Bayerische Motoren Werke AG (BAMXF) Q4 2018 Earnings Conference Call Transcript

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Bayerische Motoren Werke AG (NASDAQOTH: BAMXF)
Q4 2018 Earnings Conference Call
March 20, 2019, 10:00 a.m. CET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Ladies and gentlemen, please take your seats. That also holds true for the photographers and cameramen so that we can get started, and afterwards, there will be plenty of time for you to take your pictures. Please take your seats.

Dear colleagues, good morning, and a cordial welcome to the Annual Accounts Press Conference of BMW AG. I'm delighted to have the opportunity to welcome you all here at the BMW Welt, also on behalf of the board of management. Today, colleagues from 18 countries have followed our invitation and I would also like to welcome all the spectators following our conference live on the internet where it will be also available on demand later on. The press conference will be simultaneously interpreted for you and you can see the channels up here.

Dear colleagues, today we'll be reporting on the past financial years and of course we will also give you an outlook onto the year 2019 and beyond. The financial report, yearbook, and the sustainability fact book are available for you. When it comes to the financial statements, we have taken a new path. The online version is accompanied by an audio-visual version and you can also look into our social media channels where you can find all the facts and figures of the previous fiscal year. The sustainability report 2018 can also be found for download online.

Dear colleagues, here on stage, as usual, you have all the members of the BMW Group. On my left, I would like to start with Harald Kruger, the chairman of the board of management. Nest to him, Klaus Frohlich, responsible for development. Then we have Pieter Nota. He's head of the division sales and brand BMW. One board member who is here for the first time at an annual accounts press conference, welcome to Dr. Andreas Wendt. He is head of the division purchasing and supply network. He's on my very left. To my right, we have Dr. Nicolas Peter, our CFO. Next to him is Caina Andree. She's responsible for human resources and our labor director. Next to her, Oliver Zipse charged with production, and to the very right, Peter Schwarzenbauer, responsible for MINI, Rolls Royce, BMW, Motorrad, customer engagement, and digital business.

What can you expect this morning? First of all, Mr. Kruger will explain to you what the BMW group sets apart from the competitors, and how it will take three stages into the future, and then Mr. Peter will follow with the detailed figures on the business development of 2018 and our outlook. Following that, Mr. Kruger will then present to you our model offensive, which we call Model Offensive 2.0. There is also one new vehicle included in this, and afterwards, you can then ask your questions to all members of the board. Then, finally, and I think that's also important for all of us because we'll have earned it by then, we will then invite you to join us for lunch.

So much from my side, and now, Mr. Kruger, the floor is yours.

Harald Kruger -- Chairman of the Board of Management

Thank you very much. Good morning and welcome. Today, I would like to show you what sets the BMW Group apart from our competitors with a look back into the recent past and then with a look forward into the future. We are shaping, successfully, the future of mobility, and in doing so, we are consistently charting our own course. We're constantly redeveloping our business model because it has to be profitable and successful in the digital age, and one example for this is our new joint venture with Daimler which combines all our NOW services. We're strengthening our core business and our global presence, for example in China and the US. We deliver because we turn words into actions. Our successful transition to the new emission standard WLTP is a good example of this.

Ladies and gentlemen, in recent past, we've evolved from a pure manufacturer to a mobility provider, and going forward, we aim to be a leading tech company for premium mobility. For this reason, we are providing our company a newer, stronger foundation with regards to technology in our relationships with customers and in our processes, structures, and our work environment. That is no easy task by far, but we are a very strong team. We continue to consistently follow our strategy, NUMBER ONE > NEXT.

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We've been implementing measures for the past three years and our focus extends up to 2025. We have a clear vision of the future. Our journey has three stages with milestones in 2018, 2021, and 2025. The first stage of the one up to 2018 has already successfully been completed. What was the BMW way? What sets us apart from others? Well, one thing I want to make very clear, BMW vehicles have not been manipulated and that has now been confirmed again. We have invested heavily in new products and new drive technologies and in digitalization. We have electrified many models and model series'. Our BMW i3 continues its success year after year. Worldwide, the total was more than 140,000 electrified vehicles in 2018. We started the biggest model offensive in our history that helps us to win market share across the globe. Since 2016, we have made major advancements in the development of autonomous driving and our autonomous driving campus outside Munich is now working at full speed. At the same time, we've strengthened our footprint in all major regions of the world and we've expanded our capacities. All of this shows you can trust us. The BMW Group is robust, fast, and flexible. We're now entering into the second phase of NUMBER ONE > NEXT, which will take us up to the end of 2021.

What are the challenges for our industry now? Well, the business environment remains highly volatile. E-mobility will continue to grow in importance and the development of highly automated vehicles will continue to make advances. Now, what do we do differently than others and why? Well, we're systematically investing in our range of electrified vehicles for all customer needs. We also create additional flexible platforms for different types of drivetrains, for combustion engines, for plug-in hybrids, and for electric drivetrains. From 2020, the popular BMW X3 will be our first model that we will offer with all three drivetrains. Customers will then have the full choice. This broad approach allows us to be remain flexible and it's the most efficient solution at the same time, a single platform for all.

We will keep our foot on the throttle with new model releases. This year alone, we've launched more than 20 new or updated models and were electrifying all our brands and model series. By the end of this year, we will have 500,000 plug-in hybrid and electric vehicles on the road. E-mobility is fun, amazing, acceleration, and virtually silent thanks to the electric engine and the battery to get [inaudible] the heart of every electric vehicle. We produce the electric drive and high voltage systems ourselves, which makes sure that we have the essential expertise in our own hands. Regarding battery sales, we will continue to build on our existing expertise, and for this, this summer we will open the new BMW Group battery cell competence center in Munich.

Through ChargeNow, our customers already today have access to more than 100,000 charging points in 25 countries. ChargeNow also shows that corporations between companies are gaining in importance. We always seek out the most suitable partners in different fields, and in two important areas of future activity, we've embarked on a long-term corporation with Daimler AG. To provide more services in more cities, we've created five joint ventures. Already now, the NOW services have more than 60 million customers and together we will invest over 1 billion euros. The benefit for customers is that everything comes from a single source, and soon, from a single app. When it comes to autonomous-driving, both companies already have extensive knowhow, and together, we'll be developing next level technology for autonomous driving for autonomous driving for our models from 2024 on.

As a global company, more than ever, we have to satisfy different demands in different regions, and with our strategy NUMBER ONE > NEXT, we want to grow in all major regions of the world, and aim to expand our market share, and to achieve this, we have specific strategies for each region. Let me start with China. China has the largest single market and a strong driving force for e-mobility. Our approach is as follows. With our new plant in Shenyang, we'll increase our capacity to 650,000 vehicles per year, and with our new joint venture with Great Wall, we will build fully electric MINI vehicles. From 2020 onwards, we will produce the first fully electric BMW, the iX3, which will be exported from China to the rest of the world. In the US, we continue to invest in the expansion of our Spartanburg plant.

This year, our plant celebrates its 25th anniversary there. The new BMW X7 signals our firm commitment to the US, our second home. The US Department of Commerce has once again confirmed that BMW for the fifth consecutive year is the leading US automotive expert by value. With our new plant in Mexico, we will expand our sphere of activity in the Americas. This plant will open in June. Europe is our largest sales region and home to most of the BMW Group plants and home to most of our employees. The political situation remains tense due to the uncertainties of a Brexit, but we are well prepared for all scenarios. The same principle applies for all our regions. Our commitment is geared toward the long term, but free access to markets is essential for all of this because it ensures growth, prosperity, and employment everywhere.

Ladies and gentlemen, to become an agile tech company, we also need to change ourselves internally. Efficient structures have always been part of the BMW Group and let me give you two current examples; our cross-divisional program Performance > NEXT and our new sales and marketing structure. We've started implementing Performance > NEXT some time ago and our goal is become fast, profitable, and more efficient. We're concentrating specifically on three fields; customers and sales, vehicle, and organization and structures. Performance > NEXT will permanently change the whole company. We're targeting a total savings potential of more than 12 billion euros by the end of 2022. These measures will be sustainable and have an impact well into the next decade.

Let's now look at the second example. Our relationship with customers is vital to success to the success of our business. Starting April, we will have one sales division for our BMW, MINI, and Rolls Royce automotive brands. This will be known internally as the C Division and C stands for customer, which shows our clear focus on the customer. The division will be responsible for creating a consistent brand experience across all touch points. Our colleague Peter Schwarzenbauer will leave the company in October at the owner's request when he turns 60. That was his decision to leave on his 60th birthday, and at this juncture, I would like to thank Peter Schwarzenbauer for everything he's done for the BMW Group, for the topics he's driven ahead such as mobility services, the digitalization, and then to bring the brands MINI and Rolls Royce to new Heights, and I well respect his decision and I'm looking forward to the coming months together with you.

Now, a smaller part of management from my point of view sends the right signal for consistently streamlined structures across the whole company, and successful marketing supports our sales activities worldwide. Each of our premium brands embodies emotions. The same goes for sports and this is why sports have always played a key role or for a long time played a key role in our marketing, and here, too, we will be taking a new direction with strategic partnerships in the future. The third stage in the implementation of strategy NUMBER ONE > NEXT will take us all the way to 2025, and here, the BMW approach is, again, quite different from that of other companies.

BMW NEXT stands for individual mobility at a whole new level. It will enable the entire company and all our brands to face the challenges of the future. It's our innovation technology flagship and you can see the concept car here on stage. Other than its four wheels, it doesn't have much in common with a regular car. The iNext combines several future technologies. Amongst them, full connectivity, futuristic interior, an electric range of over 600 kilometers for every day drivability of both short and long distances, and it also signals the launch of Level 3 highly automated driving. At the same time, we'll be also testing Level 4 and 5 autonomous driving in urban areas with a fleet of iNext vehicles. This opens a whole new chapter for the BMW Group.

