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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.
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 Chi
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