demand to the policy makers in Brussels and Berlin.
Maximilian Schöberl
Thank you very much, Oliver and Tom. So, I think we have time for two more additional questions.
Operator
The next question is from Harald Hendrikse, Morgan Stanley. Your line is now open.
Harald Hendrikse
Yes, guys, can you hear me?
Oliver Zipse
Yes, we can hear you.
Maximilian Schöberl
We can hear you.
Harald Hendrikse
Perfect. Thank you so much for taking my question. I was very late pressing the buttons. Obviously, best thing, so thank you for highlighting that just now from Tom. My question, more – slightly more usual one, but we can see it again today, right. Unit sales in the quarter down obviously quite sharply, revenues at all-time highs. So the discrepancy and the huge move in ASPs, obviously incredibly helpful and you’ve already highlighted that on the pricing.
My question is obviously what I think most investors are asking themselves. At a stage when the consumer is obviously under pressure, inflation is hurting the consumer everywhere, when interest rates are going up and so putting probably some pressure on leases, I mean how sustainable do you think this pricing situation is? Do you think this is 2022, or if I was going to model 2023 would I still expect positive pricing on top of these very high ASPs? I know it’s a bit conceptual but maybe some of your thoughts would be more valuable to us. Thank you.
Maximilian Schöberl
Yes, thank you very much. This will be answered by Nicolas.
Nicolas Peter
Harald, course this is one of the most important questions you are asking. And if you reflect on our guidance adjustment we made today, this is exactly supporting your assumption. Our ambition is very clear. We want to – based on our strong product portfolio, based on the good momentum in particular with all-electric cars, to maintain and to keep pricing at today’s level.
And as I’ve already said, if we look – and the most transparent market in this regard is the US market. And if you look at what are the key elements next to a strong product portfolio, which we have, is to manage the supply side in the right way, which we do.
If you look at inventory levels, you’ve already asked – someone asked the question a little bit earlier, look at inventory levels in the industry as of end of June, for example in the US, but we follow exactly the same strategy in all regions. We have one of the lowest dealer inventory levels in the industry. And if you look at the share between SAVs and cars is exactly the right one, in line with customer demand.
Second element, which is key in this regard is to have flexible plants, to be in a position to follow demand, be it on the product side or on the allocation to different markets because it’s very – we are a global manufacturer. It is very difficult to forecast exactly in detail how every single market will develop in 12 months from now. So, flexibility is extremely important, also to maintain the high pricing. That’s definitely one of the strengths we have in our organization.
And the third element is, as Oliver already outlined, to know exactly where your stock is and what level of stock you have in every single dealership around the world. And thanks to our tracking possibility, this is something which we are able to deliver today and have the basis far – and really strong and extremely helpful supply and demand allocation of our production.
So, I am confident on top of this that due to the year – not only our new car pricing, but also our strong residual value position that we will see also beyond 2022 a strong pricing position, and we will definitely not fall back into those behaviors we’ve seen in the industry in – before the Corona crisis.
Harald Hendrikse
Thank you very much.
Maximilian Schöberl
Thank you very much, Harald. And now last question, please.
Operator
The last question is then from Stephen Reitman, SocGen. Your line is now open.
Stephen Reitman
Yes, thank you very much for taking my questions. I have two questions on China and then maybe a third one, a conceptual one. First of all, on China, now it’s become obviously even more important given the full consolidation of the business, but could you comment about the efficiency of your operations over there? We see in Shanghai, Tesla making record kind of level of production there from Shanghai Gigafactory. I was wondering how the efficiency of your plants compare – your three plants in the Shenyang area compare in terms of ability to work, how many days and shifts and things like that?
Second, if you could comment on what’s the demand has been like reception of the locally produced X5 Long Wheelbase version and where you think that’s going? And my third question is, you’re talking about 10% being at 10% BEV share by the end of the year. If your BEV capacity was unfettered, you could actually produce as many BEVs as you think the market demanded. Where do you think your market share – the share of BEV your mix would actually be then? If you could actually make as many BEVs as the customers were demanding, you talk about the very strong long waiting times you have for these vehicles. Thank you very much.
Maximilian Schöberl
Thank you for your question, Stephen. The answer will come from Oliver.
Oliver Zipse
Yes, Stephen, in China we have three plants out there in Shenyang, the newest one called Lydia which has just been opened about eight-weeks ago. They are absolutely on global competitive level. There is no difference between a German plant, a United States plant, a Mexican plant or the Chinese plant. The efficiency almost exclusively depends on capacity utilization. The higher the capacity utilization is the better it is, and up to now all plants were running on full throttle more or less.
Also, that leads me to the second question, the ramping up of the X5 long-wheel base. The demand is extraordinarily high. Really that was I think one of the best decisions we ever made to localize the X5, also to have a capacity expansion but also to have been part of the local production network in China. So, demand is very high and that leads automatically to very high efficiency rate.
And your last question, 10%, yes, if we could, we would do more, that’s true. But I think we are not completely out of line with the natural capacity demand – of global demand. The best market on a global scale is still very small, no compared to other sizes. And we will grow with the demand. We will double it again the year after next. This is – and we go very much in line where the markets go. But we currently do everything possible to get enough batteries, to get enough semiconductors specifically, especially on the mature nodes, as I said before, to meet market demand.
Maximilian Schöberl
So, thank you very much, Oliver. Thank you very much, ladies and gentlemen. Thank you for joining us today. All the best for the summer time. Stay healthy. And good-bye from Munich. Bye-bye.
Operator
Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.
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