Today, more than 80% of accidents are caused by driver error. Autonomous driving can virtually eliminate these accidents. Safety is our top priority in developing these cars. That is why we go to such lengths to safeguard these new technologies, and by the time we launch our Level 3 system in 2021, we will have clocked up more than 214 million tests kilometers and around 95% of these in simulations. Technologies from the iNext will be incorporated throughout our entire model lineup. The BMW iNext will be released onto the market in 2021. Autonomous driving relies on generating huge quantities of data, which means the data and analytics will become a game changer.

Next week, we'll be opening a datacenter outside of Munich, and by mid-2025, we want to have 500 petabytes of storage capacity available, which is needed to produce data off-board. Ladies and gentlemen, being mobile will continue to be a part of our lives, also now a globally connected world. At the BMW Group, we will continue to drive sustainable, connected, and autonomous mobility forward. So much for the moment, and later, I'll show you the models that inspire customers in coming years. Thank you very much.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much, Harald Kruger, and now, Nicolas Peter, the floor is yours.

Nicolas Peter -- Chief Financial Officer

Thank you, Max. Good morning, ladies and gentlemen, and warm welcome on my own behalf. The year 2018 once again demonstrated the financial performance strengths of BMW. Despite massive headwinds, we reported the second-best result in our company's history. For the past 15 years, BMW group is the world's leading premium car manufacturer. Our EBIT margin of 7.2% is still at a high-level also compared to competition and is in line with our adjusted guidance for the full year. Nevertheless, let's clearly state the facts. Our performance in 2018 did not meet our usually high standards. The challenging environment left its mark on the entire automotive industry last year. I'm referring in particular to the trade dispute between the US and China, but also the challenge of regulations and the negative trend in exchange rates and commodity prices are really effecting the outcome of all of the manufacturers. Although we very smoothly mastered the transition to the new WLTP this cycle, the price war initiated by some of our competitors also impacted our profitability. At the same time, we are managing planned expenses for ongoing business and are setting our company's course to the future.

Ladies and gentlemen, BMW Group is undergoing the largest model offensive in its history. We are investing billions into new products in mobility, autonomous driving, and the next strategic steps of mobility services. There, we see enormous potential. What decides this is scalability. E-mobility is challenging economically, but it's also without any alternative. As a premium manufacturer, we've got the best prerequisites in order to master electrification successfully.

In 2018, despite these extremely volatile conditions, it was an overall successful year for the BMW Group. We were the only premium car company to see growth in the US. In China, we delivered more than 640,000 vehicles in a contracting market, and in Europe, despite sales distortions due to WLTP and a declining market, we were able to maintain sales at the same high level as in the previous year. We also deliberately cut production to avoid fueling price wars.

BMW brand deliveries reached a new all-time high. In Europe, as planned, we were able to grow our segment share. Worldwide, in particular our X models, in particular the new X3 at almost 38% were really high in demand. BMW 5 Series once again posted a significant increase in sales. Despite a slight decrease in sales, many reported a second best year in its history. In particular, MINI Countryman proved especially popular. Nearly one in seven Countryman sold as a plug-in hybrid. Rolls-Royce posted the best year in the marks history. Deliveries rose by more than a fifth with the new Phantom and Cullinan performing very well.

BMW Motorrad delivered more than 165,000 units to customers for an eighth consecutive record year and substantially enhanced its product line-up in 2018. Our electrified vehicles are also doing well with customers. As planned, we exceeded our sales target of 140,000 units in 2018 with an increase of almost 40% over the previous year. The main growth drivers are the plug-in hybrid versions of BMW 5 Series, X1, the 2 Series, and MINI Countryman. The i3 too remains very successful with sales up more than 10%. Since its market launch in 2013, demand for the i3 has increased strongly every year.

Ladies and gentlemen, let's take a look at our financial figures now. Due to the described burdens, the sales are reflected only partially here. Group revenues we're on par with the previous year at 97.48 million euros. Adjusted for currency transition effect, revenues increased by 1.2%. The EBIT margin remained above our target figure of 10%. As previously announced, group earnings before tax showed a moderate decrease in the previous year at 9.82 billion euro. As expected, various factors had impact here, mainly development of currency and commodity prices, as well as higher expenses for research and development. Further impacts on earnings came from the challenging pricing situation, especially in Europe, due to the WLTP transition, as well as additional burden from China's punitive tariffs on US imports.

As expected, our financial result due to valuation effects was decreasing expectedly. However, the earnings contributions of our Chinese joint venture, BBA, grows significantly to nearly 740 million euros. Net profit amounts to 7.2 billion euro. The prior year, the net profit due to valuation effects was up at around one billion euro in connection with the US tax reform, had been exceptionally high. The fourth quarter of 2018 developed as expected, with revenues and pre-tax earnings at the same level at the previous year. The EBIT margin of the automotive segment amounted to 6.3%, which was in line with our expectations.

Ladies and gentlemen, even in times of difficult conditions, our sights remain firmly fixed forward and to the future. In line with our strategy, we continue to invest at a high level. Our BMW iNext has blocks for the future. From 2021, we will enable our entire model lineup with highly automated drive systems and a fifth generation electric drivetrain which we developed in house. Capital expenditure primarily for property, plant, and equipment rose to 5.03 billion euro. These funds were mainly channeled to preparations for the launch of new models and plants in Spartanburg, Dingolfing, and Munich, as well as in the plant construction in Mexico. We strongly believe in the value of flexible plants. This is an advantage during periods of volatility and significantly varying conditions between regions.

Capex ratio amounts to 5.2%. For the current year, we expect the ratio to be slightly higher. As previously announced, our research and development expenditure in 2018 reached an all-time high of 6.89 billion euro. The R&D ratio according to German commercial code amounts to 7.1%. In 2019, it will be lower, but still above 6%. The ratio of capitalized development costs amounts to 43.3%. The large number of model launches and new architectural models was reflected in higher capitalized development costs. This year, we expect to see a substantial decrease in the capitalization ratio.

Ladies and gentlemen, despite challenging conditions, BMW Group posted solid results for the financial year 2018. On behalf of the entire board of management, I would like to thank all our employees for their commitment over the past year. We would also like to thank our shareholders and investors who have placed their trust in us over the past years. The board of management and the supervisory board will propose a dividend of 3.50 euros per share of common stock and 3.52 per share of preferred stock in 2018. This is the second highest dividend we've ever paid with a total payout of 2.3 billion euro. As a result, 32% of our net profit for the year will be paid out to shareholders. This is in line with our target corridor of between 30 and 40%. As usual, our dividend payout will completely be covered by our free cash flow.

Now let's turn to the individual segments, starting with the automotive segment. Dampened by currency translation effects, segment driven dues were on par with last year at 85.85 billion euro. Due to the external headwinds I mentioned and high up front investments, EBIT decreased to 6.18 billion euro. Under these conditions, EBIT margin of 7.2% reached a high level and exceeded our adjusted target of at least 7%. As usual, earnings contributions from our China joint venture is not included in this figure. Moreover, as a matter of principle, we do not adjust our reported figures for one-off effects.

Here, you can see the EBIT bridge for the automotive segment from the previous year. As expected, we experienced significant headwinds from currency and commodity prices. The net balance of other operating income and expenses had a positive impact in 2018. The 2017 figures included increased provisions for legal disputes and other litigation risks, which did not recur in 2018 and therefore resulted in a positive year-on-year effect. High up front investments increasing depreciations dampened earnings as expected. Higher tariffs, the challenging pricing situation, especially due to the WLTP transition in Europe, as well as warranty and goodwill campaigns, also had a negative impact.

Ladies and gentlemen, we responded early to the challenges in our environment and launched a company program to boost performance all the way back in 2017. Through Performance > NEXT, we are systematically addressing structural issues across the BMW Group, optimizing processes, and improving efficiency. We've already made several important decisions. We are significantly reducing the complexity of our portfolio at all levels. We will only develop what customers demand. We are also eliminating terabits with low demand, as well as reducing our drivetrain portfolio and country variants by up to 50%. This will allow us to focus even more on customers' wishes and requests, and at the same time, offset rising manufacturing costs. We have shortened the development process by up to a third. This will enable us to take advantage of opportunities in the market faster and allow us to be more efficient. We are continuously optimizing structures and processes at our headquarters, plants, and at the local subsidiaries. That's how we are pooling our resources across all functional areas. With Performance > NEXT, we are continuously changing our structures and work methods sustainably and we will be become faster and more agile.

Now let's talk about the capital flow, cash flow in our segment. Despite higher capital expenditures and lower net profit, free cash flow in the automotive segment is still totaling 2.71 billion euro. We are aiming for a similar amount for 2019. Our financial independence gives us the freedom to shape our own future independently. At the end of the year, by the 31st of December 2018, our liquidity totaled 16.3 billion euro. This means that BMW Group is on a very solid footing financially. This ensures that we are able to take action even though parameters are constantly changing and conditions are getting difficult.

Now let's move to the financial services segment, which, despite rising interest rates in a number of key markets and fierce competition, continued to grow its business in 2018. The number of new contracts with retail customers increased slightly by 4.4% to 1.91 million. Both our leasing business and credit financing reported slight growth. The penetration rate of 50% is 3.2 percentage points higher than the previous year, mainly driven by new credit financing business in China. Pretax earnings reflect positive business development and reached 2.16 billion euro. Despite a substantial increase in its equity base, the financial services segment achieved a return on equity of 14.8% and exceeded our minimum requirement of at least 14%. Even with growing volatility worldwide, the risk situations in the segment remained stable over the past financial year. Credit loss ratio in 2018 fell and is now at 0.25%. Market price risks for our leasing portfolio also remained stable overall.

Prices in the North American used car markets even trended slightly upwards. In Europe, however, we experienced, as expected, slight headwinds. From today's perspective, we remain well prepared for any business risks we might encounter. Ladies and Gentlemen, now let's move to the Motorrad segment, motorcycles. With over 165,000 units sold and our eighth sales record in a row, we are on course to reach our target of 200,000 units in 2020. Pretax segment earnings totals 169 million euro, and mainly, this is due to changeovers of models and mixed effects. The EBIT margin was 8.1%, which again is within our target range of 8-10%. In 2018, our customers looked forward to six new models with the new medium-sized models, the new addition of the R1250GS and the highly anticipated new S1000RR, and other models. We are expecting further growth in 2019.

Now, finally, let's look at intersegment eliminations. Intersegment eliminations contributed positively with 553 million euro, compared to -534 million euros in the prior year. As noted in previous quarters, the main reasons for this development are lower elimination of intersegment profits for new leasing contracts due to the lower EBIT in the automotive segment and positive reversal effects resulting from strong growth in the leasing portfolio in the previous years.

Ladies and gentlemen, BMW Group is known for its ability to also handle challenging terrain. We like challenges. Despite massive headwinds, we delivered healthy profitability in 2018. This shows just how much operational capacity this company has, so what are our plans for the current year? Even in this challenging environment, we are setting our standard high. In 2019, we aim to maintain BMW's position in the premium segment as a leading manufacturer and we will be targeting further growth in all major sales regions. We expect to see a positive impetus from our young product portfolio. However, since a lot of the models are still in the launch and ramp up phases, earnings will not benefit from the full effects in 2019. Due to the model changeovers, we expect the first half-year to be weaker overall. We will continue to make substantial investments in new technologies and future topics also in 2019.

The European Union's extremely ambitious CO2 legislation also requires higher additional expenses and will lead to higher manufacturing costs, which will impact earnings. At the same time, we again expect to face significant currency and commodity headwinds in the mid-to-high three-digit euro range. Further, development in tariffs is another major uncertainty. Our guidance assumes that there will be no increase in tariffs between the US and the European Union, but preparation is necessary, for UK's withdrawal from the EU will be an additional burden in 2019. Nevertheless, we continue to expect that there will be an orderly Brexit. The competitive environment may also get tougher over the course of the second stage in the WLTP transition in 2019.

The automotive segment expects a slightly higher year-on-year on deliveries. A range of 8-10% for our EBIT margin is our clear target in a stable business environment. We want to reach this, as well. There are, however, many parameters over which we have only limited influence. Due to the negative impact of the factors mentioned above, we expect an EBIT margin between 6-8% in 2019. The high level of volatility makes it difficult to provide a clear forecast. However, we will continue to use all internal levers in working back toward our strategic profitability targets.

In the motorcycle segment, strengthened by our renewed model lineup, we are planning for a solid increase in deliveries with an EBIT margin between our target range of 8-10%. In the financial services segment, we expect return on equity to be on par with the last year and thereby above our target figure of 14%. Now let's take a look at the group figures. In addition to the headwinds I referred to, the absence of a number of positive valuation effects from 2018 will lead to a significant decrease in the financial results in 2019. As a result, group earnings before taxes are expected to be also significantly lower than in the prior-year. We will continue to hire specialists in key areas for future technologies. However, in 2019, we will not increase the overall size of the workforce. The total number of employees will therefore remain at around the same level as in 2018.

Ladies and gentlemen, risks for our guidance may be subject to additional risks. In particular, this regards the risk of a no-deal Brexit and ongoing developments in international trade policy. Partly as a result of these factors, we are already seeing a slowdown in the global economy. If conditions deteriorate further, effects from our guidance cannot be ruled out completely.

Ladies and gentlemen, BMW Group remains focused on the long-term. We have already made a number of decisions as part of our program, Performance > NEXT. We will continue systematically implementing the measures needed for growth, further increased performance, and efficiency. This will give us the freedom we need to build a future and secure our future competitiveness. Thanks to our operational and financial strength, we are capable of steering this company successfully through the industry's transformation process. We are continuing to develop and refine our business model. Creating sustainable value remains our goal, not only today, but also in the future.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you, Nicolas. Before passing on to Mr. Kruger, I would like to welcome a special guest. He's sitting at the far right at the [inaudible]. He's our overall chairman of the works council and deputy chairman of the supervisory board, Mr. Schoch. Welcome, Mr. Schoch. Now, let's come to Part 2 by Mr. Kruger.

Harald Kruger -- Chairman of the Board of Management

Well, ladies and gentlemen, the BMW Group has been the number one in premium segment sales for the past 15 years and despite the uncertainties we're facing around the globe, we aim to continue our successful development. The basis for this is the attractiveness of our brands, products, and services. Our goal is to outperform the premium segment, and to achieve this, we will continue our model offense of driving full speed ahead. 2019 will be our year of the plug-in hybrid. BMW will release the 3 Series, the X5, and the 7 Series all as PHEVs. The X3 will also be available for the first time as a plug-in hybrid. All these models come with a fourth generation of a battery and our electric drivetrain technology, which enables us an electric range of up to 80 kilometers. The 2 Series and 5 Series models will also get a battery update in the summer.

I myself drive a plug-in hybrid and it's perfect to get customers excited about electric driving. This technology offers a pragmatic approach that goes a long way toward improving air quality in cities quickly because studies have found that plug in hybrids with an electric range of at least 60 kilometers are driven just as far in electric mode as pure electric models, and we're taking this one step further with our pilot project, Electric City Drive. Together with the city of Rotterdam, we're currently encouraging plug-in hybrid drivers to use pure electric mode in the city and for this, we provide them with all the relevant data on their smartphones.

BMW and MINI will also continue to release fully electric models with full speed. The emotional MINI electric will be launched this year and media representatives have already had a chance to test it out. Feedback has been highly positive I can tell you. This will then be followed in 2020 by the iX3 and 2121 will be the year of the BMW i4 and the BMW iNEXT. All in all, by the end of 2020, we have brought more than 10 new and updated models with electrified drivetrains to the market.

For me, this is a clear statement. With our strategy, NUMBER ONE > NEXT, we will not only boost sales of electrified vehicles. Especially in the upper segments, we also aim to increase sales and revenue significantly. The new X5 is now fully available for the whole year for the first time. The new 7 Series will be released onto the market later this month and the X7 will follow midyear. The 8 Series coupe will be joined by the convertible and the Gran Coupe, as well as the corresponding M Models. In the midsize segment, the top-selling model, the new BMW 3 Series has been in showrooms since early March. The first customers have been highly excited by this. Particularly, they have been excited by the extensive connectivity features. We also have attractive new models in the compact class. The new BMW 1 Series will be available for delivery by the end of the year, and I would also like to announce a completely new model today, the BMW 2 Series Gran Coupe. It will celebrate its world premiere in November in Los Angeles and it's scheduled for release in early 2020. This model will be geared especially toward young and urban target groups with a fresh and stunning design. You can see, we remain consistently on the offensive.

Ladies and gentlemen, the BMW Group is firmly setting its course for the future. Customers remain the clear focus of all that we do with all the wishes and mobility needs. Innovative solutions are our lever to ensure that every customer experiences mobility in a wholly individual way. Ladies and gentlemen, there has been a lot of talk recently about the purpose of companies, but at the end of the day, it all comes down to sustainably earning money with a particular business model. Only then can you secure the continued existence of a company. Only then can you create jobs and innovations and only then can a company make an effective contribution to society, and none of that has changed or will change in the digital age.

The BMW Group remains among the most profitable automotive companies in the world and will continue to be a reliable and profitable investment for our shareholders moving forward. With this, we have a clear objective for the future, to remain the leader in everything we do, and we remain on our own course for this.

Thank you very much. Now I'm looking forward to your questions.

Questions and Answers:

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you, Mr. Kruger. The colleagues will now come to your questions and our answers. I would like you to raise your hands if you want to ask a question this time. We will start with [inaudible] Thomas Hagler and following this, we will have [inaudible] Jean-Sebastien Schmitt. Mr. Hagler, please, your question.

Thomas Hagler -- Analyst

Good morning, thank you very much. You are talking about the year of the hybrid vehicles. Now there's a large manufacturer from Lower Saxony that has just presented a radical e-car plan which could be seen as an attack on BMW and also onto your new partner, Daimler, so what is your answer to that, more pure electric cars or do you want to go into discussion with Volkswagen, or do you hope for politician support? That's one question, and then behind the discussion, there are also the EU CO2 reduction requirements. You are familiar with the targets. Do you think BMW will be able to reach these objectives, and doesn't it make sense to get cars a little lower, a little smaller, a little leaner in this process? Audi seems to hope that this could be a solution, so will BMW also follow suit in this? Then a third question, Daimler is also aiming for a corporation regarding platforms, especially for smaller cars from BMW for its reservations from your fits from the innovation center, and because it could destroy the character of the cars, you were also talking about BMW's own course, but is it avoidable that you join such a platform corporation in view of the cost pressure?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, thank you very much, Mr. Hagler. I think this is enough room for a longer presentation, but first, I would like to hand over to Mr. Frohlich, the head of development.

Klaus Frohlich -- Development

Thank you very much for the large number of questions. I hope I can answer them all. Let's see. Let me start first with the topic of the drivetrain of the future. Well, we continue to firmly believe that our strategy from 2021 onwards to conceptually enable all three types of drives, the combustion engines, plug-in hybrids with significant enhanced functionality, and also pure battery electric vehicles, that this will be the right strategy. Why's that? Well, in addition to the German market, we have the global market to deal with. They're completely different developments.

In China, there's a clear focus on battery-driven vehicles, but also significant PHEV volume in the US, especially from the customer side. There's not that much momentum toward e-mobility apart from the states that have specific subsidies, and in Europe we can see from the customer's point of view the entrance into pure electric mobility, to [inaudible] against the backdrop of infrastructure questions, is still restricted. That's why we believe our approach is the right one, but nevertheless, we will offer a broad portfolio, also purely battery electric vehicles from our side. We don't see any attacks in this. We're highly flexible when it comes to the different geo-regions.

Then, CO2 targets, well, this is a bet on the penetration of e-mobility. Those ambitious goals for 2030 can only be reached if, at this point, from the side of manufacturers, from the side of the infrastructure, but also from the side of customer behavior, a large supply and the large penetration of the fleet by e-vehicles will have been made possible at this point. We're well prepared for this.

We can also deliver these high volumes, but we have to stimulate custom demand for this and the current change in corporate car taxation is the right step, and then, if we look at corporation, well, indeed, the tech topics and the [inaudible] topics, corporations make a lot of sense, not just to save money, but also to drive ahead the standardization of new technologies like, for example, autonomous driving in the conventional fields, like the architecture, of course, the platforms and all of that. We see a very intensive competition between OEMs and not that much need for standardization. I mean, we're always open for a corporation in specific fields, but our focus and strategy is clearly on the new fields of digitalization when it comes to corporations.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, next question by Sebastien Schmitt, and following that, we will have Oliver [inaudible]. Sebastien Schmitt?

Sebastien Schmitt -- Analyst

Good morning. I also have three questions. First of all, the delivery targets for electrified vehicles this year. Last year, you had a 40% increase. If I read correctly the press release, the goal is a 10% or below 10%, so with all the plug-in hybrids you've presented, don't you want to put a higher figure into this or do you assume there will be such a low demand? Then the next topic, talking about Performance > NEXT, you talked about customers, sales, structures, vehicles. If you could tell us how the $12 billion up to $22 billion are separated across these three areas, and then the significantly reduced group results that you assume for 2020 that there will be a further shortening of the reduction of the dividend that we can expect as a shareholder.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, we'll start with Mr. Kruger and Mr. Peter in answering this.

Harald Kruger -- Chairman of the Board of Management

Well, it was about the sales figures of electrified vehicles. We have two or three goals. One was that I showed 500,000 units on the road by the end of 2019. That's needs some growth in 2019, but you also have to take into account that part of the plug-in hybrids will only be available in the second half of the year, so the full-year effect won't be there, the 3 Series and the X5 with the high volume shares. One example, in Belgium in the past, every second X5 sold was a plug-in hybrid, so the volume effect of the X5 and the 3 Series sedan, which will be coming onto the market new, will only be there in the third and the fourth quarter. Of course, we want to consistently grow also with the i3, by the way. We want to set a new record year, which would be the sixth record year in a row. Usually, a product cycle is high and then flattens, but the i3 goes up year-on-year.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Nicolas?

Nicolas Peter -- Chief Financial Officer

Well, Performance > NEXT, first of all, Performance > NEXT, in 2017 we implemented this. There were more than 10 initiatives pulling all kinds of levers in our profit and loss statements. If you are starting a sales area in significant markets now, we have real time data available online of dealerships, of deliveries, of customer wishes so that we can precisely control everything at any point. That's one aspect, but not a significant aspect when he comes to material costs, both in direct and indirect purchasing. Here, we've started initiatives and then have started to implement them, one central initiative in addition to reducing the development time is the reduction of complexities, complexities within our product portfolio, complexities, and this reduction will have a positive effect on our whole value chain. Now, the question regarding 2020 will then be answered in one year's time.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, thank you very much for this. The next question now from Oliver [inaudible] and then Edward Taylor.

Oliver -- Analyst

Yeah, good morning. I've got three short questions. First is, in your outlook to 2019, you said that possible tariffs between the US and the EU are not to be expected. If such tariffs are enacted, what can you do against this? Do you have any plans to counter this threat already? Secondly, we heard about a battery consortium of Europe. Would you also take part in such a project? The third question is -- sorry if you answered it halfway already -- you said in 2019, your staff will remain at the prior year's level. Does that mean that there might be a downsizing in 2020?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, let's start with Mr. Kruger speaking about tariffs. Second is battery cell consortium will be answered by Mr. Frohlich, and then the question about performance next, Mr. Peter.

Harald Kruger -- Chairman of the Board of Management

This regards tariffs. Tariffs, I told you in my speech that we are clearly favoring free world trade. If you take a look at the -- we are the largest exporter from the United States by a value, and in South Carolina, there's -- created 11,000 jobs. We have more than 70.000 jobs in the US alone. We can prove that free world trade can also create growth and prosperity in other countries. We are prepared and we are flexible. Let me explain this in two steps. We are now building the X3 at several sites in the US, in South Africa, and in China. That gives us the possibility also to create more volume for the US in a situation of tariffs than before when we were still in competition. With enhanced production allocation for the US market, we can react to such effects, so this is the second answer, but I'm really in favor of free world trade.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Second part, battery cell consortium, Klaus?

Klaus Frohlich -- Development

Let's start perhaps with electro-mobility. For our company, this is of highest strategic priority. That is why already today we've got the highest value creation in this area, the battery system, apart from the storage and from an economic point of who is the most relevant and the biggest issue. That is also how we are involved in this subject, starting from securing the commodities and raw materials by our procurement department via further development of the chemicals and products and cells, up to the industrialization competence for battery cells, modules and batteries, which we have already today, and we also have launched joint projects. When batteries will be returned to the company, we are already thinking of recycling in order to ensure the recycling.

We are currently supporting all European initiatives, which are not only focusing on cell production, but on all these competencies, ensuring the raw materials, battery development, because it's the product which needs to be competitive. You can only produce it if you make sure, before that, you do not just develop anything, but something which is really competitive at worldwide scale. That goes further via production knowhow up to those subjects and we are supporting two main roles. Priority role is we are competent in all those parts of the value creation chain and we are providing this technology at all levels. Second point, we are a very reliable and very big customer for procurement of battery cells. That means that our strategic orientation has not changed at all. Our capability to act is already very big and will become even larger.

Mr. Kruger mentioned the battery cell center and I've just discussed what Oliver Zipse said from the protection side. The industrialization questions, we do have a level of protection already today of such battery cells. This will be continuously developed and [inaudible] distance, but several cell producers, we do have cell producers in North Korea and China. I'd be also interested in getting some Europeans onboard, and together with them, we will continue each time, the next cell generation. Really, today, we are able to develop a cell and we also understand how to produce it, and the three criteria, cost, function, and quality can be ensured already by us.

Harald Kruger -- Chairman of the Board of Management

Let me add something. I would like to sum up what Mr. Frohlich has said. We feel that we are leading the competition already with regards to management of process chains and production.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

There are not so many in the world. Next performance. Nicolas Peter.

Nicolas Peter -- Chief Financial Officer

Let me give you some more details regarding performance next. I mentioned earlier that we've got the development process, which we optimized further, and therefore, for example, due to an improved virtual hedging, modern 2500 hardware prototypes can be eliminated. This is a lot of money and when you just think of the indirect procurement, which I mentioned earlier on, just to give you a feeling for the magnitude, every year, we buy it for slightly above 20 billion in non-production related procurement. If you just imagine that we could cut perhaps a single digit percentage, you may an idea of the potential.

Let me give you another example. At the performance side, in our sales, we already have more than 20 markets with a systematic program being implemented where the customer, after having ordered a car, gets an offer maybe to take one or the other option on top, similarly as you might have seen this from other online dealers, for this vehicle and this configuration, so where we offer the customers that your car would go done well with this or the other configuration or option.

Regarding the development, we are planning for a flat development. That means that, on the one hand, we are going to -- because we feel this is the correct way, we will certainly develop our future subject. Klaus Frohlich has just mentioned the example, or one example in one factory in Mexico, which will be launched live this year. We will build this, but on the other hand, we are also getting close to the years where a lot of people will retire because of their age, and of course we are going to take the necessary measures and countermeasures as appropriate.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, the next one is Edward Taylor and then I've got our colleague from Denmark [inaudible]. Edward, please.

Edward Taylor -- Analyst

Okay, good morning, gentlemen. I've got three questions. You said you have prepared for any Brexit scenario and my question is, do you also plan certain exposures regarding leasing downturn or residual value declines? In particular, I don't what the situation is regarding a new banking license, whether you might need a new banking license for your UK finance activities, and would that mean the revaluation of the entire portfolio? Is that already included in your Brexit Scenario? The other question is, you said you can rule out operational dismissals in the present program. The next question goes to Mr. Kruger. The extension of your contract is expected. The question is just are you going to continue or do you still have fun in the job?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Let's start me with the third question. I think this is no question at all, and if you want to ask such a question, you have to ask the supervisory board, full stop. Now, let's continue about operational dismissals.

Nicolas Peter -- Chief Financial Officer

Okay, we did not plan any dismissals due to operational circumstances. It is a simple answer to your question, and as it regards to the second subject about the Brexit scenarios and whether we are also prepared for the leasing portfolio, let me take in advance, indeed, in part from the United States and Germany, UK is the third large building block in our leasing portfolio. Market development in the UK may be different than many people might imagine. Since Brexit, if you just look at the sales numbers, they have not been negative at all. As regards to residual values, the market has still remained very stable, and also, in the current year, we had the very perfect launch, so we do not really assume that there will be a massive distortion in that segment and that's why the statement I made is still valid. We feel well on the residual value side in all of the three big leasing markets.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you, and now let's turn to our colleague from Denmark, and later on, Ms. [inaudible]. Mr. [inaudible].

Male Speaker

[Inaudible] Copenhagen. Three questions if I may, please. First, on Brexit, you have stated that you expect an orderly Brexit, but everything is up in the air. You also stated you're prepared for any outcome. Does that mean you're prepared for a 10% tariff in less than 10 days from now on your export on MINI and [inaudible] from UK going to EU 27? The second question, why the confidence that there's not going to be a tariffs on cars imported to the US from the EU? One could perhaps argue that if there's a trade deal between the US and China, then President Trump will need a new foe and that could be EU. Thirdly, I've seen quite a long story somewhere. I think it was in The Wall Street Journal about your corporation with Daimler. Lots of issues, lots of plans, but there was no figures whatsoever, no numbers on the expected turnover or revenue or profits. Is that an issue you could go into today?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, let's start with Brexit and yes, EU tariffs, and let's start with Mr. Kruger.

Harald Kruger -- Chairman of the Board of Management

Okay, we are prepared for different scenarios, and today, it's still in the air what outcome can be expected. This is a very difficult question, which Brexit scenario will really materialize, but as regards to your question, we also have more than one protection site for the MINI. We've got one site in the Netherlands where we are building MINIs. We have one site in UK, so we are also able to be flexible up to a certain level between production sites as regards to volume and models. This is the first answer and also we've prepared thorough scenarios also for a chaotic Brexit. We also planned for a production interruption in our [inaudible] site. We also will have a short break in [inaudible] for Rolls-Royce and we are further flexible. Of course, we took some measures where we ramped up our stocks in order to be prepared for such a situation, but I believe that, in total, we are well prepared for that subject.

As it regards to relations between the United States and EU and the tariffs, we are still confident at this point. This is the answer and it's a very simple answer, the world is very volatile. We will have to handle whatever will come, but as BMW Group, we are certainly in a better situation than many other companies. We've got our largest production site in the United States that enables us to produce for the US market, especially the SUVs, X3, X5, X4, X6, and in the future, also X7. That gives us, of course, an advantage for the high volume models in the US market. Of course, tariffs would hit the situation and that's why we are in favor of free trade, but BMW Group is in a clearly better position than many other companies and the partners on the other side also know this just as an add on from my side. As it regards to corporations, Mr. Frohlich will give to you the answer.

Klaus Frohlich -- Development

Regardless of what you read in the press about corporation, there is a situational effect which is clearly more limited in what is being speculated in the press. We've got limited procurement activities, which we are coordinating for non-differentiating volumes, which is absolutely in line with [inaudible] law and we've got some [inaudible] with five joint ventures [inaudible] PARK NOW and SHARE NOW that has been bundled. It's too early though to speak about revenues and profitability of those service areas. We are now in the process of consolidation and we are also prepared, and that has been mentioned already to make investments from both companies. Here we are talking about scaling effects. We are not talking about our core business. We are just talking about supporting our core business, and the third point is, corporation for autonomous driving and this is actually nothing new for us at BMW.

Already, in 2015, we launched a strategy. We called it NEXT. We are driving for a scalable system from Level 2-plus up to Level 4 for autonomous driving and we're going to implement this as a first generation in 2021 with the known partners, Fiat, Chrysler, [inaudible] so there are many of them. This is now going into a second generation, so we are going to continue to work on Level 2-4 as the same with the mobility penetration of this is very different in different regions. In the second generation, in Level 4 and 5, we are also going to continue investments, investing, and from 2024, we will launch standardization, cutting costs, and expanding functions and we are very happy that in his approach we have found a very strong partner, with Daimler, who will help us in scaling, and will be a certain partner for BMW, another partner for BMW Group.

I mentioned already that we are implementing our strategy, and in tech areas, we are looking for suitable partners from the automotive industry, but also from the tech industry. That means, from the strategic partnership or focusing on just one partner is really nothing you can seriously assume.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you, Klaus. [Inaudible].

Female Speaker

I have some follow-ups on the figures and I would ask you for some clarifications there. How high was the burden from punitive tariffs in 2018 and how high were the savings do to the lower US taxes in 2018, and how high are the costs from Brexit preparations, independent of the ED final outcome? Another follow up that we can ask, Mr. Kruger, I think we can ask it. Do you want to continue? That's not for the supervisory board to answer, I would say.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

I think everything's been said about this point, I'm sorry. I mean, you can after your follow up, but this is not an issue today, period. Nicolas.

Nicolas Peter -- Chief Financial Officer

Okay, two figures that should answer your questions, first of all, the effects of punitive tariffs between the US and China around 270 million euros of [inaudible] for 2018 and the second figure that's -- it's difficult to predict how this will develop overall because the Brexit issue is still up in the air, but we've planned for a lower to medium three digit medium amount that we've provided for the ongoing year to cope with possible challenges due to Brexit.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much, and then Mr. [inaudible] and following that, we will have one question from China next, my colleague [inaudible], but we start with Martin [inaudible].

Martin -- Analyst

Well, good morning. I have a question about the development or the [inaudible] developments. You said you want to keep it stable, you want to hire new people, others will go to retirement, and we're now facing the baby boomer generation to get into retirement. How much leeway do you have without going into forced redundancies which [inaudible] the future challenges? Another question, a large competitor here in Bavaria has a similar approach avoiding those forced redundancies, but nevertheless, significant restrictions in production with an effect on all the regions. I mean, you don't just have employees here in Munich, but across Bavaria, you have a region that depends on you completely. Are there any plans to shift business there?

What will the effect be of the opening of the new plant in Mexico and in this context, the 50% of variances and potential study [inaudible] in drive trains where there are certain potentials not to offer certain varieties, will that have significant consequences because you're also building up plants in other regions or will this have an effect on the plans in lower Bavaria, for example?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Ms. Andree. That's a question to you.

Milagros Caina Carreiro-Andree -- Human Resources

Well, thank you very much for the question. You asked for the leeway that we have the potential to maintain, on the one hand side, the number of employees on the previous year's level in view of the additional staffing in the future fields, and the new plant in Mexico. I would say it's sufficient leeway, but that could be my answer, but I could also refer you to the fluctuation areas that you can find the volatilities due to age and retirement, how high they were in the past year, and all if this leads to room to maneuver that we have. You can find this in our reports. Then there's another topic that you've asked for. Well, due to our high flexibility, be it through working time models, through other forms, and we currently don't see any significant effects that might lead to any kind of forced redundancies within the timeframe, within the foreseeable future.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. I would like to hand this over to Mr. Zipse regarding production.

Oliver Zipse -- Production

Well, Mr. [inaudible] had a specific question regarding the Bavarian production network. We can go through the individual plans, what's going on there. If we start with our Dingolfing plant with the [inaudible] for e-mobility. We are hiring staff currently that is going ahead at full throttle. In our plan 2.2, we are currently taking the preconditions for producing the fifth generation of e-engines and high voltage storage systems which will then be made available to the production network all over the world. At the same time, new products will be launched. The new 7 Series has just started last week. There and over the course of this year, we will also add the second and third variant of the 8 Series which will be brought into series production there.

Our Munich plant has just seen the launch of the 3 Series and we're getting prepared for the integration of the i4, so that also shows that we have a stable situation, staff-wise here, even if on the efficiency side we've taken major strives ahead, but in these two plants, for example, this is well in balance if we look at the one inside the efficiency gains we have in the ramp up of production. Then [inaudible] together with our [inaudible] plant is preparing the launch for the new 1 Series. Also, in the [inaudible] due to the transition, we currently have a slight reduction, but as soon as the new 1 Series will be here, we assume that we'll be on the previously year's level and all the rest is done through normal fluctuations, and on the employee level, this will not have any substantial effects.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. When it comes to variance, our CFO, Nicolas Peter.

Nicolas Peter -- Chief Financial Officer

Well, to make it a little more tangible how we can come up with these figures, if you just compare how many drive train variance -- how many variants, we are highly successful in the US and in China, and compare that to what we have on our freight in Europe. Then you can see the first major potential we have, the second major potential is that on the one hand side we will continue to offer diesel engines, and continue to develop these drive trains, but we're never the less convinced that you don't need five diesel variance in individual models, especially in the European markets that less than five diesel variance could be significant, could be sufficient and the positive side effect of what we created in the reduction of drive train variance is then also the cost for litigation work, all of the work will be reduced significantly.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. Now I would ask our colleague from China.

Male Speaker

I'm a journalist from China. Three small questions, I would like to ask. The first one, we talked about the corporation plans between BMW and Daimler and BMW has opportunities in China for ride-hailing, a corporation, and Daimler also has a certain approaches, so those services, the ride-hailing services that exist are to be developed further. Also what other plans regarding that and are there plans for any global corporations in this regard?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

That was the first question or -- OK that was a question on ride hailing in china regarding BMW and Daimler. This is something I would like to hand over to Mr. Schwarzenbauer.

Peter Schwarzenbauer -- Customer Engagement and Digital Business Innovation

Well, as was mentioned before, we've just closed the joint venture, just recently closed the joint venture with Daimler. The agreement wad taken the first of February. We're now in the set up process. The teams are being formed and then we will see how we will act in the different global regions. Our first focus is on Europe, but as you've rightly said, in China we've started activities, so as a company we are the first external or the first non-Chinese company and it's getting a taxi license that you do. We're testing our mobility services there with fully electric cabs and this will continue in China. It remains to be seen over the next few months. We can't answer this exactly.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. Mr. [inaudible].

Male Speaker

First of all, I would like to ask Mr. Peter regarding the margin, you did not fulfill the 8% as expected, so what are you expecting after 2020 in Stuttgart? Do they already think that, at least in 2021, they might exceed or get the 8% again? Second question, China, as you sold 640,000 vehicles there, what's your plan for this year, maybe for 2120 or 2021? Are you going to get the million? The next question regards employees. You said that due to natural fluctuations, you can really manage this process. That is in our competitors. They are talking about downsizing many thousands of jobs. Can you give us an idea of the room of maneuvers you have and did I catch you right at currently, this is not an issue?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, that's a nice distribution. Let's start with Nicolas Peter, then Pieter Nota, and then Mrs. Andree again. Nicolas.

Nicolas Peter -- Chief Financial Officer

First of all, in order to be very clear on that, 8 to 10% will remain our strategic claim as regards profitability in the field of automotive, but presently, just to give you some examples, we have to deal with tariffs, currency exchange, commodity prices, and distributions in certain markets. In one very important market, we have seen a negative development also due to trade disputes and uncertainties and in such an environment, 6 to 8% are quite an ambitious goal and I think I could imagine that as in 2018, by the way we could also end up at the top of the industry as regard profitability. It would mean a reading in a crystal ball just, if you ask me when these global conditions will change, but if you just take a look at the amount of this impact of the subject I've just mentioned on our profit and loss account, you'll have, my dear, that 6 to 8% quite an ambitious level for 2019.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you. The second part of the question referred to planning of sales in China. Pieter Nota.

Pieter Nota -- Head of Division Sales and Brand

Yeah, thank you for the question. In China we're well positioned. For 2019 let's answer that question first. We are expecting solid growth, many driven by our model initiative. This year, for the first time, we sold full availability of X3 from local production in China, which is selling really well and we want to continue what we -- so that in the second half of what we reached already in the second half of 2018, we want to go for further. Solid growth, that's our expectation also for 2019. As regards to 2020, I would not like to make any statement at this moment and beyond I can say that in addition to our X3, the 7 Series vehicle is also doing very well in China and the major portion of our volume of the seven series will also -- is already going to China and then the second half of this year we will have the new model and that will make us very confident for the next future in China, as well.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you. The part three of this question regarded employment again. Competitors are dismissing staff. What's the situation in our company? Mrs. Andree.

Milagros Caina Carreiro-Andree -- Human Resources

Oh, then, let's give you also -- let's disclose some numbers. From people who are entering the free period of old age or prior of earlier age pension, we have already a certain portion and through 1,500 people are leaving the companies or this is not just an expected number, this is easy to calculate for pensions. This gives us room of maneuver of all together 4,000 jobs.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, Philip [inaudible] is the next and Ralph [inaudible] will continue.

Philip -- Analyst

Okay, good morning, I've got three very short questions. Also, one again about employees, 4,000 people leaving the company. I think this will be per year. For people who are going to retire or are going on early retirement, as I got you right, you don't see any substantial loss of staff in the year 2019, so this compensation, which is necessary in order to have this flat rate, will happen mainly in administration, did I get you correctly? The second point is, you said that you don't see an attack of your competition as regards openness to technology if I got the full [inaudible], but you Mr. Kruger could tell us again how you felt when your colleague [inaudible] mentioned this in both [inaudible] also playing with the idea of exiting VDA. What is your take on that association? Are you considering the same as your colleagues in [inaudible].

The third question is you could read a lot recently about sponsoring of -- by Munich. Today, you announced that you are very much interested in efficiency measures. You mentioned big amounts of money which you wanted to invest in [inaudible] sponsorship, so can you explain this context to me?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Let's start, staff first, Mrs. Andree.

Milagros Caina Carreiro-Andree -- Human Resources

I have got -- I mentioned worldwide numbers. Early retirement is, of course mainly a German issue, but in general, I'm talking about worldwide numbers. Of course, the world of employees will change and I will stick to my statement. We are not planning any dismissals for operational reasons today and from today's perspective, we are very confident that everything which is necessary in terms of changes and restructuring measures in our company can really be managed due with our current fluctuation and flexibility in house.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, attack is the next question for the Chairman of the Board, Mr. Kruger.

Harald Kruger -- Chairman of the Board of Management

Well, you mentioned actually VDA. The first clear statement is, we are strongly in favor if the VDA. Of course, there will be also some structural changes regarding the extension of VDA, etcetera, which is now being discussed. I clearly have a different opinion is technology openness and that is for two or three reasons. If you just look to the world infrastructure development worldwide, it varies widely. That means that how fast the existing infrastructure will be available for purely electric driving all over the globe as a single solution is something where we really differ and I personally differ. There are also countries who are betting on hydrogen and it maybe you won't sell any car if you don't have any hydrogen car in the fleet. That means that technology openness is really a delicate subject and the third point is that we will have further need for discussion of course this afternoon.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

The third subject, I already was waiting for this, when I can really play the ball crosswise for FC Bayern Munich and possible sponsoring. Pieter Nota.

Pieter Nota -- Head of Division Sales and Brand

Okay, I would like to embed this question in our brand strategy for the BMW brand. Last year, we invested a lot of power into a sharpening of the brand identity and we were quite successful in doing so. Of course, this includes also our big model offensive, our marketing communication strategy, and this also fits nicely in with the partnership with FC Bayern Munich. There were certain talks already going on, but there is -- I have no signature under the agreement, so that is why I can't mention any number here, but let me give you some umbers anyway regarding the performance side of the Bayern Munich. With almost 300,000 members, it's the worldwide largest sports club, but it's way more important, and more important or more than 650 million people worldwide are actually interested in Bayern Munich and that would of course have -- is offering a higher -- a very high social media effect. Out of the 650 million, only 135 million can be seen in China already. There are also the many people in the United States.

It certainly means that this could be a very reasonable partnership for the whole world, both BMW and Bayern Munich representing happiness and the cultural performance, but again, presently, there is no signed agreement yet in place.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Mr. Peter wants to add something.

Nicolas Peter -- Chief Financial Officer

All that is of course not making nervous the CFO because that's something which is making available within marketing, and there you can see the numbers, as well.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you. Ralph Miller and now [inaudible]. Let's start with Ralph [inaudible].

Ralph -- Analyst

My question has been answered already, thank you.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Then the next one is my colleague from [inaudible].

Male Speaker

Thank you for my question. I directly want to ask about Brexit again. In case of no-deal Brexit, you suggested that the production sector of MINI and BMW engines from UK to the continental Europe, so it would be an option. You said you are flexible, yes, but of course it's not so easy at all. You tell us. How serious are you, and if you'd really make these actions happen, would it cost more than 1 billion euros?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you. Oliver Zipse will give the answer.

Oliver Zipse -- Production

Well, you are addressing a very important question which touched upon business judgment. Now, let me split this into three parts. First of all, we are taking about short term things which may happen. It's all subjective. We all do not know what's going to happen. I think as a group in the production network, we have almost prepared perfectly -- we did everything one can do at all regarding the interruption of and production in April up to the adjustment of IT systems which then will be prepared for transiting the borders, also regarding the documentation of the origin of supply chains, we made a lot of efforts, all that preparation has been completed. On the technical side, we have a lower two-digit million amount which we have spent on that.

Now, we have to wait and see what's going to happen. In case of a hard Brexit, we certainly are expecting certain uncertainty in the supply chain system, but we don't think this is going to be sustainable. We expect the maximum of four to six weeks of certain uncertainty period and after that it will calm down. This is our present judgment. What may happen later regarding tariffs, the question's also, will this be a 0%, 5% or in line with WTO 10%. If you assume a low level of between 0 and 5%, the business model of MINI would not be dramatically affected because we should not forget that the UK market is a big market for the MINI model. 46,000 vehicles have been sold last year or have been produced in Oxford and remain on the island. For longterm orientation, that should come much more serious issues in order to think of basically new positioning.

Presently the four factories we have, which is Oxford, Goodwood, Swindon, that's the press factory, and [inaudible] for our engines are very stable for a simple reason, because we need those capacities and capacities can't be created overnight. Otherwise, as mentioned before, if we think of -- if we use all the opportunities of our flexible production network in order to respond to such a situation, nothing can happen. The most important thing is, Brexit, yes or no, people will still love this product. They will continue to buy this fantastic product.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you. The next is Mr. [inaudible] and [inaudible].

Male Speaker

Three questions from my side. First of all, could you tell me Mr. Kruger, how you see the opportunities for electric modular kit together with Daimler? What do you think about the conventional side you've already told us, but what about the electric engines? Could you assume a corporation there? Then, the second question, simple, figures your EBIT margin including China, including the Chinese business. Last year, you said you have to add one percent point to this, so whether they be 8.2 to 7.2, is this still true, and the 3rd question, what about your C02 fleet emissions for 2018, maybe also in comparison to 2017 and what your aim is for this year?

Harald Kruger -- Chairman of the Board of Management

Okay, regarding the Daimler questions, at this point to once again sort all this. Mr. Frohlich mentioned it before, There are three elements and no more than those three currently. First of all we have the mobility services which we've clustered, the five verticals, and the five joint ventures. Then Mr. Schwarzenbauer mentioned that we've just started with this, we're developing the business plans, we're optimistic, but still, right at the beginning, then we have the corporation regarding generation two of autonomous driving and then we have what we call the industry modular kit.

Those are different elements and those could be components, mechanical components, but also other parts. That is ongoing corporation, but there are two topics which are new in the corporation with Daimler, which need some development, and that is what we want to focus on. The industrial modular kit that topic has existed for quite some time. We're in a dialogue where we look -- we're in synergies for both sides, but those are the core topics of our corporation for the time being.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Nicolas.

Nicolas Peter -- Chief Financial Officer

Well, the statement from the past year still holds true, so we would be at around 8.1% EBIT margin if we had included the Chinese business at equity, but that underlines two points quite well from my point of view. First of all, against the complex environment we had a strong year in 2018 and secondly it shows the correctness of our decision to increase our share in the Chinese joint venture for -- in the future to 75%.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Then, the third question, C02 fleet emissions 2018, compared to the previous year, Klaus Frohlich.

Klaus Frohlich -- Development

Let me start by saying that we are still leading in competitive -- in the competitions since 1995. We've gone down 42%, now C02 emissions which means that on average we have diesel that we run, diesel cars out 4.9 liters indent and gasoline engines with 6.9 liters and then absolute terms we've stated 128 grams of C02. We didn't see an increase compared to some of our competitors. We've remained flat in spite of the fact that we had a serious reduction of the diesel volume that needed to be compensated for.

Now, it's been announced before that over the course, and tour certainly considering the C02 values for 2020, '21 and for this reason, we plan on a PHEV offensive or initiative which will offer us great opportunities in different markets and we're the only manufacturer who's able to do this the PHEV is an integral part of our architectures, and therefore, we can ramp up PHEV variance or include PHEV variance quickly into our production processes, and that's why we stick to our goals that we will keep the EU regulations for the overall fleet of 95 grams. Looking further into the future, 2030, as was mentioned, that will only be possible through a significant penetration of pure e-mobility BEVs and PHEVs with long ranges, and we're prepared for this. In the voluntary commitment of 2008, we were the only company who stuck to these figures and we're still on plan to fulfill all these regulations.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. Then [inaudible] and then we will come to another colleague from China. [Inaudible] please.

Male Speaker

Okay, now we've heard a lot about performance next and I would now like to focus on performance now. The MGNBH which creates cars with strong margins, we haven't heard anything about M. Now, we heard about certainly stronger emission regulations and also for 2030 when it gets much more dramatic. Is it even possible to have these high performance cars to cross these emission thresholds or will the MGNBH be history by that time?

Klaus Frohlich -- Development

First of all, you talked about now, yeah, the MGNBH over the past three years has had fantastic growth story not just in volume growth, but also something that the CFO is delighted about. We had a significant increase in the contribution to the result. M is an absolute factor in all the areas that we're involved in. Power plug-ins, highly efficient drive to in concepts, water injection for example was a pilot project that M -- M has all the technologies available, so that also in 40 years' time, it will still be the emotional top of the BMW brand experience. All the high engine speeds, we have that for quite some time, but we still have high performance which can be reflected in all kinds of technologies, and that's exactly what we are doing and that's why you can assume that the emotional levels we've reached with the current M cars will also be at least capped in the future. You know me, I'm interested in always topping this.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Clear statement here. Now I would ask our colleague from China [inaudible]. Yes, please.

Female Speaker

I have a question about the transformation of BMW. You mentioned that BMW is going to transform from a car manufacturer to a tech company and the primary mobility service provider. My question is, is production, smart production still a co-competency of BMW and how we can interpret the underlying meaning of this transformation for BMW? Thank you.

Klaus Frohlich -- Development

You've mentioned an important point, securing our core business and selling automotive or leasing automotive. Already in the past years has led to the fact that the F&E ratio in the past year that was already mentioned by Mr. Peter that we've invested in many digital technologies, artificial intelligence through highly agile software creation processes, autonomous driving connected vehicle toward 5G, and you can see that these competences can also be used in a broad way in the mobility sector and that we are corporation partner and that many are interested in. As you come from China, I would like to talk specifically about the Chinese situation. In China, our footprint on research and development has been massively expanded, first in the sense of in China, for China when it comes to products, but also through services.

You have to quickly fulfill the consumer requirements, but we also see that technologically, China also on the supplier market is turning more and more into a very important partner that we will have intensified corporation with Chinese partners in the future, and then we also expect that following the e-mobility where China with the [inaudible] mandate has a clear economic goal of leadership. We see the same topics also when it comes to smart cities and intelligent connected vehicles and autonomous driving.

That is why partnering beats our license for autonomous driving in Shanghai, in the city of Shanghai, or our membership on the appellate board, and many other activities. We have the Baidu, Alibaba, and Tencent are of the utmost importance to us. Also in this field, in China we want to be present and because this is where the market consolidates itself when it comes to autonomous driving so we want to be there. We have a research center in Shanghai and that is our development hub for our Chinese partners, for me.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, next up we have Marcus [inaudible].

Marcus -- Analyst

I would like to come back to the discussion we had in the recent days around VDA and the promotion of electric cars. Let me just say at the beginning, what are you expecting in the future from VDA? What is this supposed to do for you? Obviously, they our different ideas within the association, so perhaps you can tell us what your own ideas are for the future of that association and tonight you are going to have a meeting with your colleagues from Stuttgart and Wolfsburg where you will discuss promotion of electro mobility. I think everybody agrees that in Germany so far, that has not been channeled correctly, so perhaps you could also tell us about your ideas. The ideas of folks have been tabled already maybe you can give us your ideas on the subject. In that context, I would like to ask you, you said that diesel last year went down slightly. Perhaps, could you give us a range from where to where and where you are now in Europe?

One idea of Volkswagen is to step by step cut diesel subsidies in Europe and turn them to electric cars. Do you think that this is also a feasible way to divert diesel subsidies to electric cars?

Harald Kruger -- Chairman of the Board of Management

Okay, let's start with the diesel subject and we'll just look it up and then I'll give you the information. I mean, the production hit us actually on the CO2 side, but during last week's diesel volumes have stabilized again and the order intake is rather stable.

Again, but of course, diesel engine is a CO2 efficient engine which is also very good for the CO2 balance sheet and we are really supporting that idea and when you really want to get our opinion on VDA, number one, I have to repeat, is you should be open to technology because the background, the infrastructure may develop differently. That might come -- hydrogen might come in as an alternative. Focusing on just one technology from our point of view is not the right approach. Second subject is VDA is an association which has to find compromises for joint direction and so, tonight we certainly are going to have a very intensive discussion about that, but we certainly agree what others at BMW Group has done, so already in 2013 we actually have been those who were very much in favor of a bonus for buying. We have a fund of more than 300 million in Germany which has not been exhausted yet.

Promoting infrastructure, promoting electric vehicles, I'm basically in favor of that, but the segments are the cornerstones where we see the orientation, first of all and all the rest should be left to an intensive dialogue which we certainly will have tonight and just wait and see and you will hear from us.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, let me pass on to Pieter Nota also regarding diesel in Europe.

Pieter Nota -- Head of Division Sales and Brand

I can tell you that the portion of diesel in Europe in 2018 went down to less than 50% as Mr. Kruger has mentioned already. We do see in some very important markets, that there is now taking place a certain stipulation again.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, then let's turn to [inaudible] and then female colleague from China [inaudible].

Male Speaker

I would like to ask you about openness for technology. Fuel cells have not been mentioned at all today or just in marginal side note. Your competitor Daimler is now launching a small series of fuel centered cars and your corporation partner Toyota is very active in that field. What's your take on that? Are you going to do the others or are you waiting for them?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Well, that's a harsh question. Klaus Frohlich.

Klaus Frohlich -- Development

Even though there is a recognizable punchline in these questions, I want to stick to the facts and the situation is as follows. The situation of technology openness requires us to be very open, also for the subject of fuel cells because depending on the decision of regulators or on infrastructure it measures fuel cells in certain geographical regions may really become an option. We are well positioned for that. We are developing this together with Toyota, generation after generation of fuel cells and we certainly will be, with regards competence and product properties we are still in the lead. We also launched a small series based on the 2015 fuel cell generation.

It's the case in electro-mobility, but we really are developing the 5th generation. You always have to know, from what point of time a technology may be scaled and a fuel cell drive of the 2015 generation has 20 to 50 -- 15 to 20% more cost than the conventional drives, and we think that the 2020 generation and 2025 generation will bring a fuel cell to the cost structure which can be comparable to what an electric drive would cost or what a combustion engine will cost. If you calculate now you would calculate with a high portion of platinum and gold, so this needs to be tested of course, but you also will have to be patient and to put this technology to a cost level where it really can be used. This will be the case 2025. Fuel cells more over is competing against battery cell development.

Why a fuel cell car is nothing but a battery driven car where the battery has been cut off and replaced by a permanent charging device, which is called fuel cell, where you continuously charge a battery and then you have your hydrogen tank on top. The subject of battery cell development as regards energy density is developing in such a recent space and we can't even see this going down. With the same level of freedom from emissions, the costs for driving performance will also play a role.

What we can see is that all economies of the world are mainly investing in electro mobility infrastructure [inaudible] probability that there will be a full-fledged hydrogen infrastructure will be very low, but there are certain fuels of application, and that refers to the Southwest German company you mentioned much more than BMW, namely a detailed or partial driving into cities or long distance drive where, as compared with electro-mobility when you just look at the charging times, it's much quicker to charge hydrogen than loading a battery. From 2025, especially in the utility vehicle business, there will be a considerable amount of fields of application and we do foresee an enormous potential of growth in order to be working in this utility vehicle sector.

Harald Kruger -- Chairman of the Board of Management

Let me just add the openness to technology which is so important. There may be regulators where you can't offer any fuel cell car in your fleet. You will not be able to sell any car off tour production at all and we have this situation in the world already in that case of other technologies. We have to be very much aware of that. If you do not have this technology ready and marketable, you might even not be able to sell the rest of your fleet, and BMW Group had it for that reason. Let me clearly state again, this is also your point for openness to technology. You are actually taking a risk and it may be a relevant contribution will not allow you to sell any cars if you don't offer this technology. Thank you very much.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Our colleague [inaudible] China.

Female Speaker

Well, thank you very much. I also have three questions. It was mentioned before that up to 2020 you want to introduce improvement savings of up to 12 billion. Are there any additional measures then up to 2021? By the year 2021, the iNEXT will come onto the market. Is there any information you could give us about that? Then, the third question, digital center, your center will be one of the largest in Europe, so will you maybe also globally speaking searching -- will you be searching for partners with whom you can cooperate in this context?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, let me start by answering or heading to performance next and the 12 billion, the second part then about the iNEXT and the third part digital center will be the largest in Europe. Do we also need a partner for this? Let's start with Mr. Peter on performance next.

Nicolas Peter -- Chief Financial Officer

Let me just mention once again what we reached, first of all in 2018 with an EBIT margin slightly above our guided corridor of 7% and if you add to this the Chinese business, as we discussed before, we would be slightly above 8%. The second point. Now, what have we planned and what will performance next pay into? Well, we want to get an EBIT margin, again, of 6 to 8% in the automotive business due to the exogenous factors that I mentioned before and then 8 to 10% in our motorcycle business and on the previous year's level in financial services. The significant reduction in the net profit of the group was due to technical effects, especially cross-divisional eliminations and other effects. Our plan is that we will save these more than 12 billion with the ten initiatives, which we've implemented. There will be initiatives that have a direct effect already in 2019 and especially topics such as complexity reductions which only over the full time of the period will also have and show their full effect.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much. Then the question on the iNEXT and more details and then Mr. Frohlich will talk about the center for autonomous driving. Mr. Kruger.

Harald Kruger -- Chairman of the Board of Management

Well, the iNEXT is a technology carrier for us and I've mentioned that it's much more than just a vehicle with four wheels. It's about connectivity of the future. How can customers take their digital life to a next level and experience it at a higher level with BMW. It's about electric drive with more than 600 kilometers of range for short and long distance trips. It's also about the interior of the future, and my colleague will be talking about autonomous driving and if I drive autonomously, I can experience the interior in a completely different way and therefore it has to be shaped in a way that's convenient to the customer, that lets them experience joy so that the opportunities that are being created by autonomous driving can also be used on the interior. We will offer level three autonomous driving with this in 2021 and we'll have a pilot fleet of level four and level five cars.

That is to say we will experience this and when the level three series start for autonomous driving level three and then gain our experiences on level four and five and use this then as a technology barer that we can then use the technology in other models and series, as well, so the i4 is a fundamental project for all of these technologies I've just mentioned.

Klaus Frohlich -- Development

Let me come to your third question, the digital center in Europe. Well, it's a highly dynamic world there. I mean we're growing in these digital topics extremely fast. We don't just have the compass for autonomous driving which you open one and a half years ago at [inaudible] and in the meantime, more than 1,000 BMW associates and a place of other companies work there, and then when it comes to software development, not just for the classic product growth for corporate IT. We've had an increase of software skills in Portugal, for example, in a joint venture, and China even today is my second largest development center in Shenyang picking in Shanghai with the focus on digital topics in Shanghai. Even today, we have q team of more than 100 employees of software application and artificial intelligent experts in Shanghai exclusively for the topic of autonomous driving in China and they're also responsible for the fleets that we run their in this context.

In China we've had the quickest growth when it comes to digital topics. A digital centerin Europe probably won't be the main topic in my presentation in five years' time. Then China will be a very important digital site which doesn't just do development for China, but for the world as a whole.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much.

Harald Kruger -- Chairman of the Board of Management

I would like to accompany -- to add to this that we can experience today that the digital behavior of our Chinese customers is completely different from customers in other areas of the world, so what's being expected when it comes to digitalization in the vehicles. As purchase region or a non-purchase region is much more than in other regions of the world.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, we still have some five minutes left. I would now like to call up our Italian colleague, Isabella [inaudible].

Isabella -- Analyst

Thank you very much. My question is in English. My question would be, how important is the Italian market for you, but I would expand it in going more on the importance of continental Europe excluding Brexit, but also Germany? How strategic it is for you or do you see that Europe is just a bunch of rules that are piling up, maybe against the business of auto? Thank you.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Thank you very much, Isabella. Pieter.

Pieter Nota -- Head of Division Sales and Brand

Well, thank you very much. Europe is and you can see this in our figures in the presentation by Mr. Kruger and Dr. Peter this morning is a very important market for us including Italy, of course. We have a high market share in a large market and if we leave out our home market of Germany then we are still on the number one in the premium market in Europe. I can confirm that Europe is a highly important market. We continue to invest into our brand in Europe. Of course, also to the right drive technologies, hybrid technology for example is definitely part of that and Europe is and will remain a very important sales market for us and globally speaking we have a balanced -- we aim at a balanced sales distribution. China right now has the biggest growth, but the United States and Europe are still very important markets for us as well to get a balanced situation and we want to gain market shares in all global regions.

This is what we're doing in China, this is what we're doing in the US, but also in Europe in a very competitive market, we want to gain market share. This is a clear goal that we have.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, then I now have Armin [inaudible].

Armin -- Analyst

Well, I would like to ask a follow up about battery cell production, Mr. Frohlich has said you know how to develop and produce a battery cell, but it hasn't come clear for me whether you want to drive this ahead, whether you will apply for government funds for this and then a question regarding the e-drive train or the e-engine. In the past, whenever you developed a new combustion engine and brought in on the market, then you presented all the performance data, now you have the fifth generation of the e-motor the e-drivetrain, and I've never heard anything about performance data in this regard, so how should I understand this? Then, an add-on regarding the development, regarding the sponsoring of if it's by Munich, Audi clearly stated that they want to go through with their sponsoring agreement until 2025. Mr. Nota, could you imagine buying out Audi of this contract?

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, thank you. I think we'll start with Klaus Frohlich and then Pieter Nota.

Klaus Frohlich -- Development

Regarding battery sale manufacturing, this is -- what do we do with our expertise? Well, we use it, even today so that battery sales that get delivered to us will be refined into BMW sales. We are part of the development of battery sales. It's not a commodity market for us to clearly state this and we've also applied currently at the federal ministry of the economy for -- we've applied to get some funds for the massive buildup that we have in this technology, but there is one point, I think, that's extremely important when it comes to battery sale manufacturing and that is left aside recklessly, from my point of view, by many German players in this regard.

Whenever a manufacturer enters into a large scale battery sale production, the business model that you have with another manufacturer, for example, from China and Korea that you develop battery sales together with them and that you get access to them and for the first place that will end at this point, and no matter how many battery sales you will produce in Europe due to the regulatory requirements, in China, you will need someone in China to deliver competitive battery sales for us and to develop them together with us. That's a point you have to take into account, and the risk is, if you have a very relevant battery development in house or a huge joint venture, this would lead to the fact that you would get negative effects in some of the other markets, which might not just endanger the result, but also jobs in Germany. That hasn't been mentioned enough in the discussions.

Of course, we want to drive ahead Europe as a production site, but for the same reason, we want to seize all of our expertise and knowhow because as we've mentioned before, this isn't -- nowhere else presses as much as with BMW, but the basic condition for this is that we need to be a reliable partner for such investors to play this role and there's a very good reason for this, which from my point of view should also be mentioned in the discussions in Germany. Then, of course, e-data, the performance data on e-engines, of course, I've developed it myself and an engineer, and what's new there is the topic of the overall efficiency that -- in a way that, at some point rare earths and the dependency on neodymium and other rare earths can be reduced.

For 15 years, we've driven this ahead and the positive piece of news is that with the generation five, for the first time, we will have e-engines free of rare earths that still have the same degree of efficiency because the degree for -- if the efficiency of an e-motor is calculated, when you add it to the cost of the battery, the size of the battery, so e-engines have to a high -- have to offer high efficiency, and at the same time, the classical conditions like performance density with volume or how many kilogram you need per kilowatts, those will be driven ahead just as well and they're also available and I can offer this data to you as a follow up.

There's one thing that we have that's special. Our series developers and series producers have developed the e-engine for the formula E for when it comes to tolerance is to manufacturing concepts. We need to fulfill extreme requirements, also when it comes to performance density and efficiency, and our series developers have been able to play a little major role and they even were able to win a race with our drivetrain in this race series and we aim for the emotional leadership in the industry in this regard, as well.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, and then Pieter Nota once again on FC Bayern Munich.

Pieter Nota -- Head of Division Sales and Brand

Yeah, the relationship between FC Bayern Munich and our competitor is between those two parties. Buying someone out of the contract is not under discussion and one point in our position in Europe in 2018 we gain segment shares in Europe. In Germany as a home market, but also on the rest of Europe and that also remains our aim for 2019.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Okay, now, the two last questions [inaudible] from Slovakia. [Inaudible] maybe we can sum this up.

Male Speaker

Just again, two questions regarding battery cell production. You answered part of that already, Mr. Frohlich, but I still would like to know. The federal administer of the economy provided a billion euros for development of [inaudible] region. The competitors have already jumped on that [inaudible] you did not. Are you expecting some market disadvantages from that? The second question is, it's not only going to be used for cell production, but also for R&D, and if your competitors are on board and you are not, this might also mean a strategic disadvantage for you, and a very short question regarding the 2 Series, the new 2 Series, I would like to know where you are going to make this car.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Klaus.

Klaus Frohlich -- Development

Just very simply, just in order to avoid misunderstanding, this billion euros is not provided for the [inaudible] region, but for promotion of battery cell development and production as a whole, first point. The second point, I already made a note that we will take part in these awards. We also filed two applications on the subject where we applied for funding of development of battery cells, and this means that I can't see any disadvantage. On the contrary, the federal ministry of the economy and also the chancellor in Germany were really pleased to see that, especially with different German players BMW really came onboard and put in some momentum. The next question was about the 2 Series production. It will be in the German network, but all the rest is till confidential. You will need something for another punchline on a different day.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

The last question [inaudible].

Male Speaker

Thank you very much, just the two short questions. Once your company decides to build a new production plant in Hungary, is it possible to say which models you plan to produce there, and why was the Hungary a better choice than Slovakia? Thank you very much.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Oliver Zipse.

Oliver Zipse -- Production

Up to now, we have not announced which vehicle will be made there and there is still some time to go because it will take some years until the factory will really be working. I think regarding the reasons for choosing Hungary as a site, those reasons have been communicated sufficiently. Just to sum it up, we are extending our production network inside Europe because we are strongly convinced that Europe will continue to be a growth market, and in particular, in our global value chain, we want to balance it out between Europe, China, and the US and we want to be able to produce all he big series models. The choice of Hungary, and in fact it's East of Hungary, in many components and the flexibility of waking hours, wage costs, qualification of staff, quality of life for the staff, and qualification, they really were in the lead and that's why we decided for that site.

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Now, dear colleagues, thank you very much. That was the balance sheet press conference of BMW AG. Thank you for coming. Thank you for our question, and of course, it goes without saying that we invite you for a lunch now, and some of our board members will also join you for lunch. Thank you for having us. Thank you.

Duration: 131 minutes

Call Participants:

Maximilian Schoberl -- Senior Vice President, Corporate and Governmental Affairs

Harald Kruger -- Chairman of the Board of Management

Nicolas Peter -- Chief Financial Officer

Klaus Frohlich -- Development

Milagros Caina Carreiro-Andree -- Human Resources

Oliver Zipse -- Production

Peter Schwarzenbauer -- Customer Engagement and Digital Business Innovation

Pieter Nota -- Head of Division Sales and Brand

Thomas Hagler -- Analyst

Sebastien Schmitt -- Analyst

Oliver -- Analyst

Edward Taylor -- Analyst

Martin -- Analyst

Philip -- Analyst

Ralph -- Analyst

Marcus -- Analyst

Isabella -- Analyst

Armin -- Analyst

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